UBS AG - Capital/Financing Update 2016

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PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(2) Registration Statement No. 333-204908 Dated May 2, 2016 (To Prospectus dated April 29, 2016 and Product Supplement dated May 2, 2016)

UBS AG Airbag Yield Optimization Notes

Linked to the common stock or American depositary shares of a specific company or the shares of a specific exchange traded fund

Investment Description

UBS AG Airbag Yield Optimization Notes (the Notes) are unsubordinated, unsecured debt obligations issued by UBS AG (UBS or the issuer) linked to the common stock or American depositary shares of a specific company or the shares of an exchange traded fund (the underlying asset). The applicable terms of an offering of Notes will be specified in the relevant final terms supplement you receive from your financial advisor. The general terms are as follows:

¨ Unless otherwise specified in the relevant final terms supplement, the principal amount of each Note will equal $1,000.

¨ UBS will pay you coupons in periodic installments regardless of the performance of the underlying asset. The frequency of the coupon payments, the coupon rate and the coupon payment dates will be specified in the relevant final terms supplement for your Notes.

¨ At maturity, UBS will either pay you the principal amount per Note or, if the closing price of the underlying asset on the final valuation date (the final price) is less than the conversion price specified in the relevant final terms supplement, UBS will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) an amount equal to the principal amount per Note divided by the conversion price (the share factor), (subject to adjustments in the case of certain corporate events described in the accompanying Airbag Yield Optimization Notes product supplement under General Terms of the Notes Antidilution Adjustments). In this scenario, the cash payment you receive will be less than your principal amount and may be zero.

Investing in the Notes involves significant risks. You may lose some or all of your principal amount. In exchange for receiving a coupon on the Notes, you are accepting the risk of receiving a payment that is less than your full principal amount at maturity and the credit risk of UBS for all payments under the Notes. Generally, the higher the coupon rate on a Note, the greater the risk of loss on that Note. The contingent repayment of principal only applies if you hold the Notes until maturity. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness of UBS. If UBS were to default on its payment obligations, you may not receive any amounts owed to you under the Notes and you could lose your entire investment.

Features

q Income: Regardless of the performance of the underlying asset, UBS will pay you coupons in periodic installments as specified in the relevant final terms supplement for your Notes. In exchange for receiving the coupons on the Notes, you are accepting the risk of receiving a cash payment at maturity for each Note you own that is less than your principal amount and may be zero, and the credit risk of UBS for all payments under the Notes.

q Contingent Repayment of Principal Amount at Maturity: If the price of the underlying asset does not close below the conversion price on the final valuation date, UBS will pay you the principal amount per Note at maturity and you will not participate in any appreciation or decline in the value of the underlying asset. If the final price of the underlying asset is less than the conversion price on the final valuation date, UBS will pay you for each of your Notes an amount in cash equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as described in the Airbag Yield Optimization Notes product supplement), which will be less than your principal amount and may be zero. The contingent repayment of principal only applies if you hold the Notes until maturity. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness of UBS.

Notice to investors: the Notes are significantly riskier than conventional debt instruments. The issuer is not necessarily obligated to repay the full principal amount of the Notes at maturity, and the Notes can have the full downside market risk of the underlying asset. This market risk is in addition to the credit risk inherent in purchasing a debt obligation of UBS. You should not purchase the Notes if you do not understand or are not comfortable with the significant risks involved in investing in the Notes.

You should carefully consider the risks described under Key Risks beginning on page 3 and under Risk Factors beginning on page PS-14 of the Airbag Yield Optimization Notes product supplement before purchasing any Notes. Events relating to any of those risks, or other risks and uncertainties, could adversely affect the market value of, and the return on, your Notes. You may lose some or all of your initial investment in the Notes. The Notes will not be listed or displayed on any securities exchange or any electronic communications network.

Note Offering

This prospectus supplement describes the general terms of Notes that we may offer. The applicable terms of any offering of Notes will be specified in the relevant final terms supplement you receive from your financial advisor.

The estimated initial value of the Notes as of the trade date will be specified in the relevant final terms supplement for each offering of the Notes. The estimated initial value of the Notes will be determined on the date of the relevant final terms 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 Notes, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages 6 and 7 of this prospectus supplement.

See Additional Information about UBS and the Notes on page ii. The Notes we are offering will have the terms set forth in the Airbag Yield Optimization Notes product supplement relating to the Notes, the accompanying prospectus, this prospectus supplement, and the relevant final terms supplement for your Notes generated when the trade is placed on the trade date.

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

The Notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

UBS Financial Services Inc. UBS Investment Bank

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Additional Information About UBS and the Notes

UBS has filed a registration statement (including a prospectus, as supplemented by a product supplement for the Notes) with the Securities and Exchange Commission, or SEC, for each offering for which this prospectus supplement will relate. Before you invest, you should read these documents and any other documents relating to the Notes that UBS has filed with the SEC for more complete information about UBS and the potential 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 1-877-387-2275.

You may access these documents on the SEC website at www.sec.gov as follows:

¨ Airbag Yield Optimization Notes product supplement dated May 2, 2016:

http://www.sec.gov/Archives/edgar/data/1114446/000119312516570611/d104496d424b2.htm

¨ Prospectus dated April 29, 2016:

http://www.sec.gov/Archives/edgar/data/1114446/000119312516569341/d161008d424b3.htm

This prospectus supplement describes the terms that will apply generally to the Notes. On the trade date, UBS AG will prepare a final terms supplement. The final terms supplement will specify the final economic terms for that issuance of the Notes, including the estimated initial value, and will indicate the identity of the underlying asset and any changes to the general terms specified herein. Attached as Annex A to this prospectus supplement is a form of the final terms supplement, which you will receive after the trade is executed on the trade date. You will also receive a preliminary terms supplement in much the same form, except providing indicative ranges for the estimated initial value of the Notes and for either the coupon rate or the conversion price depending on your selection of terms. Any final terms supplement should be read in connection with this prospectus supplement, the Airbag Yield Optimization Notes product supplement and the accompanying prospectus.

References to UBS, we, our and us refer only to UBS AG and not to its consolidated subsidiaries. In this document, Airbag Yield Optimization Notes or the Notes refer to the Notes that are offered hereby. Also, references to the Airbag Yield Optimization Notes product supplement mean the UBS product supplement, dated May 2, 2016, relating to the Notes generally, and references to the accompanying prospectus mean the UBS prospectus titled, Debt Securities and Warrants, dated April 29, 2016.

UBS reserves the right to change the terms of, or reject any offer to purchase, the Notes prior to their issuance. In the event of any changes to the terms of the Notes, UBS will notify you and you will be asked to accept such changes in connection with your purchase. You may also choose to reject such changes in which case UBS may reject your offer to purchase.

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Prospectus Supplement
Investor Suitability	1
Common Terms for Each Offering of the Notes	2
Investment Timeline	2
Key Risks	3
Hypothetical Examples and Return Table	8
What are the Tax Consequences of the Notes?	10
Information about the Underlying Asset	12
Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)	12
Annex A Form of Final Terms Supplement	A-1
Annex B UBS Equity Investor Investment Guide	B-1

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Investor Suitability

The Notes may be suitable for you if:

¨ You fully understand the risks inherent in an investment in the Notes, 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 full downside market risk as an investment in the underlying asset.

¨ You believe the final price of the underlying asset is not likely to be less than the conversion price and, if it is, you can tolerate receiving a cash payment at maturity that is less than your principal amount and may be zero.

¨ You understand and accept that you will not participate in any appreciation in the price of the underlying asset and that your return at maturity is limited to the coupons paid on the Notes.

¨ You can tolerate fluctuations in the price of the Notes prior to maturity that may be similar to or exceed the downside price fluctuations of the underlying asset.

¨ You are willing to invest in the Notes based on the coupon rate range or the conversion price range (as applicable) that will be specified in the relevant preliminary terms supplement.

¨ You are willing and able to hold the Notes to maturity, and accept that there may be little or no secondary market for the Notes.

¨ You are willing to assume the credit risk of UBS for all payments under the Notes, 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 Notes determined by our internal pricing models will be lower than the issue price and that should UBS Securities LLC or any affiliate make secondary markets for the Notes, the price (not including their customary bid-ask spreads) will temporarily exceed the internal pricing model price.

The Notes may not be suitable for you if:

¨ You do not fully understand the risks inherent in an investment in the Notes, including the risk of loss of your entire initial investment.

¨ You require an investment designed to provide a full return of principal at maturity.

¨ You are not willing to make an investment that may have the full downside market risk as an investment in the underlying asset.

¨ You believe the final price of the underlying asset is likely to be less than the conversion price, which could result in a total loss of your initial investment.

¨ You cannot tolerate receiving a cash payment at maturity that is less than your principal amount and may be zero.

¨ You seek an investment that participates in the full appreciation in the price of the underlying asset or that has unlimited return potential.

¨ You cannot tolerate fluctuations in the price of the Notes prior to maturity that may be similar to or exceed the downside price fluctuations of the underlying asset.

¨ You are not willing to invest in the Notes based on the coupon rate range or the conversion price range (as applicable) that will be specified in the relevant preliminary terms supplement.

¨ You are unable or unwilling to hold the Notes to maturity, and 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 Notes, including any repayment of principal.

The suitability considerations identified above are not exhaustive. Whether or not the Notes 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 Notes in light of your particular circumstances. You should also review carefully the Key Risks beginning on page 6 of this prospectus supplement, page PS-14 of the Airbag Yield Optimization Notes product supplement as well as the Key Risks section in the relevant final terms supplement for risks related to an investment in the Notes.

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Common Terms for Each Offering of the Notes

Issuer	UBS AG
Issue Price per Note	Equal to 100% of the principal amount per Note.
Principal Amount per Note	Unless otherwise specified in the relevant final terms supplement, $1,000.
Term	As specified in the relevant final terms supplement.
Underlying Asset	The common stock or American depositary shares of a specific company or the shares of a specific exchange traded fund as specified in the relevant
final terms supplement.
Coupon Payments	UBS AG will pay interest on the principal amount of the Notes on a specified day of each month and the maturity date; provided that, if any coupon
payment date would otherwise fall on a date which is not a business day, the relevant coupon payment date will be the first following day which is a business day unless that day falls in the next calendar month, in which case the relevant coupon
payment date will be the first preceding day which is a business day. Each payment of interest due on a coupon payment date or on the maturity date, as the case may be, will include interest accrued from the last date to which interest has been paid
or made available for payment (or the issue date in the case of the first coupon payment date) to the relevant coupon payment date. UBS will compute interest on the Notes on the basis of a 360-day year of
twelve 30-day months. If the maturity date is postponed beyond the originally scheduled maturity date due to the occurrence of a market disruption event on the final valuation date, interest will cease to accrue on the originally scheduled maturity
date.
Coupon Rate	The Notes will bear interest at a per annum rate as specified in the final terms supplement.
Payment at Maturity (per Note)	If the final price of the underlying asset is equal to or greater than the conversion price, we will pay
you an amount in cash at maturity equal to your principal amount. If the final price
of the underlying asset is less than the conversion price, we will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor, subject to
adjustments in the case of certain corporate events, as described in the Airbag Yield Optimization Notes product supplement. In this scenario, the cash payment you receive will be less than your principal amount and may be zero.
Initial Price	Unless otherwise specified in the relevant final terms supplement, the closing price of the underlying asset on the trade date.
Conversion Price	A percentage of the initial price of the underlying asset, which will be specified in the relevant final terms supplement on the trade date. The
conversion price is subject to adjustments in the case of certain corporate events, as described in the Airbag Yield Optimization Notes product supplement.
Final Price	The closing price of the underlying asset on the final valuation date. The final price is subject to adjustments in the case of certain corporate
events, as described in the Airbag Yield Optimization Notes product supplement.
Share Factor	The share factor is initially set equal to (i) the principal amount divided by (ii) the conversion price of the underlying asset. The share factor will
be subject to adjustments in the case of certain corporate events as described in the accompanying Airbag Yield Optimization Notes product supplement under General Terms of the Notes Antidilution
Adjustments.

Trade Date	As specified in the relevant final terms supplement, or if that day is not a trading day, the next following trading day.
Settlement Date	Unless otherwise specified in the relevant final terms supplement, 3 business days following the trade date.
Final Valuation Date	As specified in the relevant final terms supplement, or if that day is not a trading day, the final valuation date will be the next following trading
day. The final valuation date may be subject to postponement in the event of a market disruption event, as described in the Airbag Yield Optimization Notes product supplement.
Maturity Date	Unless otherwise specified in the relevant final terms supplement, 3 business days following the final valuation date. The maturity date may be subject
to postponement in the event of a market disruption event, as described in the Airbag Yield Optimization Notes product supplement.
Coupon Payment Dates	As specified in the relevant final terms supplement.
CUSIP	As specified in the relevant final terms supplement.
ISIN	As specified in the relevant final terms supplement.

Investing in the Notes involves significant risks. You may lose some or all of your principal amount. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness of UBS. If UBS were to default on its payment obligations, you may not receive any amounts owed to you under the Notes and you could lose your entire investment.

Investment Timeline

Trade date:	The initial price of the underlying asset is set and the conversion price is determined. The coupon rate is set.
●
Coupon payment dates:	UBS pays the applicable coupon.
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Maturity date:	The final price of the underlying asset is determined on the final valuation date. If the final price is greater than or equal to the conversion price, UBS will pay you an amount
in cash equal to your principal amount. If the final price is less than the
conversion price, we will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments in the case of certain corporate
events, as described in the Airbag Yield Optimization Notes product supplement). In this scenario, the cash payment you receive will be less than your principal amount and may be zero.

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Key Risks

An investment in the Notes involves significant risks. Some of the risks that apply to the Notes are summarized here, but we urge you to read the more detailed explanation of risks relating to the Notes generally in the Risk Factors section of the Airbag Yield Optimization Notes product supplement. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes.

¨ Risk of loss at maturity The Notes differ from ordinary debt securities in that UBS will not necessarily pay the full principal amount of the Notes at maturity. UBS will only pay you the principal amount of your Notes in cash if the final price of the underlying asset is greater than or equal to the conversion price and only at maturity. If the final price of the underlying asset is less than the conversion price, UBS will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as described in the Airbag Yield Optimization Notes product supplement). As a result, if the final price is less than the conversion price, you will be exposed at an increased rate to any such decline below the conversion price. For example, if the conversion price is 80% of the initial price, the final price is less than the conversion price and is equal to 70% of the initial price, you will lose 12.50% of your principal amount at maturity, which is greater than the 10% additional decline from the conversion price. The cash payment you receive will be less than your principal amount and may be zero.

¨ Higher coupon rates are generally associated with a greater risk of loss Greater expected volatility with respect to the Notes underlying asset reflects a higher expectation as of the trade date that the price of the underlying asset could close below its conversion price on the final valuation date of the Note. This greater expected risk will generally be reflected in a higher coupon payable on that Note. However, the underlying assets volatility can change significantly over the term of the Notes and the price of the underlying asset for your Note could fall sharply, which could result in a significant loss of principal.

¨ The contingent repayment of principal applies only at maturity You should be willing to hold your Notes to maturity. If you are able to sell your Notes prior to maturity in the secondary market, you may have to sell them at a loss relative to your initial investment even if the underlying asset price is greater than the conversion price.

¨ Your return potential on the Notes is limited to the coupons paid on the Notes You will not participate in any appreciation of the underlying asset and your return on the Notes will be limited to the coupon payments. If the closing price of the underlying asset on the final valuation date is greater than or equal to the conversion price, UBS will pay you the principal amount of your Notes in cash at maturity and you will not participate in any appreciation in the price of the underlying asset even though you risked being subject to the decline in the price of the underlying asset. If the closing price of the underlying asset on the final valuation date is less than the conversion price, UBS will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as describe in the Airbag Yield Optimization Notes product supplement), which will be less than your principal amount and may be zero. Any payment at maturity will be unaffected by any appreciation or decline in the price of the underlying asset after the final valuation date. Therefore, your return potential on the Notes is limited to the coupons paid on the Notes and may be less than your return would be on a direct investment in the underlying asset.

¨ Credit risk of UBS The Notes 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 Notes, including 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 Notes 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 Notes and you could lose your entire investment.

¨ Market risk The price of the underlying asset can rise or fall sharply due to factors specific to that underlying asset and (i) in the case of common stock or American depositary shares, its issuer (the underlying asset issuer) or (ii) in the case of an exchange traded fund, the securities, futures contracts or physical commodities constituting the assets of that underlying asset. These factors include price volatility, earnings, financial conditions, corporate, industry and regulatory developments, management changes and decisions and other events, as well as general market factors, such as general market volatility and levels, interest rates and economic and political conditions. You, as an investor in the Notes, should make your own investigation into the underlying asset issuer and the underlying asset for your Notes. We urge you to review financial and other information filed periodically by the underlying asset issuer with the SEC.

¨ Fair value considerations.

¨ The issue price you pay for the Notes will exceed their estimated initial value The issue price you pay for the Notes will exceed 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 will determine the estimated initial value of the Notes by reference to our internal pricing models and it will be set forth in the relevant final terms supplement. The pricing models used to determine the estimated initial value of the Notes incorporate certain variables, including the price, volatility and expected dividends on the underlying asset, prevailing interest rates, the term of the Notes and our internal funding rate. Our internal funding rate is typically lower than the rate we would pay to issue conventional fixed or floating rate debt securities of a similar term. The underwriting discount, hedging costs, issuance costs, projected profits and the difference in rates will reduce the economic value of the Notes to you. Due to these factors, the estimated initial value of the Notes as of the trade date will be less than the issue price you pay for the Notes.

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predict. Furthermore, the pricing models that we use are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As a result, after the trade date, if you attempt to sell the Notes in the secondary market, the actual value you would receive may differ, perhaps materially, from the estimated initial value of the Notes determined by reference to our internal pricing models. The estimated initial value of the Notes does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Notes in any secondary market at any time.

¨ Our actual profits may be greater or less than the differential between the estimated initial value and the issue price of the Notes as of the trade date We may determine the economic terms of the Notes, as well as hedge our obligations, at least in part, prior to pricing the Notes on the trade date. In addition, there may be ongoing costs to us to maintain and/or adjust any hedges and such hedges are often imperfect. Therefore, our actual profits (or potentially, losses) in issuing the Notes cannot be determined as of the trade date and any such differential between the estimated initial value and the issue price of the Notes as of the trade date does not reflect our actual profits. Ultimately, our actual profits will be known only at the maturity of the Notes.

¨ Limited or no secondary market and secondary market price considerations.

¨ There may be little or no secondary market for the Notes The Notes will not be listed or displayed on any securities exchange or any electronic communications network. UBS Securities LLC and its affiliates intend, but are not required, to make a market for the Notes and may stop making a market at any time. If you are able to sell your Notes prior to maturity, you may have to sell them at a substantial loss. Furthermore, there can be no assurance that a secondary market for the Notes will develop. The estimated initial value of the Notes does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Notes in any secondary market at any time.

¨ The price at which UBS Securities LLC and its affiliates may offer to buy the Notes in the secondary market (if any) may be greater than UBS valuation of the Notes at that time, greater than any other secondary market prices provided by unaffiliated dealers (if any) and, depending on your broker, greater than the valuation provided on your customer account statements For a limited period of time following the issuance of the Notes, UBS Securities LLC or its affiliates may offer to buy or sell such Notes at a price that exceeds (i) our valuation of the Notes at that time based on our internal pricing models, (ii) any secondary market prices provided by unaffiliated dealers (if any) and (iii) depending on your broker, the valuation provided on customer account statements. The price that UBS Securities LLC may initially offer to buy such Notes following issuance will exceed the valuations indicated by our internal pricing models due to the inclusion for a limited period of time of the aggregate value of the underwriting discount, hedging costs, issuance costs and theoretical projected trading profit. The portion of such amounts included in our price will decline to zero on a straight line basis over a period ending no later than the date specified under Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any) in the relevant final terms supplement. Thereafter, if UBS Securities LLC or an affiliate makes secondary markets in the Notes, it will do so at prices that reflect our estimated value determined by reference to our internal pricing models at that time. The temporary positive differential relative to our internal pricing models arises from requests from and arrangements made by UBS Securities LLC with the selling agents of structured debt securities such as the Notes. As described above, UBS Securities LLC and its affiliates intend, but are not required, to make a market for the Notes and may stop making a market at any time. The price at which UBS Securities LLC or an affiliate may make secondary markets at any time (if at all) will also reflect its then current bid-ask spread for similar sized trades of structured debt securities. UBS Financial Services Inc. and UBS Securities LLC reflect this temporary positive differential on their customer statements. Investors should inquire as to the valuation provided on customer account statements provided by unaffiliated dealers.

¨ Price of Notes prior to maturity The market price of the Notes will be influenced by many unpredictable and interrelated factors, including the price of the underlying asset; the volatility of the underlying asset; the dividend rate paid on the underlying asset; the time remaining to the maturity of the Notes; interest rates in the markets; geopolitical conditions and economic, financial, political, force majeure and regulatory or judicial events; the creditworthiness of UBS and the then current bid-ask spread for the Notes.

¨ 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 Notes in any secondary market.

¨ Owning the Notes is not the same as owning the underlying asset The return on your Notes may not reflect the return you would realize if you actually owned the underlying asset. For instance, you will not receive or be entitled to receive any dividend payments or other distributions on the underlying asset over the term of your Notes. Furthermore, the underlying asset may appreciate substantially during the term of your Notes and you will not participate in such appreciation even though you may be exposed to the underlying assets decline at maturity.

¨ No assurance that the investment view implicit in the Notes will be successful It is impossible to predict whether and the extent to which the price of the underlying asset will rise or fall. There can be no assurance that the underlying asset price will not rise by more than the coupons paid on the Notes or will not fall below the conversion price. The price of the underlying asset will be influenced by complex and interrelated political, economic, financial and other factors that affect the underlying asset. You should be willing to accept the risks of owning equities in general and the underlying asset in particular, and the risk of losing some or all of your initial investment.

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¨ The calculation agent can make adjustments that affect the payment to you at maturity The calculation agent may adjust the amount payable at maturity by adjusting the conversion price, the share factor and/or the final price for certain corporate events affecting the underlying asset. However, the calculation agent is not required to make an adjustment for every corporate event that can affect the underlying asset. If an event occurs that does not require the calculation agent to adjust the conversion price and the share factor, the market value of your Notes and the payment at maturity may be materially and adversely affected. In the case of common stock or American depositary shares, following certain corporate events relating to the issuer of the underlying asset where the issuer is not the surviving entity, the amount of cash you receive at maturity may be based on the common stock or American depositary shares of a successor to the underlying asset issuer in combination with any cash or any other assets distributed to holders of the underlying asset in such corporate event. Additionally, if the issuer of the underlying asset becomes subject to (i) a reorganization event whereby the underlying asset is exchanged solely for cash, (ii) a merger or consolidation with UBS or any of its affiliates or (iii) an underlying asset is delisted or otherwise suspended from trading, the amount you receive at maturity may be based on the common stock issued by another company. In the case of an exchange traded fund, following a delisting, suspension from trading or if an exchange traded fund is discontinued, the amount you receive at maturity may be based on a share of another exchange traded fund. The occurrence of these corporate events and the consequent adjustments may materially and adversely affect the value of the Notes. For more information, see the section General Terms of the Notes Antidilution Adjustments beginning on page PS-33 of the Airbag Yield Optimization Notes product supplement. Regardless of the occurrence of one or more dilution or reorganization events, you should note that at maturity UBS will pay you an amount in cash equal to your principal amount, unless the final price of the underlying asset is less than the conversion price (as such conversion price may be adjusted by the calculation agent upon occurrence of one or more such events). Regardless of any of the events discussed above, any payment on the Notes is subject to the creditworthiness of UBS.

¨ Exchange rate risk The underlying asset of the Notes may be (1) the American depositary shares of a non-U.S. company, which are quoted and traded in U.S. dollars, but represent a non-U.S. stock that is quoted and traded in a non-U.S. currency and that may trade differently from the American depositary shares, (2) substituted or replaced by another underlying asset that is quoted and traded in a non-U.S. currency; or (3) an exchange traded fund that invests in underlying assets that are quoted and traded in a non-U.S. currency. Holders of these Notes may be exposed to currency exchange rate risks with respect to the currencies in which such assets trade. The value of the non-U.S. currency may be subject to a high degree of fluctuation due to changes in interest rates, the effects of monetary policies issued by the United States, non-U.S. governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. Therefore, adverse changes in exchange rates may result in reduced returns for Notes linked to these assets.

¨ Risks associated with non-U.S. securities markets The underlying asset of the Notes may be the American depositary shares of a non-U.S. company or an exchange traded fund that invests in non-U.S. securities. Because non-U.S. equity securities underlying the American depositary shares or an exchange traded fund may be publicly traded in the applicable non-U.S. countries and are denominated in currencies other than U.S. dollars, investments in Notes linked to American depositary shares or such exchange traded funds involve particular risks. For example, the non-U.S. securities markets may be more volatile than the U.S. securities markets, and market developments may affect these markets differently from the United States or other securities markets. Direct or indirect government intervention to stabilize the securities markets outside the United States, as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information concerning the non-U.S. issuers may vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the non-U.S. issuers may be subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to United States reporting companies. Securities prices generally are subject to political, economic, financial and social factors that apply to the markets in which they trade and, to a lesser extent, international markets. Securities prices outside the United States are subject to political, economic, financial and social factors that apply in non-U.S. countries. These factors, which could negatively affect non-U.S. securities markets, include the possibility of changes in a non-U.S. governments economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities and the possibility of fluctuations in the rate of exchange between currencies. Moreover, non-U.S. economies may differ favorably or unfavorably from the United States economy in important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.

¨ There are important differences between the American depositary shares and the ordinary shares of a non-U.S. company The underlying asset of the Notes may be the American depositary shares of a non-U.S. company. There are important differences between the rights of holders of American depositary shares and the rights of holders of the ordinary shares. The American depositary shares are issued pursuant to a deposit agreement, which sets forth the rights and responsibilities of the depositary, the non-U.S. company, and holders of the American depositary shares, which may be different from the rights of holders of the ordinary shares. For example, a company may make distributions in respect of ordinary shares that are not passed on to the holders of its American depositary shares. Any such differences between the rights of holders of the American depositary shares and the rights of holders of the ordinary shares of the non-U.S. company may be significant and may materially and adversely affect the value of the American depositary shares and, as a result, the value of your Notes.

¨ Risks associated with non-U.S. companies The underlying asset of the Notes may be the common stock of a non-U.S. company that is listed on a U.S. exchange or an exchange traded fund that invests in non-U.S. securities. An investment in the Notes linked to the value of non-U.S. companies involves risks associated with the home country of such non-U.S. company. The prices of such non-U.S. companys common stock may be affected by political, economic, financial and social factors in the home country of such non-U.S. company, including changes in such countrys government, economic and fiscal policies, currency exchange laws or other laws or restrictions, which could affect the value of the Notes.

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¨ Risks associated with emerging market companies The underlying asset of the Notes may be the American depositary shares or common stock of a company organized in an emerging market country or an exchange traded fund that invests in securities of a company organized in an emerging market country. Securities of emerging market companies may be more volatile and may be affected by market developments differently than U.S. companies. Government interventions to stabilize securities markets and cross-shareholdings may affect prices and volume of trading of the securities of emerging market companies. Economic, social, political, financial and military factors could, in turn, negatively affect such companies value. These factors could include changes in the emerging market governments economic and fiscal policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of exchange between currencies. Moreover, emerging market economies may differ favorably or unfavorably from the U.S. economy in a variety of ways, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. You should carefully consider the risks related to emerging markets, to which the Notes may be susceptible, before making a decision to invest in the Notes.

¨ The value of the underlying asset may not completely track the value of the securities, futures contracts or physical commodities in which such exchange traded fund invests The underlying asset may be an exchange traded fund, and although the trading characteristics and valuations of such underlying asset will usually mirror the characteristics and valuations of the securities, futures contracts or physical commodities in which such exchange traded fund invests, its value may not completely track the value of such securities, futures contracts or physical commodities. The value of the underlying asset will reflect transaction costs and fees that the securities, futures contracts or physical commodities in which that exchange traded fund invests do not have. In addition, although the underlying asset may be currently listed for trading on an exchange, there is no assurance that an active trading market will continue for such underlying asset or that there will be liquidity in the trading market.

¨ Fluctuation of NAV The net asset value (the NAV) of an exchange traded fund may fluctuate with changes in the market value of such exchange traded funds securities, futures contracts or physical commodities holdings. The market prices of the underlying asset may fluctuate in accordance with changes in NAV and supply and demand on the applicable stock exchanges. In addition, the market price of the underlying asset may differ from its NAV per share; the underlying asset may trade at, above or below its NAV per share.

¨ Failure of the underlying asset to track the level of the underlying index The underlying asset of the Notes may be an exchange traded fund. Such underlying asset may be designed and intended to track the level of a specific index (an underlying index), but various factors, including fees and other transaction costs, may prevent the underlying asset from correlating exactly with changes in the level of such underlying index. Accordingly, the performance of the underlying asset may not be equal to the performance of its underlying index during the term of the Notes.

¨ There is no affiliation between the underlying asset issuer, or for Notes linked to exchange traded funds, the issuers of the constituent stocks comprising the underlying asset (the underlying asset constituent stock issuers), and UBS, and UBS is not responsible for any disclosure by such issuer(s) We and our affiliates may currently, or from time to time in the future engage in business with the underlying asset issuer or, if applicable, any underlying asset constituent stock issuers. However, we are not affiliated with the underlying asset issuer or any underlying asset constituent stock issuers and are not responsible for such issuers public disclosure of information, whether contained in SEC filings or otherwise. You, as an investor in the Notes, should make your own investigation into the underlying asset issuer or, if applicable, each underlying asset constituent stock issuer. Neither the underlying asset issuer nor any underlying asset constituent stock issuer is involved in the Notes offered hereby in any way and has no obligation of any sort with respect to your Notes. Such issuer(s) have no obligation to take your interests into consideration for any reason, including when taking any corporate actions that might affect the value of your Notes.

¨ Potential UBS impact on the market price of the underlying asset Trading or transactions by UBS or its affiliates in the underlying asset and/or over-the-counter options, futures or other instruments with returns linked to the performance of the underlying asset may adversely affect the market price of the underlying asset and, therefore, the market value of your Notes.

¨ Potential conflict of interest UBS and its affiliates may engage in business with the issuer of the underlying asset, which may present a conflict between the obligations of UBS and you, as a holder of the Notes. The calculation agent, an affiliate of UBS, will determine whether the final price is less than the conversion price and accordingly the payment at maturity on your Notes. The calculation agent may postpone the determination of the final price and the maturity date if a market disruption event occurs and is continuing on the final valuation date and may make adjustments to the conversion price, share factor, final price and/or the underlying asset itself for certain corporate events affecting the underlying asset. For more information, see the section General Terms of the Notes Antidilution Adjustments beginning on page PS-33 of the Airbag Yield Optimization Notes product supplement. As UBS determines the economic terms of the Notes, including the coupon rate and conversion price, and such terms include hedging costs, issuance costs and projected profits, the Notes represent a package of economic terms. There are other potential conflicts of interest insofar as an investor could potentially get better economic terms if that investor entered into exchange-traded and/or OTC derivatives or other instruments with third parties, assuming that such instruments were available and the investor had the ability to assemble and enter into such instruments.

¨ Potentially inconsistent research, opinions or recommendations by UBS UBS and its affiliates publish research from time to time on financial markets and other matters that may influence the value of the Notes, or express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes. Any research, opinions or recommendations expressed by UBS or its affiliates may not be consistent with each other and may be modified from time to time without notice. Investors should make their own independent investigation of the merits of investing in the Notes and the underlying asset to which the Notes are linked.

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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 Notes, into equity, and/or (c) potentially provide for haircuts on obligations of UBS, including its obligations under the Notes. Although no precedent exists, if one or more measures under the revised regime were imposed, such measures may have a material adverse effect on the terms and market value of the Notes and/or the ability of UBS to make payments thereunder.

¨ Dealer incentives UBS and its affiliates act in various capacities with respect to the Notes. We and our affiliates may act as a principal, agent or dealer in connection with the sale of the Notes. Such affiliates, including the sales representatives, will derive compensation from the distribution of the Notes and such compensation may serve as an incentive to sell these Notes instead of other investments. We will pay a total underwriting compensation equal to a percentage of the issue price per Note (such percentage to be specified in the relevant final terms supplement, but will not exceed 2.75%) to any of our affiliates acting as agents or dealers in connection with the distribution of the Notes. Given that UBS Securities LLC and its affiliates temporarily maintain a market making premium, it may have the effect of discouraging UBS Securities LLC and its affiliates from recommending sale of your Notes in the secondary market.

¨ Uncertain tax treatment Significant aspects of the tax treatment of the Notes are uncertain. You should read carefully the section above entitled What are the Tax Consequences of the Notes? and the section entitled Supplemental U.S. Tax Considerations beginning on page PS-47 of the Airbag Yield Optimization Notes product supplement and consult your tax advisor about your tax situation.

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Hypothetical Examples and Return Table

Assumptions

The following examples and return table illustrate the payment at maturity on a hypothetical offering of the Notes assuming the following*:

Term:	6 months
Principal amount:	$1,000 per Note
Coupon rate**:	12.00% per annum (or $10.00 per monthly period)
Total coupon payable**:	6.00% (or $6.00 per Note)
Initial price of the underlying asset:	$50.00 per share
Conversion price:	$40.00 (80% of the initial price)
Share factor	25 shares (principal amount per Note/conversion price)
Dividend yield on the underlying asset**:	0.50% (based on 1.00% per annum)

Actual coupon rate and terms for each Note to be specified in the relevant final terms supplement. Amounts here have been rounded for ease of analysis.

** Coupon payments will be paid in arrears in 6 periodic installments.

*** Hypothetical dividend yield holders of the underlying asset might receive over the term of the Notes. The assumed dividend yield represents a hypothetical dividend return and is not a full annualized yield. The actual dividend yield for any underlying asset may vary from the assumed dividend yield used for purposes of the following examples. Regardless, investors in the Notes will not receive any dividends paid on the underlying asset.

Hypothetical Examples

Scenario #1: The final price of the underlying asset is not less than the conversion price of $40.00.

Since the final price of the underlying asset is not less than the conversion price of $40.00, the issuer will pay you at maturity a cash payment equal to the principal amount of your Notes. This investment would outperform an investment in the underlying asset if the price appreciation of the underlying asset (plus dividends, if any) over the term of the Notes is less than 6.00%.

If the closing price of the underlying asset on the final valuation date is $50.00 (no change in the price of the underlying asset):

Payment at Maturity:	$
Coupons:	$ 60.00	($10.00 x 6 = $60.00)
Total:	$ 1,060.00
Total Return on the Notes:	6.00 %

In this example, the total return on the Notes is 6.00% while the total return on the underlying asset is 0.50% (including dividends).

If the closing price of the underlying asset on the final valuation date is $65.00 (an increase of 30%):

Payment at Maturity:	$
Coupons:	$ 60.00	($10.00 x 6 = $60.00)
Total:	$ 1,060.00
Total Return on the Notes:	6.00 %

In this example, the total return on the Notes is 6.00% while the total return on the underlying asset is 30.50% (including dividends).

If the closing price of the underlying asset on the final valuation date is $42.50 (a decline of 15%):

Payment at Maturity:	$
Coupons:	$ 60.00	($10.00 x 6 = $60.00)
Total:	$ 1,060.00
Total Return on the Notes:	6.00 %

In this example, the total return on the Notes is 6.00% while the total return on the underlying asset is a loss of 14.50% (including dividends).

Scenario #2: The final price of the underlying asset is less than the conversion price of $40.00.

Since the final price of the underlying asset is less than the conversion price of $40.00, the issuer will pay you for every Note you hold an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as described in the Airbag Yield Optimization Notes product supplement).

If the closing price of the underlying asset on the final valuation date is $22.50 (a decline of 55%):

Payment at Maturity:	$	($22.50 x 25 = $562.50)
Coupons:	$ 60.00	($10.00 x 6 = $60.00)
Total:	$ 622.50
Total Return on the Notes:	-37.75 %

In this example, the total return on the Notes is a loss of 37.75% while the total return on the underlying asset is a loss of 54.50% (including dividends).

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If the closing price of the underlying asset on the final valuation date is $35.00 (a decline of 30%):

Payment at Maturity:	$	($35.00 x 25 = $875.00)
Coupons:	$ 60.00	($10.00 x 6 = $60.00)
Total:	$ 935.00
Total Return on the Notes:	-6.50 %

In this example, the total return on the Notes is a loss of 6.50% while the total return on the underlying asset is a loss of 29.50% (including dividends).

Hypothetical Return Table

| Underlying Asset — Hypothetical Final Price (3) | Asset Price Return (4) | The Hypothetical Final Price is Greater Than or Equal to the Hypothetical
Conversion Price (1) — Total Return on the Underlying Asset at Maturity (5 ) | Total Payment at Maturity + Coupon Payments (6) | Total Return on the Notes
at Maturity (7) | The Hypothetical Final Price is Less Than the Hypothetical Conversion Price (2) — Total Payment at Maturity + Coupon Payments (8) | Total Return on the Notes
at Maturity (7) |
| --- | --- | --- | --- | --- | --- | --- |
| $75.00 | 50.00% | 50.50% | $1060.00 | 6.00% | n/a | n/a |
| $72.50 | 45.00% | 45.50% | $1060.00 | 6.00% | n/a | n/a |
| $70.00 | 40.00% | 40.50% | $1060.00 | 6.00% | n/a | n/a |
| $67.50 | 35.00% | 35.50% | $1060.00 | 6.00% | n/a | n/a |
| $65.00 | 30.00% | 30.50% | $1060.00 | 6.00% | n/a | n/a |
| $62.50 | 25.00% | 25.50% | $1060.00 | 6.00% | n/a | n/a |
| $60.00 | 20.00% | 20.50% | $1060.00 | 6.00% | n/a | n/a |
| $57.50 | 15.00% | 15.50% | $1060.00 | 6.00% | n/a | n/a |
| $55.00 | 10.00% | 10.50% | $1060.00 | 6.00% | n/a | n/a |
| $52.50 | 5.00% | 5.50% | $1060.00 | 6.00% | n/a | n/a |
| $50.00 | 0.00% | 0.50% | $1060.00 | 6.00% | n/a | n/a |
| $47.50 | -5.00% | -4.50% | $1060.00 | 6.00% | n/a | n/a |
| $45.00 | -10.00% | -9.50% | $1060.00 | 6.00% | n/a | n/a |
| $42.50 | -15.00% | -14.50% | $1060.00 | 6.00% | n/a | n/a |
| $40.00 | -20.00% | -19.50% | $1060.00 | 6.00% | n/a | n/a |
| $37.50 | -25.00% | -24.50% | n/a | n/a | $997.50 | -0.25% |
| $35.00 | -30.00% | -29.50% | n/a | n/a | $935.00 | -6.50% |
| $32.50 | -35.00% | -34.50% | n/a | n/a | $872.50 | -12.75% |
| $30.00 | -40.00% | -39.50% | n/a | n/a | $810.00 | -19.00% |
| $27.50 | -45.00% | -44.50% | n/a | n/a | $747.50 | -25.25% |
| $25.00 | -50.00% | -49.50% | n/a | n/a | $685.00 | -31.50% |
| $22.50 | -55.00% | -54.50% | n/a | n/a | $622.50 | -37.75% |

(1) A conversion event does not occur if the hypothetical final price of the underlying asset is not less than the hypothetical conversion price.

(2) A conversion event occurs if the hypothetical final price of the underlying asset is less than the hypothetical conversion price.

(3) The hypothetical asset price return range is provided for illustrative purposes only. The actual asset price return may be less than -55% and you therefore may lose up to 100% of your principal amount.

( 4 ) The total return on the underlying asset at maturity includes a hypothetical 0.50% cash dividend payment (based on 1.00% per annum).

( 5 ) Payment consists of the principal amount plus coupon payments of 12.00% per annum (equal to 6.00% over the term of the Notes).

(6 ) The Total Return on the Notes at maturity includes coupon payments of 12.00% per annum (equal to 6.00% over the term of the Notes).

( 7 ) Payment consists of the payment at maturity plus coupon payments of 12.00% per annum (equal to 6.00% over the term of the Notes).

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What are the Tax Consequences of the Notes?

The U.S. federal income tax consequences of your investment in the Notes 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 of the Airbag Yield Optimization Notes product supplement. The following discussion supplements the discussion in Supplemental U.S. Tax Considerations of the Airbag Yield Optimization Notes product supplement.

Tax Treatment. The U.S. federal income tax consequences of your investment in the Notes are complex and uncertain. By purchasing a Note, you and UBS hereby agree (in the absence of an administrative determination or judicial ruling to the contrary) to characterize a Note for all tax purposes as an investment unit consisting of a non-contingent debt instrument and a put option contract in respect of the underlying asset. The terms of the Notes require (in the absence of an administrative determination or judicial ruling to the contrary) that you treat your Notes for U.S. federal income tax purposes as consisting of two components:

Debt component If the Notes have a term greater than one year, the amounts treated as interest on the debt component would be includable in income by you in accordance with your regular method of accounting for interest for U.S. federal income purposes. If the Notes have a term of one year or less, amounts treated as interest on the debt component would be subject to the general rules governing interest payments on short-term notes and would be required to be accrued by accrual-basis taxpayers (and cash-basis taxpayers who elect to accrue interest currently) on either the straight-line method, or, if elected, the constant yield method, compounded daily. Cash-basis taxpayers who do not elect to accrue interest currently would include interest into income upon receipt of such interest.

Put option component The put option component would generally not be taxed until sale, exchange, redemption or maturity. At maturity, the put option component would be taxed as short-term capital gain if the principal amount is repaid in cash. If the final price of the underlying asset is less than the conversion price on the final valuation date, the put option will be exercised at maturity and you will recognize short-term capital gain or loss equal to (i) the amount of cash received less (ii) the principal amount of your Notes less the total of the put option component of coupon payments received by you.

Sections 1297. We will not attempt to ascertain whether any underlying asset issuer would be treated as a passive foreign investment company (a PFIC) within the meaning of Section 1297 of the Internal Revenue Code of 1986, as amended (the Code). If any such entity were so treated, certain adverse U.S. federal income tax consequences might apply upon the sale, exchange, redemption or maturity of a Note. You should refer to information filed with the SEC or the equivalent governmental authority by such entities and consult your tax advisor regarding the possible consequences to you if any such entity is or becomes a PFIC.

We believe it would be reasonable to treat your Notes as described above. However, in light of the uncertainty as to the U.S. federal income tax treatment, it is possible that your Notes could be treated as a single contingent payment debt instrument, or pursuant to some other characterization, such that the timing and character of your income from the Notes could differ materially from the treatment described above. Because of this uncertainty, we urge you to consult your tax advisor as to the tax consequences of your investment in the Notes. Please read the discussion in Supplemental U.S. Tax Considerations of the Airbag Yield Optimization Notes product supplement for a more detailed description of the tax treatment of your Notes.

Notice 2008-2 . The Internal Revenue Service (the IRS) released a Notice that may affect the taxation of holders of the Notes. According to Notice 2008-2, the IRS and the Treasury Department are actively considering the appropriate tax treatment of holders of certain types of structured notes. Legislation has also been proposed in Congress that would require the holders of certain prepaid forward contracts to accrue income during the term of the transaction. It is not clear whether the Notice applies to instruments such as the Notes.

Furthermore, it is not possible to determine what guidance or legislation will ultimately result, if any, and whether such guidance or legislation will affect the tax treatment of the Notes. Except to the extent otherwise required by law, UBS intends to treat your Notes for U.S. federal income tax purposes in accordance with the treatment described above and under Supplemental U.S. Tax Considerations of the Airbag Yield Optimization Notes product supplement unless and until such time as 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 Notes, to the extent of their net investment income that when added to their other modified adjusted gross income, exceeds $200,000 for an unmarried individual, $250,000 for a married taxpayer filing a joint return (or a surviving spouse), or $125,000 for a married individual filing a separate return. The 3.8% Medicare tax is determined in a different manner than the income tax. 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 . U.S. holders may be subject to reporting obligations with respect to their Notes if they do not hold their Notes in an account maintained by a financial institution and the aggregate value of their Notes and certain other specified foreign financial assets (applying certain attribution rules) exceeds $50,000. Significant penalties can apply if a U.S. holder is required to disclose its Notes and fails to do so.

Non-U.S. Holders. If you are not a U.S. holder, subject to the discussion below regarding Section 871(m) of the Code and FATCA, you should generally not be subject to U.S. withholding tax with respect to payments on your Notes or to generally applicable information reporting and backup withholding requirements with respect to payments on your Notes if you comply with certain certification and identification requirements as to your non-U.S. status including providing us (and/or the applicable withholding agent) with a fully completed and validly executed applicable IRS Form W-8. Subject to Section 897 (as discussed below), gain from the sale, exchange,

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redemption or maturity of the Notes generally will 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 U.S. or unless the non-U.S. holder is a non-resident alien and is present in the U.S. for 183 days or more during the taxable year of such sale, exchange, redemption or maturity and certain other conditions are satisfied.

Section 897. We will not attempt to ascertain whether any underlying asset issuer would be treated as 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 Notes should be treated as United States real property interests as defined in Section 897 of the Code. If an underlying asset issuer and the Notes were so treated, certain adverse U.S. federal income tax consequences could possibly apply, including subjecting any gain to a non-U.S. holder in respect of a Note upon a sale, exchange, redemption or maturity of the Note to the U.S. federal income tax on a net basis, and the proceeds from such a taxable disposition to a 15% withholding tax. Non-U.S. holders should consult their tax advisors regarding the potential treatment of the underlying asset issuer as a United States real property holding corporation or the Notes as United States real property interests.

Section 871(m). 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 U.S. Treasury Department regulations, certain payments or deemed payments to non-U.S. holders with respect to certain equity-linked instruments (specified ELIs) that reference U.S. stocks 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 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. Withholding under these regulations generally will not apply to specified ELIs entered into before January 1, 2017. Accordingly, non-U.S. holders of the Notes should not be subject to tax under Section 871(m). However, it is possible that such withholding tax could apply to the Notes under these rules if the non-U.S. holder enters into certain subsequent transactions in respect of the underlying asset. 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 Notes.

Foreign Account Tax Compliance Act. The Foreign Account Tax Compliance Act (FATCA) was enacted on March 18, 2010, and imposes a 30% U.S. withholding tax on withholdable payments (i.e., certain U.S.-source payments, including interest (and original issue discount), dividends, other fixed or determinable annual or periodical gain, profits, and income, and on the gross proceeds from a disposition of property of a type which can produce U.S.-source interest or dividends) and passthru payments (i.e., certain payments attributable to withholdable payments) made to certain foreign financial institutions (and certain of their affiliates) unless the payee foreign financial institution agrees (or is required), among other things, to disclose the identity of any U.S. individual with an account of the institution (or the relevant affiliate) and to annually report certain information about such account. FATCA also requires withholding agents making withholdable payments to certain foreign entities that do not disclose the name, address, and taxpayer identification number of any substantial U.S. owners (or do not certify that they do not have any substantial U.S. owners) to withhold tax at a rate of 30%. Under certain circumstances, a holder may be eligible for refunds or credits of such taxes.

Pursuant to final and temporary Treasury regulations and other IRS guidance, the withholding and reporting requirements under FATCA will generally apply to certain withholdable payments made on or after July 1, 2014, certain gross proceeds on a sale or disposition occurring after December 31, 2018, and certain foreign passthru payments made after December 31, 2018 (or, if later, the date that final regulations defining the term foreign passthru payment are published). In addition, withholding tax under FATCA would not be imposed on withholdable payments solely because the relevant obligation is treated as giving rise to a dividend equivalent (pursuant to Section 871(m) and the regulations thereunder) where such obligation is executed on or before the date that is six months after the date on which obligations of its type are first treated as giving rise to dividend equivalents. If, however, withholding is required, we (or the applicable paying agent) will not be required to pay additional amounts with respect to the amounts so withheld. Foreign financial institutions and non-financial foreign entities located in jurisdictions that have an intergovernmental agreement with the U.S. governing FATCA may be subject to different rules.

Investors should consult their own advisor about the application of FATCA, in particular if they may be classified as financial institutions (or if they hold their Notes through a foreign entity) under the FATCA rules.

Proposed Legislation

In 2007, legislation was introduced in Congress that, if enacted, would have required holders of Notes purchased after the bill was enacted to accrue interest income over the term of the Notes. It is not possible to predict whether a similar or identical bill will be enacted in the future, or whether any such bill would affect the tax treatment of your Notes.

Additionally, in 2013, the House Ways and Means Committee 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 Notes 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.

Both U.S. and non-U.S. holders should consult their tax advisors regarding the U.S. federal income tax consequences of an investment in the Notes (including possible alternative treatments and the issues presented by Notice 2008-2), as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction (including that of the underlying asset issuer).

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Information About the Underlying Asset

All disclosures regarding the applicable underlying asset will be derived from publicly available information and will be provided in the relevant final terms supplement generated on the trade date. UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying asset. You should make your own investigation into the underlying asset.

The underlying asset is registered under the Securities Exchange Act of 1934, as amended (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 the issuer of the underlying asset 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 the issuer of the applicable underlying asset under the Exchange Act can be located by reference to its SEC file number which will be provided in the relevant final terms supplement. 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.

Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any)

We will agree to sell to UBS Securities LLC and UBS Securities LLC will agree to purchase, all of the Notes at the issue price to the public less the underwriting discount indicated on the cover of the final terms supplement, the document that will be filed pursuant to Rule 424(b) containing the final pricing terms of the Notes. UBS Securities LLC will agree to resell all of the Notes 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 the final terms 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 FINRA Rule 5121. In addition, UBS will receive the net proceeds (excluding the underwriting discount) from the initial public offering of the Notes and, thus creates an additional conflict of interest within the meaning of FINRA 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 Notes in the 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 Notes in the secondary market (if any) at prices greater than UBS internal valuation The value of the Notes 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 Notes immediately after the trade date in the secondary market is expected to exceed the estimated initial value of the Notes as determined by reference to our internal pricing models. The amount of the excess will decline to zero on a straight line basis after the trade date over a period specified in the section Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any) in the relevant final terms supplement, 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 intend, but are not required, to make a market for the Notes and may stop making a market at any time. For more information about secondary market offers and the estimated initial value of the Notes, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages 6 and 7 of this prospectus supplement.

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Annex A

Form of Final Terms Supplement

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The information in this Prospectus Supplement is not complete and may be changed. We may not sell these Notes until the Prospectus, Product Supplement, Prospectus Supplement and Terms Supplement (collectively, the Offering Document s) are delivered in final form. The Offering Documents are not an offer to sell these Notes, and we are not soliciting offers to buy these Notes, in any State where the offer or sale is not permitted.

Filed Pursuant to Rule 424(b)(2) Registration Statement No. 333-204908

SUBJECT TO COMPLETION FINAL TERMS SUPPLEMENT (To Prospectus dated April 29, 2016, Product Supplement dated May 2, 2016 and Prospectus Supplement dated May 2, 2016)

Final Terms Supplement

UBS AG Airbag Yield Optimization Notes

UBS AG $[] Notes Linked to [common stock] [American depositary shares] [shares] of [] due []

Final Terms

Issuer	UBS AG, [] Branch
Issue Price per Note	Equal to 100% of the principal amount per Note.
Principal Amount per Note	$1,000
Term	Approximately [] months
Underlying Asset	The [common stock] [American depositary shares] [shares] of [].
Coupon Payments	UBS AG will pay interest on the principal amount of the Notes on the coupon payment dates; provided that,
if any coupon payment date would otherwise fall on a date which is not a business day, the relevant coupon payment date will be the first following day which is a business day unless that day falls in the next calendar month, in which case the
relevant coupon payment date will be the first preceding day which is a business day. Each payment of interest due on a coupon payment date or on the maturity date, as the case may be, will include interest accrued from the last unadjusted coupon
payment date to which interest has been paid or made available for payment (or the issue date in the case of the first coupon payment date) to the relevant unadjusted coupon payment date. UBS will compute interest on the Notes on the basis of a 360-day year of twelve 30-day months.
If the maturity date is postponed beyond the originally scheduled maturity date due to the occurrence of a market disruption event on the final valuation date, interest will cease to accrue on the originally scheduled maturity date. The table below
reflects the coupon rate of []% per annum. Amounts in the table below may have been rounded for ease of analysis.

Coupon Payment Date*	Coupon Payment (per Note)
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]
[]	[]

| | * Coupon payment dates are subject to postponement in the event of a market disruption event, as
described in the Airbag Yield Optimization Notes product supplement. The record date for coupon payment will be one business day preceding the coupon payment date. |
| --- | --- |
| Coupon Rate | The Notes will bear interest at a rate of []% per annum. |
| Total Coupon Payable | []% |
| Payment at Maturity (per Note) | If the final price of the underlying asset is equal to or greater than the conversion price, we will pay
you an amount in cash at maturity equal to your principal amount. If the final price
of the underlying asset is less than the conversion price, we will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor, subject to
adjustments in the case of certain corporate events, as described in the Airbag Yield Optimization Notes product supplement. In this scenario, the cash payment you receive will be less than your principal amount and may be zero. |
| Closing Price | On any trading day, the last reported sale price (or, in the case of NASDAQ, the official closing price) of the underlying asset during the principal
trading session on the principal national securities exchange on which it is listed for trading, as determined by the calculation agent. |
| Initial Price | $[], which is the closing price of the underlying asset on the trade date. |
| Conversion Price | $[], which is []% of the initial price of the underlying asset. The conversion price is subject to adjustments in the case of certain
corporate events, as described in the Airbag Yield Optimization Notes product supplement. |
| Final Price | The closing price of the underlying asset on the final valuation date. The final price is subject to adjustments in the case of certain corporate
events, as described in the Airbag Yield Optimization Notes product supplement. |
| Share Factor | The share factor is initially set equal to (i) the principal amount divided by (ii) the conversion price of the underlying asset. The share factor will
be subject to adjustments in the case of certain corporate events as described in the accompanying Airbag Yield Optimization Notes product supplement under General Terms of the Notes Antidilution
Adjustments. |

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Trade Date	[]
Settlement Date	[]

| Final Valuation Date | []. The final valuation date may be subject to postponement in the event of a market disruption event, as described in the Airbag Yield
Optimization Notes product supplement. |
| --- | --- |
| Maturity Date | []. The maturity date may be subject to postponement in the event of a market disruption event, as described in the Airbag Yield Optimization
Notes product supplement. |
| CUSIP | [] |
| ISIN | [] |
| Tax Treatment | There is no tax authority that specifically characterizes the Notes. UBS and you agree, in the absence of an administrative determination or judicial ruling to the contrary, to characterize
the Notes for tax purposes as an investment unit consisting of a non-contingent debt instrument and a put option contract in respect of the underlying asset. With respect to coupon payments you receive, you agree to treat such payments as consisting
of interest on the debt component and a payment with respect to the put option as follows: |

Coupon Rate	Interest on Debt Component	Put Option Component
[]% per annum	[]% per annum	[]% per annum

For further details and possible alternative tax treatments, please refer to the section entitled What are the Tax Consequences of the Notes in the prospectus supplement for more information.

The estimated initial value of the Notes as of the trade date is $[] for Notes linked to the underlying asset. The estimated initial value of the Notes was determined on the date of this final terms 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 Notes, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages A-5 and A-6 of this final terms supplement.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these Notes or passed upon the adequacy or accuracy of this final terms supplement, or the previously delivered prospectus supplement, the Airbag Yield Optimization Notes product supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.

The Notes are not bank deposits and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

See Additional Information about UBS and the Notes on page A-4. The Notes we are offering will have the terms set forth in the Prospectus Supplement dated May 2, 2016 relating to the Notes, the Airbag Yield Optimization Notes product supplement, the accompanying prospectus and this final terms supplement.

Offering of Notes	Issue Price to Public — Total	Per Note	Underwriting Discount — Total	Per Note	Proceeds to UBS AG — Total	Per Note
[]	$[]	$[]	$[]	$[]	$[]	$[]

UBS Financial Services Inc. Final Terms Supplement dated [] UBS Investment Bank

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Additional Information About UBS and the Notes

UBS has filed a registration statement (including a prospectus, as supplemented by a product supplement and a prospectus supplement for the Notes) with the Securities and Exchange Commission, or SEC, for the offering for which this final terms supplement relates. Before you invest, you should read these documents and any other documents relating to the Notes that UBS has filed with the SEC for more complete information about UBS and this offering. You may obtain these documents for free from the SEC website at www.sec.gov. Our Central Index Key, or CIK, on the SEC website is 0001114446. Alternatively, UBS will arrange to send you these documents if you so request by calling toll-free 1-877-387-2275.

You may access these documents on the SEC website at www.sec.gov as follows:

¨ Prospectus Supplement dated May 2, 2016:

[]

¨ Airbag Yield Optimization Notes product supplement dated May 2, 2016:

http://www.sec.gov/Archives/edgar/data/1114446/000119312516570611/d104496d424b2.htm

¨ Prospectus dated April 29, 2016:

http://www.sec.gov/Archives/edgar/data/1114446/000119312516569341/d161008d424b3.htm

References to UBS, we, our and us refer only to UBS AG and not to its consolidated subsidiaries. In this document, Airbag Yield Optimization Notes or the Notes refer to the Notes that are offered hereby. Also, references to prospectus supplement mean the UBS prospectus supplement dated May 2, 2016, references to Airbag Yield Optimization Notes product supplement mean the UBS product supplement, dated May 2, 2016, relating to the Notes generally and references to the accompanying prospectus mean the UBS prospectus titled, Debt Securities and Warrants, dated April 29, 2016.

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Key Risks

An investment in the Notes involves significant risks. Some of the risks that apply to the Notes are summarized here and are comparable to the corresponding risks discussed in the Key Risks section of the prospectus supplement, but we urge you to read the more detailed explanation of risks relating to the Notes generally in the Risk Factors section of the Airbag Yield Optimization Notes product supplement. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes.

¨ Risk of loss at maturity The Notes differ from ordinary debt securities in that UBS will not necessarily pay the full principal amount of the Notes at maturity. UBS will only pay you the principal amount of your Notes in cash if the final price of the underlying asset is greater than or equal to the conversion price and only at maturity. If the final price of the underlying asset is less than the conversion price, UBS will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as described in the Airbag Yield Optimization Notes product supplement). As a result, if the final price is less than the conversion price, you will be exposed at an increased rate to any such decline less than the conversion price. For example, if the conversion price is 80% of the initial price, the final price is less than the conversion price and is equal to 70% of the initial price, you will lose 12.50% of your principal amount at maturity, which is greater than the 10% additional decline from the conversion price. The cash payment you receive will be less than your principal amount and may be zero.

¨ The contingent repayment of your principal applies only at maturity You should be willing to hold your Notes to maturity. If you are able to sell your Notes prior to maturity in the secondary market, you may have to sell them at a loss relative to your initial investment even if the underlying asset price is greater than the conversion price.

¨ Your potential return on the Notes is limited to the coupons paid on the Notes You will not participate in any appreciation of the underlying asset and your return on the Notes will be limited to the coupon payments. If the closing price of the underlying asset on the final valuation date is greater than or equal to the conversion price, UBS will pay you the principal amount of your Notes in cash at maturity and you will not participate in any appreciation in the price of the underlying asset even though you risked being subject to the decline in the price of the underlying asset. If the closing price of the underlying asset on the final valuation date is less than the conversion price, UBS will pay you for each Note you own an amount in cash at maturity equal to the product of (i) the final price of the underlying asset, multiplied by (ii) the share factor (subject to adjustments as describe in the Airbag Yield Optimization Notes product supplement), which will be less than your principal amount and may be zero. Any payment at maturity will be unaffected by any appreciation or decline in the price of the underlying asset after the final valuation date. Therefore, your return potential on the Notes is limited to the coupons paid on the Notes and may be less than your return would be on a direct investment in the underlying asset.

¨ Fair value considerations.

¨ The issue price you pay for the Notes exceeds their estimated initial value The issue price you pay for the Notes exceeds their estimated initial value as of the trade date due to the inclusion in the issue price of the underwriting discount, hedging costs, issuance costs and projected profits. As of the close of the relevant markets on the trade date, we determined the estimated initial value of the Notes by reference to our internal pricing models and it is set forth in this final terms supplement. The pricing models used to determine the estimated initial value of the Notes incorporate certain variables, including the price, volatility and expected dividends on the underlying asset, prevailing interest rates, the term of the Notes and our internal funding rate. Our internal funding rate is typically lower than the rate we would pay to issue conventional fixed or floating rate debt securities of a similar term. The underwriting discount, hedging costs, issuance costs, projected profits and the difference in rates will reduce the economic value of the Notes to you. Due to these factors, the estimated initial value of the Notes as of the trade date is less than the issue price you pay for the Notes.

¨ The estimated initial value is a theoretical price; the actual price that you may be able to sell your Notes in any secondary market (if any) at any time after the trade date may differ from the estimated initial value The value of your Notes at any time will vary based on many factors, including the factors described above and in Market risk above and is impossible to predict. Furthermore, the pricing models that we use are proprietary and rely in part on certain assumptions about future events, which may prove to be incorrect. As a result, after the trade date, if you attempt to sell the Securities in the secondary market, the

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actual value you would receive may differ, perhaps materially, from the estimated initial value of the Notes determined by reference to our internal pricing models. The estimated initial value of the Notes does not represent a minimum or maximum price at which we or any of our affiliates would be willing to purchase your Notes in any secondary market at any time.

¨ Limited or no secondary market and secondary market price considerations.

¨ The price at which UBS Securities LLC and its affiliates may offer to buy the Notes in the secondary market (if any) may be greater than UBS valuation of the Notes at that time, greater than any other secondary market prices provided by unaffiliated dealers (if any) and, depending on your broker, greater than the valuation provided on your customer account statements For a limited period of time following the issuance of the Notes, UBS Securities LLC or its affiliates may offer to buy or sell such Notes at a price that exceeds (i) our valuation of the Notes at that time based on our internal pricing models, (ii) any secondary market prices provided by unaffiliated dealers (if any) and (iii) depending on your broker, the valuation provided on customer account statements. The price that UBS Securities LLC may initially offer to buy such Notes following issuance will exceed the valuations indicated by our internal pricing models due to the inclusion for a limited period of time of the aggregate value of the underwriting discount, hedging costs, issuance costs and theoretical projected trading profit. The portion of such amounts included in our price will decline to zero on a straight line basis over a period ending no later than the date specified under Supplemental Plan of Distribution (Conflicts of Interest); Secondary Markets (if any). Thereafter, if UBS Securities LLC or an affiliate makes secondary markets in the Notes, it will do so at prices that reflect our estimated value determined by reference to our internal pricing models at that time. The temporary positive differential relative to our internal pricing models arises from requests from and arrangements made by UBS Securities LLC with the selling agents of structured debt securities such as the Notes. As described above, UBS Securities LLC and its affiliates intend, but are not required, to make a market for the Notes and may stop making a market at any time. The price at which UBS Securities LLC or an affiliate may make secondary markets at any time (if at all) will also reflect its then current bid-ask spread for similar sized trades of structured debt securities. UBS Financial Services Inc. and UBS Securities LLC reflect this temporary positive differential on their customer statements. Investors should inquire as to the valuation provided on customer account statements provided by unaffiliated dealers.

¨ No assurance that the investment view implicit in the Notes will be successful It is impossible to predict whether and the extent to which the price of the underlying asset will rise or fall. There can be no assurance that the underlying asset price will not rise by more than the coupons paid on the Notes or will not close below the conversion price on the final valuation date. The price of the underlying asset will be influenced by complex and interrelated political, economic, financial and other factors that affect the underlying asset. You should be willing to accept the risks of owning equities in general and the underlying asset in particular, and the risk of losing some or all of your initial investment.

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surviving entity, the amount of cash you receive at maturity may be based on the common stock or American depositary shares of a successor to the underlying asset issuer in combination with any cash or any other assets distributed to holders of the underlying asset in such corporate event. Additionally, if the issuer of the underlying asset becomes subject to (i) a reorganization event whereby the underlying asset is exchanged solely for cash, (ii) a merger or consolidation with UBS or any of its affiliates or (iii) an underlying asset is delisted or otherwise suspended from trading, the amount you receive at maturity may be based on the common stock issued by another company. In the case of an exchange traded fund, following a delisting, suspension from trading or if an exchange traded fund is discontinued, the amount you receive at maturity may be based on a share of another exchange traded fund. The occurrence of these corporate events and the consequent adjustments may materially and adversely affect the value of the Notes. For more information, see the section General Terms of the Notes Antidilution Adjustments beginning on page PS-33 of the Airbag Yield Optimization Notes product supplement. Regardless of the occurrence of one or more dilution or reorganization events, you should note that at maturity UBS will pay you an amount in cash equal to your principal amount, unless the final price of the underlying asset is less than the conversion price (as such conversion price may be adjusted by the calculation agent upon occurrence of one or more such events). Regardless of any of the events discussed above, any payment on the Notes is subject to the creditworthiness of UBS.

¨ [Exchange rate risk The Notes are linked to the American depositary shares of a non-U.S. company. Because American depositary shares are denominated in U.S. dollars but represent non-U.S. equity securities that are denominated in a non-U.S. currency, changes in currency exchange rates may negatively impact the value of the American depositary shares. The value of the non-U.S. currency may be subject to a high degree of fluctuation due to changes in interest rates, the effects of monetary policies issued by the United States, non-U.S. governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. Therefore, adverse changes in exchange rates may result in reduced returns for Notes linked to American depositary shares.]

¨ [Risks associated with non-U.S. securities markets The Notes are linked to the American depositary shares of a non-U.S. company. Because non-U.S. equity securities underlying the American depositary shares may be publicly traded in the applicable non-U.S. countries and are denominated in currencies other than U.S. dollars, investments in Notes linked to American depositary shares involve particular risks. For example, the non-U.S. securities markets may be more volatile than the U.S. securities markets, and market developments may affect these markets differently from the United States or other securities markets. Direct or indirect government intervention to stabilize the securities markets outside the United States, as well as cross-shareholdings in certain companies, may affect trading prices and trading volumes in those markets. Also, the public availability of information concerning the non-U.S. issuers may vary depending on their home jurisdiction and the reporting requirements imposed by their respective regulators. In addition, the non-U.S. issuers may be subject to accounting, auditing and financial reporting standards and requirements that differ from those applicable to United States reporting companies. Securities prices generally are subject to political, economic, financial and social factors that apply to the markets in which they trade and, to a lesser extent, international markets. Securities prices outside the United States are subject to political, economic, financial and social factors that apply in non-U.S. countries. These factors, which could negatively affect non-U.S. securities markets, include the possibility of changes in a non-U.S. governments economic and fiscal policies, the possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to non-U.S. companies or investments in non-U.S. equity securities and the possibility of fluctuations in the rate of exchange between currencies. Moreover, non-U.S. economies may differ favorably or unfavorably from the United States economy in important respects such as growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency.]

¨ [There are important differences between the American depositary shares and the ordinary shares of a non-U.S. company The Notes are linked to the American depositary shares of a non-U.S. company. There are important differences between the rights of holders of American depositary shares and the rights of holders of the ordinary shares. The American depositary shares are issued pursuant to a deposit agreement, which sets forth the rights and responsibilities of the depositary, the non-U.S. company and holders of the American depositary shares, which may be different from the rights of holders of the ordinary shares. For example, a company may make distributions in respect of ordinary shares that are not passed on to the holders of its American depositary shares. Any such differences between the rights of holders of the American depositary shares and the rights of holders of the ordinary shares of the non-U.S. company may be significant and may materially and adversely affect the value of the American depositary shares and, as a result, the value of your Notes.]

¨ [Risks associated with non-U.S. companies The Notes are linked to the common stock of a non-U.S. company that is listed on a U.S. exchange. An investment in the Notes linked to the value of non-U.S. companies involves risks associated with the home country of such non-U.S. company. The prices of such non-U.S. companys common stock may be affected by political, economic, financial and social factors in the home country of such non-U.S. company, including changes in such countrys government, economic and fiscal policies, currency exchange laws or other laws or restrictions, which could affect the value of the Notes.]

¨ [Risks associated with emerging market companies The underlying asset issuer is a company organized in an emerging market country. Securities of emerging market companies may be more volatile and may be affected by market developments differently than U.S. companies. Government interventions to stabilize securities markets and cross-shareholdings may affect prices and volume of trading of the securities of emerging market companies. Economic, social, political, financial and military factors could, in turn, negatively affect such companies value. These factors could include changes in the emerging market governments economic and fiscal policies, possible imposition of, or changes in, currency exchange laws or other laws or restrictions applicable to the emerging market companies or investments in their securities, and the possibility of fluctuations in the rate of exchange between currencies. Moreover, emerging market economies may differ favorably or unfavorably from the U.S. economy in a variety of ways, including growth of gross national product, rate of inflation, capital reinvestment, resources and self-sufficiency. You should carefully consider the risks related to emerging markets, to which the Notes are susceptible, before making a decision to invest in the Notes.]

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¨ [[The value of the underlying asset may not completely track the value of the securities, futures contracts or physical commodities in which such exchange traded fund invests Although the trading characteristics and valuations of the underlying asset will usually mirror the characteristics and valuations of the securities, futures contracts or physical commodities in which such exchange traded fund invests, its value may not completely track the value of such securities, futures contracts or physical commodities. The value of the underlying asset will reflect transaction costs and fees that the securities, futures contracts or physical commodities in which that exchange traded fund invests do not have. In addition, although the underlying asset may be currently listed for trading on an exchange, there is no assurance that an active trading market will continue for such underlying asset or that there will be liquidity in the trading market.]]

¨ [[Fluctuation of NAV The net asset value (the NAV) of an exchange traded fund may fluctuate with changes in the market value of such exchange traded funds securities, futures contracts or physical commodities holdings. The market prices of the underlying asset may fluctuate in accordance with changes in NAV and supply and demand on the applicable stock exchanges. In addition, the market price of the underlying asset may differ from its NAV per share; the underlying asset may trade at, above or below its NAV per share.]]

¨ [[Failure of the underlying asset to track the level of the underlying index While the underlying asset is designed and intended to track the level of a specific index (an underlying index), various factors, including fees and other transaction costs, will prevent the underlying asset from correlating exactly with changes in the level of such underlying index. Accordingly, the performance of the underlying asset will not be equal to the performance of its underlying index during the term of the Notes.]]

¨ Potential conflict of interest UBS and its affiliates may engage in business with the issuer of the underlying asset, which may present a conflict between the obligations of UBS and you, as a holder of the Notes. The calculation agent, an affiliate of UBS, will determine whether the final price is less than the conversion price and accordingly the payment at maturity on your Notes. The calculation agent may postpone the determination of the final price and the maturity date if a market disruption event occurs and is continuing on the final valuation date and may make adjustments to the conversion price, share factor, final price and/or the underlying asset itself for certain corporate events affecting the underlying asset. For more information, see the section General Terms of the Notes Antidilution Adjustments beginning on page PS-33 of the Airbag Yield Optimization Notes product supplement. As UBS determines the economic terms of the Notes, including the coupon rate and trigger price, and such terms include hedging costs, issuance costs and projected profits, the Notes represent a package of economic terms. There are other potential conflicts of interest insofar as an investor could potentially get better economic terms if that investor entered into exchange-traded and/or OTC derivatives or other instruments with third parties, assuming that such instruments were available and the investor had the ability to assemble and enter into such instruments.

¨ Potentially inconsistent research, opinions or recommendations by UBS UBS and its affiliates may publish research or express opinions or provide recommendations that are inconsistent with purchasing or holding the Notes, and which may be revised without notice. Any research, opinions or recommendations expressed by UBS or its affiliates may not be consistent with each other and may influence the value of the Notes.

¨ Under certain circumstances, the Swiss Financial Market Supervisory Authority (FINMA) has the power to take actions that may adversely affect the Notes Pursuant to article 25 et seq. of the Swiss Banking Act, FINMA has broad statutory powers to take measures and actions in relation to UBS if it (i) is 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 Notes, into equity, and/or (c) potentially provide for haircuts on obligations of UBS, including its obligations under the Notes. Although no precedent exists, if one or more measures under the revised regime were imposed, such measures may have a material adverse effect on the terms and market value of the Notes and/or the ability of UBS to make payments thereunder.

¨ Dealer incentives UBS and its affiliates may act as a principal, agent or dealer in connection with the sale of the Notes. Such affiliates, including the sales representatives, will derive compensation from the distribution of the Notes which may serve as an incentive to sell these Notes instead of other investments. We will pay total underwriting compensation of []% per Note to any of our affiliates acting as agents or dealers in connection with the distribution of the Notes. Given that UBS Securities LLC and its affiliates temporarily maintain a market making premium, it may have the effect of discouraging UBS Securities LLC and its affiliates from recommending sale of your Notes in the secondary market.

¨ Uncertain tax treatment Significant aspects of the tax treatment of the Notes are uncertain. You should read carefully the sections entitled What are the Tax Consequences of the Notes in the prospectus supplement and Supplemental U.S. Tax Considerations beginning on page PS-47 of the Airbag Yield Optimization Notes product supplement and consult your tax advisor about your tax situation.

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Information About the Underlying Asset

All disclosures regarding the underlying asset are derived from publicly available information. UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying asset. You should make your own investigation into the underlying asset.

The underlying asset is registered under the Securities Act of 1933, the Securities Exchange Act of 1934, and/or the Investment Company Act of 1940, each as amended. Companies with securities registered with the SEC are required to file financial and other information specified by the SEC periodically. Information filed by the issuer of the underlying asset 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 the issuer of the underlying asset 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.

Information from outside sources is not incorporated by reference in, and should not be considered part of, this final terms supplement or any accompanying prospectus, product supplement or prospectus supplement. UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying asset.

[Underlying Asset]

[]

Information from outside sources is not incorporated by reference in, and should not be considered part of, this final terms supplement or any accompanying prospectus. UBS has not conducted any independent review or due diligence of any publicly available information with respect to the underlying asset.

Historical Information

The following table sets forth the quarterly high and low closing prices for []s [common stock] [American depositary shares] [shares], based on daily closing prices on the primary exchange for []. We obtained the closing price information set forth below from the Bloomberg Professional ® service (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. []s closing price on [], [] was $[]. Past performance of the underlying asset is not indicative of the future performance of the underlying asset.

Quarter Begin			Quarterly High	Quarterly Low	Quarterly Close
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As of the date of this final terms supplement, available information for the [] calendar quarter of [] includes data for the period from [], [] through [], []. 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 [] calendar quarter of [].

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The graph below illustrates the performance of []s [common stock] [American depositary shares] [shares] for the period indicated, based on information from Bloomberg. The solid line represents the conversion price of $[], which is equal to []% of the closing price on [], []. Past performance of the underlying asset is not indicative of the future performance of the underlying asset.

[GRAPHIC]

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 Notes at the issue price to the public less the underwriting discount indicated on the cover of this final terms supplement, the document filed pursuant to Rule 424(b) containing the final pricing terms of the Notes. UBS Securities LLC has agreed to resell all of the Notes 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 final terms supplement.

UBS Securities LLC and its affiliates may offer to buy or sell the Notes in the secondary market (if any) at prices greater than UBS internal valuation The value of the Notes 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 Notes immediately after the trade date in the secondary market is expected to exceed the estimated initial value of the Notes 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 [] 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 intend, but are not required, to make a market for the Notes and may stop making a market at any time. For more information about secondary market offers and the estimated initial value of the Notes, see Key Risks Fair value considerations and Key Risks Limited or no secondary market and secondary market price considerations on pages A-5 and A-6 of this final terms supplement.

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Annex B

UBS Equity Investor Investment Guide

B-1

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UBS Equity Investor investment guide Airbag Yield Optimization Notes (cash settled)

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B-3 | Airbag Yield Optimization Notes Contents B-4 Overview B-5 How the notes work B-9 An example investment B-14 Key investment risks B-16 Where to find additional information B-17 Glossary

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Airbag Yield Optimization Notes | B-4 Overview UBS Equity Investor is a proprietary trading system that allows you and your financial advisor to customize structured investments on a same-day basis. Airbag Yield Optimization Notes (referred to as the notes) are one of the investments that can be built for you using UBS Equity Investor. These notes are debt securities issued by UBS AG that are designed to provide fixed coupon payments for investors willing to accept the downside market risk of individual stocks (including American depositary shares) or exchange- traded funds (ETFs), subject to an airbag feature. Airbag Yield Optimization Notes are not a substitute for traditional fixed income investments. Because an investment in an Airbag Yield Optimization Note involves a significant risk of loss, it is important that you familiarize yourself with the features and risks of these investments before you invest. In this guide, you will learn about how these notes work and understand some of the terminology related to these notes. You can also walk through a hypothetical example of an investment in a note and read a summary of key investment risks. This investment guide is just one step in learning about Airbag Yield Optimization Notes. In the prospectus supplement of which this investment guide is an annex (and which also includes a sample final terms supplement) , you will find links to the product supplement and the base prospectus (collectively, with the prospectus supplement, the base offering documents) for the notes, which you should read and understand prior to investing in any notes. You will also find instructions on how you can find additional information about the issuer of the notes, UBS AG. If you wish to invest or if you have any questions about these or other opportunities, please contact your UBS financial advisor.

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B-5 | Airbag Yield Optimization Notes How the notes work What are Airbag Yield Optimization Notes? Airbag Yield Optimization Notes are unsubordinated, unsecured debt instruments issued by UBS AG (UBS). Like a traditional UBS debt instrument, any payment on a note is subject to the creditworthiness of UBS. However, unlike a traditional debt instrument, UBS is not necessarily obligated to repay the full principal amount of a note at maturity. Whether or not UBS repays the full principal amount of a note at maturity depends on the performance of the stock or ETF to which the note is linked (which is referred to as the ). Airbag Yield Optimization Notes can have similar downside market risk as the underlying asset. Therefore, if you purchase an Airbag Yield Optimization Note, you are accepting the risk that you may not receive your full principal amount back at maturity. For accepting this risk of loss, UBS will pay higher coupon rates on your note compared to the rates that UBS would pay on a traditional debt instrument with the same maturity. So, as a rule of thumb, the higher the interest rate is on a note, the greater the risk of loss will be on the note. Due to this risk of loss, Airbag Yield Optimization Notes are not meant to be substitutes for traditional fixed income investments. How much interest will I receive on the notes? Before you agree to purchase an Airbag Yield Optimization Note, you will receive a preliminary terms supplement that summarizes the terms of the note, including the indicative interest rate on the note (which is referred to as the coupon rate ). The coupon rate for each note will vary depending on a number of factors (including those set forth in the table below). UBS will pay you a periodic coupon regardless of how the underlying asset performs. However, it is important to keep in mind that, although Airbag Yield Optimization Notes pay a fixed, periodic coupon, they carry a significant risk of loss. Therefore, they are not meant to be used as substitutes for traditional fixed income investments. What will UBS pay at maturity of the notes? At maturity, UBS' payment to you will depend on the performance of the underlying asset relative to a predetermined conversion price . The conversion price for your notes is set on the trade date at a price below the initial price of the underlying asset typically 60% to 95% of the initial price. The conversion price for each note will vary depending on a number of factors (including those set forth in the table below). Generally, a higher conversion price corresponds to a higher coupon rate, but also results in a greater risk of loss. On the final valuation date for your note, UBS will observe the closing price of the underlying asset (which is referred to as the ) relative to the conversion price. If the final price is equal to or greater than the conversion price, UBS will repay you the full principal amount of your note on the maturity date (typically three business days after the final valuation date). You will not participate in any increase in the price of the underlying asset. Relationship between the conversion price, coupon rate and selected factors Factors that influence the conversion price and coupon rate of your note Conversion price Coupon rate Implied volatility of underlying asset Dividend rate of underlying asset Market interest rates UBS creditworthiness Conversion price n/a Coupon rate n/a This table is based on generalizations for ease of conceptual understanding. For the respective term or factor in each column, the arrow indicates the general relationship to the conversion price or coupon rate, as applicable. An up-arrow indicates a generally positive relationship. A down-arrow indicates a generally negative relationship. E.g., a higher implied volatility for the underlying asset generally results in a lower conversion price or a higher coupon rate for your note. The relationship between the conversion price, coupon rate and the selected factors may vary in individual cases based on complex and interrelated political, economic, financial and other factors. underlying asset final price

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Airbag Yield Optimization Notes | B-6 If the final price of the underlying asset is less than the conversion price, UBS will pay you less than your full principal amount at maturity. Specifically, UBS will pay you an amount per note equal to the final price multiplied by a share factor , which amount will be worth less than your principal amount and may be zero. Because Airbag Yield Optimization Notes are unsubordinated, unsecured debt obligations of UBS, all payments on the notes are subject to the creditworthiness of UBS. If UBS is unable to pay its obligations as they come due, you could lose some or all of your initial investment in the notes. Can I elect to receive shares instead of cash at maturity? Before you purchase your notes, you can ask your financial advisor to structure them so that if the final price of the underlying asset is below the conversion price, instead of paying a cash amount, UBS will deliver to you a number of shares of the underlying asset per note. The number of shares that will be delivered to you per note (the share delivery amount will be equal to the principal amount per note divided by the conversion price . In lieu of delivering any fractional shares of the underlying asset, UBS will pay you cash in an amount equal to that fraction multiplied by the closing price of the underlying asset on the final valuation date. If you receive shares at maturity, the shares may be worth more or less than they were worth on the final valuation date and are likely to be worth less, and may be worth substantially less than the principal amount per note. The actual gain or loss on your investment in the note will depend on the value of the shares whenever you sell them. If the shares are worthless, you will lose your entire investment. What underlying assets are available for the notes? There are over 200 stocks and ETFs available for you to select as an underlying asset for your note. The preliminary terms supplement you receive will include a brief description of the underlying asset selected, along with instructions on how to find additional information about the underlying asset. How much do the notes cost? The issue price and principal amount of each Airbag Yield Optimization Note is $1,000. The issue price includes all fees payable on the note, as discussed below. What are the fees associated with the notes? The fees associated with the notes include a sales concession paid to UBS Financial Services Inc., which pays your financial advisor, as well as the potential cost and profit to UBS for issuing and hedging its obligations under the notes. These fees are embedded in the issue price that you pay for the notes and are reflected in the terms of the note. Once the terms of the note are set, these fees do not reduce the coupon payments you are entitled to receive or the payment at maturity of the notes, but they may affect the price of the notes prior to maturity. Understanding the relationship between the underlying asset price and the payment at maturity Trade date The conversion price is set below the initial price The initial price is determined. Underlying asset price Conversion price Initial price Final valuation date If the final price conversion price, UBS repays the full principal amount per note at maturity. Table assumes the selection of the physical delivery option at maturity. Please refer to the below discussion for details regarding the cash settlement option. If the final price < conversion price, at maturity UBS delivers a number of shares equal to the principal amount per note divided by the conversion price (plus cash for fractional shares) which will likely be worth less than the principal amount per note. )

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B-7 | Airbag Yield Optimization Notes What if I want to sell the notes before maturity? The notes will not be listed on any exchange. Although the notes are designed to be held to maturity, you may be able to sell your notes back to UBS prior to maturity. The price that you receive for your note may be more or less than the principal amount of your note and may be less than the principal amount even if the underlying asset price is equal to or greater than the conversion price. Please keep in mind that UBS is not obligated to make a market for your notes and you may not be able to sell your notes prior to maturity. Therefore, you should be prepared to hold your notes to maturity. What happens if there is a stock split or a merger? For stock splits, mergers or other corporate actions relating to the underlying asset, the calculation agent for the notes will generally make an adjustment to the conversion price, final price, what you may receive at maturity and/or the underlying asset. The type of adjustment will depend on the type of corporate action that has occurred and, in some cases, no adjustment may be made. The base offering documents for the notes describe some of the corporate actions that may occur and some of the adjustments that may occur. The purpose of any adjustment by the calculation agent is generally to offset any change in the economic position of the investors and UBS from the corporate action. If a corporate action occurs and the calculation agent does not make any adjustment, the market value of your notes and the payment at maturity may be negatively affected. Because the calculation agent for the notes is an affiliate of UBS, the calculation agent may have a conflict of interest in determining whether and how to make any adjustments. What are the expected tax consequences of investing in the notes? The base offering documents for the notes will contain tax disclosure describing the expected U.S. federal income tax consequences of investing in the notes. The tax consequences are complex and uncertain. As a reminder, UBS and its employees do not provide tax advice. You should consult with your tax advisor prior to investing in any notes. As described in the base offering documents, UBS expects to treat the notes for tax purposes as a combination of a debt instrument and a put option on the underlying asset. Under this treatment, UBS will report a portion of the coupons it pays to you as interest on the debt component, taxable in the year you receive it, and treat the remainder of the coupon as put option premium, which is deferred for tax purposes. At maturity, if UBS repays the principal amount in cash, you will have to recognize the deferred put option premium as short-term capital gain at that time. If, instead, UBS delivers shares of the underlying asset at maturity, your holding period with respect to the shares will start at that time and your tax basis in the shares will be equal to the price you paid for the notes minus the deferred put option premium. If you have elected to receive cash instead of shares at maturity, at the time you receive the cash payment, you will recognize the deferred put option premium as short-term capital gain and recognize a capital loss (short-term or long-term depending on your holding period for the notes) equal to the difference between the cash you received and your purchase price for the notes. The Internal Revenue Service could assert a different tax treatment for the notes, which could require you and UBS to treat the notes differently than described in the base offering documents.

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Investment summary Higher Coupon Rates UBS will pay you fixed coupon payments at a higher coupon rate than you could receive on a traditional UBS debt instrument. However, the greater the coupon rate is, the greater your risk of loss at maturity will generally be. In addition, you will not participate in any appreciation in the price of the underlying asset during the term of the notes. Downside market risk If the final price of the underlying asset is less than the conversion price, UBS will not repay the full principal amount of your notes at maturity. In that case, UBS will deliver to you shares of the underlying asset (or cash) that are likely to be worth less, and may be worth substantially less, than your principal amount. Additional considerations You will be subject to the creditworthiness of UBS for all payments under the notes. There may be limited or no liquidity for the notes. The tax consequences of investing in the notes are complex and uncertain. Please see the risk section of this investment guide and the base offering documents for additional important considerations. Airbag Yield Optimization Notes | B-8

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An example investment 1) Select an underlying asset You and your financial advisor can select an underlying asset for your note from a list of over 200 stocks and ETFs. Many investors use different strategies in determining which underlying asset to select (see the table below for a discussion of some of these strategies). For purposes of this example investment, we will use a fictional underlying asset for your note: XYZ common stock. 2) Select a maturity for your note Consider how long you want to hold your investment. The maturity of your note can be any length of time from three months to two years. Remember that you should be prepared to hold your note to maturity. For purposes of this example investment, we will use a maturity of six months. 3) Select whether you want to receive cash or physical settlement at maturity If you select physical settlement and the final price of the underlying asset is below the conversion price, at maturity UBS will deliver to you shares of the underlying asset. If you select cash settlement and the final price of the underlying asset is below the conversion price, at maturity UBS will pay you a cash amount which will be less than the principal amount , if anything, of your original investment. Regardless of whether you select cash or physical settlement at maturity, if the final price of the underlying asset is equal to or greater than the conversion price, UBS will repay the full principal amount of the note in cash at maturity. In this section of the investment guide, we provide an example of a hypothetical investment in the Airbag Yield Optimization Notes. This example is for illustrative purposes only. The actual terms and conditions for any note you purchase will be included in the preliminary terms supplement that you will receive prior to investing in the notes. Sample strategies for selecting an underlying asset Investment goal Underlying asset selection Considerations Outperform the underlying asset Range-bound or "neutral" rated stocks and ETFs (i.e., stocks and ETFs you expect will not appreciate by more than the coupons paid on your note) There is no guarantee that the stock or ETF will not appreciate by more than the coupons paid, resulting in underperformance Earn higher coupon rates while limiting the risk of loss Bullish or "buy" rated stocks and ETFs (i.e., stocks and ETFs you believe are undervalued or that you expect will appreciate significantly) There is no guarantee that the stock or ETF will not close below the conversion price on the final valuation date, resulting in a loss on your investment There is no assurance that the indicated investment goal will be achieved. Investors may lose all or a substantial portion of their investment in the notes. Investors will not participate in any appreciation of the underlying asset during the term of the notes and the notes may underperform a direct investment in the underlying asset. B-9 | Airbag Yield Optimization Notes

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For purposes of this example investment, we will assume that you selected cash settlement. 4) Select the conversion price or the coupon rate for your note You need to select either the conversion price or the coupon rate for your note. The conversion price can be set anywhere from 60% to 95% of the initial price of the underlying asset. The coupon rate for the note has no pre-set limits but coupon rates between 5% and 15% per annum are common. Your financial advisor will use UBS Equity Investor to solve for the final parameter of your note. If you selected the coupon rate, your financial advisor will solve for the indicative conversion price. If you selected the conversion price, your financial advisor will solve for the indicative coupon rate. For purposes of this example investment, we will assume that you selected a conversion price equal to 80% of the initial price of the underlying asset. We will also assume that your financial advisor solved for an indicative coupon rate range of between 9.00% and 10.00% per annum (or between 4.50% to 5.00% total for six months). 5) Agree on indicative terms and review the preliminary terms supplement If you are satisfied with the parameters for your note, your financial advisor will e-mail you a preliminary terms supplement summarizing the key terms, conditions and risks for your note. The preliminary terms supplement should be read in conjunction with the base offering documents, including this investment guide. In the preliminary terms supplement, either the coupon rate or the conversion price will be represented by an indicative range (depending on which parameter your financial advisor solved for). For purposes of this example investment, we will assume that the preliminary terms supplement shows a range on the coupon rate of between 9.00% and 10.00% per annum (or between 4.50% to 5.00% total for six months). If you want to receive the top end of the coupon rate range or bottom of the trigger price range your financial advisor solved for, you must confirm your order within 20 minutes of when your financial advisor generated the indicative terms. Otherwise, the final parameter will be set within the indicated range after you confirm your order with your financial advisor based on market conditions at that time. For purposes of this example investment, we will assume that you do not confirm your order within 20 minutes of when your financial advisor generated the indicative terms and that the coupon rate will be set within the indicated range after you confirm your order. 6) Confirm your order with your financial advisor The deadline for your financial advisor to generate terms and send you the preliminary terms supplement is 2pm, Eastern time. The deadline to place an order is 3pm, Eastern time, on the same day you receive the preliminary terms supplement for your note. This day will become the trade date for your note. Because you have a limited amount of time to review the preliminary terms supplement and accept the terms of your note, you should carefully review the base offering documents and be comfortable with the features and risks of Airbag Yield Optimization Notes prior to considering your first transaction. The minimum issue size for creating a note is $100,000, while the maximum issue size is $4 million. When deciding how much to invest in any individual note, consider your market exposure to the underlying asset and your overall credit exposure to UBS. Generally, you should not invest more in a note than you would be willing to invest directly in the underlying asset. You should also consider your credit exposure to UBS across your entire portfolio and whether an investment in the notes might cause you to be overly concentrated in UBS credit risk. For purposes of this example investment, we will assume that you confirm an order with your financial advisor to invest $100,000 in the note. 7) The final terms for your note are set The initial price of the underlying asset will be set equal to the closing price of the underlying asset on the trade date. The conversion price will be set below the initial price as indicated in the preliminary terms supplement. The coupon rate will be set within the range indicated in the preliminary terms supplement. These final terms for your note will be e-mailed to you in a final terms supplement . Airbag Yield Optimization Notes | B-10

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For purposes of this example investment, we will assume that the initial price of the underlying asset is $25.00, the conversion price is $20.00 (80% of $25.00) and the coupon rate is set within the range indicated in your preliminary terms supplement at 9.60% per annum (equivalent to 4.80% total for six months). 8) Coupon payments on your note UBS will pay you a monthly coupon based on the coupon rate for your notes. Each coupon will be split into two payments as it enters your UBS account, which facilitates the tax reporting for your note as a combination of a debt instrument and a put option. For purposes of this example investment, you would receive six monthly coupon payments of $800 each (equal to your $100,000 investment multiplied by the 9.60% per annum coupon rate, divided by 12 months). The coupon payments for an actual investment in a note will be based on an 30/360 day count convention . 9) The value of your note prior to maturity You should be prepared to hold your note to maturity. If you wish to sell your note prior to maturity, you should be aware that the value of your note will fluctuate based on a number of factors, including the performance of the underlying asset, time remaining to maturity, the implied volatility of the underlying asset, dividends paid on the underlying asset, market interest rates, the creditworthiness of UBS, the accrued but unpaid coupon on your note and the fees embedded in the price of your note. Hypothetical note terms Issuer UBS AG Maturity 6 months Selected by you. Underlying asset XYZ common stock Selected by you. Total principal amount $100,000 Selected by you. Principal amount $1,000 per note Initial price $25.00 The closing price of the underlying asset on the trade date. Conversion price $20.00 Equal to 80% of the initial price as selected by you. Coupon rate 9.60% per annum (4.80% total for 6 months) Within the range indicated in the preliminary terms supplement. Generally, you should not expect upside movements in the underlying asset to coincide with similar movements in the value of the notes due to limitations on your return potential from the coupon rate and other factors. On the other hand, declines in the price of the underlying asset may have a significantly negative effect on the value of your note. Prior to maturity, the market value of your note may be significantly less than the principal amount even if the price of the underlying asset is equal to or greater than the conversion price. UBS expects to maintain a market in its notes for clients who wish to sell their notes prior to maturity. However, UBS is under no obligation to repurchase your note, and the price you receive from UBS may be at a discount to the market value of your note. Because you may not be able to sell your note prior to maturity, you should be prepared to hold your note to maturity. If you are able to sell your note prior to maturity, you may incur a substantial loss even if the price of the underlying asset is greater than the conversion price at that time. 10) The payment at maturity The return on your note at maturity will depend upon the final price of the underlying asset on the final valuation date relative to the conversion price. Please remember that any payment on a note, including any repayment of principal, is subject to the creditworthiness of UBS. If UBS is unable to repay its obligations when due, you may lose some or all of your investment in the notes. B-11 | Airbag Yield Optimization Notes

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Scenario 1: The final price of XYZ stock is $30.00 (a 20% increase from the initial price). Over the term of the note, you would have received a total of $4,800 in coupon payments. Because the final price of XYZ stock is greater than the conversion price, UBS will repay the full principal amount of the note in cash at maturity ($1,000 per note or $100,000 total). The return on your investment would be 4.8%. Scenario 2: The final price of XYZ stock is $22.00 (a 12% decline from the initial price). Over the term of the note, you would have received a total of $4,800 in coupon payments. Even though the final price of XYZ stock is less than the initial price, the final price of XYZ stock is greater than the conversion price. In this scenario, UBS will repay the full principal amount of the note in cash at maturity ($1,000 per note or $100,000 total). The return on your investment would be 4.8%. Scenario 3 : The final price of XYZ stock is $15.00 (a 40% decline from the initial price). Over the term of the note, you would have received a total of $4,800 in coupon payments. Because the final price of XYZ stock is less than the conversion price and you elected cash settlement for your notes, UBS will repay less than the full principal amount at maturity. In this case, UBS will pay you for each note you own an amount in cash equal to the product of the final price of XYZ stock multiplied by the share factor. After accounting for the $4,800 in coupon payments, you will receive $79,800 at maturity, representing a total loss of 20.2% on your investment. Airbag Yield Optimization Notes | B-12

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B-13 | Airbag Yield Optimization Notes Hypothetical payout on your $100,000 investment Final price Total coupons paid Payment at maturity (value of shares as of final valuation date) Return on investment (valued as of final valuation date) $30.00 $4,800 $100,000 4.8% $29.00 $4,800 $100,000 4.8% $28.00 $4,800 $100,000 4.8% $27.00 $4,800 $100,000 4.8% $26.00 $4,800 $100,000 4.8% Initial price $25.00 $4,800 $100,000 4.8% $24.00 $4,800 $100,000 4.8% $23.00 $4,800 $100,000 4.8% $22.00 $4,800 $100,000 4.8% $21.00 $4,800 $100,000 4.8% Conversion price $20.00 $4,800 $100,000 4.8% $19.00 $4,800 $95,000 -0.2% $18.00 $4,800 $90,000 -5.2% $17.00 $4,800 $85,000 -10.2% $16.00 $4,800 $80,000 -15.2% $15.00 $4,800 $75,000 -20.2% $0.00 $4,800 $0 -95.2% Summary Airbag Yield Optimization Notes provide the opportunity to earn fixed coupon payments at a higher coupon rate than you could receive on a traditional UBS debt instrument for investors willing to accept the downside market risk of individual stocks or ETFs, subject to an airbag feature. Therefore, these notes are not meant to be used as substitutes for traditional fixed income investments. By using UBS Equity Investor, your financial advisor can customize Airbag Yield Optimization Notes for you across specified parameters to help you meet your investment goals. However, investing in Airbag Yield Optimization Notes involves significant risks and considerations that you should understand. We discuss some of these key investment risks in the next section of this guide.

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Airbag Yield Optimization Notes | B-14 Key investment risks Issuer credit risk Airbag Yield Optimization Notes are unsubordinated, unsecured debt obligations of UBS AG. Any payment on a note, including any repayment of principal, is subject to the creditworthiness of UBS. If UBS is unable to pay its obligations as they come due, you may lose some or all of your investment in your note. Risk of loss You may be exposed to the downside market risk of the underlying asset and may lose all or a substantial portion of their investment depending on how much the underlying asset declines. Any incremental decline in the underlying asset price below the conversion price will result in a proportionately higher loss to the principal amount at maturity. Generally, the higher the coupon rate on a note, the greater the risk of loss on that note. If your notes provide for cash settlement, your payment at maturity will not reflect any increase in the value of the underlying equity from the final valuation date to the maturity date. Potential returns are limited Potential returns on notes are expected to be limited to the coupons paid. You will not participate in any appreciation of the underlying asset and you will be subject to the risk of a decline in the price of an underlying asset. Performance prior to maturity In addition to the performance of the underlying asset, fees embedded in the issue price of a note and market factors that influence the price of bonds and options generally will also influence the value of a note prior to maturity. Therefore, the value of a note prior to maturity may be more or less than its issue price and may be substantially different than the payment expected at maturity. You must hold your note to maturity to receive the stated payout, including any repayment of principal. Fair value considerations The issue price you pay for the notes will exceed 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, UBS will determine the estimated initial value of the notes by reference to its internal pricing models and it will be set forth in the relevant final terms supplement. You will also receive an indicative range for the estimated initial value in the preliminary terms supplement. These pricing models incorporate, among other variables, an internal funding rate that is typically lower than the rate UBS pays on conventional debt of a similar term. Use of an internal funding rate generally reduces the economic value of the notes and may adversely affect any secondary market pricing on the notes. No guarantee of liquidity No offering of the notes will be listed or displayed on any securities exchange or any electronic communications network. A secondary trading market for the notes may not develop. UBS Securities LLC and other affiliates of UBS may make a market in the notes, although they are not required to do so and may stop making a market at any time. The price, if any, at which you may be able to sell your notes prior to maturity could be at a substantial discount from the issue price to public and to its intrinsic economic value; and as a result, you may suffer substantial losses. No dividends or voting rights In owning a note rather than owning the underlying asset directly, you give up certain benefits associated with direct ownership. If the underlying asset pays a dividend, that dividend will not be paid out to you. You also will not have voting rights that direct owners may have. Investing in Airbag Yield Optimization Notes involves significant risks. Below, we summarize some of the key risks. However, prior to investing in any notes, you should carefully review the more detailed discussion of risks in the base offering documents and in the preliminary terms supplement you receive from your financial advisor.

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Potential conflicts UBS and its affiliates may play a variety of roles in connection with a note, including acting as calculation agent, dealer and hedging UBS' obligations under the note. In performing these duties, the economic interests of the calculation agent and other UBS affiliates may be adverse to your interests as a note investor. Additionally, our affiliates will derive compensation from sales of the notes. B-15 | Airbag Yield Optimization Notes Taxation The tax treatment of a note is complex. The base offering documents contain a tax disclosure discussing the expected federal income tax consequences of investing in a note. Significant aspects of the tax treatment of a note may be uncertain. UBS Financial Services Inc. and its employees do not provide tax advice. You should consult your own tax advisor about your own tax situation before investing in any notes.

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Where to find additional information

For additional information about UBS AG, the issuer of the notes, please visit the SEC website at www.sec.gov . Our Central Index Key, or CIK, on the SEC website is 0001114446. You can also find additional information at www.ubs.com/investors .

In the prospectus supplement of which this investment guide is an annex (and which also includes a sample final terms supplement), you will find links to the product supplement and the base prospectus (collectively, with the prospectus supplement, the base offering documents) for the securities, which you should read and understand prior to investing in any securities. To get back to the beginning of the prospectus supplement, click here . The other base offering documents are available on page ii of the prospectus supplement.

Your financial advisor can also send you physical copies of these documents free of charge.

Airbag Yield Optimization Notes | B-16

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Airbag A feature designed to potentially reduce the downside exposure to underlying asset declines at maturity. See conversion price below. Calculation agent UBS Securities LLC is the calculation agent for the notes. The calculation agent will have sole discretion in calculating the amounts payable in respect to the notes, and you should be aware of potential conflicts of interest between the calculation agent's role and your interest as a holder of the notes prior to making an investment. Conversion price The conversion price is a specified price of the underlying asset that is below the initial price set forth in the applicable final terms supplement. Coupon rate UBS will pay periodic coupons on the notes. The coupon rate is a percentage that expresses the per annum rate of the coupon payments. The frequency of coupon payments and the coupon rate for any particular offering will be specified in the preliminary terms supplement which you will receive prior to making an investment. Day count convention The coupon payments on the notes will accrue daily at the coupon rate on the basis of a 30/360 day count convention, which assumes that each month has 30 days and each year has 360 days. This day count convention helps to ensure that the periodic coupon payments are made in equal amounts under most circumstances. Final price The final price is the closing price of the underlying asset on the final valuation date, as determined by the calculation agent. Final valuation date The final valuation date will be disclosed in the preliminary terms supplement you receive. The final valuation date may be subject to postponement if certain market disruption events occur. Glossary Final terms supplement The final terms supplement is the prospectus that contains the final terms of your note and will be e-mailed to you on the trade date after the final terms for your note have been set and the trade has been executed. Initial price The initial price is the closing price of the underlying asset on the trade date, as determined by the calculation agent. Since you must place your order before the market closes on the trade date, you will not know the exact initial price at that time. The initial price will be disclosed in the final terms supplement. Issue price The issue price is the price you pay for your note. The issue price per note will be $1,000. Implied volatility Implied volatility of an underlying asset is a forward-looking measure of that asset's price variation that is derived from the market price of options on that stock or ETF. Maturity date The maturity date is the date on which UBS will pay you the cash or deliver shares which you are owed in accordance with the terms of your note. UBS will also pay you the final coupon payment on the maturity date. The maturity date will be disclosed in the preliminary terms supplement and is typically three business days after final valuation date and may be postponed if the final valuation date is postponed. Preliminary terms supplement The preliminary terms supplement is the prospectus that summarizes the preliminary terms and conditions of your note as well as certain key risks. You must review and confirm the preliminary terms with your financial advisor before placing your order for your notes. B-17 | Airbag Yield Optimization Notes

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Share delivery amount The number of shares per note that may be delivered at maturity, equal the principal amount per note divided by the conversion price. Share Factor The share factor is an amount equal to the principal amount divided by the conversion price. Trade date The trade date is the date on which you place your order for a note. On this date, the trade is executed and the initial price, conversion price and coupon rate of your note are fixed. Underlying asset The underlying asset may be a common stock or an American depositary share (ADS) of a specific company, or the shares of an ETF. Airbag Yield Optimization Notes | B-18 UBS Financial Services Inc. is a subsidiary of UBS AG.

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UBS AG Capital/Financing Update 2016

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UBS AG — Capital/Financing Update 2016

35612_prs_2016-05-02_7ce82eda-bb59-4548-ab7d-8b49085c29e0.zip

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UBS AG Capital/Financing Update 2016

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