1
Filed Pursuant to Rule 424(b)(3)
REgistration No. 333-46930
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY 17, 2001)
- --------------------------------------------------------------------------------
[UBS AG LOGO]
UBS AG
$45,000,000
23.125% GOALs DUE MAY 31, 2002
- --------------------------------------------------------------------------------
Each note being offered has the terms described beginning on page S-15,
including the following:
- - Issuer: UBS AG
- - Issue: $45,000,000 USD principal amount of
GOALs due May 31, 2002 linked to
shares in the common stock of EMC
Corporation
- - Coupon: 23.125% per annum, payable
semi-annually in arrears on November
30, 2001 and May 31, 2002, which
shall be composed of (1) an interest
coupon representing a rate of 4.10%
per annum and (2) a coupon
representing an option premium of
19.025% per annum
- - Initial price of $38.45 per share, subject to
underlying stock antidilution adjustments
(strike price):
- - Key dates: Trade: May 24, 2001
Settlement: May 30, 2001
Determination: May 28, 2002
Maturity: May 31, 2002
- - Booking branch: The GOALS will be booked in UBS AG,
Jersey Branch
- - Proceeds at maturity are based on the closing price of EMC Corporation common
stock three business days before maturity:
If the closing price of EMC Corporation common stock is at or above the
initial price per share of $38.45, holders will receive a cash payment equal
to the principal amount of their GOALs.
If the closing price of EMC Corporation is lower than the initial price per
share of $38.45, holders will receive 26.0078 shares of EMC Corporation common
stock for each $1,000 principal amount of their GOALs (the stock redemption
amount). Fractional shares will be paid in cash. The number of shares received
for each $1,000 invested will be calculated by dividing the initial price per
share of $38.45 into $1,000. The stock redemption amount and the initial price
per share of $38.45 (strike price) may change due to stock splits or other
corporate actions.
- - Calculation agent: UBS Warburg LLC
- - Listing: The GOALs have been approved for listing on the American Stock
Exchange under the symbol "EMM.A."
SEE "RISK FACTORS" BEGINNING ON PAGE S-5 FOR RISKS RELATED TO AN INVESTMENT IN
THE GOALs.
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT UBS AG
- ------------------------------------------------------------------------------------------------------
Per GOAL.................................................. 100% 1.666% 98.334%
- ------------------------------------------------------------------------------------------------------
Total..................................................... $45,000,000 $749,700 $44,250,300
- ------------------------------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT AND ACCOMPANYING PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The GOALs are not deposit liabilities of UBS AG and are not insured by the
Federal Deposit Insurance Corporation, an independent agency of the United
States Government, or any other governmental agency of the United States,
Switzerland or any other jurisdiction.
UBS AG may use this prospectus supplement and accompanying prospectus in the
initial sale of any GOAL. In addition, UBS AG, UBS Warburg LLC, UBS PaineWebber
Inc. or any other affiliate of UBS AG may use this prospectus supplement and
accompanying prospectus in a market-making transaction for any GOAL after its
initial sale. Unless UBS AG or its agent informs the purchaser otherwise in the
confirmation of sale, this prospectus supplement and accompanying prospectus are
being used in a market-making transaction.
UBS WARBURG UBS PAINEWEBBER INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS MAY 24, 2001.
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary......... S-3
Risk Factors.......................... S-5
The GOALs are not ordinary senior
notes: there is no guaranteed
return of principal.............. S-5
The value of the GOALs cannot exceed
the stated principal amount at
maturity......................... S-5
You may not have an active trading
market in the GOALs.............. S-5
The market price of the GOALs will
be influenced by unpredictable
factors.......................... S-5
If the market price of EMC
Corporation common stock changes,
the market value of your GOALs
may not change in the same
manner........................... S-6
Trading and other transactions by
UBS AG or its affiliates in the
common stock of EMC Corporation,
or options and other derivative
products on the common stock of
EMC Corporation, may impair the
value of the GOALs............... S-6
UBS AG's business activities may
create conflicts of interest
between you and us............... S-7
You have no shareholder rights in
the common stock of EMC
Corporation...................... S-7
UBS AG and its affiliates have no
affiliation with EMC Corporation,
and are not responsible for EMC
Corporation's public disclosure
of information, whether contained
in SEC filings or otherwise...... S-7
You have limited antidilution
protection....................... S-7
There are potential conflicts of
interest between you and the
calculation agent................ S-8
We can postpone the maturity date if
a market disruption event
occurs........................... S-8
Significant aspects of the tax
treatment of the GOALs are
uncertain........................ S-8
Historical Performance of EMC
Corporation......................... S-9
Sensitivity Analysis: Comparison of
Total Return of the GOALs at
Maturity Against Owning the
Underlying Stock.................... S-12
Valuation of the GOALs................ S-14
Specific Terms of the GOALs........... S-15
Use of Proceeds and Hedging........... S-26
Supplemental Tax Considerations....... S-27
ERISA Considerations.................. S-31
Supplemental Plan of Distribution..... S-32
PROSPECTUS
Prospectus Summary....................... 3
Cautionary Note Regarding Forward-Looking
Information............................ 7
Where You Can Find More Information...... 8
Incorporation of Information About UBS... 8
Presentation of Financial Information.... 9
Limitations on Enforcement of U.S. Laws
Against UBS AG, Its Management and
Others................................. 10
Capitalization of UBS.................... 10
UBS...................................... 11
Use of Proceeds.......................... 13
Description of Notes We May Offer........ 14
Considerations Relating to Indexed
Notes.................................. 51
Considerations Relating to Notes
Denominated or Payable In or Linked to
a Non-U.S. Dollar Currency............. 54
U.S. Tax Considerations.................. 57
Tax Considerations Under The Laws of
Switzerland............................ 68
ERISA Considerations..................... 69
Plan of Distribution..................... 70
Validity of the Notes.................... 72
Experts.................................. 72
3
Prospectus Supplement Summary
The following is a summary of the terms of the GOALs, as well as considerations
relating to purchasing a GOAL. All of the information set forth in this section
is qualified in its entirety by the more detailed explanations set forth
elsewhere in this prospectus supplement and the accompanying prospectus.
SUMMARY OF TERMS
The GOALs are issued by UBS AG with a 23.125% annual coupon paid semi-annually
and repayment at maturity linked to the performance of EMC Corporation common
stock. If the closing price of EMC Corporation common stock on May 28, 2002 (the
determination date) is at or above the initial price per share of $38.45 (strike
price), you will receive a cash payment at maturity equal to the principal
amount of the GOALs you hold. If, however, the closing price of EMC Corporation
common stock is lower than the initial price per share of $38.45, you will
receive 26.0078 shares of common stock of EMC Corporation for each $1,000
principal amount of the GOALs you hold. Fractional shares will be paid in cash.
The number of shares received for each $1,000 invested will be calculated by
dividing the initial price per share of $38.45 into $1,000. The stock redemption
amount and the initial price per share of $38.45 (strike price) may change due
to stock splits or other corporate actions.
WHO SHOULD CONSIDER PURCHASING GOALS?
Investors who seek high current income and who are willing to accept the risk of
owning equities in general and the common stock of EMC Corporation in particular
should consider purchasing GOALs. These are investors who anticipate that the
common stock of EMC Corporation will either remain unchanged or appreciate or
depreciate only to a limited degree during the period of the GOALs.
Investors who are unwilling to own the common stock of EMC Corporation or who
seek the lower risk (and accept the lower returns) of money market, treasury or
agency bonds or other traditional fixed income instruments should not purchase a
GOAL.
SELECTED PURCHASE CONSIDERATIONS
- - ENHANCED COUPON. The GOALs provide a higher coupon than would generally be
paid on bonds of an issuer with a comparable credit rating.
- - ENHANCED POTENTIAL YIELD. In the event that the stock price of EMC
Corporation remains relatively unchanged, GOALs may provide enhanced
performance to investors compared with owning EMC Corporation common stock.
- - DIVERSIFICATION. The GOALs linked to the common stock of EMC Corporation may
help to broaden an existing portfolio mix of stocks, bonds, mutual funds and
cash.
- - EXCHANGE LISTING. The GOALs have been approved for listing on the American
Stock Exchange under the symbol "EMM.A." However, there can be no guarantee of
liquidity in the secondary market.
- - U.S. SETTLEMENT. The GOALs are traded and settled in the U.S. market.
S- 3
4
SELECTED RISK CONSIDERATIONS
An investment in GOALs involves significant risks. Some of these risks are
summarized here, but we urge you to read the more detailed explanation of risks
in the "Risk Factors" section of this Prospectus Supplement, beginning on page
S-5.
- - MARKET RISKS. The GOALs are exposed to the same downside price risk as the
common stock of EMC Corporation and do not provide protection of principal.
The GOALs do not have the same price appreciation potential as the underlying
stock. At maturity, the value of the GOALs cannot appreciate above their
principal amount.
- - LIQUIDITY. There may be little or no secondary market for the GOALs. While
UBS Warburg LLC and other affiliates of UBS AG intend to make a market in the
GOALs, if a holder needs to liquidate GOALs prior to maturity, he or she may
have to sell the GOALs at a substantial discount from the principal amount if
the market price of the common stock of EMC Corporation is at, below, or not
sufficiently above the initial market price. You should be willing to hold
your GOALs until maturity.
CONSIDERATIONS RELATING TO TAXATION
The terms of GOALs require (in the absence of an administrative or judicial
ruling to the contrary) that you treat your GOALs for tax purposes as consisting
of two components: (1) a non-contingent debt instrument issued by us and (2) a
put option on the common stock of EMC Corporation which you sold to us. Under
this tax treatment, the interest paid is divided into two components for tax
purposes. The interest on the debt component is taxed as ordinary income in the
year it is received or accrued depending on your method of accounting for tax
purposes. The option component is generally not taxed until sale or maturity. At
maturity, the option component is taxed as a short term capital gain if the EMC
Corporation stock price is at or above the initial stock price. If the stock has
declined in value and the final payment on the GOALs is paid in shares of EMC
Corporation common stock, the option component reduces the cost basis of the
stock received.
The United States federal income tax consequences of your investment in GOALs is
uncertain. In the opinion of our counsel, Sullivan & Cromwell, it is reasonable
to treat your GOALs as described above, but it would also be reasonable to treat
your GOALs as a single contingent debt instrument subject to the special tax
rules governing contingent debt instruments. BECAUSE OF THIS UNCERTAINTY, WE
URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF YOUR
INVESTMENT IN GOALS. For a more complete discussion of the United States federal
income tax consequences of your investment in GOALs, including tax consequences
applicable to non-United States persons and persons who purchase GOALs in the
secondary market, please see the discussion under "Supplemental Tax
Considerations -- Supplemental U.S. Tax Considerations."
S- 4
5
- --------------------------------------------------------------------------------
Risk Factors
The GOALs are not secured debt and are riskier than ordinary unsecured debt
securities. The return on the GOALs is linked to the performance of EMC
Corporation common stock and there is no guaranteed return of principal.
Investing in the GOALs is NOT equivalent to investing directly in EMC
Corporation common stock. This section describes the most significant risks
relating to the GOALs. WE URGE YOU TO READ THE FOLLOWING INFORMATION ABOUT THESE
RISKS, TOGETHER WITH THE OTHER INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, BEFORE INVESTING IN THE GOALs.
THE GOALs ARE NOT ORDINARY SENIOR NOTES: THERE IS NO GUARANTEED RETURN OF
PRINCIPAL
The GOALs combine features of equity and debt. The terms of the GOALs differ
from those of ordinary debt securities in that we will NOT pay you a fixed
amount at maturity if the market price of EMC Corporation common stock is less
than $38.45 on the determination date. In that event, our payment to you at
maturity will be 26.0078 shares of EMC Corporation common stock per $1,000 face
amount of GOALs. THEREFORE, IF THE MARKET PRICE OF EMC CORPORATION COMMON STOCK
ON THE DETERMINATION DATE IS LESS THAN $38.45, WE WILL PAY YOU AN AMOUNT OF EMC
CORPORATION COMMON STOCK WITH A MARKET VALUE LESS THAN THE PRINCIPAL AMOUNT OF
THE GOALs. ACCORDINGLY, YOU CAN LOSE SOME OR ALL OF THE AMOUNT THAT YOU INVEST
IN THE GOALs. See "-- Sensitivity Analysis" below.
THE VALUE OF THE GOALs CANNOT EXCEED THE STATED PRINCIPAL AMOUNT AT MATURITY
The value of the principal amount paid or shares of EMC Corporation exchanged at
the maturity date will NOT exceed the principal amount of the GOALs. If the
market price of EMC Corporation common stock on the determination date is equal
to or exceeds $38.45, you will not receive common stock or any other asset with
the value of the common stock. Instead, you will receive the principal amount of
the GOALs. UNDER NO CIRCUMSTANCES WILL YOU RECEIVE A PRINCIPAL AMOUNT AT
MATURITY GREATER THAN THE PRINCIPAL AMOUNT OF THE GOALs THAT YOU HOLD AT THAT
TIME.
YOU MAY NOT HAVE AN ACTIVE TRADING MARKET IN THE GOALs
You should be willing to hold your GOALs until the maturity date. There may be
little or no secondary market for the GOALs. Although the GOALs have been
approved for listing on the American Stock Exchange under the symbol "EMM.A," it
is not possible to predict whether a secondary market will develop for the
GOALs. Even if a secondary market for the GOALs develops, it may not provide
significant liquidity or trade at prices advantageous to you. UBS Warburg LLC
and other affiliates of UBS AG currently intend to make a market for the GOALs
but they are NOT required to do so. UBS Warburg LLC or any other affiliate of
UBS AG may stop making a market in the GOALs at any time.
THE MARKET PRICE OF THE GOALs WILL BE INFLUENCED BY UNPREDICTABLE FACTORS
The value of the GOALs may move up or down between the date you purchase them
and the determination date when we determine the amount to be paid to holders of
the GOALs on the maturity date. Therefore, you may sustain a significant loss if
you sell the GOALs in the secondary market during that time. Several factors,
many of which are beyond our control, will influence the value of the GOALs. WE
EXPECT THAT GENERALLY THE MARKET PRICE OF EMC CORPORATION COMMON STOCK ON ANY
DAY WILL AFFECT THE VALUE OF THE GOALs MORE THAN ANY OTHER SINGLE FACTOR. Other
factors that may influence the value of the GOALs include:
- - the frequency and magnitude of changes in price of EMC Corporation common
stock (volatility)
- - the dividend rate on EMC Corporation common stock (while not paid to holders
of the GOALs, dividend payments, if any, on the common stock of EMC
Corporation may have an influence on the market price of the common stock and
therefore on the GOALs)
S- 5
6
RISK FACTORS
- --------------------------------------------------------------------------------
- - economic, financial, political and regulatory or judicial events that affect
stock markets generally which may also affect the market price of EMC
Corporation common stock
- - interest and yield rates in the market
- - the time remaining to the maturity of the GOALs
- - the creditworthiness of UBS AG
While it is possible that the GOALs could trade above their principal amount
prior to maturity, the likelihood of such an increase is limited because the
amount payable at maturity will not exceed the principal amount of the GOALs and
by the market factors set forth above. Even if the GOALs did trade above their
principal amount prior to maturity, the only way to realize such a market
premium would be to sell your GOALs in a secondary market transaction, if such a
transaction were available. MOREOVER, IF YOU SELL YOUR GOALs PRIOR TO MATURITY,
YOU MAY HAVE TO SELL THEM AT A SUBSTANTIAL DISCOUNT FROM THEIR PRINCIPAL AMOUNT
IF THE MARKET PRICE OF EMC CORPORATION COMMON STOCK IS AT, BELOW, OR NOT
SUFFICIENTLY ABOVE THE INITIAL PRICE PER SHARE.
IF THE MARKET PRICE OF EMC CORPORATION COMMON STOCK CHANGES, THE MARKET VALUE OF
YOUR GOALs MAY NOT CHANGE IN THE SAME MANNER
Owning the GOALs is not the same as owning common stock of EMC Corporation.
Accordingly, the market value of your GOALs may not have a direct relationship
with the market price of EMC Corporation common stock and changes in the market
price of EMC Corporation common stock may not result in a comparable change in
the market value of your GOALs. If the price of the common stock of EMC
Corporation increases above the initial price per share of $38.45, the market
value of the GOALs may not increase. It is also possible for the price of the
common stock of EMC Corporation to increase while the market price of the GOALs
declines.
TRADING AND OTHER TRANSACTIONS BY UBS AG OR ITS AFFILIATES IN THE COMMON STOCK
OF EMC CORPORATION, OR OPTIONS AND OTHER DERIVATIVE PRODUCTS ON THE COMMON STOCK
OF EMC CORPORATION, MAY IMPAIR THE VALUE OF THE GOALs
As described below under "Use of Proceeds and Hedging," we or one or more
affiliates may hedge our obligations under the GOALs by purchasing EMC
Corporation common stock, options on that stock or other derivative instruments
with returns linked to or related to changes in the value of EMC Corporation
common stock and may adjust these hedges by, among other things, purchasing or
selling EMC Corporation common stock, options or other derivative instruments at
any time and from time to time. Although they are not expected to, any of these
hedging activities may adversely affect the price of EMC Corporation common
stock and, therefore, the value of the GOALs. It is possible that we or one or
more of our affiliates could receive substantial returns from these hedging
activities while the value of the GOALs may decline.
We or one or more of our affiliates may also engage in trading in EMC
Corporation common stock and other investments relating to EMC Corporation on a
regular basis as part of our general broker-dealer and other businesses, for
proprietary accounts, for other accounts under management or to facilitate
transactions for customers, including block transactions. Any of these
activities could adversely affect the price of EMC Corporation common stock and,
therefore, the value of the GOALs. We or one or more of our affiliates may also
issue or underwrite other securities or financial or derivative instruments with
returns linked or related to changes in the value of EMC Corporation common
stock. By introducing competing products into the marketplace in this manner, we
or one or more of our affiliates could adversely affect the value of the GOALs.
S- 6
7
RISK FACTORS
- --------------------------------------------------------------------------------
The indenture governing the GOALs does not contain any restriction on our
ability or the ability of any of our affiliates to sell, pledge or otherwise
convey all or any portion of EMC Corporation common stock acquired by us or our
affiliates. Neither we nor any of our affiliates will pledge or otherwise hold
common stock of EMC Corporation for the benefit of holders of the GOALs in order
to enable the holders to exchange their GOALs for common stock of EMC
Corporation under any circumstances. Consequently, in the event of a bankruptcy,
insolvency or liquidation involving us, any EMC Corporation common stock that we
own will be subject to the claims of our creditors generally and will not be
available specifically for the benefit of the holders of the GOALs.
UBS AG'S BUSINESS ACTIVITIES MAY CREATE CONFLICTS OF INTEREST BETWEEN YOU AND US
We and one or more of our affiliates may, at present or in the future, engage in
business with EMC Corporation and its competitors, including making loans to or
equity investments in EMC Corporation and its competitors or providing either
with investment banking, asset management or other advisory services, including
merger and acquisition advisory services. These activities may present a
conflict between our or our affiliates' obligations and your interests as a
holder of the GOALs. Moreover, we or one or more of our affiliates have
published and may in the future publish research reports on EMC Corporation.
This research is modified from time to time without notice and may express
opinions or provide recommendations that are inconsistent with purchasing or
holding the GOALs. Any of these activities may affect the price of EMC
Corporation common stock and, therefore, the value of the GOALs.
YOU HAVE NO SHAREHOLDER RIGHTS IN THE COMMON STOCK OF EMC CORPORATION
As an owner of GOALs, you will not have voting rights or rights to receive
dividends or other distributions or any other rights that holders of common
stock of EMC Corporation would have.
UBS AG AND ITS AFFILIATES HAVE NO AFFILIATION WITH EMC CORPORATION, AND ARE NOT
RESPONSIBLE FOR EMC CORPORATION'S PUBLIC DISCLOSURE OF INFORMATION, WHETHER
CONTAINED IN SEC FILINGS OR OTHERWISE
UBS AG and its affiliates are not affiliated with EMC Corporation and have no
ability to control or predict the actions of EMC Corporation, including any
corporate actions of the type that would require the calculation agent to adjust
the payout to you at maturity, and have no ability to control the public
disclosure of these corporate actions or any other events or circumstances
affecting EMC Corporation. EMC CORPORATION IS NOT INVOLVED IN THE OFFER OF THE
GOALs IN ANY WAY AND HAS NO OBLIGATION TO CONSIDER YOUR INTEREST AS AN OWNER OF
GOALs IN TAKING ANY CORPORATE ACTIONS THAT MIGHT AFFECT THE VALUE OF YOUR GOALs.
EMC CORPORATION MAY TAKE ACTIONS THAT WILL ADVERSELY AFFECT THE VALUE OF YOUR
GOALs. None of the money you pay for the GOALs will go to EMC Corporation.
Neither we nor any of our affiliates assumes any responsibility for the adequacy
or accuracy of the information about EMC Corporation contained in this
prospectus supplement or in any of EMC Corporation's publicly available filings.
YOU, AS AN INVESTOR IN THE GOALs, SHOULD MAKE YOUR OWN INVESTIGATION INTO EMC
CORPORATION.
YOU HAVE LIMITED ANTIDILUTION PROTECTION
UBS Warburg LLC, as calculation agent for the GOALs, will adjust the amount
payable at maturity, by adjusting the initial price per share (strike price) and
the stock redemption amount for certain events affecting EMC Corporation common
stock, such as stock splits and stock dividends, and certain other corporate
actions involving EMC Corporation, such as mergers. However, the calculation
agent is not required to make an adjustment for every corporate event that can
affect EMC Corporation
S- 7
8
RISK FACTORS
- --------------------------------------------------------------------------------
common stock. For example, the calculation agent is not required to make any
adjustments if EMC Corporation or anyone else makes a partial tender or partial
exchange offer for the EMC Corporation common stock. IF AN EVENT OCCURS THAT
DOES NOT REQUIRE THE CALCULATION AGENT TO ADJUST THE AMOUNT OF EMC CORPORATION
COMMON STOCK PAYABLE AT MATURITY, THE MARKET PRICE OF THE GOALs AND THE
PRINCIPAL AMOUNT OF THE GOALs PAYABLE AT THE MATURITY DATE MAY BE MATERIALLY AND
ADVERSELY AFFECTED. You should refer to "Role of the Calculation Agent" below
for a description of the items that the calculation agent is responsible to
determine.
THERE ARE POTENTIAL CONFLICTS OF INTEREST BETWEEN YOU AND THE CALCULATION AGENT
As calculation agent for the GOALs, UBS Warburg LLC will calculate the payout to
you at maturity of the GOALs. UBS Warburg LLC and other affiliates of UBS AG may
also carry out hedging activities related to the GOALs or to other instruments,
including trading in EMC Corporation common stock, as well as in other
instruments related to EMC Corporation common stock. UBS Warburg LLC also trades
EMC Corporation common stock and other financial instruments relating to EMC
Corporation on a regular basis as part of its general broker dealer and other
businesses. Any of these activities could influence UBS Warburg LLC's
determination of adjustments made to the GOALs and any such trading activity
could potentially affect the price of EMC Corporation common stock and,
accordingly, could affect your payout on the GOALs.
WE CAN POSTPONE THE MATURITY DATE IF A MARKET DISRUPTION EVENT OCCURS
If the calculation agent determines that, on the determination date, a market
disruption event has occurred or is continuing, the determination date will be
postponed until the first business day on which no market disruption event
occurs or is continuing. As a result, the maturity date for the GOALs will also
be postponed, although not by more than five business days. Thus, you may not
receive the payment -- or, if the GOALs are to be exchanged, any delivery of EMC
Corporation common stock -- that we are obligated to make on the maturity date
until after the originally scheduled maturity date.
SIGNIFICANT ASPECTS OF THE TAX TREATMENT OF THE GOALs ARE UNCERTAIN
You should also consider the tax consequences of investing in the GOALs.
Significant aspects of the tax treatment of the GOALs are uncertain. We do not
plan to request a ruling from the Internal Revenue Service or from any Swiss
authorities regarding the tax treatment of the GOALs, and the IRS or a court may
not agree with the tax treatment described in this prospectus supplement. Please
read carefully the section entitled "Considerations Relating to Taxation" in the
summary section above, "Supplemental Tax Considerations" below, and the sections
"U.S. Tax Considerations" and "Tax Considerations Under the Laws of Switzerland"
in the accompanying prospectus. YOU SHOULD CONSULT YOUR TAX ADVISOR ABOUT YOUR
OWN TAX SITUATION.
S- 8
9
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE OF EMC CORPORATION
EMC CORPORATION
Based on publicly available information, EMC Corporation and its subsidiaries
design, manufacture, market and support a wide range of hardware and software
products and provide services for the storage, management, protection and
sharing of electronic information. These integrated solutions enable
organizations to create an enterprise information infrastructure, or what EMC
Corporation calls an E-Infostructure. EMC Corporation has stated that it is the
leading supplier of these solutions, which comprise information storage systems,
software and services. Its products are sold to customers that use a variety of
the world's most popular computing platforms for key applications, including
electronic commerce, data warehousing and transaction processing. EMC
Corporation believes these and other information-intensive applications provide
it with significant growth opportunities.
EMC Corporation focuses on the growing trend toward networked information
storage. Networked information storage involves connecting storage systems to
servers via a networked environment instead of direct connections, with a goal
of providing unlimited access to information, regardless of its location. EMC
Corporation expects that with anticipated dramatic growth in the amount of
information that will be created over the next few years, organizations will
demand a dependable and adaptable information infrastructure with wide-scale
network information access. An EMC Enterprise Storage Network enables customers
to weave together heterogeneous storage, switches, hubs and servers into a
single, easily-managed centralized information infrastructure.
The stock is traded on the New York Stock Exchange under the symbol "EMC." The
following table sets forth the quarterly high, low, and closing prices for the
common stock of EMC Corporation based on daily closing prices. The information
given below is for the four calendar quarters in each of 1998, 1999 and 2000,
and the first quarter of 2001 and partial data for the second calendar quarter
of 2001, through May 24, 2001. We obtained the trading price information set
forth from Bloomberg, without independent verification.
S- 9
10
HISTORICAL PERFORMANCE OF EMC CORPORATION
- --------------------------------------------------------------------------------
YOU SHOULD NOT TAKE THE HISTORICAL PRICES OF THE INDEX STOCK AS AN INDICATION OF
FUTURE PERFORMANCE.
QUARTER ENDING QUARTERLY HIGH QUARTERLY LOW QUARTERLY CLOSE
- -------------- -------------- ------------- ---------------
- -----------------------------------------------------------------
3/31/98 $ 9.46 $ 6.16 $ 9.25
6/30/98 $ 11.48 $ 8.80 $10.96
9/30/98 $ 15.13 $10.88 $14.03
12/31/98 $ 20.78 $11.05 $20.79
3/31/99 $ 31.73 $21.27 $31.24
6/30/99 $ 32.98 $23.35 $26.90
9/30/99 $ 36.50 $26.23 $34.91
12/31/99 $ 53.95 $30.81 $53.43
3/31/00 $ 70.06 $46.95 $61.62
6/30/00 $ 81.67 $52.33 $75.25
9/30/00 $100.99 $72.87 $97.08
12/31/00 $ 97.81 $54.41 $65.04
3/31/01 $ 78.14 $29.00 $29.40
5/24/01 $ 45.10 $25.20 $38.45
EMC Corporation's common stock is registered under the Securities Exchange Act
of 1934. Companies with securities registered under the Exchange Act are
required to file financial and other information specified by the SEC
periodically. Information filed with the SEC can be inspected and copied at the
Public Reference Section of the SEC, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of this material can also be obtained from the
Public Reference Section, at prescribed rates. In addition, information filed by
EMC Corporation with the SEC electronically can be reviewed through a web site
maintained by the SEC. The address of the SEC's web site is http://www.sec.gov.
Information filed with the SEC by EMC Corporation under the Exchange Act can be
located by reference to its SEC file number: 1-9853.
Information about EMC Corporation may also be obtained from other sources such
as press releases, newspaper articles and other publicly disseminated documents.
We do not make any representation or warranty as to the accuracy or completeness
of any materials referred to above, including any filings made by EMC
Corporation with the SEC.
WE OBTAINED THE INFORMATION ABOUT EMC CORPORATION IN THIS PROSPECTUS SUPPLEMENT
FROM EMC CORPORATION PUBLIC FILINGS
This prospectus supplement relates only to the GOALs and does not relate to the
common stock of EMC Corporation. We have derived all information about EMC
Corporation in this prospectus supplement from the publicly available documents
referred to in the preceding subsection. We have not participated in the
preparation of any of those documents or made any "due diligence" investigation
or any inquiry of EMC Corporation in connection with the offering of the GOALs.
We do not make any representation that the publicly available documents or any
other publicly available information about EMC Corporation are accurate or
complete. Furthermore, we do not know whether EMC Corporation has disclosed all
events occurring before the date of this prospectus supplement -- including
events that would affect the accuracy or completeness of the publicly available
documents referred to above, the trading price of the underlying stock and,
therefore, the exchange rate the calculation agent uses to determine the number
of underlying shares you will receive if the price at maturity is below $38.45
per share. Subsequent disclosure of any events of this kind or the disclosure of
or failure to disclose material future events concerning EMC Corporation could
affect the value you will receive at maturity and, therefore, the market value
of the GOALs.
S- 10
11
HISTORICAL PERFORMANCE OF EMC CORPORATION
- --------------------------------------------------------------------------------
NEITHER WE NOR ANY OF OUR AFFILIATES MAKE ANY REPRESENTATION TO YOU AS TO THE
PERFORMANCE OF THE COMMON STOCK OF EMC CORPORATION.
We or any of our affiliates may currently or from time to time engage in
business with EMC Corporation, including making loans to or equity investments
in EMC Corporation or providing advisory services to EMC Corporation, including
merger and acquisition advisory services. In the course of that business, we or
any of our affiliates may acquire non-public information about EMC Corporation
and, in addition, one or more of our affiliates may publish research reports
about EMC Corporation. NONETHELESS, AS AN INVESTOR IN A GOAL, YOU SHOULD
UNDERTAKE SUCH INDEPENDENT INVESTIGATION OF EMC CORPORATION AS IN YOUR JUDGMENT
IS APPROPRIATE TO MAKE AN INFORMED DECISION WITH RESPECT TO AN INVESTMENT IN A
GOAL.
S- 11
12
- --------------------------------------------------------------------------------
Sensitivity Analysis: Comparison of Total Return of the GOALs at Maturity
Against Owning the Underlying Stock
The total return at maturity of owning the GOALs compared to the common stock of
EMC Corporation is driven by a number of factors including the price of the
underlying stock at maturity, the coupon level of the GOALs, dividends paid on
the stock and the reinvestment rate. The total return prior to maturity of
owning the GOALs is driven by a number of factors. See "Valuation of the GOALs"
on S-14. In the graph and table below, we compare the total return of owning the
underlying stock to the total return of owning the GOALs at maturity based on
the assumptions outlined below. The actual initial price and GOALs coupon will
be set on the trade date. The information in the graph and table is based on
hypothetical market values for the underlying stock and your GOAL. We cannot
predict the market price of the underlying stock or the market value of the
GOALs, nor can we predict the relationship between the two. Moreover, the
assumptions we have made in connection with the illustration set forth below may
not reflect actual events. Consequently, the total return that an investor in
the GOALs would actually achieve, as well as how that return would compare to
the total return that an investor in EMC Corporation common stock would actually
achieve, may be very different from the information reflected in the graph and
table.
Assumptions:
- - Initial stock price of underlying stock: $38.45 per share (actual initial
stock price to be set on trade date)
- - Annual GOALs coupon: 23.125% (actual coupon to be set on trade date)
- - Annual dividend yield: $0.00%
- - Reinvestment rate for GOALs coupon: 0%
[SENSITIVITY ANALYSIS GRAPH]
STOCK GOAL
----- ----
0 0.00 8.89
0.45 9.34
1.45 10.34
2.45 11.34
3.45 12.34
4.45 13.34
5.45 14.34
6.45 15.34
7.45 16.34
8.45 17.34
9.45 18.34
10.45 19.34
11.45 20.34
12.45 21.34
13.45 22.34
14.45 23.34
15.45 24.34
16.45 25.34
17.45 26.34
18.45 27.34
19.45 28.34
20.45 29.34
21.45 30.34
22.45 31.34
23.45 32.34
24.45 33.34
25.45 34.34
26.45 35.34
27.45 36.34
28.45 37.34
29.45 38.34
30.45 39.34
31.45 40.34
32.45 41.34
33.45 42.34
34.45 43.34
35.45 44.34
36.45 45.34
37.45 46.34
38.45 47.34
39.45 47.34
40.45 47.34
41.45 47.34
42.45 47.34
43.45 47.34
44.45 47.34
45.45 47.34
46.45 47.34
47.45 47.34
48.45 47.34
49.45 47.34
50.45 47.34
51.45 47.34
52.45 47.34
53.45 47.34
54.45 47.34
55.45 47.34
56.45 47.34
57.45 47.34
58.45 47.34
59.45 47.34
60 60.00 47.34
S- 12
13
SENSITIVITY ANALYSIS:
COMPARISON OF TOTAL RETURN OF GOALS AT MATURITY AGAINST OWNING THE UNDERLYING
STOCK.
- --------------------------------------------------------------------------------
ASSUMPTIONS
Stock EMC Corporation
Stock ticker EMC
Initial stock price $38.45
Annual dividend yield 0%
Annual Interest on GOAL 23.125%
Term of GOAL 366 days
GOAL VS. STOCK
STOCK PERFORMANCE GOAL PERFORMANCE GOAL
TWO OUTPERFORMANCE
GOAL PAYMENT SEMI-ANNUAL 12 MONTH (UNDERPERFORMANCE)
% OR STOCK VALUE INTEREST TOTAL VERSUS STOCK
STOCK PRICE CHANGE AT MATURITY PAYMENTS(1) TOTAL RETURN ($) (%)
- ---------------------- ------------------------------------------------ ------------------
$58.00 51% $38.45 $ 8.89 $47.34 23.1% $-10.66 -27.7%
$57.00 48% $38.45 $ 8.89 $47.34 23.1% -$9.66 -25.1%
$56.00 46% $38.45 $ 8.89 $47.34 23.1% -$8.66 -22.5%
$55.00 43% $38.45 $ 8.89 $47.34 23.1% -$7.66 -19.9%
$54.00 40% $38.45 $ 8.89 $47.34 23.1% -$6.66 -17.3%
$53.00 38% $38.45 $ 8.89 $47.34 23.1% -$5.66 -14.7%
$52.00 35% $38.45 $ 8.89 $47.34 23.1% -$4.66 -12.1%
$51.00 33% $38.45 $ 8.89 $47.34 23.1% -$3.66 -9.5%
$50.00 30% $38.45 $ 8.89 $47.34 23.1% -$2.66 -6.9%
$49.00 27% $38.45 $ 8.89 $47.34 23.1% -$1.66 -4.3%
$48.00 25% $38.45 $ 8.89 $47.34 23.1% -$0.66 -1.7%
$47.34 23% $38.45 $ 8.89 $47.34 23.1% $0.00 0.0%
$46.00 20% $38.45 $ 8.89 $47.34 23.1% $1.34 3.5%
$45.00 17% $38.45 $ 8.89 $47.34 23.1% $2.34 6.1%
$44.00 14% $38.45 $ 8.89 $47.34 23.1% $3.34 8.7%
$43.00 12% $38.45 $ 8.89 $47.34 23.1% $4.34 11.3%
$42.00 9% $38.45 $ 8.89 $47.34 23.1% $5.34 13.9%
$41.00 7% $38.45 $ 8.89 $47.34 23.1% $6.34 16.5%
$40.00 4% $38.45 $ 8.89 $47.34 23.1% $7.34 19.1%
$39.00 1% $38.45 $ 8.89 $47.34 23.1% $8.34 21.7%
$38.45 0% $38.45 $ 8.89 $47.34 23.1% $8.89 23.1%
$37.00 -4% $37.00 $ 8.89 $45.89 19.3% $8.89 23.1%
$36.00 -6% $36.00 $ 8.89 $44.89 16.7% $8.89 23.1%
$35.00 -9% $35.00 $ 8.89 $43.89 14.1% $8.89 23.1%
$34.00 -12% $34.00 $ 8.89 $42.89 11.5% $8.89 23.1%
$33.00 -14% $33.00 $ 8.89 $41.89 8.9% $8.89 23.1%
$32.00 -17% $32.00 $ 8.89 $40.89 6.3% $8.89 23.1%
$31.00 -19% $31.00 $ 8.89 $39.89 3.7% $8.89 23.1%
$30.00 -22% $30.00 $ 8.89 $38.89 1.1% $8.89 23.1%
$29.56 -23% $29.56 $ 8.89 $38.45 0.0% $8.89 23.1%
$28.00 -27% $28.00 $ 8.89 $36.89 -4.1% $8.89 23.1%
$27.00 -30% $27.00 $ 8.89 $35.89 -6.7% $8.89 23.1%
$26.00 -32% $26.00 $ 8.89 $34.89 -9.3% $8.89 23.1%
$25.00 -35% $25.00 $ 8.89 $33.89 -11.9% $8.89 23.1%
$24.00 -38% $24.00 $ 8.89 $32.89 -14.5% $8.89 23.1%
$23.00 -40% $23.00 $ 8.89 $31.89 -17.1% $8.89 23.1%
$22.00 -43% $22.00 $ 8.89 $30.89 -19.7% $8.89 23.1%
$21.00 -45% $21.00 $ 8.89 $29.89 -22.3% $8.89 23.1%
$20.00 -48% $20.00 $ 8.89 $28.89 -24.9% $8.89 23.1%
$19.00 -51% $19.00 $ 8.89 $27.89 -27.5% $8.89 23.1%
$18.00 -53% $18.00 $ 8.89 $26.89 -30.1% $8.89 23.1%
........................................ ......................................................................................
$ 0.00 -100% $ 0.00 $ 8.89 $ 8.89 -76.9% $8.89 23.1%
- ---------------
(1) The reinvestment rate is assumed to be 0%. A positive reinvestment rate
would increase the total return of the GOALs relative to the total return of
the stock.
S- 13
14
- --------------------------------------------------------------------------------
VALUATION OF THE GOALS
AT MATURITY. As described above, a $1,000 investment in the GOALs will be worth
$1,000 if the common stock of EMC Corporation is equal to or above the initial
stock price of $38.45. If the stock price has declined, however, you will
receive a number of shares of the underlying stock. The value of your
investment, therefore, will equal the value of the shares you receive at
maturity, which could be substantially less than the value of the original
investment.
PRIOR TO MATURITY. The value of the GOALs will be affected by a number of
interrelated factors including, but not limited to, supply and demand, the level
of the underlying stock, the volatility and dividend level of the stock, the
time remaining to maturity, the level of interest rates and other economic
conditions, as well as the perceived creditworthiness of the issuer. Generally,
the value of the GOALs will tend to rise with the increase in the stock price
and falling volatility, although this increase in value is limited because the
value at maturity cannot exceed the principal amount of the GOALs. The value of
the GOALs will generally decline as the stock price declines, stock volatility
increases, and the dividend level of the stock rises. In addition, rising
interest rates will on balance hurt the value of the GOALs. You should
understand that the value of the GOALs is driven by a range of interrelated
factors and that while the price of the stock is an important variable, it
cannot be used as the sole measure to approximate value of this investment. You
should not use any single variable to approximate the value of this investment.
S- 14
15
- --------------------------------------------------------------------------------
SPECIFIC TERMS OF THE GOALS
Please note that references to "UBS," "we," "our" and "us" refer only to UBS AG
and not to its consolidated subsidiaries. Also, in this section, references to
"holders" mean those who own GOALs registered in their own names, on the books
that we or the trustee maintain for this purpose, and not those who own
beneficial interests in GOALs registered in street name or in GOALs issued in
book-entry form through The Depository Trust Company or another depositary.
Owners of beneficial interests in the GOALs should read the section entitled
"Legal Ownership of Notes" in the accompanying prospectus.
The GOALs are part of a series of debt securities entitled "Medium Term Notes,
Series A" that we may issue under the indenture from time to time. This
prospectus supplement summarizes specific financial and other terms that apply
to the GOALs. Terms that apply generally to all Medium Term Notes, Series A are
described in "Description of Notes We May Offer" in the accompanying prospectus.
The terms described here supplement those described in the accompanying
prospectus and, if the terms described here are inconsistent with those
described there, the terms described here are controlling.
In this prospectus supplement, when we refer to the underlying or index stock,
we mean the common stock of EMC Corporation and when we refer to the Index Stock
Issuer, we mean that company, except as noted below under "--Antidilution
Adjustments--Reorganization Events--Distribution Property."
Please note that the information about the trade date, settlement date, price to
public and net proceeds to UBS AG on the front cover relates only to the initial
sale of the GOALs. If you have purchased GOALs in a market-making transaction
after the initial sale, information about the price and date of sale to you will
be provided in a separate confirmation of sale.
We describe the terms of the GOALs in more detail below.
INTEREST/OPTION PREMIUM
The GOALs bear interest from May 30, 2001 at the rate of 23.125% per annum,
payable semi-annually in arrears on November 30, 2001 and May 31, 2002, which
annual interest amount shall be composed of (a) a coupon representing interest
at a rate of 4.10% per annum and (b) a coupon representing an option premium of
19.025% per annum.
PAYMENT AT MATURITY
On the maturity date, we will pay as principal to the holders of the GOALs:
- - if the closing price of the common stock of EMC Corporation is equal to or
above the initial price of $38.45 per share on the determination date
(subject to antidilution adjustment), cash in an amount equal to 100% of the
outstanding principal amount of the GOALs; or
- - if the closing price of the common stock of EMC Corporation is less than the
initial price of $38.45 per share on the determination date (subject to
antidilution adjustment), 26.0078 shares for each nominal amount $1,000 of
GOALs (the stock redemption amount). Fractional shares will be paid in cash.
STOCK REDEMPTION AMOUNT
If the payment at maturity is in shares of EMC Corporation, the number of shares
of common stock of EMC Corporation received for each $1,000 invested is referred
to as the stock redemption amount.
S- 15
16
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
The stock redemption amount is calculated by dividing $1,000 by the initial
price of the shares which is set on the trade date. The stock redemption amount
and the initial price (strike price) may change due to stock splits or other
corporate actions. See "--Antidilution Adjustments" below.
The closing price on the trade date is referred to here as the initial price or
the strike price.
MATURITY DATE
The maturity date will be May 31, 2002 unless that day is not a business day, in
which case the maturity date will be the next following business day. If the
third business day before this applicable day is not the determination date
referred to below, however, then the maturity date will be the third business
day following the determination date, although the maturity date will never be
later than the third business day after June 4, 2002 or, if June 4, 2002 is not
a business day, later than the fourth business day after June 4, 2002. The
calculation agent may postpone the determination date--and therefore the
maturity date--if a market disruption event occurs or is continuing on a day
that would otherwise be the determination date. We describe market disruption
events below under "--Special Calculation Provisions."
REGULAR RECORD DATES FOR INTEREST
The regular record date relating to an interest payment date for the GOALs will
be the May 30th or November 29th next preceding that interest payment date,
whether or not the record date is a business day. For the purpose of determining
the Holder at the close of business on a regular record date when business is
not being conducted, the close of business will mean 5:00 p.m., New York City
time, on that day.
DETERMINATION DATE
The determination date will be the third business day prior to May 31, 2002,
unless the calculation agent determines that a market disruption event occurs or
is continuing on that day. In that event, the determination date will be the
first following business day on which the calculation agent determines that a
market disruption event does not occur and is not continuing. In no event,
however, will the determination date be later than June 4, 2002 or, if June 4,
2002 is not a business day, later than the first business day after June 4,
2002.
MARKET DISRUPTION EVENT
As described above, the calculation agent will use the closing price of EMC
Corporation common stock on the determination date to determine whether we will
pay the outstanding principal amount of the GOALs or exchange the GOALs for
shares of common stock of EMC Corporation on the maturity date. If a market
disruption event occurs or is continuing on a day that would otherwise be a
determination date, then the calculation agent will instead use the closing
price on the first business day after that day on which no market disruption
event occurs or is continuing. In no event, however, will the determination date
be postponed by more than five business days.
If the determination date is postponed to the last possible day, but a market
disruption event occurs or is continuing on that day, that day will nevertheless
be the determination date. If the market price of EMC Corporation is not
available on the last possible determination date either because of a market
disruption event or for any other reason, the calculation agent will make a good
faith estimate of the exchange-traded price for the common stock of EMC
Corporation that would have prevailed in the absence of the market disruption
event or such other reason on the last possible determination date.
S- 16
17
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
Any of the following will be a market disruption event:
- - a suspension, absence or material limitation of trading in the index stock in
its primary market for more than two hours of trading or during the one-half
hour before the close of trading in that market, as determined by the
calculation agent in its sole discretion
- - a suspension, absence of trading or material limitation of trading in option
contracts relating to the index stock, if available, in the primary market
for those contracts for more than two hours of trading or during the one-half
hour before the close of trading in that market, as determined by the
calculation agent in its sole discretion
- - the index stock does not trade on the Nasdaq National Market, or the primary
market for EMC Corporation, as determined by the calculation agent in its
sole discretion
and, in any of these events, the calculation agent determines in its sole
discretion that the event materially interferes with our ability or the ability
of any of our affiliates to unwind all or a material portion of a hedge with
respect to the GOALs that we or our affiliates have effected or may effect as
described below under "Use of Proceeds and Hedging."
The following events will not be market disruption events:
- - a limitation on the hours or numbers of days of trading, but only if the
limitation results from an announced change in the regular business hours of
the relevant market
- - a decision to permanently discontinue trading in the option contracts
relating to the index stock.
For this purpose, an "absence of trading" in the primary securities market on
which option contracts related to the index stock are traded will not include
any time when that market is itself closed for trading under ordinary
circumstances.
In contrast, a suspension or limitation of trading in option contracts related
to the index stock, if available, in the primary market for those contracts, by
reason of any of:
- - a price change exceeding limits set by that market
- - an imbalance of orders relating to those contracts
- - a disparity in bid and ask quotes relating to those contracts
will constitute a suspension or material limitation of trading in option
contracts related to the index stock in the primary market for those contracts.
ANTIDILUTION ADJUSTMENTS
The calculation agent will adjust the strike price or the stock redemption
amount or both as described below, if an event described below occurs and the
calculation agent determines that such event has a diluting or concentrative
effect on the theoretical value of the common stock of EMC Corporation. The
adjustments described below do not cover all events that could affect the value
of the GOALs. We describe the risks relating to dilution above under "Risk
Factors--You have limited antidilution protection."
Below you will find examples of how certain corporate actions and other events
may lead to adjustments to the stock redemption amount. In each case where the
stock redemption amount
S- 17
18
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
changes, the strike price (initial price) will generally also change. Typically,
the strike price will be adjusted as follows:
The calculation agent will adjust the strike price by multiplying the prior
strike price and a fraction whose numerator is the prior stock redemption amount
and whose denominator is the new stock redemption amount.
New Strike Price = Prior Strike Price X Prior Stock Redemption Amount
-----------------------------
New Stock Redemption Amount
HOW ADJUSTMENTS WILL BE MADE
If one of the events described below occurs and the calculation agent determines
that the event has a diluting or concentrative effect on the theoretical value
of the common stock of EMC Corporation, the calculation agent will calculate a
corresponding adjustment to the strike price or the stock redemption amount or
both as the calculation agent determines appropriate to account for that
diluting or concentrative effect. The calculation agent will also determine the
effective date of that adjustment, and the replacement of the underlying shares,
if applicable, in the event of consolidation or merger. Upon making any such
adjustment, the calculation agent will give notice as soon as practicable to the
trustee, stating the adjustment to the strike price or redemption amount or
both.
If more than one event requiring adjustment occurs, the calculation agent will
make such an adjustment for each event in the order in which the events occur,
and on a cumulative basis. Thus, having adjusted the strike price or the stock
redemption amount or both for the first event, the calculation agent will adjust
the strike price or the stock redemption amount or both for the second event,
applying the required adjustment to the strike price and stock redemption amount
as already adjusted for the first event, and so on for each event.
For any dilution event described below, other than a consolidation or merger,
the calculation agent will not have to adjust the exchange rate unless the
adjustment would result in a change to the strike price or the stock redemption
amount of at least 0.1% in the strike price or stock redemption amount that
would apply without the adjustment. The exchange rate resulting from any
adjustment will be rounded up or down, as appropriate, to, in the case of the
strike price, the nearest cent, and, in the case of the stock redemption amount,
the nearest thousandth, with one-half cent and five hundred-thousandths,
respectively, being rounded upward.
If an event requiring antidilution adjustment occurs, the calculation agent will
make the adjustments with a view to offsetting, to the extent practical, any
change in your economic position relative to the GOALs, that results solely from
that event. The calculation agent may, in its sole discretion, modify the
antidilution adjustments as necessary to ensure an equitable result.
The calculation agent will make all determinations with respect to antidilution
adjustments, including any determination as to whether an event requiring
adjustment has occurred, as to the nature of the adjustment required and how it
will be made or as to the value of any property distributed in a reorganization
event, and will do so in its sole discretion. In the absence of manifest error,
those determinations will be conclusive for all purposes and will be binding on
you and us, without any liability on the part of the calculation agent. The
calculation agent will provide information about the adjustments it makes upon
your written request.
The following events are those that may require an antidilution adjustment:
- - a subdivision, consolidation or reclassification of index stock or a free
distribution or dividend of any shares of index stock to existing holders of
shares of the index stock by way of bonus, capitalization or similar issue
S- 18
19
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
- - a distribution or dividend to existing holders of shares of index stock of
- shares of the index stock or
- other share capital or securities granting the right to payment of
dividends and/or the proceeds of liquidation of EMC Corporation equally
or proportionately with such payments to holders of shares of index stock
or
- any other type of securities, rights or warrants in any case for payment
(in cash or otherwise) at less than the prevailing market price as
determined by the calculation agent
- - the declaration by EMC Corporation of an extraordinary or special dividend or
other distribution whether in cash or shares of index stock or other assets
- - a repurchase by EMC Corporation of its common stock index stock whether out of
profits or capital and whether the consideration for such repurchase is cash,
securities or otherwise
- - any other similar event that may have a diluting or concentrative effect on
the theoretical value of the index stock
- - a consolidation of EMC Corporation with another company or merger of EMC
Corporation with another company.
STOCK SPLITS
A stock split is an increase in the number of a corporation's outstanding shares
of stock without any change in its stockholders' equity. Each outstanding share
will be worth less as a result of a stock split.
If EMC Corporation is subject to a stock split, then the calculation agent will
adjust the stock redemption amount to equal the sum of the prior stock
redemption amount--i.e., the stock redemption amount before that
adjustment--plus the product of (1) the number of new shares issued in the stock
split with respect to one share of EMC Corporation times (2) the prior stock
redemption amount.
REVERSE STOCK SPLITS
A reverse stock split is a decrease in the number of a corporation's outstanding
shares of stock without any change in its stockholders' equity. Each outstanding
share will be worth more as a result of a reverse stock split.
If EMC Corporation is subject to a reverse stock split, then the calculation
agent will adjust the stock redemption amount to equal the product of the prior
stock redemption amount and the quotient of (1) the number of outstanding shares
of EMC Corporation outstanding immediately after the reverse stock split becomes
effective divided by (2) the number of shares of EMC Corporation outstanding
immediately before the reverse stock split becomes effective.
STOCK DIVIDENDS
In a stock dividend, a corporation issues additional shares of its stock to all
holders of its outstanding stock in proportion to the shares they own. Each
outstanding share will be worth less as a result of a stock dividend.
If EMC Corporation is subject to a stock dividend payable in EMC Corporation
common stock, then the calculation agent will adjust the stock redemption amount
to equal the sum of the prior stock redemption amount plus the product of (1)
the number of shares issued in the stock dividend with respect to one share of
EMC Corporation common stock times (2) the prior stock redemption amount.
S- 19
20
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
OTHER DIVIDENDS AND DISTRIBUTIONS
The stock redemption amount will not be adjusted to reflect dividends or other
distributions paid with respect to EMC Corporation common stock, other than:
- - stock dividends described above
- - issuances of transferable rights and warrants as described in "--Transferable
Rights and Warrants" below
- - distributions that are spin-off events described in "--Reorganization Events"
below, and
- - extraordinary dividends described below.
A dividend or other distribution with respect to EMC Corporation common stock
will be deemed to be an extraordinary dividend if its per share value exceeds
that of the immediately preceding non-extraordinary dividend, if any, for EMC
Corporation common stock by an amount equal to at least 10% of the closing price
of EMC Corporation common stock on the business day before the ex-dividend date.
The ex-dividend date for any dividend or other distribution is the first day on
which EMC Corporation common stock trades without the right to receive that
dividend or distribution.
If an extraordinary dividend occurs, the calculation agent will adjust the stock
redemption amount to equal the product of (1) the prior stock redemption amount
times (2) a fraction, the numerator of which is the closing price of EMC
Corporation common stock on the business day before the ex-dividend date and the
denominator of which is the amount by which that closing price exceeds the
extraordinary dividend amount.
The extraordinary dividend amount with respect to an extraordinary dividend for
EMC Corporation common stock equals:
- - for an extraordinary dividend that is paid in lieu of a regular quarterly
dividend, the amount of the extraordinary dividend per share of EMC
Corporation common stock minus the amount per share of the immediately
preceding dividend, if any, that was not an extraordinary dividend for EMC
Corporation common stock, or
- - for an extraordinary dividend that is not paid in lieu of a regular quarterly
dividend, the amount per share of the extraordinary dividend.
To the extent an extraordinary dividend is not paid in cash, the value of the
non-cash component will be determined by the calculation agent. A distribution
on EMC Corporation common stock that is a dividend payable in EMC Corporation
common stock, an issuance of rights or warrants or a spin-off event and also an
extraordinary dividend will result in an adjustment to the stock redemption
amount only as described in "--Stock Dividends" above, "--Transferable Rights
and Warrants" below or "--Reorganization Events" below, as the case may be, and
not as described here.
TRANSFERABLE RIGHTS AND WARRANTS
If EMC Corporation issues transferable rights or warrants to all holders of EMC
Corporation common stock to subscribe for or purchase EMC Corporation common
stock at an exercise price per share that is less than the closing price of EMC
Corporation common stock on the business day before the ex-dividend date for the
issuance, then the stock redemption amount will be adjusted by multiplying the
prior stock redemption amount by the following fraction:
- - the numerator will be the number of shares of EMC Corporation common stock
outstanding at the close of business on the day before that ex-dividend date
plus the number of additional shares of EMC Corporation common stock offered
for subscription or purchase under those transferable rights or warrants, and
S- 20
21
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
- - the denominator will be the number of shares of EMC Corporation common stock
outstanding at the close of business on the day before that ex-dividend date
plus the product of (1) the total number of additional shares of EMC
Corporation common stock offered for subscription or purchase under the
transferable rights or warrants times (2) the exercise price of those
transferable rights or warrants divided by the closing price on the business
day before that ex-dividend date.
REORGANIZATION EVENTS
Each of the following is a reorganization event:
- - EMC Corporation common stock is reclassified or changed
- - EMC Corporation has been subject to a merger, consolidation or other
combination and either is not the surviving entity or is the surviving entity
but all outstanding EMC Corporation common stock is exchanged for or converted
into other property
- - a statutory share exchange involving outstanding EMC Corporation common stock
and the securities of another entity occurs, other than as part of an event
described above
- - EMC Corporation sells or otherwise transfers its property and assets as an
entirety or substantially as an entirety to another entity
- - EMC Corporation effects a spin-off--that is, issues to all holders of EMC
Corporation common stock equity securities of another issuer, other than as
part of an event described above
- - EMC Corporation is liquidated, dissolved or wound up or is subject to a
proceeding under any applicable bankruptcy, insolvency or other similar law,
or another entity completes a tender or exchange offer for all the outstanding
EMC Corporation common stock.
ADJUSTMENTS FOR REORGANIZATION EVENTS
If a reorganization event occurs, then the calculation agent will adjust the
stock redemption amount by adjusting the amount and type of property deliverable
on the stated maturity date in exchange for each $1,000 of outstanding principal
amount of the GOALs, which we refer to as the "reference amount." Initially, the
reference amount will be the amount of EMC Corporation common stock specified
above. However, if the stock redemption amount is adjusted because of a dilution
event, then the reference amount will be adjusted in a corresponding manner. For
example, if a stock redemption amount adjustment is required because of a stock
split, reverse stock split, stock dividend, extraordinary dividend or issuance
of rights or warrants, then the reference amount might be adjusted to be a
proportion or multiple of the amount of EMC Corporation common stock specified
herein, depending on the event requiring adjustment.
Similarly, if adjustment is required because of a reorganization event in which
cash and securities are distributed, for example, the reference amount will be
adjusted to be the amount of cash and the securities distributed in the event in
respect of the amount of EMC Corporation common stock specified herein, if there
has been no prior adjustment of the stock redemption amount. If there has been a
prior adjustment, the reference amount will be adjusted to be the amount of cash
and the securities distributed in the event in respect of the specified amount
of EMC Corporation common stock or whatever else the reference amount might be
when the distribution occurs.
If a reorganization event occurs, the reference amount will be adjusted so as to
consist of the amount and type of property--whether it be cash, securities or
other property--distributed in the event in respect of the prior reference
amount. If more than one type of property is distributed, the reference amount
will be adjusted so as to consist of each type of property distributed in
respect of the prior reference amount, in a proportionate amount so that the
value of each type of property comprising the new reference amount as a
percentage of the total value of the new reference amount equals the value
S- 21
22
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
of that type of property as a percentage of the total value of all property
distributed in the reorganization event in respect of the prior reference
amount.
For the purposes of making an adjustment required by a reorganization event, the
calculation agent will determine the value of each type of property distributed
in the distribution, in its sole discretion. For any distribution property
consisting of a security, the calculation agent will use the closing price for
the security on the exchange date. The calculation agent may value other types
of property in any manner it determines, in its sole discretion, to be
appropriate. If a holder of EMC Corporation common stock may elect to receive
different types or combinations of types of distribution property in the
reorganization event, the distribution property will consist of the types and
amounts of each type distributed to a holder that makes no election, as
determined by the calculation agent.
If a reorganization event occurs and the calculation agent adjusts the reference
amount to consist of the property distributed in the event as described above,
the calculation agent will make further anti-dilution adjustments for later
events that affect the distribution property, or any component of the
distribution property, comprising the new reference amount. The calculation
agent will do so to the same extent that it would make adjustments if the EMC
Corporation common stock were outstanding and were affected by the same kinds of
events. If a subsequent reorganization event affects only a particular component
of the reference amount, the required adjustment will be made with respect to
that component, as if it alone were the reference amount.
For example, if EMC Corporation merges into another company and each share of
EMC Corporation common stock is converted into the right to receive two common
shares of the surviving company and a specified amount of cash, the reference
amount will be adjusted to consist of two common shares and the specified amount
of cash. The calculation agent will adjust the common share component of the new
reference amount to reflect any later stock split or other event, including any
later reorganization event, that affects the common shares of the surviving
company, to the extent described in this section entitled "--Antidilution
Adjustments" as if the common shares were EMC Corporation common stock. In that
event, the cash component will not be adjusted but will continue to be a
component of the reference amount. Consequently, holders of GOALs who receive
shares of EMC Corporation at maturity will be entitled to receive, for each
$1,000 of the outstanding principal amount of the GOALs being exchanged, all
components of the reference amount in effect on the exchange date, with each
component having been adjusted on a sequential and cumulative basis for all
relevant events requiring adjustment on or before the exchange date.
In this prospectus supplement, references to the calculation agent adjusting the
stock redemption amount in respect of a dilution event means that the
calculation agent will adjust the reference amount in the manner described in
this subsection if the dilution event is a reorganization event.
DISTRIBUTION PROPERTY
The term "distribution property" used in this prospectus supplement means the
cash, securities and other property or assets distributed in a reorganization
event in respect of an amount outstanding of EMC Corporation common stock equal
to the amount specified above as the redemption amount or in respect of whatever
the reference amount may then be if any antidilution adjustment has been made in
respect of a prior event. In the case of a spin-off, the distribution property
also includes the specified amount of EMC Corporation common stock--or other
applicable reference amount--in respect of which the distribution is made.
If a reorganization event occurs, the distribution property distributed in the
event will be substituted for EMC Corporation common stock as described above.
Consequently, in this prospectus supplement, references to EMC Corporation
common stock mean any distribution property that is distributed in a
S- 22
23
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
reorganization event and comprises the adjusted reference amount. Similarly,
references to EMC Corporation mean any successor entity in a reorganization
event.
DEFAULT AMOUNT ON ACCELERATION
If an event of default occurs and the maturity of the GOALs is accelerated, we
will pay the default amount in respect of the principal of the GOALs at
maturity. We describe the default amount below under "--Special Calculation
Provisions."
For the purpose of determining whether the holders of our Series A medium-term
notes, of which the GOALs are a part, are entitled to take any action under the
indenture, we will treat the outstanding principal amount of the GOALs as the
outstanding principal amount of that note. Although the terms of the GOALs may
differ from those of the other Series A medium-term notes, holders of specified
percentages in principal amount of all Series A medium-term notes, together in
some cases with other series of our debt securities, will be able to take action
affecting all the Series A medium-term notes, including the GOALs. This action
may involve changing some of the terms that apply to the Series A medium-term
notes, accelerating the maturity of the Series A medium-term notes after a
default or waiving some of our obligations under the indenture. We discuss these
matters in the attached prospectus under "Description of Debt Securities We May
Offer--Default, Remedies and Waiver of Default" and "--Modification and Waiver
of Covenants."
MANNER OF PAYMENT AND DELIVERY
Any payment or delivery on the GOALs at maturity will be made to accounts
designated by you and approved by us, or at the office of the trustee in New
York City, but only when the GOALs are surrendered to the trustee at that
office. We also may make any payment or delivery in accordance with the
applicable procedures of the depositary. We may make any delivery of index stock
or distribution property ourselves or cause our agent to do so on our behalf.
MODIFIED BUSINESS DAY
As described in the attached prospectus, any payment on the GOALs that would
otherwise be due on a day that is not a business day may instead be paid on the
next day that is a business day, with the same effect as if paid on the original
due date, except as described under "Maturity Date" and "Determination Date"
above. The same will apply to any delivery of the index stock that would
otherwise be due on a day that is not a business day. For the GOALs, however,
the term business day has a different meaning than it does for other Series A
medium-term notes. We discuss this term under "--Special Calculation Provisions"
below.
ROLE OF CALCULATION AGENT
The calculation agent will make all determinations regarding the antidilution
adjustments, market disruption events, the closing price or other value of the
index stock and the default amount. Absent manifest error, all determinations of
the calculation agent will be final and binding on you and us, without any
liability on the part of the calculation agent.
Please note that the firm named as the calculation agent in this prospectus
supplement is the firm serving in that role as of the original issue date of the
GOALs. We may change the calculation agent after the original issue date without
notice.
S- 23
24
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
SPECIAL CALCULATION PROVISIONS
BUSINESS DAY
When we refer to a business day with respect to the GOALs, we mean a day that is
a business day of the kind described in the attached prospectus but that is not
a day on which the principal securities market for the index stock is authorized
by law or executive order to close.
CLOSING PRICE
The closing price for any security on any day will equal the closing sale price
or last reported sale price, regular way, for the security, on a per-share or
other unit basis:
- - on the principal national securities exchange on which that security is
listed for trading on that day, or
- - if that security is not listed on any national securities exchange, on the
Nasdaq National Market System on that day, or
- - if that security is not quoted on the Nasdaq National Market System on that
day, on any other U.S. national market system that is the primary market for
the trading of that security.
If that security is not listed or traded as described above, then the closing
price for that security on any day will be the average, as determined by the
calculation agent, of the bid prices for the security obtained from as many
dealers in that security selected by the calculation agent as will make those
bid prices available to the calculation agent. The number of dealers need not
exceed three and may include the calculation agent or any of its or our
affiliates.
DEFAULT AMOUNT
The default amount for the GOALs on any day will be an amount, in the specified
currency for the principal of the GOALs, equal to the cost of having a qualified
financial institution, of the kind and selected as described below, expressly
assume all our payment and other obligations with respect to the GOALs as of
that day and as if no default or acceleration had occurred, or to undertake
other obligations providing substantially equivalent economic value to you with
respect to the GOALs. That cost will equal:
- - the lowest amount that a qualified financial institution would charge to
effect this assumption or undertaking, plus
- - the reasonable expenses, including reasonable attorneys' fees, incurred by the
holders of the GOALs in preparing any documentation necessary for this
assumption or undertaking.
During the default quotation period for the GOALs, which we describe below, the
holders of the GOALs and/or we may request a qualified financial institution to
provide a quotation of the amount it would charge to effect this assumption or
undertaking. If either party obtains a quotation, it must notify the other party
in writing of the quotation. The amount referred to in the first bullet point
above will equal the lowest--or, if there is only one, the only--quotation
obtained, and as to which notice is so given, during the default quotation
period. With respect to any quotation, however, the party not obtaining the
quotation may object, on reasonable and significant grounds, to the assumption
or undertaking by the qualified financial institution providing the quotation
and notify the other party in writing of those grounds within two business days
after the last day of the default quotation period, in which case that quotation
will be disregarded in determining the default amount.
S- 24
25
SPECIFIC TERMS OF THE GOALS
- --------------------------------------------------------------------------------
DEFAULT QUOTATION PERIOD
The default quotation period is the period beginning on the day the default
amount first becomes due and ending on the third business day after that day,
unless:
- - no quotation of the kind referred to above is obtained, or
- - every quotation of that kind obtained is objected to within five business days
after the due date as described above.
If either of these two events occurs, the default quotation period will continue
until the third business day after the first business day on which prompt notice
of a quotation is given as described above. If that quotation is objected to as
described above within five business days after that first business day,
however, the default quotation period will continue as described in the prior
sentence and this sentence.
In any event, if the default quotation period and the subsequent two business
day objection period have not ended before the determination date, then the
default amount will equal the principal amount of the GOALs.
QUALIFIED FINANCIAL INSTITUTIONS
For the purpose of determining the default amount at any time, a qualified
financial institution must be a financial institution organized under the laws
of any jurisdiction in the United States of America, Europe or Japan, which at
that time has outstanding debt obligations with a stated maturity of one year or
less from the date of issue and rated either:
- - A-1 or higher by Standard & Poors' Ratings Group or any successor, or any
other comparable rating then used by that rating agency, or
- - P-1 or higher by Moody's Investors Service, Inc. or any successor, or any
other comparable rating then used by that rating agency.
BOOKING BRANCH
The GOALs will be booked through UBS AG, Jersey branch.
S- 25
26
- --------------------------------------------------------------------------------
Use of Proceeds and Hedging
We will use the net proceeds we receive from the sale of the GOALs for the
purposes we describe in the attached prospectus under "Use of Proceeds." We or
our affiliates may also use those proceeds in transactions intended to hedge our
obligations under the GOALs as described below.
In anticipation of the sale of the GOALs, we or our affiliates expect to enter
into hedging transactions involving purchases of the index stock and listed or
over-the-counter options on the index stock prior to and on the trade date. From
time to time, we or our affiliates may enter into additional hedging
transactions or unwind those we have entered into. In this regard, we or our
affiliates may:
- - acquire or dispose of the index stock or other securities of EMC Corporation,
- - take or dispose of positions in listed or over-the-counter options or other
instruments based on the index stock, and/or
- - take or dispose of positions in listed or over-the-counter options or other
instruments based on indices designed to track the performance of the New York
Stock Exchange or other components of the U.S. equity market.
We or our affiliates may acquire a long or short position in securities similar
to the GOALs from time to time and may, in our or their sole discretion, hold or
resell those securities.
We or our affiliates may close out our or their hedge on or before the
determination date. That step may involve sales or purchases of the index stock,
listed or over-the-counter options on the index stock or listed or
over-the-counter options or other instruments based on indices designed to track
the performance of the Nasdaq National Market or other components of the U.S.
equity market.
The hedging activity discussed above may adversely affect the market value of
the GOALs from time to time. See "Risk Factors" above for a discussion of these
adverse effects.
S- 26
27
- --------------------------------------------------------------------------------
Supplemental Tax Considerations
The following is a general description of certain United States and Swiss tax
considerations relating to the GOALs. It does not purport to be a complete
analysis of all tax considerations relating to the GOALs. Prospective purchasers
of GOALs should consult their tax advisers as to the consequences under the tax
laws of the country of which they are resident for tax purposes and the tax laws
of Switzerland and the United States of acquiring, holding and disposing of
GOALs and receiving payments of interest, principal and/or other amounts under
the GOALs. This summary is based upon the law as in effect on the date of this
prospectus supplement and is subject to any change in law that may take effect
after such date.
SUPPLEMENTAL U.S. TAX CONSIDERATIONS
The discussion below supplements the discussion under "U.S. Tax Considerations"
in the attached prospectus and is subject to the limitations and exceptions set
forth therein. Except as otherwise noted under "Non-United States Holders"
below, this discussion is only applicable to you if you are a United States
holder (as defined in the accompanying prospectus).
In the opinion of our counsel, Sullivan & Cromwell, it would be reasonable to
treat your GOAL as either (i) an investment unit consisting of a non-contingent
debt instrument issued by us to you (the "Debt Portion") and a put option on the
index stock written by you and purchased by us (the "Put Option") or (ii) a
single contingent debt instrument subject to the special tax rules governing
contingent debt instruments. The discussion below discusses the United States
federal income tax consequences that would be applicable to you under either
characterization. The terms of your GOAL, however, require you and us (in the
absence of an administrative determination or judicial ruling to the contrary)
to treat your GOAL for all tax purposes as an investment unit consisting of the
Debt Portion and Put Option. In purchasing your GOAL, you agree to these terms.
NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW YOUR
GOAL SHOULD BE TREATED FOR UNITED STATES FEDERAL INCOME TAX PURPOSES. AS A
RESULT, THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF YOUR INVESTMENT IN
A GOAL ARE UNCERTAIN. ACCORDINGLY, WE URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO
THE TAX CONSEQUENCES OF HAVING AGREED TO THE REQUIRED TAX TREATMENT OF YOUR GOAL
DESCRIBED ABOVE AND AS TO THE APPLICATION OF STATE, LOCAL OR OTHER TAX LAWS TO
YOUR INVESTMENT IN YOUR GOAL.
Treatment as an Investment Unit. If your GOAL is properly treated as an
investment unit consisting of a Debt Portion and Put Option, it is likely that
the Debt Portion of your GOAL would be treated as having been issued for the
principal amount of the GOAL and that interest payments on the GOAL would be
treated in part as payments of interest and in part as payments for the Put
Option. Amounts treated as interest would be includible in income by you in
accordance with your regular method of accounting for interest for United States
federal income tax purposes. Amounts treated as payment for the Put Option would
be deferred and would either be included in income by you upon the maturity,
early redemption or sale of your GOAL or would reduce the basis of any index
stock you receive upon the maturity or early redemption of your GOAL. The terms
of your GOAL require you and us to treat the Debt Portion as paying annual
interest of 4.10% and the Put Option as paying annual payments of 19.025%.
A cash payment of the principal amount of your GOAL upon the maturity of your
GOAL would likely be treated as (i) payment in full of the principal amount of
the Debt Portion, which would likely not result in the recognition of gain or
loss if you are an initial purchaser of your GOAL and (ii) the lapse of the Put
Option which would likely result in your recognition of short-term capital gain
in an
S- 27
28
SUPPLEMENTAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
amount equal to the amount paid to you for the Put Option and deferred as
described in the preceding paragraph.
A payment of index stock upon the maturity of your GOAL would likely be treated
as (i) payment in full of the principal amount of the Debt Portion, which would
likely not result in the recognition of gain or loss if you are an initial
purchaser of your GOAL and (ii) the exercise by us of the Put Option and your
purchase of the index stock for an amount equal to the principal amount of your
GOAL. Your United States federal income tax basis in the index stock you receive
would equal the principal amount of your GOAL less the amount of payments you
received for the Put Option and deferred as described in the second preceding
paragraph. Your holding period in the index stock you receive would begin on the
day after you beneficially receive such index stock. If you receive cash in lieu
of a fractional share of index stock, you would recognize a short-term capital
gain or loss in an amount equal to the difference between the amount of cash you
receive and your tax basis (determined in the manner described above) in the
fractional share.
Upon an early redemption or sale of your GOAL for cash or index stock, you would
be required to apportion the value of the amount you receive between the Debt
Portion and Put Option on the basis of the values thereof on the date of the
redemption or sale. You would recognize gain or loss with respect to the Debt
Portion in an amount equal to the difference between (i) the amount apportioned
to the Debt Portion and (ii) your adjusted United States federal income tax
basis in the Debt Portion (which would generally be equal to the principal
amount of your GOAL if you are an initial purchaser of your GOAL). Except to the
extent attributable to accrued but unpaid interest (or, as discussed below with
respect to secondary purchasers, accrued market discount) with respect to the
Debt Portion, such gain or loss would be long-term capital gain or loss if your
holding period in your GOAL is greater than one year. The amount of cash or
index stock that you receive that is apportioned to the Put Option (together
with any amount of premium received in respect thereof and deferred as described
in the preceding paragraph) would be treated as short-term capital gain. If the
value of the Debt Portion on the date of the sale or early redemption of your
GOAL is in excess of the amount you receive upon such sale or early redemption,
you would likely be treated as having made a payment (to us in the case of an
early redemption or to the purchaser in the case of a sale) equal to the amount
of such excess in order to extinguish your rights and obligations under the Put
Option. In such a case, you would likely recognize short-term capital gain or
loss in an amount equal to the difference between the premium you previously
received in respect of the Put Option and the amount of the deemed payment made
by you to extinguish the Put Option.
If you are a secondary purchaser of your GOAL, you would be required to allocate
your purchase price for your GOAL between the Debt Portion and Put Option based
on the respective fair market values of each on the date of purchase. If,
however, the portion of your purchase price allocated to the Debt Portion in
accordance with the preceding sentence is in excess of your purchase price for
your GOAL, you would likely be treated for tax purposes as having paid nothing
for the Put Option (i.e., your purchase price for the Put Option would be zero)
and as having received a payment for obligating yourself under the Put Option
(which will be deferred as described in the fourth preceding paragraph) in an
amount equal to such excess. If the portion of your purchase price allocated to
the Debt Portion is at a discount from, or is in excess of, the principal amount
of your GOAL, you may be subject to the market discount or amortizable bond
premium rules described in the accompanying prospectus under "U.S. Tax
Considerations--Original Issue Discount--Market Discount" and "U.S. Tax
Considerations--Notes Purchased at a Premium" with respect to the Debt Portion.
The portion of your purchase price that is allocated to the Put Option would
likely be offset for tax purposes against amounts you subsequently receive with
respect to the Put Option (including amounts received upon a sale of the GOAL
that are attributable to the Put Option), thereby reducing the amount of gain or
increasing the amount of loss you would recognize with respect to the Put Option
or with respect to the sale of any index stock you receive upon the exercise of
the Put Option.
S- 28
29
SUPPLEMENTAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
Example of Tax Treatment as an Investment Unit. The following example is
for illustrative purposes only. Assume that you purchased a GOAL on the
initial issuance with an underlying stock issued by a hypothetical XYZ
Company at par for $1,000 and will receive a 16% annual coupon. Assume
further that the $160 annual coupon consists of an interest payment on the
Debt Portion of 6%, or $60, and a payment with respect to the Put Option of
10%, or $100. Under the treatment agreed to, you would include the interest
portion of $60 in ordinary income in the year it is received or accrued,
depending on your accounting method for tax purposes. Initially, the
portion of the coupon attributable to the Put Option ($100) would not be
subject to tax.
For a 12 month GOAL that is not sold prior to maturity, the coupon payments
would total $160, $60 of which would be taxed as ordinary interest income
in the year it is received or accrued and $100 of which would not be
subject to tax until maturity. If the share price of XYZ Company is equal
to or higher than the initial stock price of $100 at maturity, you would
receive $1,000 cash and recognize a short-term capital gain of $100 (that
is, the amount of the payments previously received by you with respect to
the Put Option). If the share price of XYZ Company at maturity is below the
$100 initial stock price, you would receive 10 shares of XYZ Company stock
for your GOALs (that is, $1,000 principal amount/$100 per share initial
price = 10 shares). Your basis in the shares received would be $900, which
is the initial purchase price of your GOAL ($1,000) less the payments
previously made to you with respect to the Put Option ($100).
The above example can be summarized as follows:
INITIAL INVESTMENT
Dollars invested in GOAL.................................... $1,000
Annual coupon............................................... 16%
Fixed income component of coupon.......................... 6%
Option component of income................................ 10%
Initial stock price of XYZ company.......................... $100
Number of shares received if stock price at maturity has
declined from the initial price ($1,000 par amount/initial
stock price of $100 = 10 shares of XYZ common stock)...... 10
EVERY TOTAL FOR 12
6 MONTHS MONTHS
-------- ------------
COUPON PAYMENT
Ordinary interest income (taxed in year received or
accrued).................................................. $30 $60
Option component of income (tax impact deferred until
maturity)................................................. $50 $100
-------- ------------
Total coupon.............................................. $80 $160
THERE ARE TWO POTENTIAL OUTCOMES AT MATURITY
1) If XYZ common stock is at or above $100 at maturity, then
the:
Investor receives repayment of principal............... $1,000
Investor recognizes short term capital gains tax on the
option component of income............................ $100
2) If XYZ common stock is below $100 at maturity, then the:
Investor receives 10 shares of XYZ common stock the market
value of which depends on the stock price of XYZ company.
The cost basis of the stock is:
Initial Investment..................................... $1,000
Less: total interest on option component............... -$100
------------
Net cost basis.............................................. $900
Alternative Characterization. If your GOAL is properly treated as a single debt
instrument subject to the special U.S. Treasury Regulations governing contingent
debt instruments, the amount of interest
S- 29
30
SUPPLEMENTAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
you would be required to take into account for each accrual period would be
determined by constructing a projected payment schedule for your GOAL and
applying rules similar to those for accruing original issue discount on a
hypothetical non-contingent debt instrument with that projected payment
schedule. This method is applied by first determining the yield at which we
would issue a non-contingent fixed rate debt instrument with other terms and
conditions similar to the GOAL and then determining as of the issue date a
payment schedule (including all fixed payments of interest actually provided for
and a hypothetical payment at maturity) that would produce the comparable yield.
These rules would generally have the effect of (i) treating each payment of
stated interest on your GOAL in part as taxable interest income (to the extent
of the comparable yield) and thereafter as a tax-free return of capital and (ii)
requiring you to use an accrual (rather than the cash receipts and
disbursements) method of accounting with respect to interest on your GOAL.
If your GOAL is treated as a contingent debt instrument, you would recognize
gain or loss upon the sale, early redemption or maturity of your GOAL in an
amount equal to the difference, if any, between the cash or the fair market
value of any index stock received at such time and your adjusted United States
federal income tax basis in your GOAL. In general, your adjusted United States
federal income tax basis in your GOAL would equal the amount you paid for your
GOAL, increased by the amount of interest you previously accrued with respect to
your GOAL (in accordance with the comparable yield and the projected payment
schedule) and decreased by the amount of interest payments you received with
respect to your GOAL. Any gain recognized by you upon the sale, early redemption
or maturity of your GOAL would be ordinary interest income and any loss
recognized by you at such time would be ordinary loss to the extent of interest
you included as income in the current or previous taxable years in respect of
your GOAL, and thereafter, capital loss. Your holding period in any index stock
received upon the maturity of your GOAL would begin on the day after your
receipt of the index stock.
If your GOAL is treated as a contingent debt instrument and you purchase your
GOAL in the secondary market at a price that is at a discount from, or in excess
of, the adjusted issue price of your GOAL, such excess or discount would not be
subject to the generally applicable market discount and amortizable bond premium
rules described in the accompanying prospectus but rather would be subject to
special rules set forth in Treasury Regulations governing contingent debt
instruments. Accordingly, if you purchase your GOAL in the secondary market at a
price other than the adjusted issue price of your GOAL, you should consult your
tax advisor as to the possible application of such rules to you.
Wash Sale Rules. If you purchase your GOAL at original issue and you sell
shares of the index stock prior or subsequent to such purchase, your purchase of
a GOAL will not cause you to be subject to any restriction or limitation with
respect to the recognition of loss, if any, for federal income tax purposes upon
your sale of the index stock. If you are a secondary purchaser of a GOAL or if
you have shorted shares of the index stock, you should consult your tax advisor
regarding the possible application of the wash sale rules to your sale of shares
of the index stock prior or subsequent to your purchase of a GOAL.
Non-United States Holders. If you are not a United States holder, you will not
be subject to United States withholding tax with respect to payments on your
GOAL but you will be subject to generally applicable information reporting and
backup withholding requirements with respect to payments on your GOAL unless you
comply with certain certification and identification requirements as to your
foreign status.
S- 30
31
SUPPLEMENTAL TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
SUPPLEMENTAL TAX CONSIDERATIONS UNDER THE LAWS OF SWITZERLAND
TAX ON PRINCIPAL AND INTEREST
Under present Swiss law, payment of interest on and repayment of principal of
the GOALs by us are not subject to Swiss withholding tax (Swiss Anticipatory
Tax), and payments to holders of the GOALs who are non-residents of Switzerland
and who during the taxable year have not engaged in trade or business through a
permanent establishment within Switzerland will not be subject to any Swiss
Federal, Cantonal or Municipal income tax.
GAINS ON SALE OR REDEMPTION
Under present Swiss Law, a holder of GOALs who is a non-resident of Switzerland
and who during the taxable year has not engaged in trade or business through a
permanent establishment within Switzerland will not be subject to any Swiss
Federal, Cantonal or Municipal income or other tax on gains realized during the
year on the sale or redemption of a GOAL.
STAMP, ISSUE AND OTHER TAXES
There is no tax liability in Switzerland in connection with the issue and
redemption of the GOALs. However, GOALs sold through a bank or other dealer
resident in Switzerland or Liechtenstein are subject to Turnover Tax.
RESIDENTS OF SWITZERLAND
For residents of Switzerland, for tax purposes, that portion of the annual
interest payment representing interest shall be treated as income and that
portion of the annual interest payment representing an option premium shall be
treated as a capital gain.
- --------------------------------------------------------------------------------
ERISA Considerations
We, UBS Warburg LLC, UBS PaineWebber Inc. and other of our affiliates may each
be considered a "party in interest" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or a "disqualified
person" (within the meaning of Section 4975 of the Internal Revenue Code of
1986, as amended (the "Code")) with respect to an employee benefits plan that is
subject to ERISA and/or an individual retirement account that is subject to the
Code ("Plan"). The purchase of GOALs by a Plan with respect to which UBS Warburg
LLC, UBS PaineWebber Inc. or any of our affiliates acts as a fiduciary as
defined in Section 3(21) of ERISA and/or Section 4975 of the Code ("Fiduciary")
would constitute a prohibited transaction under ERISA or the Code unless
acquired pursuant to and in accordance with an applicable exemption. The
purchase of GOALs by a Plan with respect to which UBS Warburg LLC, UBS
PaineWebber Inc. or any of our affiliates does not act as a Fiduciary but for
which any of the above entities does provide services could also be prohibited,
but one or more exemptions may be applicable. Any person proposing to acquire
any GOAL on behalf of a Plan should consult with counsel regarding the
applicability of the prohibited transaction rules and the applicable exemptions
thereto.
S- 31
32
- --------------------------------------------------------------------------------
Supplemental Plan of Distribution
UBS AG has agreed to sell to UBS Warburg LLC and UBS PaineWebber Inc., and UBS
Warburg LLC and UBS PaineWebber Inc. have agreed to purchase from UBS AG, the
aggregate principal amount of the GOALs specified on the front cover of this
prospectus supplement. UBS Warburg LLC and UBS PaineWebber Inc. intend to resell
the offered GOALs at the original issue price applicable to the offered GOALs to
be resold. In the future, we or one or more of our affiliates may repurchase and
resell the offered GOALs in market-making transactions, with resales being made
at prices related to prevailing market prices at the time of resale or at
negotiated prices. For more information about the plan of distribution and
possible market-making activities, see "Plan of Distribution" in the attached
prospectus.
S- 32