Filed Pursuant to Rule 424(b)(2)
Registration Nos. 333-64844,
333-64844-02 and 333-64844-04
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED DECEMBER 19, 2002)
- --------------------------------------------------------------------------------
$300,000,000
UBS PREFERRED FUNDING TRUST IV
FLOATING RATE NONCUMULATIVE TRUST PREFERRED SECURITIES
REPRESENTING A CORRESPONDING AMOUNT OF
FLOATING RATE NONCUMULATIVE COMPANY PREFERRED SECURITIES
OF
UBS PREFERRED FUNDING COMPANY LLC IV
GUARANTEED ON A SUBORDINATED BASIS BY
UBS AG
(UBS LOGO)
- --------------------------------------------------------------------------------
+ Each trust preferred security represents a corresponding amount of the
company preferred securities and related rights under the UBS AG subordinated
guarantee. Dividends and redemption and liquidation payments paid by UBS
Preferred Funding Company on the company preferred securities will pass
through UBS Preferred Funding Trust to you as distributions and redemption
and liquidation payments on the trust preferred securities.
+ The company preferred securities will pay monthly distributions on the first
business day on or after the 15th day of each month, commencing in June 2003,
at a floating rate per annum equal to .70% above one-month LIBOR. The company
preferred securities are perpetual securities and do not have a maturity
date. UBS Preferred Funding Company may redeem the company preferred
securities on or after the dividend payment date in June 2008.
+ The company preferred securities provide holders with rights to distributions
and redemption and liquidation payments that are similar to those of the most
senior ranking noncumulative perpetual preferred shares that could be issued
directly by UBS AG with financial terms equivalent to those of the company
preferred securities.
+ UBS AG will guarantee, on a subordinated basis, dividend, redemption and
liquidation payment obligations under the company preferred securities.
+ We have applied to list the trust preferred securities on the New York Stock
Exchange under the symbol UBSPrD. If approved, trading of the trust preferred
securities on the New York Stock Exchange is expected to commence within a
30-day period after their initial delivery. See "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE S-10 FOR RISKS RELATED TO AN INVESTMENT IN
THE TRUST PREFERRED SECURITIES.
<Table>
<Caption>
PROCEEDS TO
PRICE TO UNDERWRITING UBS PREFERRED
PUBLIC(1) DISCOUNT FUNDING TRUST
- --------------------------------------------------------------------------------------------------------------------------
Per Trust Preferred Security $25 (2) $25
- --------------------------------------------------------------------------------------------------------------------------
Total $300,000,000 (2) $300,000,000
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Plus accrued dividends, if any, from the time of original issue.
(2) UBS AG will pay the underwriter's compensation of $.7875 per trust preferred
security and $9,450,000 in the aggregate.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The trust preferred securities are not deposit liabilities of UBS AG and will
not be insured by the United States Federal Deposit Insurance Corporation or any
other governmental agency of the United States, Switzerland or any other
jurisdiction.
This prospectus supplement and the attached prospectus may be used in the
initial sale of the trust preferred securities. In addition, UBS AG, UBS Warburg
LLC, UBS PaineWebber Inc. or any other affiliate controlled by UBS AG may use
this prospectus supplement and the attached prospectus in a market-making
transaction involving the trust preferred securities after the initial sale.
These transactions may be executed at negotiated prices that are related to
market prices at the time of purchase or sale, or at other prices. UBS AG and
its affiliates may act as principal or agent in these transactions.
We anticipate that the trust preferred securities will be ready for delivery in
book-entry form through the Depository Trust Company on or about May 23, 2003.
UBS WARBURG
Prospectus Supplement dated May 20, 2003
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PROSPECTUS SUPPLEMENT
<Table>
Certain Terms......................... S-1
Summary............................... S-2
Parties to the Offering............... S-3
The Offering.......................... S-4
Ratio of Earnings to Fixed Charges.... S-9
Risk Factors.......................... S-10
Presentation of Financial
Information......................... S-15
Capitalization of UBS................. S-16
Bank Regulatory Capital............... S-17
Supplemental Information Regarding UBS
Preferred Funding Trust IV.......... S-18
Supplemental Information Regarding UBS
Preferred Funding Company LLC IV.... S-19
Use of Proceeds....................... S-21
Description of Trust Preferred
Securities.......................... S-22
Description of Company Preferred
Securities.......................... S-24
Description of Subordinated Notes of
UBS AG.............................. S-29
U.S. Tax Considerations............... S-30
Tax Considerations under the Laws of
Switzerland......................... S-35
ERISA Considerations.................. S-38
Underwriting.......................... S-39
Validity of the Securities............ S-41
Experts............................... S-41
</Table>
PROSPECTUS
<Table>
Introduction........................... 1
Cautionary Note Regarding Forward-
Looking Statements................... 2
Incorporation of Information About UBS
AG................................... 4
Where You Can Find More Information.... 4
Presentation of Financial
Information.......................... 5
Limitations on Enforcement of U.S. Laws
Against UBS AG, Its Management and
Others............................... 6
Capitalization of UBS.................. 6
UBS.................................... 7
The UBS Preferred Funding Trusts....... 9
The UBS Preferred Funding Companies.... 10
Use of Proceeds........................ 16
Description of Trust Preferred
Securities........................... 17
Description of Company Preferred
Securities........................... 24
Book-Entry Issuance of Trust Preferred
Securities........................... 38
Description of UBS AG Subordinated
Guarantees........................... 43
Description of Subordinated Notes of
UBS AG............................... 48
U.S. Tax Considerations................ 51
Tax Considerations under the Laws of
Switzerland.......................... 57
ERISA Considerations................... 59
Plan of Distribution................... 61
Validity of the Securities............. 61
Experts................................ 61
</Table>
- --------------------------------------------------------------------------------
The information in this prospectus supplement summarizes specific financial and
other terms that apply to the trust preferred securities, the company preferred
securities, the subordinated guarantee and certain other information in the
attached prospectus and should be read in conjunction with the information
contained in the attached prospectus. The terms and other information described
here supplement the terms and other information described in the attached
prospectus and, if the terms and other information described in this prospectus
supplement are inconsistent with those described in the attached prospectus, the
terms and other information described in this prospectus supplement are
controlling.
CERTAIN TERMS
- --------------------------------------------------------------------------------
In this prospectus supplement:
- when we refer to "UBS AG," we mean UBS AG on a parent only basis.
- when we refer to "UBS" or "UBS Group," we mean UBS AG and its
consolidated subsidiaries.
- when we refer to the "trust preferred securities," we mean the Floating
Rate Noncumulative Trust Preferred Securities issued by UBS Preferred
Funding Trust.
- when we refer to the "company preferred securities," we mean the
Floating Rate Noncumulative Company Preferred Securities issued by UBS
Preferred Funding Company to UBS Preferred Funding Trust in connection
with the offering of the trust preferred securities by UBS Preferred
Funding Trust.
- when we refer to "UBS Preferred Funding Trust," we mean UBS Preferred
Funding Trust IV.
- when we refer to "UBS Preferred Funding Company," we mean UBS Preferred
Funding Company LLC IV.
- when we refer to "USD," we mean United States dollars.
- when we refer to "CHF," we mean Swiss francs.
- --------------------------------------------------------------------------------
S- 1
Summary
The following summary does not contain all the information that may be important
to you. You should read the entire prospectus supplement, the attached
prospectus and the documents incorporated by reference into this prospectus
supplement and the attached prospectus before making an investment decision. You
should pay special attention to the "Risk Factors" section of this prospectus
supplement to determine whether an investment in the trust preferred securities
is appropriate for you.
INTRODUCTION
Trust preferred securities will provide you with rights to distributions and
redemption and liquidation payments that are similar to those to which you would
be entitled if you had purchased the most senior ranking noncumulative perpetual
preferred shares that could be issued directly by UBS AG with financial terms
equivalent to those of the related company preferred securities. The diagram to
the right outlines the relationship among investors in trust preferred
securities, UBS Preferred Funding Trust, UBS Preferred Funding Company and UBS
AG following the completion of the offering.
UBS Preferred Funding Trust will pass through to you any dividends, redemption
payments or liquidation payments that it receives from UBS Preferred Funding
Company on the company preferred securities.
UBS AG will guarantee, on a subordinated basis, dividend, redemption and
liquidation payment obligations under the company preferred securities. UBS
Preferred Funding Company will receive payments under the subordinated notes
issued by the Cayman Islands branch of UBS AG and will pay dividends on the
company preferred securities that are similar to dividends that would be paid on
the most senior ranking noncumulative perpetual preferred shares issued directly
by UBS AG that have equivalent financial terms.
The capital raised in this offering will qualify as consolidated Tier 1 capital
for UBS under the relevant regulatory capital guidelines of the Swiss Federal
Banking Commission.
[FLOW CHART DESCRIBING THE ABOVE FLOW OF FUNDS BETWEEN THE UBS AG, THE UBS
PREFERRED FUNDING COMPANIES AND UBS PREFERRED FUNDING TRUST AND RELATIONSHIP
BETWEEN THE ABOVE SECURITIES]
- --------------------------------------------------------------------------------
S- 2
Parties to the Offering
UBS AG
UBS is a global, integrated investment services firm and the leading bank in
Switzerland. Its shares are listed on the virt-x, which is majority owned by the
SWX Swiss Exchange, on the New York Stock Exchange and on the Tokyo Stock
Exchange.
The principal executive offices of UBS AG are located at Bahnhofstrasse 45,
Zurich, Switzerland and Aeschenvorstadt 1, Basel, Switzerland. Its telephone
numbers are 011-41-1-234-11-11 and 011-41-61-288-20-20.
UBS PREFERRED FUNDING TRUST IV
UBS Preferred Funding Trust IV is a Delaware statutory trust. UBS Preferred
Funding Trust exists for the purpose of issuing the trust preferred securities
representing a corresponding amount of the company preferred securities,
together with related rights under the UBS AG subordinated guarantee. UBS
Preferred Funding Trust will pass the dividends it receives on the company
preferred securities through to you as distributions on the trust preferred
securities.
UBS Preferred Funding Trust cannot engage in other activities. The company
preferred securities and the related rights under the UBS AG subordinated
guarantee will be the only assets of UBS Preferred Funding Trust. UBS AG will
pay all expenses and liabilities of UBS Preferred Funding Trust.
UBS Preferred Funding Trust will be treated as a grantor trust for United States
federal income tax purposes. As a result, you will be treated as a beneficial
owner of interests in the company preferred securities and the related rights
under the UBS AG subordinated guarantee for United States federal income tax
purposes.
The principal executive offices of UBS Preferred Funding Trust are located at
c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware
19890. Its telephone number is 302-651-1118.
UBS PREFERRED FUNDING COMPANY LLC IV
UBS Preferred Funding Company LLC IV is a Delaware limited liability company.
UBS Preferred Funding Company exists for the purposes of acquiring and holding
the subordinated notes issued by the Cayman Islands branch of UBS AG, or other
eligible investments, and issuing the company common securities and the company
preferred securities. UBS AG will purchase all of the company common securities,
which represent 100% of the voting rights in UBS Preferred Funding Company,
subject to your limited right to elect additional directors as described below.
UBS Preferred Funding Company will apply the cash generated by the subordinated
notes and other eligible investments, if any, to pay dividends to UBS Preferred
Funding Trust, as holder of the company preferred securities, and UBS AG, as
holder of the company common securities.
UBS Preferred Funding Company will be treated as a partnership for United States
federal income tax purposes.
UBS Preferred Funding Company will be managed by a board of directors having not
less than three and not more than five members. If the aggregate of unpaid
dividends equals or exceeds an amount equal to 18 monthly dividend payments, you
and the other holders of trust preferred securities will have the right to elect
two additional directors.
The principal executive offices of UBS Preferred Funding Company are located at
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
Its telephone number is 302-658-7581.
- --------------------------------------------------------------------------------
S- 3
The Offering
SECURITIES OFFERED
Each trust preferred security represents a corresponding amount of the company
preferred securities and related rights under the UBS AG subordinated guarantee.
The trust preferred securities will be issued in denominations of USD25
liquidation amount and whole-number multiples of USD25, and the company
preferred securities will be issued in denominations of USD25 liquidation
preference and whole-number multiples of USD25. The aggregate liquidation amount
of the trust preferred securities is USD300,000,000 and the aggregate
liquidation preference of the company preferred securities is USD300,000,000.
DIVIDENDS
UBS Preferred Funding Trust will pass through the dividends it receives on the
company preferred securities as distributions on the trust preferred securities.
UBS Preferred Funding Company will pay dividends on the company preferred
securities from the date of their initial issuance on a noncumulative basis.
These dividends will be payable on the liquidation preference of the company
preferred securities monthly in arrears on the first business day on or after
the 15th day of each month at a floating rate per annum equal to .70% above
one-month LIBOR.
UBS Preferred Funding Company's obligation to pay dividends is subject to
provisions that generally require UBS Preferred Funding Company to pay full or
proportional dividends on the company preferred securities when UBS AG pays
dividends on UBS AG ordinary shares or on other securities of UBS AG that rank
equally with or junior to the UBS AG subordinated guarantee of the company
preferred securities. As described under "Description of Trust Preferred
Securities--Distributions" and "Description of Company Preferred
Securities--Dividends" in the attached prospectus, UBS Preferred Funding Company
will be required to pay dividends on the company preferred securities in some
circumstances, will be prohibited from paying dividends on the company preferred
securities in other circumstances, and, when not required to pay or prohibited
from paying dividends, will have discretion as to whether to pay dividends on
the company preferred securities.
The following text outlines the criteria for determining whether and the extent
to which UBS Preferred Funding Company will be required to pay dividends on the
company preferred securities or will be prohibited from paying dividends on the
company preferred securities:
Is there a capital limitation on UBS AG? Unless the Swiss Federal Banking
Commission expressly permits otherwise, if on a dividend payment date UBS AG is
not in compliance with the Swiss Federal Banking Commission's minimum capital
adequacy requirements applicable to UBS AG, or would not be in compliance
because of a payment of dividends on the company preferred securities, UBS
Preferred Funding Company will not pay dividends on the company preferred
securities under any circumstances. For a discussion of UBS's capital resources
relative to applicable guidelines, see Item 5 of UBS AG's Annual Report on Form
20-F for the year ended December 31, 2002, which is incorporated by reference
into the attached prospectus. We refer to this restriction as a capital
limitation.
Are dividends mandatory? Unless there is a capital limitation, the payment of
full dividends by UBS Preferred Funding Company on the company preferred
securities will be mandatory during the one-year period beginning on and
including each date on which:
+ UBS AG declares or pays a dividend or makes any other payment or distribution
on any shares or other securities that, in a liquidation of UBS AG, rank
junior to the UBS AG subordinated guarantee of the company preferred
securities; or
+ UBS AG or any of its subsidiaries redeems, repurchases (except for its
trading account) or otherwise acquires any shares or other securities that,
in a liquidation of UBS AG, rank equally with or junior to the UBS AG
subordinated guarantee of the company preferred securities.
- --------------------------------------------------------------------------------
S- 4
The payment of proportional dividends by UBS Preferred Funding Company on the
company preferred securities will be mandatory on any date, whether or not a
regularly scheduled dividend payment date, on which UBS AG or any of its
subsidiaries pays a dividend or makes any other payment or distribution on any
shares or other securities that, in a liquidation of UBS AG, rank equally with
the UBS AG subordinated guarantee of the company preferred securities if, on the
dividend payment dates leading up to the payment or distribution on the equally
ranking securities (for a period of one year for any such shares that pay
dividends less frequently than semi-annually or for a period of six months for
any such shares that pay dividends more frequently than semi-annually),
dividends were paid on the company preferred securities in a lower percentage
than are being paid on the equally ranking securities.
Proportional dividends are special dividends in an amount that, when taken
together with dividends previously paid on the company preferred securities
during the relevant period, represents the same proportion of full dividends on
such company preferred securities for all dividend payment dates during the
relevant period that the dividend on UBS AG parity securities paid during the
relevant period bears to full dividends on such UBS AG parity securities for
that relevant period.
Unless there is a capital limitation, UBS Preferred Funding Company will be
required to pay dividends that are mandatory whether or not:
+ UBS AG delivers a notice limiting dividends,
+ UBS AG has available distributable profits, or
+ interest is paid on the subordinated notes or other eligible investments.
Does UBS AG have available distributable profits? Available distributable
profits are the pro rata proportion (from among all shares and other securities
issued by UBS AG that rank equally with the UBS AG subordinated guarantee of the
company preferred securities) of profits that may be distributed in accordance
with Swiss law. Currently, distributable profits include the total of current
profit, profit brought forward and freely available reserves as reflected in the
most recent audited unconsolidated balance sheet and statement of appropriation
of retained earnings of UBS AG. UBS AG's distributable profits as of December
31, 2002 exceeded CHF 21 billion.
Unless required to pay mandatory dividends, UBS Preferred Funding Company will
not pay dividends on the company preferred securities in excess of UBS AG's
available distributable profits.
When are dividends discretionary? The payment of dividends by UBS Preferred
Funding Company on the company preferred securities is discretionary if the
capital limitation does not apply, dividends are not mandatory as described
above, and UBS AG has sufficient available distributable profits. In that case,
UBS Preferred Funding Company will pay dividends on the company preferred
securities at the specified rate unless, on or before the tenth business day
immediately preceding a dividend payment date, UBS AG gives notice to UBS
Preferred Funding Company that UBS Preferred Funding Company must pay no
dividends or less than full dividends, in which case dividends will be due and
payable only in the amount specified in the notice. UBS AG may deliver such a
notice in its sole discretion and for any reason, except that such a notice
shall have no effect where dividends are mandatory as described above.
When does the dividend preference shift from the company preferred securities to
the company common securities? The company preferred securities ordinarily will
rank senior to the company common securities as to the payment of dividends.
However, the dividend preference of the company preferred securities may, at UBS
AG's option, shift to the company common securities on dividend payment dates to
the extent that no mandatory dividend payment amount is then required to be paid
on the company preferred securities. If UBS AG does this, the corresponding
interest payments or other income received by UBS Preferred Funding Company on
the subordinated notes or its other eligible investments may be returned as
dividends to UBS AG as holder of the company common securities before any
dividends are paid on the company preferred securities.
- --------------------------------------------------------------------------------
S- 5
WITHHOLDING TAXES
Generally, UBS Preferred Funding Company will pay additional amounts on full or
proportional mandatory dividends otherwise due and payable so that the net
amount received by you will not be reduced by the withholding of certain taxes
or other government charges.
However, UBS Preferred Funding Company will not pay any additional amounts if
the taxes or governmental charges are withheld because you:
+ are connected, other than as a holder of trust preferred securities, to
Switzerland or the Cayman Islands if it is the jurisdiction that requires the
withholding of the taxes or charges, or
+ have not filed an appropriate declaration stating that you are not a resident
of and do not have a connection with Switzerland or the Cayman Islands if it
is the jurisdiction that requires the withholding of the taxes or charges, or
a similar claim for exemption, if we have given you the opportunity to do so.
REDEMPTION
UBS Preferred Funding Company may redeem the company preferred securities, in
whole or in part, on any dividend payment date on or after the dividend payment
date regularly scheduled to occur in June 2008. In that case, you will receive a
redemption price equal to unpaid mandatory dividends, other unpaid definitive
dividends (for example, discretionary dividends that became due and payable
because UBS AG did not deliver a notice to pay no dividends), current accrued
dividends (whether or not declared) and the liquidation preference of your
company preferred securities.
UBS Preferred Funding Company may not redeem the company preferred securities
before the dividend payment date regularly scheduled to occur in June 2008,
unless an event occurs that results in an adverse consequence for the tax or
capital treatment of the company preferred securities, or for the investment
company status of UBS Preferred Funding Company or UBS Preferred Funding Trust.
If such an event occurs before this dividend payment date regularly scheduled to
occur in June 2008, UBS Preferred Funding Company may redeem these company
preferred securities and you will receive a redemption price as described above.
UBS Preferred Funding Trust will pass through the redemption payments it
receives on the company preferred securities to redeem a corresponding amount of
the trust preferred securities.
LIQUIDATION
If UBS AG is liquidated, UBS Preferred Funding Company will be liquidated. So
long as the company preferred securities are outstanding, UBS AG will not cause
UBS Preferred Funding Company to liquidate unless UBS AG is also liquidating.
If UBS Preferred Funding Company is liquidated, you will be entitled to receive
an amount equal to unpaid mandatory dividends, other unpaid definitive
dividends, current accrued dividends (whether or not declared) and the
liquidation preference of your company preferred securities. However, any
liquidating distributions that you receive will be substantially the same as,
but not greater than, those to which you would be entitled if you had purchased
the most senior ranking noncumulative perpetual preferred shares issued directly
by UBS AG that have financial terms equivalent to those of the company preferred
securities.
BOOK-ENTRY ISSUANCE OF THE TRUST PREFERRED SECURITIES
UBS Preferred Funding Trust will initially issue the trust preferred securities
only in book-entry form through The Depository Trust Company.
You may withdraw the company preferred securities represented by your trust
preferred securities from UBS Preferred Funding Trust and hold the company
preferred securities directly. If you hold the
- --------------------------------------------------------------------------------
S- 6
company preferred securities directly, you must hold the company preferred
securities in certificated form.
If you hold the company preferred securities directly, then you may exercise
directly the associated rights under the UBS AG subordinated guarantee, and any
rights under the limited liability company agreement of UBS Preferred Funding
Company in respect of the company preferred securities, including any rights to
elect additional directors of UBS Preferred Funding Company.
THE UBS AG SUBORDINATED GUARANTEE
UBS AG will unconditionally guarantee, on a subordinated basis, the payment by
UBS Preferred Funding Company of any mandatory dividends on the company
preferred securities or dividends that have become definitive because UBS AG has
sufficient available distributable profits to pay out dividends and has not
delivered to UBS Preferred Funding Company an instruction not to pay dividends.
UBS AG will also unconditionally guarantee, on a subordinated basis, the
redemption price payable with respect to any company preferred securities called
for redemption by UBS Preferred Funding Company and the payment by UBS Preferred
Funding Company on its liquidation of an amount sufficient to provide you with
the distributions described under "Liquidation" above.
THE SUBORDINATED NOTES
The subordinated notes are undated and will have an aggregate principal amount
of USD300,000,000. The subordinated notes will be general unsecured debt
obligations of UBS AG and the Cayman Islands branch of UBS AG and, in
liquidation of UBS AG, will rank subordinate and junior to all indebtedness of
UBS AG except for indebtedness that by its terms expressly ranks equally with
the subordinated notes. Interest payable under the subordinated notes will be
calculated at the same rate and payable on the same dates as dividends payable
under the company preferred securities. UBS AG will not pay interest on the
subordinated notes if UBS AG is not solvent.
USE OF PROCEEDS
+ UBS Preferred Funding Trust will use the proceeds from the offering of the
trust preferred securities to purchase the company preferred securities from
UBS Preferred Funding Company.
+ UBS Preferred Funding Company will use the proceeds from the offering of the
company preferred securities to purchase the subordinated notes issued by the
Cayman Islands branch of UBS AG.
+ UBS AG will use the proceeds from the issuance of the subordinated notes for
general corporate purposes, including paying certain expenses relating to the
offering.
Some of the sales of securities under this prospectus may be market-making
transactions--that is, transactions in which UBS AG, UBS Warburg LLC, UBS
PaineWebber Inc. or one of UBS AG's other affiliates resells securities that the
seller, or one of its affiliates, has previously bought from another party. Only
the entity that carries out a particular market-making transaction will receive
any of the proceeds from the resale of the securities. In general, we expect
that the entity that resells any particular securities will retain the proceeds
of its market-making resales and will not pay the proceeds to UBS Preferred
Funding Trust, to UBS Preferred Funding Company or, when the resales are not
made by UBS AG, to UBS AG.
RISK FACTORS
You should carefully consider the information under "Risk Factors," together
with the other information contained in this prospectus supplement, before
purchasing any trust preferred securities.
- --------------------------------------------------------------------------------
S- 7
RATINGS
It is a condition to the issuance of the trust preferred securities that Moody's
Investors Service, Inc. rates the trust preferred securities A1 and Standard &
Poor's Rating Services rates the trust preferred securities AA-. Each of these
ratings will reflect only the view of the applicable rating agency at the time
the rating was issued, and any explanation of the significance of a rating may
be obtained only from the rating agency. A credit rating is not a recommendation
to buy, sell or hold securities, and there is no assurance that a credit rating
will remain in effect for any given period of time or that a rating will not be
lowered, suspended or withdrawn entirely by the applicable rating agency, if in
that rating agency's judgment, circumstances so warrant.
LISTING
We have applied to list the trust preferred securities on the New York Stock
Exchange under the symbol UBSPrD.
GOVERNING LAW
The constituent documents of UBS Preferred Funding Trust and UBS Preferred
Funding Company, the trust preferred securities and the company preferred
securities will be governed by the laws of the State of Delaware, United States
of America. The subordinated notes and the UBS AG subordinated guarantee will be
governed by the laws of the State of New York, United States of America.
PLAN OF DISTRIBUTION
This prospectus relates to the initial sale of and any market-making
transactions in the trust preferred securities and, to the extent they are held
separately, the company preferred securities by UBS AG and its affiliates. The
affiliates that may engage in these transactions include, but are not limited
to, UBS AG itself, UBS Warburg LLC and UBS PaineWebber Inc. These transactions
may be executed at negotiated prices that are related to prevailing market
prices at the time of sale, or at other prices. UBS AG and its affiliates may
act as principal or agent in these transactions.
- --------------------------------------------------------------------------------
S- 8
Ratio of Earnings to Fixed Charges
The following tables set forth UBS AG's ratio of earnings to fixed charges, for
the periods indicated. Ratios of earnings to combined fixed charges and
preferred share dividend requirements are not presented as there were no
preferred share dividends in any of the periods indicated.
<Table>
<Caption>
FOR THE YEAR ENDED 12.31.02 12.31.01 12.31.00 12.31.99 12.31.98
- --------------------------------------------------------------------------------------------------
International Financial Reporting Standards
("IFRS")(1)............................... 1.14 1.14 1.23 1.25 1.11
U.S. Generally Accepted Accounting
Principles ("GAAP")(1),(2)................ 1.18 1.10 1.15 1.14 0.80
</Table>
- ---------------
(1) The ratio is provided using both IFRS and U.S. GAAP values, as the ratio is
materially different between the two accounting standards.
(2) The deficiency in the coverage of fixed charges by earnings before fixed
charges at December 31, 1998 was CHF 5,319 million.
<Table>
<Caption>
FOR THE QUARTER ENDED 3.31.03
- ------------------------------------------------------
IFRS(1)..................................... 1.22
</Table>
- ---------------
(1) The ratio is provided using only IFRS values.
- --------------------------------------------------------------------------------
S- 9
- --------------------------------------------------------------------------------
Risk Factors
You should carefully consider the following information, together with the other
information contained in this prospectus supplement and the attached prospectus,
before purchasing any trust preferred securities in this offering.
YOU MAY NOT RECEIVE DIVIDENDS IF UBS AG'S FINANCIAL CONDITION WERE TO
DETERIORATE.
If UBS AG's financial condition were to deteriorate, UBS Preferred Funding
Company and the holders of trust preferred securities could suffer direct and
materially adverse consequences, including elimination or reduction of
noncumulative dividends on the company preferred securities (and consequently
elimination or reduction of the pass through of such dividends as distributions
on the trust preferred securities) and, if UBS AG were liquidated (whether
voluntarily or involuntarily), loss by the holders of trust preferred securities
of their entire investment.
YOU MAY NOT RECEIVE DIVIDENDS BECAUSE UBS PREFERRED FUNDING COMPANY WILL BE
PROHIBITED FROM PAYING DIVIDENDS ON THE COMPANY PREFERRED SECURITIES UNDER
CERTAIN CIRCUMSTANCES AND WILL HAVE DISCRETION AS TO WHETHER TO PAY DIVIDENDS ON
THE COMPANY PREFERRED SECURITIES IN OTHER CIRCUMSTANCES.
If on a dividend payment date UBS AG is not in compliance with the Swiss Federal
Banking Commission's capital adequacy requirements applicable to UBS AG, UBS
Preferred Funding Company will not pay dividends under any circumstances
(including whether or not funds subsequently become available), even if a full
or proportional dividend is otherwise mandatory. For a discussion of UBS's
capital resources relative to applicable guidelines, see Item 5 of UBS AG's
Annual Report on Form 20-F for the year ended December 31, 2002 which is
incorporated by reference into the attached prospectus. UBS Preferred Funding
Company will not pay dividends exceeding UBS AG's available distributable
profits, except for mandatory dividends. Except when payment of full or
proportional dividends is mandatory or dividends are prohibited by a capital
limitation or prohibited or restricted because UBS AG does not have available
distributable profits, dividends on the company preferred securities are payable
at the discretion of UBS AG and noncumulative. If discretionary dividends on the
company preferred securities for any dividend period are not paid, UBS Preferred
Funding Trust, as holder of company preferred securities (and, accordingly,
investors in the trust preferred securities), will not be entitled to receive
dividends whether or not funds are or subsequently become available.
IN CERTAIN CIRCUMSTANCES, YOU MAY NOT RECEIVE THE FULL AMOUNT OF ANTICIPATED
DIVIDENDS.
The company preferred securities ordinarily will rank senior to the company
common securities as to the payment of dividends. However, the dividend
preference of the company preferred securities may, at UBS AG's option, shift to
the company common securities on dividend payment dates to the extent that no
mandatory dividend payment amount is then required to be paid on the company
preferred securities. If UBS AG does this, the corresponding interest payments
or other income received by UBS Preferred Funding Company on the subordinated
notes or its other eligible investments may be returned as dividends to UBS AG
as holder of the company common securities before any dividends are paid on the
company preferred securities. Because the funds of UBS Preferred Funding Trust
available for distribution to you as holders of trust preferred securities will
be limited to payments received from UBS Preferred Funding Company, if UBS
Preferred Funding Trust does not pay dividends on the company preferred
securities, you will not receive distributions on the trust preferred
- --------------------------------------------------------------------------------
S- 10
RISK FACTORS
- --------------------------------------------------------------------------------
securities you hold. As a result, the corresponding interest payment received by
UBS Preferred Funding Company on the subordinated notes or other eligible
investments may be returned as dividends to UBS AG, as holder of the company
common securities, before any dividends are paid on the company preferred
securities. See "Description of Trust Preferred Securities--Distributions" and
"Description of Company Preferred Securities--Dividends" in the attached
prospectus.
UBS AG IS NOT OBLIGATED TO MAKE PAYMENTS UNDER THE UBS AG SUBORDINATED GUARANTEE
UNLESS IT FIRST MAKES OTHER REQUIRED PAYMENTS.
UBS AG's obligations under the UBS AG subordinated guarantee are unsecured and
rank subordinate and junior in right of payment to all of UBS AG's other
liabilities, except for liabilities that rank equally with the UBS AG
subordinated guarantee. This means that if UBS AG fails to pay any liability
that is senior to the UBS AG subordinated guarantee, it may not make payments on
the UBS AG subordinated guarantee. As of March 31, 2003, UBS had CHF 545.8
billion of other debt obligations that are senior to UBS AG's obligations under
the UBS AG subordinated guarantee.
Also, if UBS AG is bankrupt or liquidates or dissolves, UBS AG or its trustee
will use assets of UBS AG to satisfy all liabilities ranking senior to the UBS
AG subordinated guarantee before making payments on the UBS AG subordinated
guarantee. Parity obligations will share equally in payment with the UBS AG
subordinated guarantee if UBS AG does not have sufficient funds to make full
payments on all of them. The entitlement of the holders of company preferred
securities under the UBS AG subordinated guarantee in a liquidation of UBS AG
will be substantially the same as, and no greater than, the claim such holders
would have been entitled to if they had purchased the most senior ranking
noncumulative perpetual preferred shares that could be issued directly by UBS AG
with financial terms equivalent to those of the company preferred securities.
UBS PREFERRED FUNDING TRUST MAY REDEEM THE TRUST PREFERRED SECURITIES IF CERTAIN
ADVERSE CONSEQUENCES OCCUR AS A RESULT OF THE APPLICATION OF SWISS OR U.S.
REGULATIONS OR TAX OR INVESTMENT COMPANY LAW AND CERTAIN CONDITIONS ARE
SATISFIED.
If certain consequences occur, which are more fully described below in the
attached prospectus, as a result of application of Swiss or U.S. regulations or
tax or investment company law and certain other conditions that are more fully
described below are satisfied, UBS Preferred Funding Company could redeem the
company preferred securities before the dividend payment date in June 2008. If
the company preferred securities are redeemed, UBS Preferred Funding Trust will
redeem the trust preferred securities. The redemption price is described below
under "Description of Company Preferred Securities--Redemption." You may be
unable to reinvest the proceeds of a redemption at a yield comparable to the
yield you are receiving on the trust preferred securities.
YOU COULD SUFFER ADVERSE TAX AND LIQUIDITY CONSEQUENCES IF UBS AG LIQUIDATES UBS
PREFERRED FUNDING TRUST AND DISTRIBUTES THE COMPANY PREFERRED SECURITIES TO YOU.
UBS AG has the right to liquidate UBS Preferred Funding Trust in some
circumstances. If UBS AG exercises this right, the company preferred securities
will be distributed to you in an amount corresponding to the amount of trust
preferred securities you hold. If the company preferred securities are
distributed to you:
+ you will receive reports of your income in respect of the company preferred
securities on Schedule K-I,
+ the company preferred securities will be in definitive certificated form and
will not be eligible for trading through DTC,
- --------------------------------------------------------------------------------
S- 11
RISK FACTORS
- --------------------------------------------------------------------------------
+ the trading value of the company preferred securities you receive may be
lower than the trading value of the trust preferred securities, and, as a
result, you may receive a lower return upon the sale of the company preferred
securities, and
+ you may incur an additional tax liability in excess of what you originally
contemplated. Under current U.S. federal income tax law, a distribution of
company preferred securities to you on the dissolution of UBS Preferred
Funding Trust should not be a taxable event to you. However, if UBS Preferred
Funding Trust is characterized for U.S. federal income tax purposes as an
association taxable as a corporation at the time it is dissolved or if there
is a change in law, the distribution of company preferred securities may be a
taxable event to you.
YOU MAY NOT RECEIVE DISTRIBUTIONS OR REDEMPTION PAYMENTS IF THE SWISS FEDERAL
BANKING COMMISSION RESTRICTS THE OPERATIONS OF UBS PREFERRED FUNDING COMPANY.
The Swiss Federal Banking Commission could make determinations in the future
with respect to UBS AG that could adversely affect UBS Preferred Funding
Company's ability to make distributions to the holders of company preferred
securities or to redeem the company preferred securities. For example, the Swiss
Federal Banking Commission could impose regulatory capital requirements that
cause, or otherwise request or instruct UBS AG to cause, UBS Preferred Funding
Company not to pay dividends on or redeem the company preferred securities at
times when UBS Preferred Funding Company otherwise is entitled to do so.
BECAUSE YOU HAVE LIMITED VOTING RIGHTS AND UBS AG IS INVOLVED IN VIRTUALLY EVERY
ASPECT OF UBS PREFERRED FUNDING COMPANY'S EXISTENCE, UBS AG COULD ACT CONTRARY
TO YOUR INTERESTS.
The company preferred securities will be non-voting, expect in the limited cases
described under "Description of Company Preferred Securities--Voting Rights."
UBS AG is involved in virtually every aspect of UBS Preferred Funding Company's
existence. UBS AG will be the sole holder of the company common securities. As
holder of all outstanding company common securities, UBS AG will have the right
to elect all directors of UBS Preferred Funding Company except for the situation
where the holders of company preferred securities have the right to elect two
directors as described under "Description of Company Preferred
Securities--Voting Rights." The initial (and UBS Preferred Funding Company
anticipates that all future) directors of UBS Preferred Funding Company will
also be directors or employees of UBS AG or its affiliates. Conflicts of
interest may arise between the discharge by such individuals of their duties as
directors of UBS Preferred Funding Company, on the one hand, and as directors or
employees of UBS AG and its affiliates, on the other hand.
Decisions with respect to enforcement of the subordinated notes issued by the
Cayman Islands Branch of UBS AG and actions to be taken by UBS Preferred Funding
Company upon a default by UBS AG under them will be made by the board of
directors of UBS Preferred Funding Company by majority vote. There can be no
assurance that, under any circumstances, enforcement action will be taken by UBS
Preferred Funding Company with respect to a default under the subordinated
notes. However, UBS AG's failure to perform its obligations under the
subordinated notes will not relieve it of its obligations under the UBS AG
subordinated guarantee. See "Description of UBS AG Subordinated Guarantee."
UBS AG and its affiliates may have interests which are different from those of
UBS Preferred Funding Company. As a result, conflicts of interest may arise with
respect to transactions, including UBS Preferred Funding Company's
administration of the subordinated notes.
- --------------------------------------------------------------------------------
S- 12
RISK FACTORS
- --------------------------------------------------------------------------------
UBS Preferred Funding Company and UBS AG intend that any agreements and
transactions between UBS Preferred Funding Company, on the one hand, and UBS AG
or its affiliates, on the other hand, be established in good faith and, to the
extent deemed advisable by UBS AG, reflect arm's-length terms for such types of
transactions. The LLC Agreement of UBS Preferred Funding Company requires that
certain actions of UBS Preferred Funding Company be approved by the holders of
company preferred securities; this requirement is also intended to ensure fair
dealings between UBS Preferred Funding Company and UBS AG and its affiliates.
However, there can be no assurance that such agreements or transactions will be
on terms as favorable to UBS Preferred Funding Company as those that could have
been obtained from unaffiliated third parties.
WE CANNOT GIVE YOU ANY ASSURANCE AS TO THE MARKET PRICES FOR THE TRUST PREFERRED
SECURITIES OR THE COMPANY PREFERRED SECURITIES.
We cannot give you any assurance as to the market prices for the trust preferred
securities or the company preferred securities because there is no prior market
for these securities. In addition, because the trust preferred securities are
deeply subordinated securities and payment of dividends on the company preferred
securities may be limited by the capital limitation or by lack of sufficient
available distributable profits, the market prices of the trust preferred
securities or company preferred securities, as applicable, may be more volatile
than other securities not having such provisions.
Although the underwriter of the trust preferred securities has informed UBS
Preferred Funding Company and UBS AG it intends to make a market in the trust
preferred securities, the underwriter is not obligated to do so, and any such
market making activity will be subject to the limits imposed by applicable law
and may be interrupted or discontinued at any time.
YOU WILL NOT BE ENTITLED TO RECOVER CERTAIN MISSED PAYMENTS BECAUSE OF THE
NONCUMULATIVE NATURE OF DIVIDENDS ON THE COMPANY PREFERRED SECURITIES AND
RELATED DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES.
If UBS Preferred Funding Company does not make a payment or only makes a partial
payment on a dividend payment date as a result of a capital limitation, a lack
of available distributable profits or a properly delivered "no dividend
instruction," you will not be entitled to recover that missed payment.
THE TRUST PREFERRED SECURITIES ARE NOT DEPOSIT LIABILITIES OF UBS AG AND WILL
NOT BE INSURED BY THE UNITED STATES FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY OF THE UNITED STATES, SWITZERLAND OR ANY OTHER
JURISDICTION.
The trust preferred securities are not deposit liabilities of UBS AG and will
not be insured by the United States Federal Deposit Insurance Corporation or any
other governmental agency of the United States, Switzerland or any other
jurisdiction. The value of your investment will likely fluctuate and you may
lose your entire investment if UBS AG is liquidated.
THE MARKET VALUE OF THE TRUST PREFERRED SECURITIES MAY BE INFLUENCED BY
UNPREDICTABLE FACTORS.
The market value of your trust preferred securities may fluctuate between the
date you purchase them and the date on which you sell them or they are redeemed.
Several factors, many of which are beyond
- --------------------------------------------------------------------------------
S- 13
RISK FACTORS
- --------------------------------------------------------------------------------
our control, will influence the market value of the trust preferred securities.
Factors that may influence the market value of the trust preferred securities
include:
+ the creditworthiness of UBS and the level of its regulatory capital from time
to time
+ whether distributions have been and are likely to be paid on the trust
preferred securities from time to time
+ supply and demand for the trust preferred securities, including inventory
positions with UBS Warburg LLC or any other securities dealer
+ economic, financial, political, regulatory or judicial events that affect UBS
or the financial markets generally
Accordingly, if you sell your trust preferred securities in the secondary
markets, you may not be able to obtain a price equal to the face amount of the
trust preferred securities or to the price that you paid for your trust
preferred securities.
- --------------------------------------------------------------------------------
S- 14
- --------------------------------------------------------------------------------
Presentation of Financial Information
UBS's financial statements, which are incorporated by reference into this
prospectus, have been prepared in accordance with International Financial
Reporting Standards and are denominated in Swiss francs, or "CHF," the legal
tender of Switzerland.
The tables below set forth, for the periods and dates indicated, information
concerning the noon buying rate for the Swiss franc, expressed in United States
dollars or "USD," per one Swiss franc. The "noon buying rate" is the rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York.
<Table>
<Caption>
AVERAGE RATE(1)
YEAR ENDED DECEMBER 31, HIGH LOW (USD PER 1 CHF) AT PERIOD END
- -------------------------------------------------------------------------------------------------
1998.......................................... 0.7731 0.6485 0.6894 0.7281
1999.......................................... 0.7361 0.6244 0.6605 0.6277
2000.......................................... 0.6441 0.5479 0.5912 0.6172
2001.......................................... 0.6331 0.5495 0.5910 0.5857
2002.......................................... 0.7229 0.5817 0.6453 0.7229
</Table>
<Table>
<Caption>
AVERAGE RATE(1)
QUARTER ENDED HIGH LOW (USD PER 1 CHF) AT PERIOD END
- -------------------------------------------------------------------------------------------------
March 31, 2003................................ 0.7549 0.7135 0.7357 0.7387
</Table>
<Table>
<Caption>
MONTH HIGH LOW
- ---------------------------------------------------------------
October 2002.................................. 0.6760 0.6605
November 2002................................. 0.6928 0.6714
December 2002................................. 0.7229 0.6736
January 2003.................................. 0.7401 0.7135
February 2003................................. 0.7411 0.7275
March 2003.................................... 0.7549 0.7143
April 2003.................................... 0.7387 0.7145
</Table>
- ------------
(1) The average of the noon buying rates on the last business day of each full
month during the relevant period.
- --------------------------------------------------------------------------------
S- 15
- --------------------------------------------------------------------------------
Capitalization of UBS
The following table sets forth the consolidated capitalization of UBS in
accordance with International Financial Reporting Standards and translated into
U.S. Dollars.
<Table>
<Caption>
MARCH 31, 2003 MARCH 31, 2003
ACTUAL AS ADJUSTED
CHF USD CHF USD
- ------------------------------------------------------------------------------------------------
(IN MILLIONS, UNAUDITED)
Debt
Debt issued(1)........................... 126,297 93,312 126,297 93,312
------- -------------- ------- --------------
Total Debt............................... 126,297 93,312 126,297 93,312
Minority Interest(2)....................... 3,525 2,604 3,931 2,904
Shareholders' Equity....................... 39,764 29,379 39,764 29,379
------- -------------- ------- --------------
Total capitalization....................... 169,586 125,295 169,992 125,595
======= ============== ======= ==============
</Table>
- ------------
(1) Includes Money Market Paper and Medium Term Notes as per Balance Sheet
position.
(2) Includes issuance of $300 million trust preferred securities assumed in the
current offering.
Swiss francs (CHF) amounts have been translated into U.S. dollars (USD) at the
rate of CHF 1 = USD 0.7388307.
- --------------------------------------------------------------------------------
S- 16
- --------------------------------------------------------------------------------
Bank Regulatory Capital
The table below shows the key capital figures and ratios as of March 31, 2003,
December 31, 2002 and December 31, 2001.
The ratios measure capital adequacy by comparing UBS's eligible capital with
total risk-weighted assets, which include balance sheet assets, net positions in
securities not held in the trading portfolio, off-balance sheet transactions
converted into their credit equivalents at a weighted amount to reflect their
relative risk and market risk positions based on value at risk, see Note 29d of
UBS Group Financial Statements, incorporated by reference to Item 18 of UBS AG's
Annual Report on Form 20-F for the year ended December 31, 2002, which is
incorporated by reference into the attached prospectus.
<Table>
<Caption>
AS AT
3.31.03 12.31.02 12.31.01
CAPITAL ADEQUACY (UNAUDITED)
- -----------------------------------------------------------------------------------------------
CHF MILLION, EXCEPT RATIOS
BIS Tier 1 capital........................................ 27,562 27,047 29,322
of which hybrid Tier 1 capital(1)......................... 3,113 3,182 3,848
BIS total capital......................................... 32,490 33,009 37,471
------- ------- -------
BIS Tier 1 capital ratio (%).............................. 11.5 11.3 11.6
BIS total capital ratio (%)............................... 13.6 13.8 14.8
------- ------- -------
Balance sheet assets...................................... 201,555 205,401 214,481
Off balance sheet and other positions..................... 18,841 18,122 25,935
Market risk positions..................................... 18,350 15,267 13,319
------- ------- -------
Total BIS risk-weighted assets............................ 238,746 238,790 253,735
======= ======= =======
</Table>
- ------------
(1) Trust preferred securities.
The calculation of capital requirements applicable to UBS under Swiss Federal
Banking Commission (SFBC) regulations differs in certain respects from the
calculations under the Basel Capital Accord ("BIS guidelines"). Most
importantly:
+ where BIS guidelines apply a maximum risk weight of 100%, the SFBC applies
risk weights above 100% to certain asset classes (for example, real estate,
bank premises, other fixed assets, intangible assets excluding good-will,
equity securities and unconsolidated equity investments)
+ where the BIS guidelines apply a 20% risk weight to the obligations of OECD
banks, the SFBC applies risk weights of 25% to 75%, depending on maturity, to
such obligations.
As a result of these differences, UBS's risk-weighted assets are higher, and its
ratios of total capital and Tier 1 capital are lower, when calculated under the
SFBC regulations than under the BIS guidelines. Nevertheless, UBS and its
predecessor banks have always had total capital and Tier 1 capital in excess of
the minimum requirements of both the BIS and the SFBC since these regulations
and guidelines were first implemented in 1988.
- --------------------------------------------------------------------------------
S- 17
- --------------------------------------------------------------------------------
Supplemental Information Regarding UBS Preferred Funding Trust IV
UBS Preferred Funding Trust IV is a Delaware statutory trust. UBS Preferred
Funding Trust exists for the purpose of issuing the trust preferred securities
representing a corresponding amount of the company preferred securities,
together with related rights under the UBS AG subordinated guarantee. UBS
Preferred Funding Trust will pass the dividends it receives on the company
preferred securities through to you as distributions on the trust preferred
securities. UBS Preferred Funding Trust cannot engage in other activities. The
company preferred securities and the related rights under the UBS AG
subordinated guarantee will be the only assets of UBS Preferred Funding Trust.
UBS AG will pay all expenses and liabilities of UBS Preferred Funding Trust.
UBS Preferred Funding Trust will be treated as a grantor trust for United States
federal income tax purposes. As a result, you will be treated as a beneficial
owner of interests in the company preferred securities and the related rights
under the UBS AG subordinated guarantee for United States federal income tax
purposes.
The total pro forma capitalization of UBS Preferred Funding Trust, as adjusted
to give effect to the offering of the trust preferred securities (based on
proceeds of USD300,000,000 before deduction of expenses) and the use of the
proceeds from the offering, is USD300,000,000. Upon completion of the initial
offering, the authorized and issued capital of UBS Preferred Funding Trust will
consist of trust preferred securities having an aggregate liquidation amount of
USD300,000,000, issuable in denominations of USD25 liquidation amount per trust
preferred security and integral multiples of USD25.
The principal executive offices of UBS Preferred Funding Trust are located at
c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware
19890. Its telephone number is 302-651-1118.
- --------------------------------------------------------------------------------
S- 18
- --------------------------------------------------------------------------------
Supplemental Information Regarding UBS Preferred Funding Company LLC IV
GENERAL
UBS Preferred Funding Company LLC IV is a Delaware limited liability company.
UBS Preferred Funding Company exists for the purposes of acquiring and holding
the subordinated notes issued by the Cayman Islands branch of UBS AG, or other
eligible investments, and issuing the company common securities and the company
preferred securities. UBS AG will purchase all of the company common securities,
which represent 100% of the voting rights in UBS Preferred Funding Company,
subject to your limited right to elect additional directors as described below.
UBS Preferred Funding Company will apply the cash generated by the subordinated
notes and other eligible investments, if any, to pay dividends to UBS Preferred
Funding Trust, as holder of the company preferred securities, and UBS AG, as
holder of the company common securities. UBS Preferred Funding Company will be
treated as a partnership for United States federal income tax purposes.
UBS Preferred Funding Company will be managed by a board of directors having not
less than three and not more than five members. If the aggregate of unpaid
dividends equals or exceeds an amount equal to 18 monthly dividend payments, you
and the other holders of trust preferred securities will have the right to elect
two additional directors.
The principal executive offices of UBS Preferred Funding Company are located at
The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801.
Its telephone number is 302-658-7581.
PRO FORMA CAPITALIZATION
The total pro forma capitalization of UBS Preferred Funding Company LLC, as
adjusted to give effect to the offering of the company preferred securities
(based on proceeds of USD300,000,000 before deduction of expenses) and the use
of proceeds from the offering, is USD300,000,000. Upon completion of the
offering, the authorized and issued capital of UBS Preferred Funding Company
will consist of company common securities representing securityholder's equity
of USD2,000 and company preferred securities with an aggregate liquidation
preference of USD300,000,000, issuable in denominations of USD25 liquidation
preference per company preferred security and integral multiples of USD25. UBS
Preferred Funding Company LLC will have no outstanding debt after giving effect
to the initial offering and the use of the proceeds from the initial offering.
UBS AG will purchase all of the company common securities for USD2,000.
DIRECTORS AND EXECUTIVE OFFICERS
The LLC Agreement of UBS Preferred Funding Company provides that its board of
directors will at all times include not less than three and not more than five
members. The board of directors currently includes three members. The directors
will be designated as "managers" of UBS Preferred Funding Company within the
meaning of the Delaware Limited Liability Company Act. The directors will serve
until their successors are duly elected and qualified. UBS Preferred Funding
Company has no present intention to alter the number of directors comprising the
board of directors. If the aggregate of unpaid dividends equals or exceeds an
amount equal to 18 monthly dividend payments, you and the other holders of trust
preferred securities will have the right to elect two additional directors.
- --------------------------------------------------------------------------------
S- 19
SUPPLEMENTAL INFORMATION REGARDING UBS PREFERRED FUNDING COMPANY LLC IV
- --------------------------------------------------------------------------------
UBS Preferred Funding Company will have three officers. The directors and
executive officers of UBS Preferred Funding Company initially are:
<Table>
<Caption>
NAME POSITION AND OFFICES HELD
- ---------------------------------------------------------------------------------------------
Robert Mills................................................ Managing Director and President
Per Dyrvik.................................................. Director and Treasurer
Robert Dinerstein........................................... Director and Secretary
</Table>
Each of the initial directors and officers of UBS Preferred Funding Company is
an individual who is an officer or employee of UBS AG or its affiliates. UBS
Preferred Funding Company currently anticipates that all officers of UBS
Preferred Funding Company will also be officers or employees of UBS AG or its
affiliates.
- --------------------------------------------------------------------------------
S- 20
- --------------------------------------------------------------------------------
Use of Proceeds
UBS Preferred Funding Trust will use the net proceeds of USD300,000,000 from the
sale of the trust preferred securities to purchase the company preferred
securities.
UBS Preferred Funding Company will use the net proceeds of USD300,000,000 from
the sale of the company preferred securities to UBS Preferred Funding Trust and
the company common securities to UBS AG to acquire USD300,000,000 aggregate
principal amount of subordinated notes issued by the Cayman Islands branch of
UBS AG. See "The UBS Preferred Funding Companies--Activities of UBS Preferred
Funding Companies" in the attached prospectus.
UBS AG will use the net proceeds of USD300,000,000 from the sale of the
subordinated notes issued by its Cayman Island branch for general corporate
purposes, including paying certain expenses relating to the offering.
Some of the sales of securities under this prospectus may be market-making
transactions--that is, transactions in which UBS AG, UBS Warburg LLC, UBS
PaineWebber Inc. or one of UBS AG's other affiliates resells securities that the
seller, or one of its affiliates, has previously bought from another party. Only
the entity that carries out a particular market-making transaction will receive
any of the proceeds from the resale of the securities. In general, we expect
that the entity that resells any particular securities will retain the proceeds
of its market-making resales and will not pay the proceeds to UBS Preferred
Funding Trust, to UBS Preferred Funding Company or, when the resales are not
made by UBS AG, to UBS AG.
- --------------------------------------------------------------------------------
S- 21
- --------------------------------------------------------------------------------
Description of Trust Preferred Securities
The following summary of certain terms and provisions of the trust preferred
securities supplements the description of the terms and provisions of the trust
preferred securities set forth in the attached prospectus under the heading
"Description of Trust Preferred Securities." This summary of certain terms and
provisions of the trust preferred securities, which describes their material
provisions, is not complete and is subject to, and qualified in its entirety by
reference to, the Amended and Restated Trust Agreement, the Delaware Statutory
Trust Act and the Trust Indenture Act. We have filed a copy of a form of Amended
and Restated Trust Agreement as an exhibit to the registration statement of
which the attached prospectus forms a part.
GENERAL
The trust preferred securities are certificates of beneficial interest in the
assets of UBS Preferred Funding Trust, the terms of which are set forth in the
Amended and Restated Trust Agreement.
The trust preferred securities will be issued in denominations of USD25
liquidation amount and whole-number multiples of USD25. The aggregate
liquidation amount of the trust preferred securities offered by this prospectus
supplement is USD300,000,000. Each trust preferred security represents a
corresponding amount of the company preferred securities, together with related
rights under the UBS AG subordinated guarantee.
We have applied to list the trust preferred securities on the New York Stock
Exchange.
DISTRIBUTIONS
Each trust preferred security represents a corresponding amount of the company
preferred securities, together with the related rights under the UBS AG
subordinated guarantee. UBS Preferred Funding Trust will make monthly
distributions or other mandatory distributions on the trust preferred securities
concurrently with, and in the same amount as, the monthly dividends or special
dividends on the company preferred securities. See "Description of Company
Preferred Securities--Dividends." Accordingly, to the extent that dividends are
paid on the company preferred securities, distributions on the trust preferred
securities will accrue from the date of original issue and be paid on the
liquidation amount of the trust preferred securities monthly in arrears on the
dividend payment dates regularly scheduled to occur on the first business day on
or after the 15th of each month commencing in June 2003 at a floating rate per
annum equal to .70% above one-month LIBOR (calculated on the basis of the actual
number of days elapsed in a 360-day year).
For details on the calculation and payment of dividends, see "Description of
Company Preferred Securities--Dividends." Whenever, and to the extent, UBS
Preferred Funding Trust receives any cash payments representing a monthly
dividend, special dividend or redemption payment on the company preferred
securities, UBS Preferred Funding Trust will distribute such amounts to the
holders of trust preferred securities in proportion to their liquidation
amounts. Each monthly or special distribution on the trust preferred securities
will be payable to holders of record as they appear on the securities register
of UBS Preferred Funding Trust on the corresponding record date. The record
dates for the trust preferred securities will be the first day of the month in
which the relevant monthly or other distribution date occurs, whether or not a
business day.
If any distribution would be payable on a day that is not a business day, that
distribution will instead be made on the next business day. No interest or other
payment will be due as a result of any such delay.
- --------------------------------------------------------------------------------
S- 22
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
If dividends are not payable on company preferred securities on any dividend
payment date for the reasons described in "Description of Company Preferred
Securities--Dividends," then the holders of trust preferred securities will not
be entitled to receive a distribution on that date.
NATURE OF THE TRADING MARKET
The company preferred securities are not listed on any national exchange or
traded in any established market. We have applied to list the trust preferred
securities on the New York Stock Exchange under the symbol UBSPrD. If approved,
trading of the trust preferred securities on the New York Stock Exchange is
expected to commence within a 30-day period after their initial delivery.
- --------------------------------------------------------------------------------
S- 23
- --------------------------------------------------------------------------------
Description of Company Preferred Securities
The following summary of certain terms and provisions of the company preferred
securities supplements the description of the terms and provisions of the
company preferred securities set forth in the attached prospectus under the
heading "Description of Company Preferred Securities." This summary of certain
terms and provisions of the company preferred securities, which describes their
material provisions, is not complete and is subject to, and qualified in its
entirety by reference to, the Amended and Restated LLC Agreement of UBS
Preferred Funding Company and the Delaware Limited Liability Company Act. We
have filed a copy of a form of the LLC Agreement for UBS Preferred Funding
Company as an exhibit to the registration statement of which the attached
prospectus forms a part.
GENERAL
The company preferred securities are preferred limited liability company
interests in UBS Preferred Funding Company, the terms of which are set forth in
UBS Preferred Funding Company's LLC Agreement.
The company preferred securities are intended to provide holders with rights to
distributions and redemption and liquidation payments that are similar to those
to which holders would be entitled if they had purchased the most senior ranking
noncumulative perpetual preferred shares that could be issued directly by UBS AG
with financial terms equivalent to those of the company preferred securities.
The company preferred securities will be issued in certificated form only in
denominations of USD25 liquidation preference and whole-number multiples of
USD25. The aggregate liquidation preference of the company preferred securities
offered pursuant to this prospectus supplement is USD300,000,000.
DIVIDENDS
Dividends on the company preferred securities will be payable from the date of
initial issuance on a noncumulative basis, monthly in arrears on the first
business day on or after the 15th of each month (each a "dividend payment date")
for the dividend period then ending, commencing in June 2003 but only if UBS
Preferred Funding Company has legally available funds for such purpose and
satisfies the other qualifications described under "Description of Company
Preferred Securities--Dividends" in the attached prospectus. Each period from
and including a dividend payment date or the date of initial issuance, as
applicable, to but not including the next dividend payment date is a "dividend
period."
Dividends will be payable on the liquidation preference, for each dividend
period, at a floating rate per annum equal to .70% above one-month LIBOR
(calculated on the basis of the actual number of days elapsed in a 360-day
year).
LIBOR, with respect to a determination date (as defined below), means the rate
(expressed as a percentage per annum) for deposits in U.S. dollars for a
one-month period commencing on the second London banking day (as defined below)
immediately following that determination date that appears on Telerate Page 3750
(as defined below) as of 11:00 a.m. (London time) on that determination date. If
such rate does not appear on Telerate Page 3750, LIBOR will be determined on the
basis of the rates which deposits in U.S. dollars for a one-month period
commencing on the second London banking day immediately following that
determination date and in a principal amount of not less than USD1,000,000 are
offered to prime banks in the London interbank market by four major banks in the
London interbank market selected by the calculation agent (as defined below),
after consultation with UBS Preferred Funding Company, at approximately 11:00
a.m., London time, on that determination date.
- --------------------------------------------------------------------------------
S- 24
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
The calculation agent will request the principal London office of each of such
banks to provide a quotation of its rate. If at least two such quotations are
provided, LIBOR with respect to that determination date will be the arithmetic
mean of such quotations. If fewer than two quotations are provided, LIBOR with
respect to that determination date will be the arithmetic mean of the rates
quoted by three major banks in New York City selected by the calculation agent,
after consultation with UBS Preferred Funding Company, at approximately 11:00
a.m., New York City time, on the second London banking day immediately following
that determination date for loans in U.S. dollars to leading European banks for
a one-month period commencing on the second London banking day immediately
following that determination date and in a principal amount of not less than
USD1,000,000. However, if the banks selected by the calculation agent to provide
quotations are not quoting as described in this paragraph, LIBOR for the
applicable period will be the same as LIBOR as determined on the previous
determination date.
As used in this prospectus supplement:
"business day" means a day on which commercial banks and foreign exchange
markets settle payments and are open for general business (including
dealings in foreign exchange and foreign currency deposits) in USD in New
York and London.
"calculation agent" means the London branch of UBS AG.
"determination date" for a dividend period or interest period (as
applicable) means two London banking days preceding the first day of that
dividend period or interest period (as applicable).
"London banking day" means any day on which commercial banks are open for
general business (including dealings in foreign exchange and foreign
currency deposits) in London.
"Telerate Page 3750" means the display page so designated on the
Moneyline/Telerate Service (or such other page as may replace that page on
that service, or such other service as may be nominated as the information
vendor, for the purpose of displaying rates or prices comparable to London
interbank offered rates for U.S. dollar deposits).
All percentages resulting from any calculations on the company preferred
securities will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded
upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)),
and all dollar amounts used in or resulting from such calculation will be
rounded to the nearest cent (with one-half cent being rounded upward).
The calculation agent will notify the trustee and the New York Stock Exchange of
the LIBOR rate, the amount of dividends payable and the dividend payment date
relating to the relevant dividend period as soon as possible after their
determination but in no event later than the fourth business day after their
determination.
The calculation agent will be entitled to amend the LIBOR rate, the amount of
dividends payable and the dividend payment date relating to the relevant
dividend period or other information (or to make appropriate alternative
arrangements by way of adjustment) without notice in the event of an extension
or shortening of the relevant dividend period.
CAPITAL LIMITATION
The prohibition on the payment of dividends on the company preferred securities
as described below is called the "capital limitation."
Unless the Swiss Federal Banking Commission expressly permits otherwise, UBS
Preferred Funding Company will not pay dividends on the company preferred
securities on any dividend payment date
- --------------------------------------------------------------------------------
S- 25
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
(whether or not it is a mandatory dividend payment date) if on such date UBS AG
is not in compliance, or because of a distribution by UBS AG or any of its
subsidiaries of profits of UBS AG (including a payment of dividends on the
company preferred securities) would not be in compliance, with the Swiss Federal
Banking Commission's minimum capital adequacy requirements applicable to UBS AG
as then in effect.
For purposes of complying with the Swiss Federal Banking Commission's capital
minimum adequacy requirements, bank capital is divided into three main
categories:
+ Core (or Tier 1) capital,
+ Supplementary (or Tier 2) capital, and
+ Additional (or Tier 3) capital.
Tier 1 capital primarily includes paid-in share capital, reserves (defined to
include retained earnings) and capital participations of minority shareholders
in fully consolidated subsidiaries, and is reduced by, among other items, the
bank's holdings of its own shares. Tier 1 capital is supplemented, for capital
adequacy purposes, by Tier 2 capital, which consists of, among other things, two
categories of subordinated debt instruments that may be issued by a bank, and by
Tier 3 capital, which consists of certain subordinated debt obligations. The use
of Tier 2 and Tier 3 capital in complying with capital ratio requirements is,
however, subject to limitations.
Under Swiss law, a bank must maintain a minimum capital ratio of 8%, calculated
by dividing adjusted core and supplementary capital by aggregate risk-weighted
assets. This standard must be met on both a consolidated and an unconsolidated
basis. UBS is required to file a statement of its required and existing capital
resources, together with its annual statement of condition and interim balance
sheet, with both the Swiss Federal Banking Commission and the Swiss National
Bank.
For a discussion of UBS's capital resources relative to applicable guidelines,
see Item 5 of UBS AG's Annual Report on Form 20-F for the year ended December
31, 2002, which is incorporated by reference into the attached prospectus.
REDEMPTION
The company preferred securities may not be redeemed before the dividend payment
date scheduled to occur in June 2008 unless a Tax Event, an Investment Company
Act Event or a Capital Event occurs, in which case UBS Preferred Funding Company
may redeem the company preferred securities in whole (but not in part) at any
time on not less than 30 nor more than 60 days' notice. On or after the dividend
payment date regularly scheduled to occur in June 2008, UBS Preferred Funding
Company may redeem the company preferred securities on any dividend payment date
for cash, in whole or in part, on not less than 30 nor more than 60 days'
notice.
UBS Preferred Funding Company will also have the right to redeem the company
preferred securities in whole (but not in part) at any time prior to the
dividend payment date regularly scheduled to occur in June 2008, upon the
occurrence of a Tax Event, an Investment Company Act Event or a Capital Event.
The redemption price for such redemptions will be:
+ 100% of the liquidation preference of the company preferred securities being
redeemed, plus
+ an amount equal to unpaid dividends, if any, on the company preferred
securities with respect to the current dividend period (whether or not
declared) accrued on a daily basis to the date fixed for redemption, plus
- --------------------------------------------------------------------------------
S- 26
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
+ an amount equal to unpaid definitive dividends for any prior dividend period,
without interest and without accumulation of unpaid nondefinitive dividends
for any prior dividend period.
Any redemption of the company preferred securities must comply with applicable
regulatory requirements, including the prior approval of the Swiss Federal
Banking Commission if then required under applicable guidelines or policies of
the Swiss Federal Banking Commission. The Swiss Federal Banking Commission in
its discretion may impose conditions on its approval of any proposed redemption
of the company preferred securities. If dividends on any company preferred
securities are unpaid, no company preferred securities may be redeemed unless
all outstanding company preferred securities are redeemed, and UBS Preferred
Funding Company may not purchase or otherwise acquire any company preferred
securities, except pursuant to a purchase or exchange offer made on the same
terms to the holders of all outstanding company preferred securities.
The company preferred securities will not be subject to any sinking fund or
mandatory redemption and will not be convertible into any other securities of
UBS Preferred Funding Company or any securities of UBS AG.
As long as any company preferred securities are outstanding, other company
parity preferred securities may not be redeemed or repurchased unless UBS
Preferred Funding Company concurrently redeems an approximately equal proportion
of the aggregate liquidation preference of the outstanding company preferred
securities or each rating agency then rating the company preferred securities
informs UBS Preferred Funding Company in writing that the redemption or
repurchase of such company parity preferred securities would not result in a
reduction or withdrawal of the rating then assigned by that rating agency to the
company preferred securities.
If fewer than all outstanding company preferred securities are to be redeemed,
the amount of the company preferred securities to be redeemed will be determined
by the board of directors of UBS Preferred Funding Company, and the securities
to be redeemed will be determined by lot or pro rata as the board of directors
in its sole discretion determines to be equitable. UBS Preferred Funding Company
will promptly notify the registrar and transfer agent for the company preferred
securities in writing of the securities selected for redemption and, in the case
of any partial redemption, the liquidation preference to be redeemed.
Any company preferred securities redeemed will be canceled. There will be no
prescription period in respect of uncollected dividends on the company preferred
securities.
As used in this prospectus supplement:
"Administrative action" means any judicial decision, official
administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt such procedures or regulations) by any legislative body,
court, governmental authority or regulatory body having appropriate
jurisdiction.
"Capital Event" means the determination by UBS AG after consultation with
the Swiss Federal Banking Commission that the company preferred securities
cannot be included in calculating the Tier 1 capital of UBS AG on a
consolidated basis.
"Investment Company Act Event" means the receipt by UBS AG of an opinion of
a nationally recognized law firm in the United States experienced in such
matters to the effect that there is more than an insubstantial risk that
UBS Preferred Funding Company or UBS Preferred Funding Trust is an
"investment company" within the meaning of the Investment Company Act of
1940.
"Tax Event" means the receipt by UBS AG of an opinion of a nationally
recognized law firm or other tax advisor (which may be an accounting firm)
in Switzerland or the United States, as appropriate, experienced in such
matters to the effect that there is more than an insubstantial risk
- --------------------------------------------------------------------------------
S- 27
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
that (A) UBS Preferred Funding Company or UBS Preferred Funding Trust is or
will be subject to more than a de minimis amount of additional taxes,
duties or other governmental charges, (B) UBS AG is or will be required to
pay any additional amounts in respect of any taxes, duties or other
governmental charges with respect to payments of interest or principal on
the subordinated notes and with respect to any payments on the trust
preferred securities, (C) UBS Preferred Funding Company is or will be
required to pay any additional amounts in respect of any taxes, duties or
other governmental charges with respect to payments of dividends on the
company preferred securities or UBS Preferred Funding Trust is or will be
required to pay any additional amounts in respect of any taxes, duties or
other governmental charges with respect to distributions on the trust
preferred securities, or (D) the treatment of any of UBS Preferred Funding
Company's items of income, gain, loss, deduction or expense, or the
treatment of any item of income, gain, loss, deduction or expense of UBS AG
related to the subordinated notes or its ownership of UBS Preferred Funding
Company, in each case as reflected on the tax returns (including estimated
returns) filed (or to be filed) by UBS Preferred Funding Company or UBS AG,
will not be respected by a taxing authority, as a result of which UBS
Preferred Funding Company or UBS AG is or will be subject to more than a de
minimis amount of additional taxes, duties or other governmental charges or
civil liabilities, the effect of which cannot be avoided by UBS Preferred
Funding Company or UBS AG taking reasonable measures available to it
without any adverse effect on or material cost to UBS AG or UBS Preferred
Funding Company (as determined by UBS AG in its sole discretion).
- --------------------------------------------------------------------------------
S- 28
- --------------------------------------------------------------------------------
Description of Subordinated Notes of UBS AG
The following summary of certain terms and provisions of the subordinated notes
supplements the description of the terms and provisions of the subordinated
notes set forth in the attached prospectus under the heading "Description of
Subordinated Notes of UBS AG." This summary of certain terms and provisions of
the subordinated notes, which describes their material provisions, is not
complete and is subject to, and qualified in its entirety by reference to, the
terms and provisions of the subordinated note. We have filed a copy of a form of
form of subordinated note as an exhibit to the registration statement of which
the attached prospectus forms a part.
GENERAL
UBS Preferred Funding Company will apply the proceeds of the company preferred
securities and company common securities to purchase from the Cayman Islands
branch of UBS AG a newly issued subordinated note of the Cayman Islands branch
(the "subordinated note"). The subordinated note is an undated perpetual
obligation of UBS AG, acting through the Cayman Islands branch, and will have an
aggregate principal amount of USD300,000,000. Interest on the subordinated notes
will be payable from the date of initial issuance, monthly in arrears on the
first business day on or after the 15th of each month (each an "interest payment
date" and the period from and including an interest payment date, or the date of
initial issuance, as applicable, to but not including the next interest payment
date, an "interest period") for each interest period, commencing in June 2003,
at a floating rate per annum equal to .70% above one-month LIBOR (calculated on
the basis of the actual number of days elapsed in a 360-day year).
The calculation of LIBOR is described under "Description of Company Preferred
Securities--Dividends."
- --------------------------------------------------------------------------------
S- 29
- --------------------------------------------------------------------------------
U.S. Tax Considerations
In the opinion of Sullivan & Cromwell LLP, the following accurately describes
the material United States federal income tax (and, where specifically noted,
United States federal estate tax) consequences of the purchase, ownership and
disposition of the trust preferred securities. For a further description of
certain tax consequences of the ownership and disposition of the company
preferred securities, see the attached prospectus.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES OR THE COMPANY PREFERRED SECURITIES, AS WELL AS THE EFFECT
OF ANY STATE, LOCAL OR FOREIGN TAX LAWS IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES.
This discussion addresses only the tax consequences to a person that acquires
the trust preferred securities on their original issue at their original
offering price and that holds the trust preferred securities as capital assets.
It does not address all tax consequences that may be applicable to a beneficial
owner of the trust preferred securities nor does it address the tax consequences
to:
+ persons that may be subject to special treatment under United States federal
income tax law, such as tax-exempt entities, certain insurance companies,
broker-dealers, traders in securities that elect to mark to market, persons
liable for alternative minimum tax or persons that actually or constructively
own 10% or more of the voting stock of UBS AG,
+ persons that will hold the trust preferred securities as part of a larger
transaction, such as a "straddle" or a "hedging" or "conversion" transaction,
or
+ persons whose functional currency is not the United States dollar.
The discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements and
judicial decisions as of the date hereof, all of which are subject to change,
possibly with retroactive effect.
CLASSIFICATION OF UBS PREFERRED FUNDING TRUST AND UBS PREFERRED FUNDING COMPANY
Under current law, and assuming compliance with the terms of the Amended and
Restated Trust Agreement, UBS Preferred Funding Trust will be treated as a
grantor trust and not as a partnership or an association taxable as a
corporation for United States federal income tax purposes. As a result, each
beneficial owner of the trust preferred securities will be considered the
beneficial owner of a pro rata portion of the related company preferred
securities held by UBS Preferred Funding Trust.
Under current law, UBS Preferred Funding Company will be treated as a
partnership for United States federal income tax purposes. A partnership is not
a taxable entity and incurs no United States federal income tax liability.
Instead, each partner is required to take into account its allocable share of
items of income, gain, loss and deduction of the partnership in computing its
United States federal income tax liability, regardless of whether distributions
are made to the partner. These items generally will be treated as if realized by
the partner directly from the same source realized by UBS Preferred Funding
Company.
- --------------------------------------------------------------------------------
S- 30
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
UNITED STATES HOLDERS
You are a "United States Holder" if you are a beneficial owner of the trust
preferred securities and you are:
+ an individual citizen or resident of the United States,
+ a corporation organized in or under the laws of the United States or any
state thereof or the District of Columbia,
+ an estate, and your income is subject to United States federal income tax
regardless of source, or
+ a trust, if
+ a United States court is able to exercise primary supervision over your
administration, and
+ one or more United States persons are authorized to control all
substantial decisions of the trust.
INCOME FROM THE TRUST PREFERRED SECURITIES
Under the Amended and Restated LLC Agreement, upon the payment of dividends on
the company preferred securities, a like amount of UBS Preferred Funding
Company's ordinary income will be allocated to the holders of company preferred
securities. Regardless of when dividends on the related trust preferred
securities are actually paid, income allocated to the holders of company
preferred securities will be includable as ordinary income by a United States
Holder for its taxable year that includes 31 December of the calendar year in
which the income is allocated, except that if the United States Holder disposes
of its entire holding of the trust preferred securities the amount allocated for
the calendar year of that disposition will be includable for the United States
Holder's taxable year that includes the date of that disposition.
Assuming compliance with the terms of the Amended and Restated Trust Agreement,
UBS Preferred Funding Trust will distribute, until the date and otherwise in the
manner specified herein, an amount of cash equal to all of the income that is
allocated to it as a holder of company preferred securities. As a consequence, a
United States Holder will generally not recognize income in respect of trust
preferred securities without receiving the corresponding cash distribution.
A United States Holder's allocated share of UBS Preferred Funding Company's
income from the subordinated notes will be foreign source income for purposes of
determining the limitation on any allowable foreign tax credit. The overall
limitation on foreign taxes eligible for credit is calculated separately with
respect to specific classes of income. For this purpose, a United States
Holder's allocated share of UBS Preferred Funding Company's income from the
subordinated notes generally will constitute "passive income" or, in the case of
certain United States Holders, "financial services income." If, with respect to
any distribution to a United States Holder, additional amounts are paid by UBS
Preferred Funding Company as a result of withholding taxes imposed on the
distribution, those additional amounts will be taxable to the United States
Holder as foreign source income. However, withholding taxes in the amount of
those additional amounts will generally be treated as foreign income taxes
eligible for credit against that United States Holder's United States federal
income tax liability, subject to generally applicable limitations and conditions
or, at the election of that United States Holder, for deduction in computing the
United States Holder's taxable income.
No portion of the income derived by a United States Holder from the trust
preferred securities will be eligible for the dividends-received deduction
generally available to United States corporations in respect of dividends
received from other United States corporations.
- --------------------------------------------------------------------------------
S- 31
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
UBS AG believes that it is not a "passive foreign investment company" (sometimes
known as a "PFIC") for United States federal income tax purposes, but this
conclusion is a factual determination made annually and thus may be subject to
change. A United States Holder might be subject to special rules with respect to
certain amounts earned by UBS Preferred Funding Company with respect to the
subordinated notes if UBS AG were treated as a PFIC for United States federal
income tax purposes.
RECEIPT OF THE COMPANY PREFERRED SECURITIES UPON LIQUIDATION OF UBS PREFERRED
FUNDING TRUST
Under certain circumstances, the company preferred securities may be distributed
to trust preferred securityholders in exchange for their trust preferred
securities and in liquidation of UBS Preferred Funding Trust. Unless the
liquidation of UBS Preferred Funding Trust occurs as a result of UBS Preferred
Funding Trust being subject to United States federal income taxes, such a
distribution to a United States Holder would be treated, for United States
federal income tax purposes, as a non-taxable event. Each United States Holder
would receive an aggregate tax basis in the company preferred securities equal
to the United States Holder's aggregate tax basis in its trust preferred
securities and the United States Holder's holding period in the company
preferred securities received would include the period during which the trust
preferred securities were held by the United States Holder. If, however, the
liquidation of UBS Preferred Funding Trust were to occur because UBS Preferred
Funding Trust is subject to United States federal income taxes, the distribution
of the company preferred securities to United States Holders by UBS Preferred
Funding Trust would likely be a taxable event to each United States Holder, and
a United States Holder would recognize gain or loss as if the United States
Holder had exchanged its trust preferred securities for the company preferred
securities it received. The gain or loss would be equal to the difference
between the United States Holder's aggregate tax basis in its trust preferred
securities surrendered in the exchange and the aggregate fair market value of
the company preferred securities received in the exchange.
If the company preferred securities are distributed to the holders of trust
preferred securities in liquidation of UBS Preferred Funding Trust, under
current law, U.S. tax information will be provided to beneficial owners of the
company preferred securities and to the Internal Revenue Service on Schedule
K-1, rather than in the manner described below under "--Information Reporting
and Backup Withholding Tax."
DISPOSITION OF THE TRUST PREFERRED SECURITIES
A United States Holder will recognize gain or loss on a sale, exchange or other
taxable disposition of the trust preferred securities in an amount equal to the
difference between the United States Holder's adjusted tax basis and the amount
realized on the disposition. A United States Holder's adjusted tax basis in the
trust preferred securities generally will equal the amount paid for the trust
preferred securities, increased by the amount of income allocated to the United
States Holder and reduced by the amount of any cash, and the fair market value
of any other property, distributed to the United States Holder. Any gain or loss
so recognized generally will be capital gain or loss, will be long-term capital
gain or loss if the United States Holder's holding period is more than one year
and will be U.S. source income or loss for purposes of determining the
limitation on any allowable foreign tax credit. Capital gain of a non-corporate
United States Holder is generally taxed at a maximum rate of 20% where the
property is held for more than one year, and 18% where the property is held for
more than five years.
- --------------------------------------------------------------------------------
S- 32
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
NON-UNITED STATES HOLDERS
You are a "Non-United States Holder" if you are a beneficial owner of the trust
preferred securities and you are for United States federal income tax purposes:
+ a nonresident alien individual,
+ a foreign corporation,
+ a foreign partnership, or
+ an estate or trust in either case that is not subject to United States
federal income tax on a net income basis on income or gain from the trust
preferred securities.
UBS Preferred Funding Company intends to operate so that it will not be engaged
in a trade or business within the United States for United States federal income
tax purposes. Moreover, UBS Preferred Funding Company intends to invest in
securities the income from which will be either generally exempt from United
States federal withholding tax or exempt from United States federal withholding
tax to the extent allocable to a Non-United States Holder.
A Non-United States Holder will not be subject to United States federal income
or withholding tax on any allocated share of UBS Preferred Funding Company's
income or gain, or any gain realized on the sale or exchange of the trust
preferred securities unless, in the case of gains, the Non-United States Holder
is an individual who was present in the United States for 183 days or more in
the taxable year in which the gain is realized and certain other conditions are
met. A Non-United States Holder will not be subject to backup withholding
provided certain certification requirements are satisfied as described under
"--Information Reporting and Backup Withholding Tax."
The treatment of the trust preferred securities for United States federal estate
tax purposes is unclear. If you are an individual Non-United States Holder, you
should consult your tax advisor about the possibility that the trust preferred
securities will be includable in your gross estate for purposes of the United
States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a United States Holder, under current law the amount of income paid
or accrued on the trust preferred securities will generally be reported to you
on Internal Revenue Service Form 1099. In addition, information reporting will
generally apply to the payment of proceeds to a noncorporate United States
Holder from the disposition of the trust preferred securities effected at a
United States office of a broker. Additionally, backup withholding may apply to
such amount of income or payment of proceeds if you are a noncorporate United
States Holder that:
+ fails to provide an accurate taxpayer identification number,
+ is notified by the Internal Revenue Service that you have failed to report
all interest and dividends required to be shown on your federal income tax
returns, or
+ in certain circumstances, fails to comply with applicable certification
requirements.
If you are a Non-United States Holder, you are generally exempt from backup
withholding and information reporting requirements with respect to:
+ payments made on the trust preferred securities outside the United States by
a non-U.S. payor, and
+ other payments made on the trust preferred securities and the payment of the
proceeds from the disposition of the trust preferred securities effected at a
United States office of a broker, as long as
- --------------------------------------------------------------------------------
S- 33
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
the income associated with such payments is otherwise exempt from United
States federal income tax, and:
+ the payor or broker does not have actual knowledge or reason to know that
you are a United States person and you have furnished the payor or
broker:
+ an Internal Revenue Service Form W-8BEN or an acceptable substitute
form upon which you certify, under penalties of perjury, that you are
a non-United States person, or
+ other documentation upon which it may rely to treat the payments as
made to a non-United States person in accordance with U.S. Treasury
regulations, or
+ you otherwise establish an exemption.
Payment of the proceeds from the disposition of the trust preferred securities
effected at a foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, a disposition of the trust
preferred securities effected at a foreign office of a broker will be subject to
information reporting and backup withholding if:
+ the proceeds are transferred to an account maintained by you in the United
States,
+ the payment of proceeds or the confirmation of the sale is mailed to you at a
United States address, or
+ the sale has some other specified connection with the United States as
provided in U.S. Treasury regulations,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption.
In addition, a disposition of the trust preferred securities effected at a
foreign office of a broker will be subject to information reporting if the
broker is:
+ a United States person,
+ a controlled foreign corporation for United States tax purposes,
+ a foreign person 50% or more of whose gross income is effectively connected
with the conduct of a United States trade or business for a specified
three-year period, or
+ a foreign partnership, if at any time during its tax year:
+ one or more of its partners are "U.S. persons", as defined in U.S.
Treasury regulations, who in the aggregate hold more than 50% of the
income or capital interest in the partnership, or
+ such foreign partnership is engaged in the conduct of a United States
trade or business,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption. Backup withholding will apply if
the sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the United States Internal Revenue Service.
- --------------------------------------------------------------------------------
S- 34
- --------------------------------------------------------------------------------
Tax Considerations Under the Laws of Switzerland
GENERAL
In the opinion of Homburger Rechtsanwalte, Zurich, Switzerland, the following
accurately summarizes the material Swiss federal, cantonal and communal income
tax and wealth and capital tax, the Swiss federal withholding tax and the Swiss
federal stamp tax consequences of the acquisition, ownership and disposition of
the trust preferred securities and the company preferred securities. The
following summary is intended to replace the information under the heading "Tax
Considerations Under the Laws of Switzerland" in the attached prospectus.
The following summary does not purport to address all tax consequences of the
acquisition, ownership and disposition of the trust preferred securities and the
company preferred securities, and does not take into account the specific
circumstances of any particular investor. This summary is based on the tax laws,
regulations and regulatory practices of Switzerland as in effect on the date
hereof, which are subject to change (or subject to changes in interpretation),
possibly with retroactive effect. Investors are advised to consult their own tax
adviser in light of their particular circumstances as to the Swiss tax laws,
regulations and regulatory practices that could be relevant for them in
connection with acquiring, owning and disposing of the trust preferred
securities or the company preferred securities and receiving dividend,
redemption or liquidation payments on the trust preferred securities or the
company preferred securities and the consequences of such actions under the tax
laws, regulations and regulatory practices of Switzerland.
WITHHOLDING TAX
According to the present Swiss law and practice of the Swiss Federal Tax
Administration, dividend, redemption and liquidation payments on the trust
preferred securities or the company preferred securities by UBS Preferred
Funding Trust and UBS Preferred Funding Company LLC will not be subject to Swiss
withholding tax (even though UBS AG guarantees, on a subordinated basis,
dividend, redemption and liquidation payment obligations under the company
preferred securities), provided that UBS Preferred Funding Trust and UBS
Preferred Funding Company LLC are at all times domiciled and effectively managed
outside Switzerland, the Cayman Islands branch of UBS AG has the status of a
bank and is a permanent establishment situated and effectively managed outside
Switzerland and the proceeds from the offering and sale of the trust preferred
securities and the company preferred securities (including the proceeds from the
purchase by UBS Preferred Funding Company LLC of the subordinated notes issued
by the Cayman Islands branch of UBS AG) are used outside Switzerland.
STAMP TAXES
According to the present Swiss law and practice of the Swiss Federal Tax
Administration, the issuance of the trust preferred securities and the company
preferred securities will not be subject to Swiss federal stamp duty on the
issue of securities (even though UBS AG guarantees, on a subordinated basis,
dividend, redemption and liquidation payment obligations under the company
preferred securities), provided that UBS Preferred Funding Trust and UBS
Preferred Funding Company LLC are at all times domiciled and effectively managed
outside Switzerland, the Cayman Islands branch of UBS AG has the status of a
bank and is a permanent establishment situated and effectively managed outside
Switzerland and the proceeds from the offering and sale of the trust preferred
securities and the company preferred securities (including the proceeds from the
purchase by UBS Preferred Funding Company LLC of the subordinated notes issued
by the Cayman Islands branch of UBS AG) are used outside Switzerland.
- --------------------------------------------------------------------------------
S- 35
TAX CONSIDERATIONS UNDER THE LAWS OF SWITZERLAND
- --------------------------------------------------------------------------------
Dealings in the trust preferred securities and the company preferred securities
where a bank or a securities dealer in Switzerland (as defined in the Swiss
Federal Stamp Duty Act) purchases or acts as an intermediary may be subject to
the Swiss federal stamp duty on dealing in securities at a rate of up to 0.3
percent of the purchase price of the trust preferred securities or the company
preferred securities.
INCOME TAXATION OF DISTRIBUTIONS ON THE TRUST PREFERRED SECURITIES OR THE
COMPANY PREFERRED SECURITIES
Under current Swiss law, dividend, redemption and liquidation payments to a
holder of trust preferred securities or company preferred securities who is a
non-resident of Switzerland and who, during the current taxation year, has not
engaged in trade or business through a permanent establishment within
Switzerland and who is not subject to income taxation in Switzerland for any
other reason will not be subject to any Swiss federal, cantonal or communal
income tax.
A holder of trust preferred securities or company preferred securities who is an
individual resident in Switzerland or an individual who is not resident in
Switzerland but who holds trust preferred securities or company preferred
securities as part of his or her Swiss business assets, and who receives
dividend payments (including any payments upon redemption or liquidation in
excess of the nominal amount of the trust preferred securities or the company
preferred securities) is required to include such payments in his or her
personal income tax return and will be taxable on any net taxable income
(including the dividend payments on the trust preferred securities or the
company preferred securities) for the relevant tax period.
Swiss resident corporate taxpayers or corporate taxpayers resident abroad which
hold trust preferred securities or company preferred securities as Swiss
business assets, who receive dividend distributions on trust preferred
securities or company preferred securities are required to recognize the
distributions as earnings in their income statement for the respective tax
period, and will be taxable on any net taxable earnings (including distributions
on the trust preferred securities and the company preferred securities) for such
period. Corporate taxpayers may qualify for dividend relief (Beteiligungsabzug)
if the trust preferred securities or company preferred securities they hold have
an aggregated market value of at least CHF 2 million.
INCOME TAXATION OF CAPITAL GAINS REALIZED ON THE SALE OF TRUST PREFERRED
SECURITIES OR COMPANY PREFERRED SECURITIES
Under current Swiss law, an owner of trust preferred securities or company
preferred securities who is a non-resident of Switzerland and who, during the
taxation year, has not engaged in trade or business through a permanent
establishment within Switzerland and who is not subject to taxation in
Switzerland for any other reason will not be subject to any Swiss federal,
cantonal or communal income tax on capital gains realized during that year on
the sale of trust preferred securities or company preferred securities.
Owners of trust preferred securities or company preferred securities who are
individuals resident in Switzerland and who hold the trust preferred securities
or the company preferred securities as private assets and who sell the trust
preferred securities or the company preferred securities during the taxation
year realize either a tax-free capital gain or a tax-neutral capital loss.
Swiss-resident, individual taxpayers who hold trust preferred securities or
company preferred securities as part of Swiss business assets and Swiss-resident
corporate taxpayers and corporate taxpayers resident abroad holding trust
preferred securities or company preferred securities as part of Swiss business
assets are required to recognize capital gains or losses realized on the sale of
trust preferred securities or company preferred securities in their income
statement for the respective tax period and
- --------------------------------------------------------------------------------
S- 36
TAX CONSIDERATIONS UNDER THE LAWS OF SWITZERLAND
- --------------------------------------------------------------------------------
will be taxable on any net taxable earnings for such period. The same tax
treatment also applies to Swiss-resident individuals who, for income tax
purposes, are classified as "professional securities dealers" for reasons of,
inter alia, frequent dealing and debt-financed purchases.
WEALTH TAX AND CAPITAL TAX
Under current Swiss law, an owner of trust preferred securities or company
preferred securities who is a non-resident of Switzerland and who, during the
taxation year, has not engaged in trade or business through a permanent
establishment within Switzerland and who is not subject to capital or wealth
taxation in Switzerland for any other reason will not be subject to any Swiss
cantonal or communal wealth tax or capital tax on holding trust preferred
securities or company preferred securities.
Swiss resident individuals or individuals resident abroad who hold trust
preferred securities or company preferred securities as part of Swiss business
assets are required to report their trust preferred securities and company
preferred securities as part of their taxable wealth and will be subject to
cantonal and communal wealth tax, provided that their net taxable wealth exceeds
applicable allowances.
Swiss resident corporate taxpayers or corporate taxpayers resident abroad who
hold trust preferred securities and company preferred securities as part of
Swiss business assets are required to account for their trust preferred
securities and company preferred securities in their financial statements and
will be subject to cantonal and communal capital tax on net taxable capital, as
defined.
- --------------------------------------------------------------------------------
S- 37
- --------------------------------------------------------------------------------
ERISA Considerations
If you are a fiduciary of a pension, profit-sharing or other employee benefit
plan subject to the Employee Retirement Income Security Act ("ERISA"), you
should review the fiduciary standards of ERISA and the plan's particular
circumstances before deciding to invest in the trust preferred securities. You
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and whether the investment would be
consistent with the terms of the plan and the other agreements which apply to
plan investments.
A fiduciary of a plan subject to ERISA, as well as a person investing on behalf
of an individual retirement account or a pension or profit-sharing plan for one
or more self-employed persons, should also consider whether an investment in the
trust preferred securities could result in a prohibited transaction. ERISA and
the Internal Revenue Code of 1986, as amended, prohibit plans and individual
retirement accounts from engaging in certain transactions involving plan assets
with persons who are parties in interest under ERISA or disqualified persons
under the Internal Revenue Code of 1986, as amended, with respect to the plan or
individual retirement account. A violation of these rules may result in a
substantial excise tax under the Internal Revenue Code of 1986, as amended, and
other liabilities under ERISA. Employee benefit plans that are governmental
plans, foreign plans or church plans generally are not subject to the prohibited
transaction rules or the fiduciary standards of ERISA.
For a further description of certain ERISA considerations, see the attached
prospectus.
- --------------------------------------------------------------------------------
S- 38
- --------------------------------------------------------------------------------
Underwriting
Subject to the terms and conditions set forth in the underwriting agreement,
dated as of the date of this prospectus supplement, among UBS AG, UBS Preferred
Funding Company, UBS Preferred Funding Trust and UBS Warburg LLC, UBS AG and UBS
Preferred Funding Company have agreed that UBS Preferred Funding Company will
cause UBS Preferred Funding Trust to issue, and the underwriter has agreed to
underwrite, the entire liquidation amount (USD300,000,000) of the trust
preferred securities.
Under the terms and conditions of the underwriting agreement, the underwriter is
committed to take and pay for all the trust preferred securities offered hereby,
if any are taken. The underwriting agreement entitles the underwriter to
terminate the underwriting agreement in certain circumstances before payment is
made to UBS Preferred Funding Trust.
The purchase price for the trust preferred securities will be the initial
offering price set forth on the cover page of this prospectus supplement. UBS AG
will pay the underwriter a commission of USD.7875 for each trust preferred
security. The underwriting agreement provides that UBS AG will reimburse the
underwriter for certain expenses of the offering. UBS AG's offering expenses,
not including underwriting discounts and commissions, are estimated to be
approximately USD585,000. The underwriter proposes to offer the trust preferred
securities at the offering price. The underwriter may also offer the trust
preferred securities to securities dealers at a price that represents a
concession not in excess of USD.50 per trust preferred security. After the trust
preferred securities are released for sale, the offering price and other selling
terms may be varied from time to time by the underwriter.
During a period of 30 days from the date of this prospectus supplement, neither
UBS Preferred Funding Trust nor UBS Preferred Funding Company nor any other
subsidiary of UBS AG that is similar to UBS Preferred Funding Trust or UBS
Preferred Funding Company will, without the prior written consent of the
underwriter, directly or indirectly, sell, offer to sell, grant any option for
sale of, or otherwise dispose of, any trust preferred securities or any company
preferred securities or any security convertible into or exchangeable into or
exercisable for the trust preferred securities or the company preferred
securities.
Prior to this offering, there has been no public market for the trust preferred
securities. We have applied to list the trust preferred securities on the New
York Stock Exchange. If approved, trading of the trust preferred securities on
the New York Stock Exchange is expected to commence within a 30-day period after
their initial delivery. In order to meet one of the requirements for listing the
trust preferred securities on the New York Stock Exchange, the underwriter has
undertaken to sell the trust preferred securities to a minimum of 400 beneficial
owners.
In connection with the offering, the underwriter and/or its affiliates may
purchase and sell the trust preferred securities in the open market. These
transactions may include stabilizing transactions and purchases to cover short
positions created by the underwriter, and the imposition of a penalty bid, in
connection with the offering. Stabilizing transactions consist of certain bids
or purchases for the purpose of preventing or retarding a decline in the market
price of the trust preferred securities; and short positions created by the
underwriter involve the sale by the underwriter of a greater number of the trust
preferred securities than it is required to purchase from UBS Preferred Funding
Trust in the offering. The underwriter also may impose a penalty bid, whereby
selling concessions allowed to broker-dealers in respect of the trust preferred
securities sold in the offering may be reclaimed by the underwriter if such
trust preferred securities are repurchased by the underwriter in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the trust preferred securities, which may be higher
than the price that might otherwise prevail in the open market; and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the New York Stock Exchange, in the over-the-counter market
or otherwise.
- --------------------------------------------------------------------------------
S- 39
UNDERWRITING
- --------------------------------------------------------------------------------
The underwriter has agreed that:
+ it has not offered or sold and, before the date six months after the date of
issue of the trust preferred securities, will not offer or sell any trust
preferred securities to persons in the United Kingdom except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing
of investments as principal or agent, for the purposes of their businesses or
otherwise in circumstances that have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995,
+ it has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
Financial Services and Markets Act 2000 (the "FSMA") received by it in
connection with the issue or sale of the trust preferred securities in
circumstances in which Section 21(1) of the FSMA does not apply to UBS
Preferred Funding Trust.
+ It has complied and will comply with all applicable provisions of the FSMA
with respect to anything done by it in relation to the trust preferred
securities in, from or otherwise involving the United Kingdom.
Because the NASD considers this offering an offering of interests in a "direct
participation program" as that term is defined in Rule 2810(a)(4) of the NASD,
the offering is being conducted in accordance with Rule 2810 of the NASD.
Pursuant to Rule 2810 of the NASD and with regard to the trust preferred
securities, no NASD member will execute transactions in any discretionary
account without the prior written approval of the customer.
UBS Warburg LLC has agreed to purchase 100% of the trust preferred securities
offered in the offering. If any of the trust preferred securities underwritten
by UBS Warburg LLC are sold by it at a price less than the initial public
offering price, the net proceeds from the offerings to UBS AG on a consolidated
basis will be reduced because UBS Warburg LLC and UBS AG are accounted for on a
consolidated basis.
Following the initial distribution of the trust preferred securities, UBS
Warburg LLC and UBS PaineWebber Inc. may offer and sell the trust preferred
securities in the course of their business as broker-dealers, subject to
obtaining any necessary approvals for any such offers and sales. UBS Warburg LLC
and UBS PaineWebber Inc. may act as principals or agents in these transactions.
This prospectus may be used by UBS Warburg LLC or UBS PaineWebber Inc. in
connection with these transactions. These sales, if any, will be made at varying
prices related to prevailing market prices at the time of sale or otherwise.
Neither UBS Warburg LLC nor UBS PaineWebber Inc. is obligated to make a market
in the trust preferred securities and may discontinue market-making at any time
without notice. No assurance can be given as to the liquidity of the trading
market for the trust preferred securities. UBS AG does not expect that UBS
Warburg LLC or UBS PaineWebber Inc. will pay any proceeds from these market-
making resales to UBS AG. Unless UBS AG or an agent informs you in your
confirmation of sale that your trust preferred security is being purchased in
its original offering and sale, you may assume that you are purchasing your
trust preferred security in a market-making transaction.
UBS Preferred Funding Company and UBS AG have agreed to indemnify the
underwriter against, or contribute to payments that the underwriter may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
The underwriter and/or its affiliates have provided investment banking,
commercial banking and financial advisory services to UBS AG or its affiliates
in the past, for which they have received customary compensation and expense
reimbursement, and may do so again in the future.
- --------------------------------------------------------------------------------
S- 40
- --------------------------------------------------------------------------------
Validity of the Securities
Certain matters of Delaware law relating to the validity of any trust preferred
securities and related company preferred securities will be passed upon by
Richards, Layton & Finger, P.A., special Delaware counsel to UBS AG, UBS
Preferred Funding Trust and UBS Preferred Funding Company. The validity of the
subordinated notes and the UBS AG Subordinated Guarantee Agreement will be
passed upon for UBS AG, UBS Preferred Funding Trust and UBS Preferred Funding
Company by Sullivan & Cromwell LLP and for the underwriter by Davis Polk &
Wardwell. Sullivan & Cromwell LLP and Davis Polk & Wardwell will rely upon the
opinion of Richards, Layton & Finger, P.A., as to matters of Delaware law and
the opinion of Bar & Karrer, Swiss counsel to UBS AG, as to matters of Swiss
law. Certain matters relating to United States federal income tax considerations
will be passed upon for UBS AG, UBS Preferred Funding Trust and UBS Preferred
Funding Company by Sullivan & Cromwell LLP.
Experts
The consolidated balance sheets of UBS at December 31, 2002 and 2001 and the
related consolidated statements of income, cash flows and changes in
shareholders' equity for each of the three years in the period ended December
31, 2002 incorporated by reference into the attached prospectus have been
audited by Ernst & Young Ltd., independent auditors as set forth in their report
thereon incorporated by reference into the attached prospectus, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
- --------------------------------------------------------------------------------
S- 41
PROSPECTUS
- --------------------------------------------------------------------------------
(UBS AG LOGO)
$4,529,508,000
UBS PREFERRED FUNDING TRUST IV
UBS PREFERRED FUNDING TRUST V
NONCUMULATIVE TRUST PREFERRED SECURITIES
REPRESENTING A CORRESPONDING AMOUNT OF
NONCUMULATIVE COMPANY PREFERRED SECURITIES
OF
UBS PREFERRED FUNDING COMPANY LLC IV
UBS PREFERRED FUNDING COMPANY LLC V
GUARANTEED ON A SUBORDINATED BASIS BY
UBS AG
- --------------------------------------------------------------------------------
UBS Preferred Funding Trust IV and UBS Preferred Funding Trust V (each, a "UBS
Preferred Funding Trust" and all together, the "UBS Preferred Funding Trusts")
from time to time may severally offer to sell trust preferred securities
representing a corresponding amount of related company preferred securities and
related rights under subordinated guarantees by UBS AG. The total amount of
these trust preferred securities will have an initial aggregate offering price
of up to $4,529,508,000, or the equivalent amount in other currencies, currency
units or composite currencies, although UBS AG may increase this amount in the
future.
(continued on next page)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The trust preferred securities will not be deposit liabilities of UBS AG and
will not be insured by the United States Federal Deposit Insurance Corporation
or any other governmental agency of the United States, Switzerland or any other
jurisdiction.
UBS AG may offer and sell the trust preferred securities to or through one or
more underwriters, dealers and agents, including the firms named below, or
directly to purchasers, on a delayed or continued basis.
This prospectus may be used in the initial sale of the trust preferred
securities. In addition, UBS AG, UBS Warburg LLC, UBS PaineWebber Inc. or any
other affiliate controlled by UBS AG may use this prospectus in a market-making
transaction involving the trust preferred securities after the initial sale.
These transactions may be executed at negotiated prices that are related to
market prices at the time of purchase or sale, or at other prices. UBS AG and
its affiliates may act as principal or agent in these transactions. Unless UBS
AG or its agent informs you otherwise in the confirmation of sale, this
prospectus is being used in a market making transaction.
UBS WARBURG UBS PAINEWEBBER INC.
THE DATE OF THIS PROSPECTUS IS DECEMBER 19, 2002
(continued from previous page)
UBS Preferred Funding Company LLC IV and UBS Preferred Funding Company LLC V
(each, a "UBS Preferred Funding Company" and all together, the "UBS Preferred
Funding Companies") will issue company preferred securities. Any company
preferred securities which may be issued by a UBS Preferred Funding Company will
provide holders with rights to distributions and redemption and liquidation
payments that are similar to those of the most senior ranking noncumulative
perpetual preferred shares issued directly by UBS AG that have financial terms
equivalent to those of such company preferred securities.
Each UBS Preferred Funding Trust will use the proceeds from the sale of its
trust preferred securities to purchase company preferred securities (the
"related company preferred securities") from a UBS Preferred Funding Company
(the "related UBS Preferred Funding Company"). The related UBS Preferred Funding
Company will use the proceeds from the sale of the related company preferred
securities to the UBS Preferred Funding Trust (the "related UBS Preferred
Funding Trust") and from the sale of company common securities to UBS AG to
acquire subordinated notes (the "related subordinated notes") issued by the
Cayman Islands branch of UBS AG. The trust preferred securities, the related
company preferred securities and the related subordinated notes that will be
issued in any particular offering will have corresponding terms. Dividends and
redemption and liquidation payments paid by the related UBS Preferred Funding
Company on the related company preferred securities will pass through the
related UBS Preferred Funding Trust to you as distributions and redemption and
liquidation payments on your trust preferred securities.
UBS AG will guarantee, on a subordinated basis, dividend, redemption and
liquidation payment obligations under any company preferred securities.
This prospectus describes the general terms that may apply to any trust
preferred securities and the corresponding company preferred securities and the
general manner in which trust preferred securities may be offered. The specific
terms of any trust preferred securities to be offered, and the specific manner
in which they may be offered and the terms of any related company preferred
securities, will be described in the applicable supplement to this prospectus.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<Table>
Introduction........................... 1
Cautionary Note Regarding Forward-
Looking Information.................. 2
Incorporation of Information About UBS
AG................................... 4
Where You Can Find More Information.... 4
Presentation of Financial
Information.......................... 5
Limitations on Enforcement of U.S. Laws
Against UBS AG, Its Management and
Others............................... 6
Capitalization of UBS.................. 6
UBS.................................... 7
The UBS Preferred Funding Trusts....... 9
The UBS Preferred Funding Companies.... 10
Use of Proceeds........................ 16
Description of Trust Preferred
Securities........................... 17
Description of Company Preferred
Securities........................... 24
Book-Entry Issuance of Trust Preferred
Securities........................... 38
Description of UBS AG Subordinated
Guarantees........................... 43
Description of Subordinated Notes of
UBS AG............................... 48
U.S. Tax Consideration................. 51
Tax Consideration under the Laws of
Switzerland.......................... 57
ERISA Considerations................... 59
Plan of Distribution................... 61
Validity of the Securities............. 61
Experts................................ 61
</Table>
CERTAIN TERMS
- --------------------------------------------------------------------------------
In this prospectus:
- when we refer to "UBS AG," we mean UBS AG on a parent only basis.
- when we refer to "UBS" or "UBS Group," we mean UBS AG and its
consolidated subsidiaries.
- when we refer to "USD," we mean United States dollars.
- when we refer to "CHF," we mean Swiss francs.
Introduction
Trust preferred securities will provide you with rights to distributions and
redemption and liquidation payments that are similar to those to which you would
be entitled if you had purchased the most senior ranking noncumulative perpetual
preferred shares issued directly by UBS AG that have financial terms equivalent
to those of the related company preferred securities. The diagram to the right
outlines the relationship among investors in trust preferred securities, the
relevant UBS Preferred Funding Trust, the related UBS Preferred Funding Company
and UBS AG following the completion of an offering.
Each UBS Preferred Funding Trust will pass through to you any dividends,
redemption payments or liquidation payments that it receives from the related
UBS Preferred Funding Company on related company preferred securities.
UBS AG will guarantee, on a subordinated basis, dividend, redemption and
liquidation payment obligations under any company preferred securities.
The UBS Preferred Funding Companies will receive payments under related
subordinated notes issued by the Cayman Islands branch of UBS AG and will pay
dividends on their company preferred securities that are similar to dividends
that would be paid on the most senior ranking noncumulative perpetual preferred
shares issued directly by UBS AG that have equivalent financial terms.
The capital raised in any offering will qualify as consolidated Tier 1 capital
for UBS under the relevant regulatory capital guidelines of the Swiss Federal
Banking Commission.
[FLOW CHART DESCRIBING THE ABOVE FLOW OF FUNDS BETWEEN THE UBS AG, THE UBS
PREFERRED FUNDING COMPANIES AND UBS PREFERRED FUNDING TRUST AND RELATIONSHIP
BETWEEN THE ABOVE SECURITIES]
- --------------------------------------------------------------------------------
1
- --------------------------------------------------------------------------------
Cautionary Note Regarding Forward-Looking Statements
This prospectus contains or incorporates statements that constitute
"forward-looking statements" within the meaning of Section 21E of the United
States Securities Exchange Act of 1934, as amended. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking
information to encourage companies to provide prospective information about
themselves without fear of litigation so long as the information is identified
as forward looking and is accompanied by meaningful cautionary statements
identifying important factors that could cause actual results to differ
materially from those projected in the information. The words "anticipate,"
"believe," "expect," "estimate," "intend," "plan," "should," "could," "may" and
other similar expressions are used in connection with forward-looking
statements. In this prospectus and the incorporated documents, forward-looking
statements may, without limitation, relate to:
- - The implementation of strategic initiatives, such as the implementation of the
European wealth management strategy and our plans to continue to expand our
corporate finance business.
- - The development of revenues overall and within specific business areas
including the possibility of future losses in UBS Capital in 2002.
- - The development of operating expenses.
- - The anticipated level of capital expenditures and associated depreciation
expense.
- - The expected impact of the risks that affect UBS's business, including the
risk of loss resulting from the default of an obligor or counterparty.
- - Expected credit losses based upon UBS's credit review.
- - Other statements relating to UBS's future business development and economic
performance.
There can be no assurance that forward-looking statements will approximate
actual experience. Several important factors exist that could cause UBS's actual
results to differ materially from expected results as described in the
forward-looking statements. Those factors include:
- - General economic conditions, including prevailing interest rates and
performance of financial markets, which may affect demand for products and
services and the value of our assets.
- - Changes in UBS's expenses associated with acquisitions and dispositions.
- - General competitive factors, locally, nationally, regionally and globally.
- - Industry consolidation and competition.
- - Changes affecting the banking industry generally and UBS's banking operations
specifically, including asset quality.
- - Developments in technology.
- - Credit ratings and the financial position of obligors and counterparties.
- - UBS's ability to control risk in its businesses.
- - Changes in accounting standards applicable to UBS, as more fully described
below.
- --------------------------------------------------------------------------------
2
- - Changes in investor confidence in the future performance of financial markets,
affecting the level of transactions they undertake, and hence the levels of
transaction based fees UBS earns.
- - Changes in the market value of securities held by UBS's clients, affecting the
level of asset based fees UBS can earn on the services it provides.
- - Changes in tax laws in the countries in which UBS operates, which could
adversely affect the tax advantages of certain of UBS's products and subject
it to increased taxation.
- - Changes in currency exchange rates, including the exchange rate for the Swiss
franc into U.S. dollars.
You should also consider other risks and uncertainties discussed in the
documents that are incorporated by reference into this prospectus.
UBS is not under any obligation to (and expressly disclaims any such obligation
to) update or alter its forward-looking statements, whether as a result of new
information, future events or otherwise.
- --------------------------------------------------------------------------------
3
- --------------------------------------------------------------------------------
Incorporation of Information About UBS AG
The SEC allows us to "incorporate by reference" into this prospectus the
information that we file with them, which means that:
- - The incorporated documents are considered part of this prospectus;
- - We can disclose important information to you by referring you to those
documents; and
- - Information that we file with the SEC will automatically be considered to
update and supersede the information in this prospectus.
We incorporate by reference in this prospectus
- - UBS AG's Annual Report on Form 20-F for the year ended December 31, 2001,
which UBS AG filed with the SEC on March 14, 2002;
- - UBS AG's submissions on Form 6-K, which UBS AG filed with the SEC on February
14, February 25, March 6, April 29, May 9, May 14, May 16, August 13,
September 20, October 8, October 23, 2002 and November 12, 2002.
All subsequent reports that we file on Form 20-F under the Securities Exchange
Act of 1934 prior to the termination of this offering will also be deemed to be
incorporated by reference into this prospectus. We may also incorporate any
other Form 6-K that we submit to the SEC after the date of this prospectus and
prior to the termination of this offering if the Form 6-K filing specifically
states that it is incorporated by reference into this prospectus.
Any statement in this prospectus contained in a document incorporated or deemed
to be incorporated by reference into this prospectus will be deemed to be
modified or superseded for purposes of this prospectus to the extent that a
statement in this prospectus or in any later filed document modifies or
supercedes that statement. Any statement that is modified or superseded in this
manner will no longer be a part of this prospectus, except as modified or
superseded.
You may request a copy, at no cost, of any or all of the documents that are
incorporated by reference into this prospectus, excluding exhibits (other than
those that we specifically incorporate by reference into the documents that you
request) by contacting us, orally or in writing, at the following address:
UBS AG
Investor Relations G41B
P.O. Box
CH-8098 Zurich
Switzerland
Phone: 011-41-1-234 41 00
Fax: 011-41-1-234 34 15
E-mail: SH-investorrelations@ubs.com
Internet: www.ubs.com/investor-relations
- --------------------------------------------------------------------------------
Where You Can Find More Information
UBS AG files periodic reports and other information with the United States
Securities and Exchange Commission. You may read and copy any document that UBS
AG files with the SEC at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference room. The SEC also
- --------------------------------------------------------------------------------
4
WHERE YOU CAN FIND MORE INFORMATION
- --------------------------------------------------------------------------------
maintains an internet site at http://www.sec.gov that contains reports, proxy
and information statements, and other information about issuers like UBS AG that
file electronically with the SEC. You may also inspect UBS AG's SEC reports and
other information at the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005 and at the American Stock Exchange LLC, 86 Trinity Place,
New York, New York 10006.
We have filed a registration statement under the Securities Act of 1933 on Form
F-3 with the SEC covering the securities. For further information about the
securities and UBS, you should review our registration statement, its exhibits
and the documents incorporated by reference into this prospectus. This
prospectus summarizes material provisions of the contracts and other documents
that we refer you to. Since this prospectus may not contain all the information
that you may find important, you should review the full text of these documents.
We have included copies of these documents as exhibits to our registration
statement.
- --------------------------------------------------------------------------------
Presentation of Financial Information
UBS's financial statements, which are incorporated by reference into this
prospectus, have been prepared in accordance with International Accounting
Standards and are denominated in Swiss francs, or "CHF," the legal tender of
Switzerland.
The tables below set forth, for the periods and dates indicated, information
concerning the noon buying rate for the Swiss franc, expressed in United States
dollars or "USD," per one Swiss franc. The "noon buying rate" is the rate in New
York City for cable transfers in foreign currencies as certified for customs
purposes by the Federal Reserve Bank of New York. On December 18, 2002 the noon
buying rate was 0.6995 USD per 1 CHF.
<Table>
<Caption>
AVERAGE RATE(1)
YEAR ENDED DECEMBER 31 HIGH LOW (USD PER 1 CHF) AT PERIOD END
- -------------------------------------------------------------------------------------------------
1997..................................... 0.7446 0.6510 0.6890 0.6845
1998..................................... 0.7731 0.6485 0.6894 0.7281
1999..................................... 0.7361 0.6244 0.6605 0.6277
2000..................................... 0.6441 0.5479 0.5912 0.6172
2001..................................... 0.6331 0.5495 0.5910 0.6024
</Table>
<Table>
<Caption>
AVERAGE RATE(1)
QUARTER ENDED HIGH LOW (USD PER 1 CHF) AT PERIOD END
- -------------------------------------------------------------------------------------------------
March 31, 2002........................... 0.6089 0.5817 0.5879 0.5945
June 30, 2002............................ 0.6718 0.5974 0.6414 0.6702
September 30, 2002....................... 0.6951 0.6513 0.6740 0.6776
</Table>
<Table>
<Caption>
MONTH HIGH LOW
- -------------------------------------------------------------
June 2002.................................. 0.6718 0.6381
July 2002.................................. 0.6951 0.6639
August 2002................................ 0.6801 0.6513
September 2002............................. 0.6789 0.6578
October 2002............................... 0.6760 0.6605
November 2002.............................. 0.6928 0.6714
</Table>
- ------------
(1) The average of the noon buying rates on the last business day of each full
month during the relevant period.
- --------------------------------------------------------------------------------
5
- --------------------------------------------------------------------------------
Limitations on Enforcement of U.S. Laws Against UBS AG,
Its Management and Others
UBS AG is a Swiss bank. Many of its directors and executive officers, including
the majority of the persons who signed the registration statement of which this
prospectus is a part, and certain experts named in this prospectus, are resident
outside the United States, and all or a substantial portion of our assets and
the assets of those persons are located outside the United States. As a result,
it may be difficult for you to serve legal process on UBS AG or its management
or have any of them appear in a U.S. court. We have been advised by UBS internal
counsel, that there is doubt as to the enforceability in Switzerland, in
original actions or in actions for enforcement of judgments of U.S. courts, of
liabilities based solely on the federal securities laws of the United States.
- --------------------------------------------------------------------------------
Capitalization of UBS
The following table sets forth the consolidated capitalization of UBS in
accordance with International Accounting Standards and translated into U.S.
dollars.
<Table>
<Caption>
ACTUAL
AS OF OCTOBER 30, 2002 (UNAUDITED) CHF USD
- -------------------------------------------------------------------------------
(IN MILLIONS)
Debt
Debt issued(1)............................................ 130,439 88,236
------- -------
Total Debt................................................ 130,439 88,236
Minority Interest(2)........................................ 3,807 2,575
Shareholders' Equity........................................ 40,955 27,704
------- -------
Total capitalization........................................ 175,201 118,515
======= =======
</Table>
- ---------------
(1) Includes Money Market Paper and Medium Term Notes as per Balance Sheet
position.
(2) Includes Trust Preferred Securities.
Swiss franc (CHF) amounts have been translated into U.S. dollars (USD) at the
rate of CHF 1 = USD 0.6764536.
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
UBS
OVERVIEW
The UBS Group is one of the world's leading financial firms. It combines
financial strength with a reputation for innovation and a global culture that
embraces change.
UBS's global businesses include: UBS Warburg, a premier investment banking and
securities firm; UBS PaineWebber, one of the top US wealth managers; UBS Global
Asset Management, one of the largest asset managers globally; and UBS Wealth
Management & Business Banking, the world's largest private bank, by invested
assets. In Switzerland, UBS is the market leader in private, retail and
commercial banking.
At 31 December 2001, UBS employed approximately 70,000 people. With headquarters
in Zurich, Switzerland and Basel, Switzerland, UBS operates in over 50 countries
and from all major international centers.
UBS is managed through four Business Groups and its Corporate Center, each of
which is summarized below.
Further information about UBS, including more detailed descriptions of the
Business Groups and Corporate Center, is contained in UBS's Annual Report on US
Securities and Exchange Commission Form 20-F for the year ended 31 December 2001
(the "Form 20-F"), which is incorporated by reference into this information
memorandum.
UBS WEALTH MANAGEMENT & BUSINESS BANKING
UBS Wealth Management & Business Banking includes the world's leading private
banking business, with CHF 682 billion of invested assets at 31 December 2001.
The Private Banking business unit provides a comprehensive range of products and
services individually tailored for wealthy clients, through offices around the
world.
UBS Wealth Management & Business Banking also provides a complete set of banking
and securities services for some four million individual and corporate clients
in Switzerland through the Business Banking Switzerland business unit. Its CHF
182 billion of outstanding loans at 31 December 2001 give it around a quarter of
the Swiss lending market.
UBS GLOBAL ASSET MANAGEMENT
UBS Global Asset Management is a leading institutional asset manager and mutual
fund provider, with invested assets of CHF 672 billion at 31 December 2001,
offering a broad range of asset management services and products for
institutional and individual clients across the world.
UBS WARBURG
USB Warburg operates globally as a client-driven securities and investment
banking firm. UBS Warburg provides innovative products, top-quality research and
advice, and comprehensive access to the world's capital markets, for both its
own corporate and institutional clients and for the other parts of the UBS
Group. It also includes the Group's Private Equity business.
- --------------------------------------------------------------------------------
7
UBS
- --------------------------------------------------------------------------------
UBS PAINEWEBBER
USB PaineWebber, one of the top US wealth managers, became part of UBS Group in
November 2000. Its distribution network of approximately 8,900 financial
advisors manages over CHF 782 billion of invested assets at 31 December 2001.
CORPORATE CENTRE
Our portfolio of businesses is planned and managed for the long-term
maximization of shareholder value. The role of the Corporate Centre is to ensure
that the Business Groups operate as a coherent and effective whole, in alignment
with UBS's overall corporate goals.
CORPORATE INFORMATION
The legal and commercial name of the company is UBS AG. The company was formed
on 29 June 1998, by the merger of Union Bank of Switzerland (founded 1862) and
Swiss Bank Corporation (founded 1872).
UBS AG is incorporated and domiciled in Switzerland and operates under Swiss
Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a
corporation that has issued shares of common stock to investors.
The address and telephone number of our two registered offices and principal
places of business are: Bahnhofstrasse 45, CH-8098 Zurich, Switzerland,
telephone +41-1-234 11 11; and Aeschenvorstadt 1, CH-4051 Basel, Switzerland,
telephone +41-61-288 20 20.
UBS AG shares are listed on the SWX Swiss Exchange and traded through virt-x (a
collaboration between the TP Group LDC and the SWX Swiss Exchange). They are
also listed on the New York Stock Exchange and on the Tokyo Stock Exchange.
The Company was incorporated under the name of SBC AG on 28 February 1978 for an
unlimited duration and entered in the Commercial Register of Canton Basle-City
on 28 February 1978. On 8 December 1997 the Company changed its name to UBS AG.
UBS AG is entered in the Commercial Registers of Canton Zurich and Canton
Basle-City. The registration number is CH-270.3.004.646-4.
- --------------------------------------------------------------------------------
8
- --------------------------------------------------------------------------------
The UBS Preferred Funding Trusts
Each UBS Preferred Funding Trust is a statutory trust that UBS AG created under
the Delaware Statutory Trust Act pursuant to an initial trust agreement entered
into by UBS AG and by the filing of a certificate of trust with the Secretary of
State of the State of Delaware. Before trust preferred securities are issued,
the trust agreement for the relevant Issuer Trust will be amended and restated
in its entirety substantially in the form filed with our SEC registration
statement, as trustee. We will qualify the Amended and Restated Trust Agreements
as indentures under the Trust Indenture Act of 1939, as amended. Each UBS
Preferred Funding Trust will be treated as a grantor trust for U.S. federal
income tax purposes, meaning that investors in trust preferred securities will
generally be treated as if they owned their proportionate shares of the related
company preferred securities owned by the relevant UBS Preferred Funding Trust.
UBS AG formed each UBS Preferred Funding Trust for the exclusive purpose of:
- issuing trust preferred securities,
- investing the proceeds of such trust preferred securities in related
company preferred securities, which benefit from a related UBS AG
subordinated guarantee, and
- engaging in any necessary or incidental activities.
The only assets of each UBS Preferred Funding Trust will be company preferred
securities and the related rights of the relevant UBS Preferred Funding Trust
under the related UBS AG subordinated guarantee. The Amended and Restated Trust
Agreements will not permit any UBS Preferred Funding Trust to acquire any other
assets, issue any other equity securities or any debt securities, or engage in
any other activities. All expenses and liabilities of each UBS Preferred Funding
Trust will be paid by the Stamford branch of UBS AG, except that if the trustee
of any UBS Preferred Funding Trust incurs fees, charges or expenses at the
request of a holder of its trust preferred securities or other person for which
such UBS Preferred Funding Trust is not otherwise liable under its Amended and
Restated Trust Agreement, that holder or other person will be liable for such
fees, charges and expenses.
The total pro forma capitalization of each UBS Preferred Funding Trust, as
adjusted to give effect to a particular offering of trust preferred securities
and the use of the proceeds from such offering, will be set forth in the
applicable prospectus supplement.
The Amended and Restated Trust Agreements will provide that, to the fullest
extent permitted by law, without the need for any other action of any person,
including the trustees or any other holder of trust preferred securities, each
holder of trust preferred securities will be entitled to enforce, in the name of
the relevant UBS Preferred Funding Trust, the rights of such UBS Preferred
Funding Trust under the related company preferred securities and the related UBS
AG subordinated guarantee represented by the trust preferred securities held by
such holder. A holder of trust preferred securities may at any time upon written
notice withdraw and hold directly the related company preferred securities
represented by such trust preferred securities, in which case such holder will
be entitled to directly enforce its rights under the related UBS AG subordinated
guarantee.
The principal executive offices of each UBS Preferred Funding Trust is located
at c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware
19890.
- --------------------------------------------------------------------------------
9
- --------------------------------------------------------------------------------
The UBS Preferred Funding Companies
INTRODUCTION
Each UBS Preferred Funding Company is a limited liability company that UBS AG
formed under the Delaware Limited Liability Company Act pursuant to an initial
limited liability company agreement entered into by UBS AG and by filing a
certificate of formation with the Secretary of State of the State of Delaware.
We will continue each UBS Preferred Funding Company pursuant to Amended and
Restated Limited Liability Company Agreements, which we sometimes refer to as
the LLC Agreements. Each UBS Preferred Funding Company will be treated as a
partnership for U.S. federal income tax purposes.
UBS AG formed each UBS Preferred Funding Company for the exclusive purpose of:
- issuing its company common securities to UBS AG,
- issuing its company preferred securities, initially to the related UBS
Preferred Funding Trust,
- investing the proceeds of the company common securities and the company
preferred securities in (1) initially, related subordinated notes issued
by the Cayman Islands branch of UBS AG with an aggregate principal amount
which, for each UBS Preferred Funding Company, will be set forth in the
applicable prospectus supplement and (2) other securities issued by UBS
AG acting through a branch, agency or other office located outside of the
United States or by a non-U.S. branch of a non-U.S. subsidiary of UBS AG
(together, "eligible investments"), and
- engaging in any related or incidental activities.
The total pro forma capitalization of each UBS Preferred Funding Company, as
adjusted to give effect to the offering of its company preferred securities will
be set forth in the applicable prospectus supplement.
Each UBS Preferred Funding Company will apply the income generated by the
related subordinated notes and other eligible investments to pay dividends to
the related UBS Preferred Funding Trust, as holder of its company preferred
securities, and UBS AG, as holder of its company common securities. The related
UBS Preferred Funding Trust will then pass the dividends it receives on the
company preferred securities through to the holders of its trust preferred
securities as distributions on its trust preferred securities.
UBS AG will purchase all of the company common securities of each UBS Preferred
Funding Company for an amount which will be set forth in the applicable
prospectus supplement. We intend to treat the company preferred securities as
Tier 1 capital for purposes of the relevant regulatory capital guidelines of the
Swiss Federal Banking Commission. We will agree with each UBS Preferred Funding
Company in the LLC Agreement that, as long as any company preferred securities
are outstanding, UBS AG will continue to own, directly or indirectly, 100% of
the outstanding company common securities of each such UBS Preferred Funding
Company. Each UBS Preferred Funding Company will also covenant to maintain "UBS"
as part of its name for as long as any trust preferred securities of the related
UBS Preferred Funding Trust remain outstanding unless, because of a merger or
other business combination involving UBS AG or a change by UBS AG of its own
name, inclusion of "UBS" as part of any UBS Preferred Funding Company's name is
no longer appropriate.
We will also agree in the LLC Agreements that it will from time to time either
(i) contribute (or cause others, including the Stamford branch of UBS AG, to
contribute) to each UBS Preferred Funding Company such additional funds as are
necessary in order to enable such UBS Preferred Funding Company to pay its
operating expenses on or before any date when any such operating expenses are
- --------------------------------------------------------------------------------
10
THE UBS PREFERRED FUNDING COMPANIES
- --------------------------------------------------------------------------------
due or (ii) directly pay such UBS Preferred Funding Company's operating expenses
then due and payable and not otherwise paid. "Operating expenses" generally
means all expenses and obligations of the relevant UBS Preferred Funding
Company, but does not include any payments on its company preferred securities
or company common securities.
The principal executive offices of each UBS Preferred Funding Company is located
at The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801.
ACTIVITIES OF THE UBS PREFERRED FUNDING COMPANIES
GENERAL
Each UBS Preferred Funding Company's principal business objective is to acquire
and hold eligible investments, which will include:
- initially, subordinated notes issued by the Cayman Islands branch of UBS
AG with an aggregate principal amount as set forth in the applicable
prospectus supplement, and
- other securities issued by us acting through a branch, agency or other
office located outside of the United States or by a non-U.S. branch of a
non-U.S. subsidiary of ours.
Each UBS Preferred Funding Company will apply the net income generated by the
subordinated notes and other eligible investments to pay dividends to the
related UBS Preferred Funding Trust, as holder of company preferred securities,
and us, as holder of the company common securities. The related UBS Preferred
Funding Trust will then pass through the dividends it receives on the related
company preferred securities to the holders of its trust preferred securities as
distributions on its trust preferred securities. Each UBS Preferred Funding
Company may (with the consent of the holders of two-thirds (based on the
aggregate liquidation preference) of its company preferred securities and
company parity preferred securities, voting together as a single class) issue
additional preferred securities as described under "Description of Company
Preferred Securities."
DIVIDENDS
We currently expect each UBS Preferred Funding Company to pay an aggregate
amount of dividends with respect to its outstanding company common securities
and company preferred securities equal to approximately 100% of the interest and
other income it receives on the subordinated notes and any other eligible
investments.
The LLC Agreement of each UBS Preferred Funding Company will:
- preclude each UBS Preferred Funding Company from incurring any
indebtedness for borrowed money, and
- require the approval of the holders of at least 66 2/3% of each UBS
Preferred Funding Company's outstanding company preferred securities and
any outstanding company parity preferred securities (based on the
aggregate liquidation preference), voting together as a single class,
before dividends on its company preferred securities can be paid out of
any source other than interest income received on the subordinated notes
or interest or dividend income received on its other eligible
investments.
Under the Delaware Limited Liability Company Act, no UBS Preferred Funding
Company may pay dividends or other distributions on its company common
securities or company preferred securities--even if such payments are
"mandatory"--if, after making the distributions, such UBS Preferred Funding
Company's liabilities would exceed the fair value of its assets. However, no UBS
Preferred Funding Company is expected to have any material liabilities, so this
restriction is unlikely to affect the ability of any UBS preferred funding
company to pay dividends on its company preferred securities.
- --------------------------------------------------------------------------------
11
THE UBS PREFERRED FUNDING COMPANIES
- --------------------------------------------------------------------------------
Dividends on company preferred securities will in any event be required to be
paid up to the mandatory dividend payment amount on any mandatory dividend
payment date, unless there is a capital limitation on such date. See
"Description of Company Preferred Securities--Dividends--Mandatory Dividends."
INVESTMENT POLICIES
Each UBS Preferred Funding Company's initial investment policies will be
established pursuant to its respective LLC Agreement. Under these investment
policies, no UBS Preferred Funding Company may hold or invest in any securities
other than eligible investments as described above under "--Introduction."
The investment policies will require that:
- the terms of any eligible investments other than subordinated notes
purchased by any UBS Preferred Funding Company be established in good
faith and, to the extent deemed advisable by UBS AG, reflect arm's-length
terms at the time of purchase, and the purchase by any UBS Preferred
Funding Company of such eligible investments be approved by the
affirmative vote of a majority of its entire board of directors, and
- each UBS Preferred Funding Company maintain its assets in a manner that
will not require such UBS Preferred Funding Company to be registered as
an investment company under the Investment Company Act of 1940.
The investment policies of any UBS Preferred Funding Company may be amended only
by the affirmative vote of the holders of at least 66 2/3% of its outstanding
company preferred securities and any of its outstanding company parity preferred
securities (based on the aggregate liquidation preference), voting together as a
single class. Although we do not anticipate that any UBS Preferred Funding
Company will sell subordinated notes (and no market for them is expected to
develop), were any UBS Preferred Funding Company to do so, such UBS Preferred
Funding Company would be required to invest the proceeds of the sale in
accordance with such UBS Preferred Funding Company's investment policies as they
exist at the time of such sale.
ADMINISTRATION AGREEMENTS
Before issuing company preferred securities, each UBS Preferred Funding Company
will enter into an administration agreement with the Stamford branch of UBS AG,
under which the Stamford branch will provide (or causes others to provide)
accounting, legal, tax and other support services to each UBS Preferred Funding
Company, assists each such UBS Preferred Funding Company in complying with
pertinent U.S. and Swiss local, state and federal laws, and provides
administrative, record keeping and secretarial services to each such UBS
Preferred Funding Company. Under the administration agreement, each UBS
Preferred Funding Company will agree to reimburse the provider of these services
for the value of services provided by such provider to such UBS Preferred
Funding Company on an arm's-length basis.
Each UBS Preferred Funding Company will maintain company records that are
separate from those of UBS AG or any of its affiliates. None of the officers,
employees or directors of any UBS Preferred Funding Company will have any direct
or indirect pecuniary interest in any security to be acquired or disposed of by
such UBS Preferred Funding Company or in any transaction in which such UBS
Preferred Funding Company has an interest.
- --------------------------------------------------------------------------------
12
THE UBS PREFERRED FUNDING COMPANIES
- --------------------------------------------------------------------------------
MANAGEMENT OF THE UBS PREFERRED FUNDING COMPANIES
DIRECTORS AND EXECUTIVE OFFICERS
The initial LLC Agreement of each UBS Preferred Funding Company provides that
its board of directors will at all times include not less than three and not
more than five members. The board of directors will have three members. The
directors will be designated as "managers" of the UBS Preferred Funding Company
within the meaning of the Delaware Limited Liability Company Act. The directors
will serve until their successors are duly elected and qualified.
Each UBS Preferred Funding Company will have three officers. The names of the
initial directors and executive officers of each UBS Preferred Funding Company
will be set forth in the applicable prospectus supplement.
It is anticipated all of the officers of each UBS Preferred Funding Company will
also be officers or employees of UBS AG or its affiliates.
ADDITIONAL DIRECTORS
If at any time the aggregate of unpaid dividends on the company preferred
securities or any company parity preferred securities of any UBS Preferred
Funding Company equals or exceeds an amount equal to a certain number of
regularly scheduled dividend payments specified in the applicable proposed
supplement dividend scheduled dividend payments, the holders of its company
preferred securities and any company parity preferred securities, voting
together as a single class, will have the exclusive right to elect two
additional directors. Holders of a majority (based on the aggregate liquidation
preference) of its company preferred securities and company parity preferred
securities may exercise this right by written consent or at a meeting of such
holders called for such purpose. The LLC Agreement of each UBS Preferred Funding
Company provides that this meeting may be called at the request of any holder of
its company preferred securities or company parity preferred securities. This
right will continue either until all unpaid dividends have been paid in full or
until full dividends have been paid on its company preferred securities for the
number of consecutive dividend periods specified in the applicable prospectus
supplement periods. While this right continues, any vacancy in the office of the
additional directors may be filled only by the holders of company preferred
securities and company parity preferred securities voting as described above.
INDEMNIFICATION AND INSURANCE FOR DIRECTORS
The LLC Agreement of each UBS Preferred Funding Company will provide that:
- its directors have no personal liability to the UBS Preferred Funding
Company or the holders of its company common securities or company
preferred securities for monetary damages (i) for voting not to take
enforcement action with respect to the subordinated notes or any other
eligible investments owned by the UBS Preferred Funding Company, or (ii)
at any time for breach of any such director's fiduciary duty, if any,
except for such director's gross negligence or willful misconduct,
- the UBS Preferred Funding Company will indemnify any director or officer
for any liability and related expenses, including reasonable counsel's
fees, arising out of such director's or officer's status as a director or
officer of the UBS Preferred Funding Company, except for liability
determined by a court of competent jurisdiction to have arisen out of
such director's or officer's gross negligence or willful misconduct,
- the right to indemnification is a contract right and the LLC Agreement
will set forth certain procedural and evidentiary standards applicable to
the enforcement of a claim under the LLC Agreement of the UBS Preferred
Funding Company, and
- --------------------------------------------------------------------------------
13
THE UBS PREFERRED FUNDING COMPANIES
- --------------------------------------------------------------------------------
- the UBS Preferred Funding Company may purchase and maintain insurance to
protect any director or officer against any liability asserted against,
or incurred by, him or her, arising out of his or her status as a
director or officer.
COMMON SECURITIES OF THE UBS PREFERRED FUNDING COMPANIES
Holders of company common securities of a UBS Preferred Funding Company will
receive dividends out of interest payments received by such UBS Preferred
Funding Company on the subordinated notes and its other eligible investments, if
any, not required to be applied to fund dividends with respect to its company
preferred securities or expenses of such UBS Preferred Funding Company. However,
as long as any company preferred securities or company parity preferred
securities of such UBS Preferred Funding Company are outstanding, no dividends
or other distributions (including redemptions and purchases) may be made with
respect to its company common securities unless full dividends on all series of
its company preferred securities have been paid (except as otherwise described
under "Description of Company Preferred Securities--Ranking and Liquidation
Preference"). See "Description of Company Preferred Securities--Dividends."
Subject to the rights, if any, of the holders of company preferred securities
(to the limited extent described herein) and any other series of company parity
preferred securities, all voting rights will be vested in the company common
securities. Holders of company common securities will be entitled to vote in
proportion to the stated amounts represented by their company common securities.
All issued and outstanding shares of company common securities are will be held
by us.
If any UBS Preferred Funding Company dissolves, liquidates or winds up (whether
voluntary or involuntary) after all debts and liabilities of such UBS Preferred
Funding Company have been satisfied and there have been paid or set aside for
the holders of its company preferred securities the full preferential amounts to
which such holders are entitled, the holders of its company common securities
will be entitled to share equally and ratably in any assets remaining.
PREFERRED SECURITIES OF THE UBS PREFERRED FUNDING COMPANIES
Subject to limitations prescribed by Delaware law and each UBS Preferred Funding
Company's LLC Agreement, the board of directors of each UBS Preferred Funding
Company or, if then constituted, a duly authorized committee of the board of
directors is authorized to issue (with the consent of the holders of two-thirds
(based on the aggregate liquidation preference) of its company preferred
securities and company parity preferred securities, voting together as a single
class), from the authorized but unissued capital shares of the UBS Preferred
Funding Company, additional series of preferred securities of the UBS Preferred
Funding Company ranking on a parity with its company preferred securities in
such series as the board of directors (or committee) may determine and to
establish, from time to time, the number or amount by aggregate liquidation
preference of shares (if applicable) of such series to be included in any such
series and to fix the designation and any preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of the securities of any such series, and
such other subjects or matters as may be fixed by resolution of the board of
directors. However, each UBS Preferred Funding Company's LLC Agreement will
preclude:
- the issuance of any other classes or series of equity securities that are
senior to its company preferred securities, either as to dividends or as
to rights upon dissolution, liquidation or winding up of the UBS
Preferred Funding Company, without the approval of each holder of its
company preferred securities, and
- the issuance of any company parity preferred securities without the
approval of 66 2/3% of the holders of its company preferred securities
and unless the related UBS AG subordinated
- --------------------------------------------------------------------------------
14
THE UBS PREFERRED FUNDING COMPANIES
- --------------------------------------------------------------------------------
guarantee is amended so that such additional company parity preferred
securities benefit from the related UBS AG subordinated guarantee in
substantially the same manner as its company preferred securities without
any adverse effect on the holders of its company preferred securities.
See "Description of Company Preferred Securities--Voting Rights."
No additional payments will be required pursuant to the Delaware Limited
Liability Company Act for any company parity preferred securities to represent
limited liability company interests in any UBS Preferred Funding Company upon
issuance against full payment of the purchase price for such company parity
preferred securities. The specific terms of a particular series of company
parity preferred securities will be described in the certificate of designation
(as defined in each UBS Preferred Funding Company's LLC Agreement) to be
incorporated into each UBS Preferred Funding Company's LLC Agreement relating to
that series, except in the case of shares of company preferred securities where
the terms thereof will be set forth in each UBS Preferred Funding Company's LLC
Agreement.
- --------------------------------------------------------------------------------
15
- --------------------------------------------------------------------------------
Use of Proceeds
Each UBS Preferred Funding Trust will use the proceeds from the sale of its
trust preferred securities to purchase the related company preferred securities
from the related UBS Preferred Funding Company.
The related UBS Preferred Funding Company will use the proceeds from the sale of
its company preferred securities to the related UBS Preferred Funding Trust and
from the sale of its company common securities to UBS AG to acquire the related
subordinated notes issued by the Cayman Islands branch of UBS AG and to pay
certain expenses related to the particular offering. See "The UBS Preferred
Funding Companies--Activities of the UBS Preferred Funding Companies."
Unless the applicable prospectus supplement states otherwise, UBS AG will use
the proceeds from the sale of subordinated notes issued by its Cayman Islands
branch for general corporate purposes.
- --------------------------------------------------------------------------------
16
- --------------------------------------------------------------------------------
Description of Trust Preferred Securities
Each UBS Preferred Funding Trust will issue its trust preferred securities under
the terms of its Amended and Restated Trust Agreement. We will qualify the
Amended and Restated Trust Agreements as indentures under the Trust Indenture
Act. The terms of any trust preferred securities will include both those stated
in the relevant Amended and Restated Trust Agreement and the Delaware Statutory
Trust Act and those made part of the relevant Amended and Restated Trust
Agreement by the Trust Indenture Act. The following summary of the material
terms and provisions of the trust preferred securities is not complete and is
subject to, and qualified in its entirety by reference to, the relevant Amended
and Restated Trust Agreements, the Delaware Statutory Trust Act and the Trust
Indenture Act. We have filed a copy of a form of Amended and Restated Trust
Agreement as an exhibit to the registration statement of which this prospectus
is a part.
GENERAL
Any trust preferred securities will be certificates of beneficial interest in
the assets of the relevant UBS Preferred Funding Trust, the terms of which are
set forth in the Amended and Restated Trust Agreement of such UBS Preferred
Funding Trust.
Unless otherwise specified in the applicable prospectus supplement, any trust
preferred securities will be issued in denominations of USD25 in the case of an
offering of trust preferred securities to retail investors or USD1000 in the
case of an offering of trust preferred securities to institutional investors,
liquidation amount and whole-number multiples of USD25 or USD1000, as the case
may be. The aggregate liquidation amount of the trust preferred securities to be
offered will be specified in the applicable prospectus supplement. Each trust
preferred security will represent a corresponding amount of related company
preferred securities, together with related rights under a UBS AG subordinated
guarantee.
The trustee of each UBS Preferred Funding Trust will hold the related company
preferred securities and the related rights under the relevant UBS AG
subordinated guarantee deposited in each such UBS Preferred Funding Trust for
the benefit of the holders of the trust preferred securities. Each Amended and
Restated Trust Agreement provides that, to the fullest extent permitted by law,
without the need for any other action of any person, including the trustee or
any other holder of trust preferred securities, each holder of trust preferred
securities will be entitled to enforce, in the name of the relevant UBS
Preferred Funding Trust, the rights of such UBS Preferred Funding Trust under
the related company preferred securities and the related rights under the
relevant UBS AG subordinated guarantee represented by the trust preferred
securities held by such holder. Trust preferred securities may be exchanged for
the related company preferred securities as described under "--Withdrawal of
Company Preferred Securities."
The funds of any UBS Preferred Funding Trust available for distribution to the
holders of its trust preferred securities will be limited to payments received
from the related UBS Preferred Funding Company as dividends, redemption payments
and liquidation payments on the related company preferred securities and to
payments received from UBS AG pursuant to the related UBS AG subordinated
guarantee of those payments. See "Description of Company Preferred Securities."
Each UBS Preferred Funding Trust will distribute such payments, upon their
receipt, to the holders of its trust preferred securities on a pro rata basis.
If any UBS Preferred Funding Company does not pay any regularly scheduled
dividend on its company preferred securities when it is required to and UBS AG
does not perform its obligations under the related UBS AG subordinated
guarantee, the related UBS Preferred Funding Trust will not have sufficient
funds to make the related regularly scheduled distribution payment on its trust
preferred securities.
- --------------------------------------------------------------------------------
17
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
The trust preferred securities may be listed on one or more securities exchanges
(including the New York Stock Exchange and the Luxembourg Stock Exchange), as
specified in the applicable prospectus supplement.
DISTRIBUTIONS
Each trust preferred security will represent a corresponding amount of related
company preferred securities, together with the related rights under the
relevant UBS AG subordinated guarantee. Each UBS Preferred Funding Trust will
make regularly scheduled distributions or other mandatory distributions on its
trust preferred securities concurrently with, and in the same amount as, the
regularly scheduled dividends or special dividends on the related company
preferred securities. See "Description of Company Preferred
Securities--Dividends." Accordingly, to the extent that dividends are paid on
the related company preferred securities, distributions on trust preferred
securities will accrue from the date of original issue and be paid on the
liquidation amount of the relevant trust preferred securities in arrears on the
dividend payment dates regularly scheduled to occur on the dates and at the rate
specified in the applicable prospectus supplement.
For details on the calculation and payment of dividends, see "Description of
Company Preferred Securities--Dividends" and the applicable prospectus
supplement. Whenever, and to the extent, any UBS Preferred Funding Trust
receives any cash payments representing a regularly scheduled dividend, special
dividend or redemption payment on the related company preferred securities, such
UBS Preferred Funding Trust will distribute such amounts to the holders of its
trust preferred securities in proportion to their liquidation amounts. Each
regularly scheduled or special distribution on any trust preferred securities
will be payable to holders of record as they appear on the securities register
of the relevant UBS Preferred Funding Trust on the corresponding record date.
The record dates for trust preferred securities will be the fifteenth day
(whether or not a business day) prior to the relevant regularly scheduled or
other distribution date.
If any distribution would be payable on a day that is not a business day, that
distribution will instead be made on the next business day. No interest or other
payment will be due as a result of any such delay.
If dividends are not payable on the related company preferred securities on any
dividend payment date for the reasons described in "Description of Company
Preferred Securities--Dividends," then the holders of trust preferred securities
will not be entitled to receive a distribution on that date.
REDEMPTION
Trust preferred securities will be redeemable only upon redemption of the
related company preferred securities.
If any UBS Preferred Funding Company redeems its company preferred securities in
accordance with its LLC Agreement as described under "Description of Company
Preferred Securities--Redemption," then such UBS Preferred Funding Company must
give the trustee of the related UBS Preferred Funding Trust at least 30 days'
prior notice before doing so. The trustee will mail the notice of redemption not
less than 25 days prior to the date fixed for redemption of the related company
preferred securities to the holders of its trust preferred securities as
provided under "--Notices."
On the date of redemption of any company preferred securities, so long as the
relevant UBS Preferred Funding Company or UBS AG has deposited with Wilmington
Trust Company, the paying agent, on behalf of the related UBS Preferred Funding
Trust the aggregate amount payable upon redemption of all its company preferred
securities held by such UBS Preferred Funding Trust to be redeemed, the paying
agent on behalf of such UBS Preferred Funding Trust will irrevocably deposit
with The
- --------------------------------------------------------------------------------
18
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
Depository Trust Company ("DTC") funds sufficient to pay the redemption price
and give DTC irrevocable instructions to pay the redemption price to the holders
of the trust preferred securities to be redeemed. See "Book-Entry Issuance of
Trust Preferred Securities." Once the paying agent has received this deposit,
all rights of the holders of the trust preferred securities called for
redemption will end, except their right to receive the redemption price, without
interest. If any date fixed for redemption of any trust preferred securities is
not a business day, then the redemption price will instead be paid on the next
business day, except that if that business day falls in the next calendar year,
the redemption price will be paid on the preceding business day. No interest or
other payment will be due as a result of any such adjustment.
If only some of the outstanding trust preferred securities of a UBS Preferred
Funding Trust are to be redeemed, the trust preferred securities to be redeemed
will be selected in accordance with DTC's procedures. See "Book-Entry Issuance
of Trust Preferred Securities--DTC's Procedures for Notices, Voting and
Payments." If any trust preferred securities do not remain registered in the
name of DTC or its nominee and only some of the outstanding trust preferred
securities of a UBS Preferred Funding Trust are to be redeemed, the trust
preferred securities will be redeemed proportionately or selected for redemption
pursuant to the rules of any securities exchange on which such trust preferred
securities are listed at that time. Each UBS Preferred Funding Company will
promptly notify the registrar and transfer agent for its trust preferred
securities, in writing, of the trust preferred securities selected for
redemption. In addition, for so long as the rules of any securities exchange on
which the relevant trust preferred securities are listed so require, notice will
be given to such securities exchange of trust preferred securities selected for
redemption and published as required by such securities exchange. If any trust
preferred securities are listed on the Luxembourg Stock exchange, for as long as
the rules of the Luxembourg Stock Exchange so require, notice will be given to
the Luxembourg Stock Exchange of any such trust preferred securities selected
for redemption and published in a daily newspaper of general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
WITHDRAWAL OF COMPANY PREFERRED SECURITIES
Any beneficial owner of trust preferred securities will be able to withdraw all,
but not less than all, of the related company preferred securities represented
by such trust preferred securities by providing a written notice to the trustee,
with evidence of beneficial ownership in form satisfactory to the trustee and
providing to the related UBS Preferred Funding Company such documents or
information as such UBS Preferred Funding Company may request for tax reporting
purposes. The holder's notice will also be deemed to be such beneficial owner's
agreement to be subject to the terms of the relevant UBS Preferred Funding
Company's LLC Agreement applicable to the rights of the holders of its company
preferred securities.
Within a reasonable period after such a request has been properly made, any
trustee must instruct DTC to reduce the amount of trust preferred securities
represented by the relevant global certificate by the corresponding amount of
related company preferred securities to be so withdrawn by the withdrawing
owner. The related UBS Preferred Funding Company will issue to the withdrawing
owner a certificate representing the amount of related company preferred
securities withdrawn, and the trustee will reduce the amount of trust preferred
securities represented by the relevant global certificate accordingly. Company
preferred securities will be issued only in certificated fully-registered form
and will not be eligible to be held through DTC, Euroclear or Clearstream. Under
current U.S. tax reporting rules, holders of company preferred securities will
thereafter receive an annual Form K-1 instead of the Form 1099 that holders of
trust preferred securities will receive. See "U.S. Tax
Considerations--Information Reporting and Backup Withholding Tax."
Any holder of company preferred securities may redeposit withdrawn company
preferred securities by delivering to the relevant trustee the certificates for
the company preferred securities to be deposited,
- --------------------------------------------------------------------------------
19
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
which are (i) if required by the trustee, properly endorsed or accompanied by a
properly executed instrument of transfer or endorsement in form satisfactory to
the trustee and in compliance with the terms of the relevant UBS Preferred
Funding Company's LLC Agreement and (ii) accompanied by all such certifications
as may be required by the trustee in its sole discretion and in accordance with
the provisions of the relevant Amended and Restated Trust Agreement. Within a
reasonable period after such deposit is properly made, the trustee will instruct
DTC to increase the amount of the related trust preferred securities represented
by the relevant global certificate accordingly.
VOTING RIGHTS
If at any time the holders of any company preferred securities are entitled to
vote under any UBS Preferred Funding Company's LLC Agreement, the trustee will:
- notify the holders of the related trust preferred securities of such
right,
- request specific direction from each holder of the related trust
preferred securities as to the vote with respect to the company preferred
securities represented by such trust preferred securities, and
- vote the relevant company preferred securities only in accordance with
such specific direction.
Upon receiving notice of any meeting at which the holders of any company
preferred securities are entitled to vote, the relevant trustee will, as soon as
practicable, mail to the holders of the related trust preferred securities a
notice as provided under "--Notices." Each UBS Preferred Funding Company will
provide the form of notice to the trustee of the related UBS Preferred Funding
Trust to be forwarded to the holders of the related trust preferred securities.
The notice will contain:
- all the information that is contained in the notice announcing the
meeting of the holders of the company preferred securities,
- a statement that the holders of the related trust preferred securities
will be entitled, subject to any applicable provision of law, to direct
the trustee specifically as to the exercise of the voting rights
pertaining to the number of related company preferred securities
represented by their respective trust preferred securities, and
- a brief description of the manner in which the holders may give such
specific directions.
If any UBS Preferred Funding Trust receives a written direction from a holder of
its trust preferred securities, its trustee will vote, or cause to be voted, the
amount of related company preferred securities represented by such trust
preferred securities in accordance with the instructions set forth in the
direction. If the trustee does not receive specific instructions from the holder
of any trust preferred securities, the trustee will abstain from voting the
related company preferred securities represented by those trust preferred
securities.
Any UBS Preferred Funding Company and the trustee of the related UBS Preferred
Funding Trust may, without the consent of the holders of the trust preferred
securities of the related UBS Preferred Funding Trust, enter into one or more
agreements supplemental to the relevant Amended and Restated Trust Agreement, in
form satisfactory to the trustee, for any of the following purposes:
- to evidence the succession of another partnership, corporation or other
entity to such UBS Preferred Funding Company and the assumption by any
such successor of the covenants of such UBS Preferred Funding Company
under the relevant Amended and Restated Trust Agreement,
- to add to the covenants of such UBS Preferred Funding Company for the
benefit of the holders of related trust preferred securities, or to
surrender any right or power herein conferred upon such UBS Preferred
Funding Company,
- --------------------------------------------------------------------------------
20
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
- to correct or supplement any provision of the relevant Amended and
Restated Trust Agreement which may be defective or inconsistent with any
other provision therein,
- to make any other provisions with respect to matters or questions arising
under the relevant Amended and Restated Trust Agreement, provided that
any such action does not materially adversely affect the interests of the
holders of trust preferred securities, or
- to cure any ambiguity or correct any mistake.
Any other amendment or agreement supplemental to any Amended and Restated Trust
Agreement must be in writing and approved by the holders of 66 2/3% of the then
outstanding trust preferred securities of the relevant UBS Preferred Funding
Trust.
TRANSFER AND ISSUE OF DEFINITIVE TRUST PREFERRED SECURITIES
TRANSFER, ISSUE AND DELIVERY
If trust preferred securities are issued in definitive form ("definitive trust
preferred securities") in the limited circumstances described in "Book-Entry
Issuance of Trust Preferred Securities--Termination of and Changes to Depositary
Arrangements," those trust preferred securities may be transferred in any
whole-number multiples of USD25, or USD1000, as the case may be, or in such
other denominations as may be specified in the applicable prospectus supplement,
by surrendering the definitive trust preferred securities certificates together
with the form of transfer endorsed on it, duly completed and executed at the
office of the transfer agent. The initial transfer agent for all trust preferred
securities will be the Wilmington Trust Company. If only part of a definitive
trust preferred securities certificate is transferred, a new definitive trust
preferred securities certificate representing the securities that are not
transferred will be issued to the transferor within three business days after
the transfer agent receives the certificate. The new certificate representing
the trust preferred securities that were not transferred will be delivered to
the transferor by uninsured mail at the risk of the transferor, to the address
of the transferor that appears in the records of the relevant UBS Preferred
Funding Trust. The new certificate representing the trust preferred securities
that were transferred will be sent to the transferee within three business days
after the relevant trustee receives the certificate transferred, by uninsured
mail at the risk of the holder entitled to the trust preferred securities
represented by the certificate, to the address specified in the form of
transfer.
FORMALITIES FREE OF CHARGE
Registration of transfers of definitive trust preferred securities will be made
without charge by any UBS Preferred Funding Trust, but the transferor must pay
any tax or other governmental charges that may be imposed in relation to the
transfer, together with any indemnity that the relevant UBS Preferred Funding
Trust, UBS AG or the transfer agent may require.
CLOSED PERIODS
No holder may require the transfer of any trust preferred securities to be
registered during the period of 15 days ending on the due date for any payment
of principal on such trust preferred securities.
No UBS Preferred Funding Trust will be required to register, or cause others to
register, the transfer of any trust preferred securities after such trust
preferred securities have been called for redemption.
REGULATIONS CONCERNING TRANSFER AND REGISTRATION
All transfers of definitive trust preferred securities and entries must be made
as provided in the agency agreement relating to such trust preferred securities.
The provisions of these agreements that govern transfers may be changed by each
UBS Preferred Funding Trust with the prior written approval of its trustee.
- --------------------------------------------------------------------------------
21
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
REGISTRAR AND TRANSFER AGENT
Wilmington Trust Company will act as registrar and transfer agent for all trust
preferred securities. As long as the trust preferred securities are listed on
the Luxembourg Stock Exchange, UBS Preferred Funding Trust will also maintain a
transfer agent in Luxembourg. The initial Luxembourg transfer agent will be as
specified in the applicable prospectus supplement.
PAYMENTS AND PAYING AGENT
As long as trust preferred securities are in book-entry form, payments of
interest and principal on such trust preferred securities will be made to DTC,
which will credit the relevant accounts at DTC on the scheduled payment dates.
The payments of interest and principal will be distributed to participants,
indirect participants and beneficial owners of such trust preferred securities
as described under "Book-Entry Issuance of Trust Preferred Securities--DTC's
Procedures for Notices, Voting and Payments."
If definitive trust preferred securities are issued in the limited circumstances
described above, payments of interest and principal on such trust preferred
securities will be made by check mailed to the address of the holder entitled to
receive the payment, as the address appears in the relevant UBS Preferred
Funding Trust's register.
Each UBS Preferred Funding Trust will maintain a paying agent with respect to
its trust preferred securities which will initially be the Wilmington Trust
Company. The paying agent will be permitted to resign as paying agent upon 30
days' written notice to the relevant trustee. If Wilmington Trust Company
resigns as paying agent, the relevant trustee will appoint another bank or trust
company to act as paying agent. As long as the trust preferred securities are
listed on the Luxembourg Stock Exchange, UBS Preferred Funding Trust will also
maintain a paying agent in Luxembourg. The initial Luxembourg paying agent will
be as specified in the applicable prospectus supplement.
TERMINATION OF THE AMENDED AND RESTATED TRUST AGREEMENTS
The Amended and Restated Trust Agreement of each UBS Preferred Funding Trust
will terminate upon the earliest to occur of the redemption of all of the trust
preferred securities of such UBS Preferred Funding Trust, the delivery of a
final distribution of the related company preferred securities to the holders of
its trust preferred securities, withdrawal of all related company preferred
securities from the UBS Preferred Funding Trust (as described under
"--Withdrawal of Company Preferred Securities") or dissolution of the UBS
Preferred Funding Trust as described in the following paragraph.
Each UBS Preferred Funding Company may instruct the trustee of the related UBS
Preferred Funding Trust to dissolve such UBS Preferred Funding Trust and to
distribute its company preferred securities on a pro rata basis to the holders
of trust preferred securities of such UBS Preferred Funding Trust in the case of
either a Tax Event as to the related UBS Preferred Funding Trust or an
Investment Company Act Event as to the related UBS Preferred Funding Trust, as
each is defined under "Description of Company Preferred Securities--Redemption."
Any company preferred securities held in definitive fully registered form will
not be eligible to be held through DTC, Euroclear or Clearstream.
EXPENSES OF THE UBS PREFERRED FUNDING TRUSTS
All charges or expenses of each UBS Preferred Funding Trust, including the
charges and expenses of the relevant trustees, will be paid by the Stamford
branch of UBS AG, except that, if a trustee incurs fees, charges or expenses,
for which it is not otherwise liable under the relevant Amended and Restated
Trust Agreement, at the request of a holder of trust preferred securities or
other person, such holder or other person will be liable for such fees, charges
and expenses.
- --------------------------------------------------------------------------------
22
DESCRIPTION OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
RESIGNATION AND REMOVAL OF TRUSTEE
Each UBS Preferred Funding Trust will at all times have a trustee that is a bank
that has its principal place of business in the State of Delaware and a combined
capital and surplus of USD50,000,000. If a trustee ceases to be eligible, it
must resign.
The trustee of any UBS Preferred Funding Company may resign as trustee under the
relevant Amended and Restated Trust Agreement at any time by giving notice of
its resignation to the related UBS Preferred Funding Company. Each trustee may
be removed by the related UBS Preferred Funding Company at any time by notice of
such removal delivered to the relevant trustee. Any resignation or removal of a
trustee will take effect upon the appointment of a qualified successor trustee
and the successor's acceptance of such appointment.
If the trustee of any UBS Preferred Funding Trust shall resign or be removed,
the related UBS Preferred Funding Company shall, within 45 days after the
delivery of the notice of resignation or removal, as the case may be, appoint a
successor trustee, which shall be a bank or trust company, or an affiliate of a
bank or trust company, having its principal office in the State of Delaware and
having a combined capital and surplus of at least USD50,000,000.
INFORMATION CONCERNING THE TRUSTEE
Wilmington Trust Company is the trustee of each UBS Preferred Funding Trust. The
trustee is required to perform only those duties that are specifically set forth
in the relevant Amended and Restated Trust Agreement, except when a default has
occurred and is continuing with respect to the relevant trust preferred
securities. After a default, the trustee must exercise the same degree of care a
prudent person would exercise under the circumstances in the conduct of his or
her own affairs. Subject to these requirements, the trustee is under no
obligation to exercise any of the powers vested in it by the relevant Amended
and Restated Trust Agreement at the request of any holder of relevant trust
preferred securities, unless the holder offers the trustee reasonable indemnity
against the costs, expenses and liabilities that might be incurred by exercising
those powers.
NOTICES
Notices to the holders of trust preferred securities will be given by delivery
of the relevant notice to DTC, Euroclear, Clearstream and any other relevant
securities clearing system for communication by each of them to entitled
participants, and, as long as the trust preferred securities of any UBS
Preferred Funding Trust are listed on one or more stock exchanges and the rules
of such stock exchange(s) so require, notices will also be published in the
manner that the rules of such stock exchange(s) may require. In addition,
notices will be published in one English language daily newspaper of general
circulation in London (which is expected to be the Financial Times) and, if any
trust preferred securities are listed on the Luxembourg Stock Exchange and for
as long as the rules of the Luxembourg Stock Exchange so require, in a daily
newspaper of general circulation in Luxembourg (which is expected to be the
Luxemburger Wort).
If any trust preferred securities are no longer held in the name of DTC or its
nominee, notice to the holders of such trust preferred securities will also be
mailed by first-class mail, postage prepaid, to the holders' addresses appearing
in the records of the relevant UBS Preferred Funding Trust.
GOVERNING LAW
Unless stated otherwise in the applicable prospectus supplement, the Amended and
Restated Trust Agreements and any trust preferred securities will be governed by
the laws of the State of Delaware.
- --------------------------------------------------------------------------------
23
- --------------------------------------------------------------------------------
Description of Company Preferred Securities
Each UBS Preferred Funding Company will issue its company preferred securities
under the terms of its Amended and Restated Limited Liability Company Agreement.
The following summary of the material terms and provisions of the company
preferred securities is not complete and is subject to and qualified in its
entirety by reference to the LLC Agreement of each UBS Preferred Funding Company
and the Delaware Limited Liability Company Act. We have filed a copy of a form
of the LLC Agreement applicable for each UBS Preferred Funding Company as an
exhibit to the registration statement of which this prospectus is a part.
GENERAL
The company preferred securities will be preferred limited liability company
interests in a UBS Preferred Funding Company, the terms of which will be set
forth in the applicable UBS Preferred Funding Company's LLC Agreement.
The company preferred securities are intended to provide holders with rights to
distributions and redemption and liquidation payments that are similar to those
to which holders would be entitled if they had purchased the most senior ranking
noncumulative perpetual preferred shares issued directly by UBS AG that have
financial terms equivalent to those of their company preferred securities.
The company preferred securities will be validly issued, and no additional
payments will be required for such securities to represent limited liability
company interests in the relevant UBS Preferred Funding Company. Holders of
company preferred securities will have no preemptive rights with respect to any
other securities of the relevant UBS Preferred Funding Company. The company
preferred securities will not be convertible into company common securities or
any other interests in the relevant UBS Preferred Funding Company and will not
be subject to any sinking fund or other obligation of the relevant UBS Preferred
Funding Company for their repurchase or retirement.
Unless otherwise specified in the applicable prospectus supplement, the company
preferred securities will be issued in certificated form only in denominations
of USD25 in the case of an offering of trust preferred securities to retail
investors and USD1000 in the case of an offering of trust preferred securities
to institutional investors, liquidation preference and whole-number multiples of
USD25 or USD1000, as the case may be. The aggregate liquidation preference of
all company preferred securities offered will be specified in the applicable
pricing supplement.
Each UBS Preferred Funding Company has the power to create and issue additional
preferred limited liability company interests (i) that are junior to its company
preferred securities as to payment of dividends and payments of amounts upon
dissolution, liquidation or winding up of such UBS Preferred Funding Company
("company junior securities") or (ii) that are on a parity with its company
preferred securities as to those payments ("company parity preferred
securities"). As long as any company preferred securities of a UBS Preferred
Funding Company remain outstanding, no company parity preferred securities may
be issued by such UBS Preferred Funding Company unless the holders of at least
66 2/3% of the outstanding company preferred securities and company parity
preferred securities, if any (based on the aggregate liquidation preference),
voting together as a single class, approve or unless the related UBS AG
subordinated guarantee is amended so that such company parity preferred
securities benefit from the related UBS AG subordinated guarantee in the same
manner as the company preferred securities without any adverse effect on the
holders of company preferred securities. See "--Voting Rights."
The LLC Agreement of each UBS Preferred Funding Company will preclude each UBS
Preferred Funding Company from issuing, without the consent of each holder of
its company preferred
- --------------------------------------------------------------------------------
24
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
securities, any company parity preferred securities or any other classes or
series of equity securities that are senior to its company preferred securities
as to dividend rights or rights upon dissolution, liquidation or winding up of
such UBS Preferred Funding Company.
DIVIDENDS
GENERAL
Dividends on company preferred securities will be payable from the date of
initial issuance on a noncumulative basis, regularly on the dates specified in
the applicable prospectus supplement (each a "dividend payment date") for the
dividend period ending on each such dividend payment date and commencing on the
date specified in the applicable prospectus supplement, but only if the relevant
UBS Preferred Funding Company has legally available funds for such purpose and
satisfies the other qualifications described below. Each period from and
including a dividend payment date or the date of initial issuance, as
applicable, to but not including the next dividend payment date is a "dividend
period."
Dividends will be payable on the liquidation preference, for each dividend
period, at a fixed or floating rate, as specified in the applicable prospectus
supplement.
Dividends will be mandatorily due and payable on a dividend payment date with
respect to the related dividend period and special dividends will be mandatorily
due and payable on other dates in the circumstances described under "--Mandatory
Dividends," except that dividends will never be mandatorily due and payable or
be paid when the capital limitation (described below under "--Capital
Limitation") applies. If dividends are neither mandatorily due and payable on a
dividend payment date nor prohibited by application of the capital limitation,
then:
- payment of dividends on company preferred securities will be limited by
UBS AG's available distributable profits (see "--Distributable Profits
Limitation"), and
- if UBS AG delivers, on or before the tenth business day immediately
preceding a dividend payment date, an instruction (a "no dividend
instruction") to a UBS Preferred Funding Company not to pay dividends on
that dividend payment date or to pay less than full dividends on that
dividend payment date, dividends payable on the related dividend payment
date will be limited as provided in the no dividend instruction (see
"--No Dividend Instruction").
If any dividends will be payable on company preferred securities on a day that
is not a business day, those dividends will instead be paid on the next business
day. No interest or other payment will be due as a result of any such
adjustment.
To the extent relevant to any issuance of trust preferred securities, LIBOR
shall have the meaning as specified in the applicable prospectus supplement.
All percentages resulting from any calculations on the company preferred
securities will be rounded, if necessary, to the nearest one hundred-thousandth
of a percentage point, with five one-millionths of a percentage point rounded
upward (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)),
and all dollar amounts used in or resulting from such calculation will be
rounded to the nearest cent (with one-half cent being rounded upward).
MANDATORY DIVIDENDS
Each UBS Preferred Funding Company will be required to pay dividends on its
company preferred securities in three circumstances, as follows:
(i) If UBS AG declares or pays dividends or makes any other payment or
distribution on any UBS AG junior obligations, and provided that the
capital limitation does not apply, then each UBS Preferred Funding
Company will be required to pay full dividends on its company
- --------------------------------------------------------------------------------
25
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
preferred securities during the one-year period beginning on and
including the earlier of the date on which such dividend was declared
or the date on which such dividend or other payment was made.
(ii) If UBS AG or any of its subsidiaries redeems, repurchases or
otherwise acquires any UBS AG parity securities or UBS AG junior
obligations for any consideration, except by conversion into or
exchange for shares of UBS AG or UBS AG junior obligations and except
as described below (and provided that the capital limitation does not
apply), then each UBS Preferred Funding Company will be required to
pay dividends on its company preferred securities during the one-year
period beginning on and including the date on which such redemption,
repurchase or other acquisition occurred.
(iii) If (x) UBS AG or any of its subsidiaries pays any dividends or makes
any other payment or distribution on any UBS AG parity securities on
any date and (y) during the relevant period (as defined below) ending
on and including that date there occurred a dividend payment date as
to which any UBS Preferred Funding Company paid no dividends or less
than full dividends on its company preferred securities, and provided
that the capital limitation does not apply, then on that date such
UBS Preferred Funding Company will be required to pay a special
dividend on its company preferred securities. The special dividend
will be payable on that date whether or not that date is otherwise a
dividend payment date and, if it is a dividend payment date, will be
in addition to any other dividends required to be paid on that
dividend payment date. The special dividend will be in an amount
that, when taken together with dividends previously paid on the
relevant company preferred securities during the relevant period,
represents the same proportion of full dividends on such company
preferred securities for all dividend payment dates during the
relevant period that the dividend on UBS AG parity securities paid
during that relevant period bears to full dividends on such UBS AG
parity securities for that relevant period.
Notwithstanding paragraph (ii) above, no UBS Preferred Funding Company will be
required to pay dividends solely as a result of:
- repurchases, redemptions or other acquisitions of UBS AG parity
securities or UBS AG junior obligations in connection with any employment
contract, benefit plan or other similar arrangement with or for the
benefit of any one or more employees, officers, directors or consultants,
in connection with a dividend reinvestment or shareholder share purchase
plan or in connection with the issuance of UBS AG parity securities or
UBS AG junior obligations (or securities convertible into or exercisable
for such UBS AG parity securities or UBS AG junior obligations) as
consideration in an acquisition transaction,
- market-making in the UBS AG parity securities or UBS AG junior
obligations as part of the securities business of UBS AG or any of its
subsidiaries,
- the purchase of fractional interests in UBS AG parity securities or UBS
AG junior obligations pursuant to the conversion or exchange provisions
of such UBS AG parity securities or UBS AG junior obligations or the
security being converted or exchanged,
- any declaration of a dividend in connection with any shareholder's rights
plan, or the issuance of rights, shares or other property under any
shareholder's rights plan, or the redemption or repurchase of rights
pursuant to any such plan, or
- any dividend in the form of shares, warrants, options or other rights
where the dividend shares or the shares issuable upon exercise of such
warrants, options or other rights are the same shares as that on which
the dividend is being paid or ranks equally with or junior to such
shares.
- --------------------------------------------------------------------------------
26
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
Any dividend payment date or other date on which dividends on any company
preferred securities are required to be paid as described in clause (i), (ii) or
(iii) above is a "mandatory dividend payment date." The amount of dividends
required to be paid on any mandatory dividend payment date (after giving effect
to the capital limitation, if applicable) is called the "mandatory dividend
payment amount." If a dividend payment date or other date is a mandatory
dividend payment date, each UBS Preferred Funding Company will be required to
pay the mandatory dividend payment amount as dividends on that date whether or
not there are available distributable profits and whether or not interest is
paid on the subordinated notes.
For purposes of this prospectus:
"UBS AG junior obligations" means (i) ordinary shares of UBS AG, (ii) each class
of preferred or preference shares or similar securities of UBS AG that ranks
junior to the most senior ranking preferred or preference shares or similar
securities of UBS AG, and (iii) any indebtedness, guarantee or support agreement
or similar undertaking of UBS AG in respect of any subsidiary securities that
rank junior to the UBS AG subordinated guarantee.
"UBS AG parity securities" means (i) each class of preferred or preference
shares or similar securities of UBS AG that ranks equally with the most senior
ranking preferred or preference shares or similar securities of UBS AG and (ii)
any securities issued by any subsidiaries of UBS AG and entitled to the benefit
of any guarantee or support agreement or similar undertaking of UBS AG that
ranks equally with the UBS AG subordinated guarantee. UBS AG parity securities
include the USD1,500,000,000 8.622% Noncumulative Trust Preferred Securities of
UBS Preferred Funding Trust I initially issued in October 2000 and representing
a corresponding amount of 8.622% Noncumulative Company Preferred Securities of
UBS Preferred Funding Company LLC I, guaranteed on a subordinated basis by UBS
AG, the USD 500,000,000 7.247% Noncumulative Trust Preferred Securities of UBS
Preferred Funding Trust II issued in June 2001 and representing a corresponding
amount of 7.247% Noncumulative Company Preferred Securities of UBS Preferred
Funding Company II, guaranteed on a subordinate basis by UBS AG, and the USD
300,000,000 7.25% Noncumulative Trust Preferred Securities of UBS Preferred
Funding Trust III issued in June 2001 and representing a corresponding amount of
7.25% Noncumulative Company Preferred Securities of UBS Preferred Funding
Company III, guaranteed on a subordinate basis by UBS AG.
"relevant period" means (i) in the case of UBS AG parity securities that pay
dividends less frequently than semi-annually, one year and (ii) in the case of
UBS AG parity securities that pay dividends semi-annually or more frequently
than semi-annually, six months (in each case ending on or including the date on
which the related dividend on a parity security is paid but not including the
corresponding day in the month that is twelve or six months prior thereto).
CAPITAL LIMITATION
The prohibition on the payment of dividends on company preferred securities as
described below is called the "capital limitation."
Unless the Swiss Federal Banking Commission expressly permits otherwise, no UBS
Preferred Funding Company will pay dividends on its company preferred securities
on any dividend payment date (whether or not it is a mandatory dividend payment
date) if on such date UBS AG is not in compliance, or because of a distribution
by UBS AG or any of its subsidiaries of profits of UBS AG (including a payment
of dividends on company preferred securities) would not be in compliance, with
the Swiss Federal Banking Commission's minimum capital adequacy requirements
applicable to UBS AG as then in effect.
- --------------------------------------------------------------------------------
27
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
For purposes of complying with the Swiss Federal Banking Commission's capital
minimum adequacy requirements, bank capital is divided into three main
categories:
- Core (or Tier 1) capital,
- Supplementary (or Tier 2) capital, and
- Additional (or Tier 3) capital.
Tier 1 capital primarily includes paid-in share capital, reserves (defined to
include retained earnings) and capital participations of minority shareholders
in fully consolidated subsidiaries, and is reduced by, among other items, the
bank's holdings of its own shares. Tier 1 capital is supplemented, for capital
adequacy purposes, by Tier 2 capital, which consists of, among other things, two
categories of subordinated debt instruments that may be issued by a bank, and by
Tier 3 capital, which consists of certain subordinated debt obligations. The use
of Tier 2 and Tier 3 capital in complying with capital ratio requirements is,
however, subject to limitations.
Under Swiss law, a bank must maintain a minimum capital ratio of 8%, calculated
by dividing adjusted core and supplementary capital by aggregate risk-weighted
assets. This standard must be met on both a consolidated and an unconsolidated
basis. UBS is required to file a statement of its required and existing capital
resources, together with its annual statement of condition and interim balance
sheet, with both the Swiss Federal Banking Commission and the Swiss National
Bank.
For a discussion of UBS's capital resources relative to applicable guidelines,
see Item 5 of UBS AG's Annual Report on Form 20-F for the year ended 31 December
2001, which is incorporated by reference into this prospectus.
DISTRIBUTABLE PROFITS LIMITATION
The limitation or prohibition on the payment of dividends on company preferred
securities as described below is called the "distributable profits limitation."
The distributable profits limitation will not limit or prohibit payment of
mandatory dividends on a mandatory dividend payment date. The effect of the
distributable profits limitation is to limit the amount of non-mandatory
dividends that any UBS Preferred Funding Company may pay on its company
preferred securities to the amount of dividends that UBS AG would have been
legally able to pay on such securities had they been issued directly by UBS AG
as non-cumulative preference shares of UBS AG.
Except as otherwise stated in the applicable prospectus supplement, on or before
the first dividend payment date of each year, UBS AG will deliver a certificate
to each UBS Preferred Funding Company (a "distributable profits limitation
certificate") specifying:
- the distributable profits (as defined below) of UBS AG for the financial
year ending on the preceding 31 December, and
- the available distributable profits (as defined below) for payment of
dividends on company preferred securities on the dividend payment dates
in the then current year.
Unless a UBS Preferred Funding Company is required to pay mandatory dividends:
- the aggregate amount of dividends on company preferred securities that
such UBS Preferred Funding Company may pay on the first dividend payment
of the current year may not exceed the lesser of full dividends and the
available distributable profits set forth in such distributable profits
limitation certificate, and
- the aggregate amount of dividends on company preferred securities that
such UBS Preferred Funding Company may pay on any subsequent dividend
payment date in the current year may not exceed the lesser of full
dividends and the remaining amount of such available distributable
- --------------------------------------------------------------------------------
28
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
profits (after giving effect to the payment of dividends pursuant to this
bullet point or the bullet point immediately above).
For purposes of this prospectus:
"distributable profits" means, for any financial year of UBS AG, profit that may
be distributed in accordance with Swiss law then applicable. Currently, for any
financial year of UBS AG, distributable profits are equal to profit brought
forward, plus profit for the period, minus appropriation to general statutory
reserve, plus other reserves, each as shown in the audited unconsolidated
balance sheet and statement of appropriation of retained earnings of UBS AG and
as determined in accordance with accounting standards applicable under Swiss
law. The "appropriation to general statutory reserve" is equal to up to 5% of
annual profit to the extent the general reserves of UBS AG do not equal 20% of
the paid-in share capital plus 10% of the amount distributed as a dividend from
profit for the period in excess of 5% of the par value of the UBS common shares.
UBS AG's distributable profits for 2001 were approximately CHF21 billion.
"available distributable profits" means, for any financial year of UBS AG:
- if there are no UBS AG parity securities outstanding, distributable
profits for the immediately preceding financial year of UBS AG, and
- if there are UBS AG parity securities outstanding, then an amount
determined as the product of:
(x) distributable profits for the immediately preceding financial year of
UBS AG, and
(y) a ratio (I) the numerator of which is the aggregate amount of full
dividends on the company preferred securities to be paid on the
dividend payment dates that occur during the then current financial
year (not including dividends paid on any preceding dividend payment
date of the current year and including dividends to be paid on the
corresponding dividend payment date of the following year) and (II) the
denominator of which is equal to the amount determined pursuant to
clause (I) plus the aggregate amount of full dividends on the UBS AG
parity securities to be paid on dividend payment dates which occur
during the then current financial year.
NO DIVIDEND INSTRUCTION
Except for the mandatory dividend payment amounts required to be paid on
mandatory dividend payment dates:
- dividends on company preferred securities will not be payable on a
dividend payment date if, on or before the tenth business day immediately
preceding such dividend payment date, UBS AG delivers a no dividend
instruction to the relevant UBS Preferred Funding Company instructing it
not to pay dividends on that dividend payment date, and
- if, on or before the tenth business day immediately preceding such
dividend payment date, UBS AG delivers a no dividend instruction to a UBS
Preferred Funding Company limiting but not prohibiting the payment of
dividends on such dividend payment date, dividends on such UBS Preferred
Funding Company's company preferred securities will be payable on that
dividend payment date only to the extent permitted by such no dividend
instruction.
If a no dividend instruction is given to a UBS Preferred Funding Company, then
such UBS Preferred Funding Company must promptly give notice to the holders of
its company preferred securities in the manner described under "--Notices" of
the fact that it has received a no dividend instruction and the amount of
dividends, if any, that will be paid on the related dividend payment date.
- --------------------------------------------------------------------------------
29
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
ADDITIONAL AMOUNTS
If any UBS Preferred Funding Company or UBS Preferred Funding Trust is required
to withhold any taxes, duties or other governmental charges with respect to any
dividend payment on its trust preferred securities or company preferred
securities, the relevant UBS Preferred Funding Company will be required to pay,
as additional amounts included in the dividend payment (and UBS AG will be
required to include in any related payment made by it under the UBS AG
subordinated guarantee), an amount sufficient that the net amount received by
the holder of such company preferred securities or trust preferred securities,
as applicable, after the withholding, will not be less than the dividend payment
amount. However, no UBS Preferred Funding Company will be required to pay any
such additional amounts to the extent that the taxes, duties or other
governmental charges are imposed or levied by Switzerland or the Cayman Islands
because the holder or beneficial owner of any trust preferred securities or
company preferred securities:
- has some connection with Switzerland or the Cayman Islands, as
applicable, other than being a holder or beneficial owner of those trust
preferred securities or company preferred securities, or
- has not made a declaration of non-residence in, or other lack of
connection with, Switzerland or the Cayman Islands, as applicable, or any
similar claim for exemption, if the relevant UBS Preferred Funding
Company has given the beneficial owner of those trust preferred
securities or company preferred securities or its nominee at least 60
days' prior notice of an opportunity to make the declaration or claim.
RANKING AND LIQUIDATION PREFERENCE
The company preferred securities of any UBS Preferred Funding Company ordinarily
will rank senior to its company common securities as to the payment of
dividends. However, UBS AG has the right to shift the dividend preference of
company preferred securities to the company common securities on any dividend
payment date to the extent that the mandatory dividend payment amount then
required to be paid as dividends on the company preferred securities (if any) is
less than full dividends on the company preferred securities. If UBS AG shifts
the dividend preference to the company common securities, the interest payment
received by a UBS Preferred Funding Company on the related subordinated notes
will be returned as dividends to UBS AG, as the holder of its company common
securities, before any dividends are paid on its company preferred securities.
As long as any company preferred securities of a UBS Preferred Funding Company
are outstanding, UBS AG will agree in such UBS Preferred Funding Company's LLC
Agreement that it will take no voluntary action to cause the UBS Preferred
Funding Company to dissolve or liquidate unless UBS AG also liquidates. Each UBS
Preferred Funding Company's LLC Agreement will provide that the UBS Preferred
Funding Company will be liquidated if UBS AG is liquidated.
If any UBS Preferred Funding Company dissolves, liquidates or winds up, then
after the claims of any creditors of such UBS Preferred Funding Company are
satisfied, the holders of its company preferred securities will be entitled to
receive, before any distribution of assets is made to the holders of its company
common securities or any other class of shares ranking junior to the company
preferred securities upon liquidation, liquidating distributions in respect of
such company preferred securities in the amount of:
- the liquidation preference of the company preferred securities, plus
- an amount equal to unpaid dividends, if any, on the company preferred
securities with respect to the current dividend period accrued on a daily
basis to the date of liquidation, plus
- --------------------------------------------------------------------------------
30
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
- an amount equal to unpaid definitive dividends for any prior dividend
period, without interest and without accumulation of unpaid nondefinitive
dividends for any prior dividend period.
For purposes of this prospectus:
"definitive dividends" means, as to a dividend payment date and related
dividend period, dividends that are due and payable because (i) they are
not limited by the capital limitation and (ii) either (x) they are
mandatory dividends or (y) a no dividend instruction was not delivered and
they are not limited by the distributable profit limitation.
"nondefinitive dividends" means, as to a dividend payment date and related
dividend period, dividends that are not definitive dividends.
If UBS AG is liquidated, whether voluntarily or involuntarily, (i) each UBS
Preferred Funding Company will be liquidated and (ii) under each UBS AG
Subordinated Guarantee Agreement, the holders of related company preferred
securities (whether through a UBS Preferred Funding Trust or as direct holders
who have withdrawn their company preferred securities from a UBS Preferred
Funding Trust) will have a claim entitling them to substantially the same
liquidating distributions in the liquidation of UBS AG that they would have been
entitled to if they had purchased preferred shares of UBS AG having an aggregate
liquidation preference equal to the aggregate liquidation preference of their
company preferred securities and bearing dividends at the rate of dividends
applicable to such company preferred securities. Each UBS AG Subordinated
Guarantee Agreement and the related UBS Preferred Funding Company's LLC
Agreement, taken together, provide that the holders of company preferred
securities may not receive liquidating distributions in a liquidation of the
relevant UBS Preferred Funding Company and payments under the UBS AG
subordinated guarantee that, taken together, exceed the liquidating
distributions to which they would have been entitled had they instead owned
preferred shares of UBS AG with equivalent terms as described above.
VOTING RIGHTS
Except as expressly required by applicable law, or except as indicated below,
the holders of company preferred securities will not be entitled to vote. Unless
otherwise specified in the applicable prospectus supplement, if the holders of
company preferred securities of any UBS Preferred Funding Company are entitled
to vote as indicated below, each USD25 or USD1000, as the case may be,
liquidation preference of company preferred securities will be entitled to one
vote on matters on which the holders of such company preferred securities are
entitled to vote. If at any time the aggregate of unpaid dividends for any UBS
Preferred Funding Company equals or exceeds the number of regularly scheduled
dividend payments, specified in the applicable prospectus supplement, the
holders of company preferred securities and any company parity preferred
securities of such UBS Preferred Funding Company, voting together as a single
class, will have the exclusive right to elect two additional directors of their
choosing. Holders of a majority (based on the aggregate liquidation preference)
of company preferred securities and any company parity preferred securities of
such UBS Preferred Funding Company may exercise this right by written consent or
at a meeting of such holders called for such purpose. This right will continue
either until all unpaid dividends have been paid in full or until full dividends
have been paid on the relevant company preferred securities for four consecutive
dividend periods. While this right continues, any vacancy in the office of the
additional directors may be filled only by the holders of company preferred
securities and company parity preferred securities voting as described above.
Each UBS Preferred Funding Company's LLC Agreement will provide that a meeting
will be called at the request of holders of 25% (based on the aggregate
liquidation preference) of its company preferred securities and any company
parity preferred securities.
- --------------------------------------------------------------------------------
31
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
As long as any of its company preferred securities are outstanding, no UBS
Preferred Funding Company may, without the consent or vote of holders of at
least 66 2/3% of its outstanding company preferred securities and company parity
preferred securities, if any (based on the aggregate liquidation preference),
voting together as a single class:
- change or remove any provision of such UBS Preferred Funding Company's
LLC Agreement (including the terms of its company preferred securities),
issue any company parity preferred securities, redeem or repurchase any
company common securities, or consent to a change in the booking location
of the issuance of the related subordinated notes to a branch or other
office of UBS AG other than the Cayman Islands branch of UBS AG, in each
case, if such action would materially and adversely affect the rights,
preferences, powers or privileges of its company preferred securities and
such company parity preferred securities,
- to the fullest extent permitted by law, liquidate, dissolve or terminate
such UBS Preferred Funding Company without the concurrent liquidation of
UBS AG,
- amend or modify such UBS Preferred Funding Company's investment policies,
or
- merge, convert, consolidate, reorganize or effect any other business
combination involving such UBS Preferred Funding Company, unless the
resulting entity will have no class or series of equity securities either
authorized or outstanding that ranks ahead of its company preferred
securities as to dividends or as to the distribution of assets upon
liquidation, dissolution or winding up, except the same number of shares
of such equity securities with the same preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions or redemption as the
shares of equity securities of such UBS Preferred Funding Company that
are authorized and outstanding immediately prior to such transaction, and
each holder of its company preferred securities immediately prior to such
transaction shall receive securities with the same preferences,
conversion or other rights, voting powers, restrictions, limitations as
to dividends or other distributions, qualifications or terms or
conditions or redemption of the resulting entity as the company preferred
securities held by such holder immediately prior to the transaction.
As long as any of its company preferred securities are outstanding, no UBS
Preferred Funding Company will be permitted, without the consent of the holders
of each outstanding company preferred security, authorize, create or increase
the authorized amount of, or issue any class or series of, any equity securities
of such UBS Preferred Funding Company, or any warrants, options or other rights
convertible or exchangeable into any class or series of any equity securities of
such UBS Preferred Funding Company, ranking prior to its company preferred
securities, either as to dividend rights or rights on dissolution, liquidation
or winding up of such UBS Preferred Funding Company.
Notwithstanding any of the foregoing, without consent of any holder of company
preferred securities, UBS AG will be permitted to amend or supplement the UBS AG
Subordinated Guarantee Agreements to correct or supplement any provision in the
UBS AG Subordinated Guarantee Agreements which may be defective or inconsistent
with any other provision therein, or to make any other provisions with respect
to matters or questions arising under the UBS AG Subordinated Guarantee
Agreements, so long as any such action shall not materially adversely affect the
interests of the holders of the related company preferred securities. See
"Description of UBS AG Subordinated Guarantees--Amendments."
Notwithstanding the foregoing, without the consent of any holder of company
preferred securities, UBS AG will be permitted to amend or supplement any UBS
Preferred Funding Company's LLC Agreement:
- to correct or supplement any provision in a UBS Preferred Funding
Company's LLC Agreement which may be defective or inconsistent with any
other provision therein, or to make any other
- --------------------------------------------------------------------------------
32
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
provisions with respect to matters or questions arising under a UBS
Preferred Funding Company's LLC Agreement, so long as any such action
shall not materially adversely affect the interests of the holders of
company preferred securities of such UBS Preferred Funding Company, or
- to cure any ambiguity or correct any mistake.
REDEMPTION
No company preferred securities will be redeemable before the date specified in
the applicable prospectus supplement unless a Tax Event, an Investment Company
Act Event or a Capital Event occurs, in which case each UBS Preferred Funding
Company may redeem its company preferred securities in whole (but not in part)
at any time on not less than 30 nor more than 60 days' notice. On or after the
date specified in the applicable prospectus supplement, any UBS Preferred
Funding Company will be permitted to redeem its company preferred securities for
cash, in whole or in part, on not less than 30 nor more than 60 days' notice.
Unless otherwise stated in the applicable prospectus supplement, the redemption
price for such optional redemptions on or after the date specified in the
applicable prospectus supplement and for redemptions arising from a Tax Event,
an Investment Company Act Event or a Capital Event will be:
- 100% of the liquidation preference of the company preferred securities
being redeemed, plus
- an amount equal to unpaid dividends, if any, on the company preferred
securities with respect to the current dividend period (whether or not
declared) accrued on a daily basis to the date fixed for redemption, plus
- an amount equal to unpaid definitive dividends for any prior dividend
period, without interest and without accumulation of unpaid nondefinitive
dividends for any prior dividend period.
The applicable prospectus supplement may provide that the redemption price for a
redemption arising out of a Tax Event resulting from a Change in Tax Law (as
defined below) and relating to the:
- imposition of tax on UBS Preferred Funding Trust or UBS Funding Company,
or
- the imposition of withholding tax on UBS Preferred Funding Company's
payment of dividends on the company preferred securities, on UBS
Preferred Funding Trust's payment of dividends on the trust preferred
securities, on UBS AG's payment of interest on the subordinated notes or
on UBS AG's payment under the subordinated guarantee
(which are the events described in clauses (A), (B) and (C) of the definition of
"Tax Event") will be the redemption price described above and that the
redemption price for all other redemptions arising out of a Tax Event resulting
from a Change in Tax Law will be:
- the Make Whole Amount (as defined below), plus
- an amount equal to unpaid dividends, if any, on the company preferred
securities with respect to the current dividend period (whether or not
declared) accrued on a daily basis to the date fixed for redemption, plus
- an amount equal to unpaid definitive dividends for any prior dividend
period, without interest and without accumulation of unpaid nondefinitive
dividends for any prior dividend period.
To the extent provided for in the applicable prospectus supplement, UBS
Preferred Funding Company will have until the dividend payment date specified in
the applicable prospectus supplement after the occurrence of a Tax Event, an
Investment Company Act Event or a Capital Event to exercise its rights to redeem
the company preferred securities.
- --------------------------------------------------------------------------------
33
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
Any redemption of company preferred securities will have to comply with
applicable regulatory requirements, including the prior approval of the Swiss
Federal Banking Commission if then required under applicable guidelines or
policies of the Swiss Federal Banking Commission. The Swiss Federal Banking
Commission in its discretion may impose conditions on its approval of any
proposed redemption of company preferred securities. If dividends on any company
preferred securities of a UBS Preferred Funding Company are unpaid, no company
preferred securities of such UBS Preferred Funding Company may be redeemed
unless all its outstanding company preferred securities are redeemed, and no UBS
Preferred Funding Company may purchase or otherwise acquire any of its company
preferred securities, except pursuant to a purchase or exchange offer made on
the same terms to the holders of all of its outstanding company preferred
securities.
Company preferred securities will not be subject to any sinking fund or
mandatory redemption and will not be convertible into any other securities of
the relevant UBS Preferred Funding Company or any securities of UBS AG.
"Change in Tax Law" means the receipt by UBS AG of an opinion of a
nationally recognized law firm or other tax advisor (which may be an
accounting firm) in Switzerland, the United States or the Cayman Islands,
as appropriate, experienced in such matters to the effect that an event of
the type described in clause (A), (B) or (C) of the definition of "Tax
Event" has occurred or will occur as a result of (i) any amendment to,
clarification of, or change (including any announced prospective change)
in, the laws or treaties (or any regulations under any laws or treaties) of
the United States, Switzerland or the Cayman Islands or any political
subdivision or taxing authority of or in the United States, Switzerland or
the Cayman Islands affecting taxation or (ii) any administrative action or
any amendment to, clarification of, or change in the official position of
or UBS AG interpretation of any administrative action or any interpretation
or pronouncement that provides for a position with respect to any
administrative action or any interpretation or pronouncement that provides
for a position with respect to any administrative action that differs from
the previously generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body,
regardless of the manner in which such amendment, clarification, change,
interpretation or pronouncement is made known, which amendment,
clarification, change or administrative action is effective or which
interpretation or pronouncement is announced on or after the date of
issuance of the company preferred securities.
"Make Whole Amount" as applied to a redemption of the company preferred
securities means the greater of (i) 100% of the liquidation preference of
the company preferred securities and (ii) as determined by a quotation
agent (as defined below), the sum of the present value of the liquidation
preference of the company preferred securities together with the present
values of scheduled payments of dividends accrued from the date of
redemption to the dividend payment date specified in the applicable
prospectus supplement (the "remaining life"), in each case discounted to
the date of redemption on a semi-annual basis (assuming a 360-day
consisting of twelve 30-day months) at the adjusted treasury rate.
For purposes of determining the Make Whole Amount:
"adjusted treasury rate" means, with respect to any redemption date, the
treasury rate plus .75.
As long as any company preferred securities of a UBS Preferred Funding Company
are outstanding, other company parity preferred securities of such UBS Preferred
Funding Company may not be redeemed or repurchased unless such UBS Preferred
Funding Company concurrently redeems an approximately equal proportion of the
aggregate liquidation preference of its outstanding company preferred securities
or each rating agency then rating its company preferred securities informs such
UBS Preferred Funding Company in writing that the redemption or repurchase of
such company parity
- --------------------------------------------------------------------------------
34
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
preferred securities would not result in a reduction or withdrawal of the rating
then assigned by that rating agency to its company preferred securities.
If fewer than all outstanding company preferred securities of a UBS Preferred
Funding Company are to be redeemed, the amount of the company preferred
securities of such UBS Preferred Funding Company to be redeemed will be
determined by the board of directors of such UBS Preferred Funding Company, and
the securities to be redeemed will be determined by lot or pro rata as the board
of directors in its sole discretion determines to be equitable. The relevant UBS
Preferred Funding Company will promptly notify the registrar and transfer agent
for its company preferred securities in writing of the securities selected for
redemption and, in the case of any partial redemption, the liquidation
preference to be redeemed.
Any company preferred securities redeemed will be canceled. There will be no
prescription period in respect of uncollected dividends on company preferred
securities.
As used in this prospectus:
"Administrative action" means any judicial decision, official
administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement of
intent to adopt such procedures or regulations) by any legislative body,
court, governmental authority or regulatory body having appropriate
jurisdiction.
"Capital Event" means, with respect to any UBS Preferred Funding Company,
the determination by UBS AG after consultation with the Swiss Federal
Banking Commission that its company preferred securities cannot be included
in calculating the Tier 1 capital of UBS AG on a consolidated basis.
"Comparable Treasury Issue" means with respect to any redemption date the
United States Treasury security selected by the quotation agent as having a
maturity comparable to the remaining life that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to
the remaining life. If no United States Treasury security has a maturity
that is within a period from three months before to three months after the
interest payment date and dividend payment date specified in the applicable
prospectus supplement, the two most closely corresponding United States
Treasury securities will be used as the comparable treasury issue, and the
treasury rate will be interpolated or extrapolated on a straight-line
basis, rounding to the nearest month using such securities.
"Comparable Treasury Price" means (A) the average of five reference
treasury dealer quotations for such redemption date, after excluding the
highest and lowest of such reference treasury dealer quotations, or (B) if
the quotation agent obtains fewer than five such reference treasury dealer
quotations, the average of all such quotations.
"quotation agent" means UBS Warburg LLC and its successors, except that if
UBS Warburg LLC ceases to be primary U.S. Government securities dealer in
New York City (a "primary treasury dealer"), UBS Preferred Funding Company
will designate another primary treasury dealer.
"Reference Treasury Dealer" means (i) the quotation agent and (ii) any
other primary treasury dealer selected by the quotation agent after
consultation with the relevant UBS Preferred Funding Company.
"Reference Treasury Dealer Quotations" means, with respect to each
reference treasury dealer and any redemption date, the average, as
determined by the quotation agent, of the bid and asked prices for the
comparable treasury issue (expressed in each case as a percentage of its
principal
- --------------------------------------------------------------------------------
35
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
amount) quoted in writing to the quotation agent by such reference treasury
dealer at 5:00 p.m., New York City time, on the third business day
preceding such redemption date.
"Treasury Rate" means (i) the yield, under the heading which represents the
average for the week immediately prior to the redemption date, appearing in
the most recently published statistical release designated "H.15(519)" or
any successor publication which is published weekly by the Federal Reserve
and which established yields on actively traded United States Treasury
securities adjusted to constant maturity under the caption "Treasury
Constant Maturities," for the maturity corresponding to the remaining life
(or, if no maturity is within three months before or after the remaining
life, yields for the two published maturities most closely corresponding to
the remaining life will be determined and the treasury rate will be
interpolated or extrapolated from such yields on a straight-line basis,
rounding to the nearest month) or (ii) if such release (or any successor
release) is not published during the week preceding the calculation date or
does not contain such yields, the rate per annum equal to the semi-annual
equivalent yield to maturity of the comparable treasury issue, calculated
using a price for the comparable treasury issue (expressed as a percentage
of its principal amount) equal to the comparable treasury price for such
redemption date. The treasury rate will be calculated on the third business
day preceding the redemption date.
"Investment Company Act Event" means, with respect to any UBS Preferred
Funding Company, the receipt by UBS AG of an opinion of a nationally
recognized law firm in the United States experienced in such matters to the
effect that there is more than an insubstantial risk that such UBS
Preferred Funding Company or the related UBS Preferred Funding Trust is an
"investment company" within the meaning of the Investment Company Act of
1940.
"Tax Event" means, with respect to any UBS Preferred Funding Company, the
receipt by UBS AG of an opinion of a nationally recognized law firm or
other tax advisor (which may be an accounting firm) in Switzerland or the
United States, as appropriate, experienced in such matters to the effect
that there is more than an insubstantial risk that (A) such UBS Preferred
Funding Company or the related UBS Preferred Funding Trust is or will be
subject to more than a de minimis amount of additional taxes, duties or
other governmental charges, (B) UBS AG is or will be required to pay any
additional amounts in respect of any taxes, duties or other governmental
charges with respect to payments of interest or principal on the related
subordinated notes and with respect to any payments on the related trust
preferred securities, (C) such UBS Preferred Funding Company is or will be
required to pay any additional amounts in respect of any taxes, duties or
other governmental charges with respect to payments of dividends on its
company preferred securities or the related UBS Preferred Funding Trust is
or will be required to pay any additional amounts in respect of any taxes,
duties or other governmental charges with respect to distributions on its
trust preferred securities, or (D) the treatment of any of such UBS
Preferred Funding Company's items of income, gain, loss, deduction or
expense, or the treatment of any item of income, gain, loss, deduction or
expense of UBS AG related to the related subordinated notes or its
ownership of such UBS Preferred Funding Company, in each case as reflected
on the tax returns (including estimated returns) filed (or to be filed) by
such UBS Preferred Funding Company or UBS AG, will not be respected by a
taxing authority, as a result of which such UBS Preferred Funding Company
or UBS AG is or will be subject to more than a de minimis amount of
additional taxes, duties or other governmental charges or civil
liabilities, the effect of which cannot be avoided by such UBS Preferred
Funding Company or UBS AG taking reasonable measures available to it
without any adverse effect on or material cost to UBS AG or such UBS
Preferred Funding Company (as determined by UBS AG in its sole discretion).
- --------------------------------------------------------------------------------
36
DESCRIPTION OF COMPANY PREFERRED SECURITIES
- --------------------------------------------------------------------------------
REGISTRAR AND TRANSFER AGENT
Wilmington Trust Company, or any other entity that UBS AG designates, will act
as registrar and transfer agent for the company preferred securities.
Registration of transfers of company preferred securities will be effected
without charge by or on behalf of the relevant UBS Preferred Funding Company,
but upon payment of any tax or other governmental charges that may be imposed in
connection with any transfer or exchange. No UBS Preferred Funding Company will
be required to register or cause to be registered the transfer of its company
preferred securities after such company preferred securities have been called
for redemption.
The LLC Agreement of each UBS Preferred Funding Company will provide that, in
the event of a partial redemption of its company preferred securities that would
result in a delisting of the related trust preferred securities from any
securities exchange on which such trust preferred securities are then listed,
such UBS Preferred Funding Company will redeem its company preferred securities
in whole.
NOTICES
Notices to the holders of company preferred securities will be mailed by
first-class mail, postage prepaid, to the holders' addresses appearing in the
relevant UBS Preferred Funding Company's records.
GOVERNING LAW
The LLC Agreement of each UBS Preferred Funding Company and the company
preferred securities are governed by the laws of the State of Delaware.
NATURE OF THE TRADING MARKET
The company preferred securities will not be listed on any national exchange or
traded in any established market.
- --------------------------------------------------------------------------------
37
- --------------------------------------------------------------------------------
Book-Entry Issuance of Trust Preferred Securities
The trust preferred securities will initially be issued to investors only in
book-entry form. The total aggregate amount of trust preferred securities of
each UBS Preferred Funding Trust will be represented by permanent global
securities in fully registered form (each, a "global certificate") and deposited
with a custodian for, and registered in the name of The Depository Trust Company
("DTC") or its nominee. Except as provided in the applicable prospectus
supplement, the global certificates will initially be deposited with Wilmington
Trust Company, as the custodian for DTC, and registered in the name of Cede &
Co., as the nominee of DTC.
Except as described below, the global certificates may be transferred, in whole
and not in part, only to another nominee of DTC or a successor of DTC or its
nominee. Beneficial interests in the global certificates may not be exchanged
for trust preferred securities in certificated form except in the limited
circumstances described below.
Persons that acquire beneficial ownership interests in any global certificate
will hold their interests through either (i) DTC in the United States or (ii)
Clearstream Banking S.A. or the Euroclear System in Europe if such persons are
participants in those systems, or indirectly through organizations that are
participants in those systems. Clearstream and Euroclear will hold omnibus
positions on behalf of their participants through customers' securities accounts
in Clearstream's and Euroclear's names on the books of their respective
depositaries, which in turn will hold those positions in customers' securities
accounts in the depositaries' names on the books of DTC. Unless and until
certificated securities are issued, the only "holder" of any trust preferred
securities will be Cede & Co., as nominee of DTC, or the nominee of a successor
depositary. Beneficial owners will be permitted to exercise their rights only
indirectly through DTC, Clearstream, Euroclear and their participants.
WITHDRAWAL OF RELATED COMPANY PREFERRED SECURITIES REPRESENTED BY TRUST
PREFERRED SECURITIES
Any beneficial owner of trust preferred securities may withdraw and hold
directly a corresponding amount of related company preferred securities as
described under "Description of Trust Preferred Securities--Withdrawal of
Company Preferred Securities." Within a reasonable period after such request has
been properly made, the trustee of the relevant UBS Preferred Funding Trust will
instruct DTC to reduce the number of trust preferred securities represented by
the relevant global certificate by the amount of related company preferred
securities to be so withdrawn by the withdrawing owner.
Company preferred securities that are withdrawn will be issued only in
definitive, fully-registered form and will not be eligible to be held through
DTC, Euroclear or Clearstream, and under current law the holders of such company
preferred securities will receive an annual Form K-1 instead of the Form 1099
that is received by the holders of trust preferred securities. See "U.S. Tax
Considerations--Information Reporting and Backup Withholding Tax."
Any holder of company preferred securities may redeposit its company preferred
securities as described under "Description of Trust Preferred
Securities--Withdrawal of Company Preferred Securities." Within a reasonable
period after such deposit is properly made, the trustee of the relevant UBS
Preferred Funding Trust will instruct DTC to increase the number of trust
preferred securities represented by the relevant global certificate accordingly.
THE DEPOSITORY TRUST COMPANY
The Depository Trust Company, or DTC, is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a
- --------------------------------------------------------------------------------
38
BOOK-ENTRY ISSUANCE OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among its participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in its participants' accounts, eliminating the
need for physical movement of securities certificates. Participants in DTC
include Clearstream and Euroclear, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations.
DTC is owned by a number of its participants and by the New York Stock Exchange,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to DTC is also available to others, such as securities
brokers and dealers, banks and trust companies, that clear through or maintain a
custodial relationship with a DTC participant, either directly or indirectly.
The rules applicable to DTC and its participants are on file with the SEC.
CLEARSTREAM BANKING
Clearstream Banking, societe anonyme, or Clearstream, is incorporated under the
laws of Luxembourg as a professional depositary. Clearstream holds securities
for its participating organizations and facilitates the clearance and settlement
of securities transactions between its participants through electronic
book-entry changes in accounts of its participants, eliminating the need for
physical movement of certificates. Transactions may be settled in Clearstream in
any of 28 currencies, including U.S. dollars.
Clearstream provides to its participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream interfaces with
domestic markets in several countries. As a professional depositary, Clearstream
is subject to regulation by the Luxembourg Monetary Institute. Clearstream
participants are recognized financial institutions around the world, including
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Indirect access to Clearstream is also
available to others, such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a Clearstream
participant, either directly or indirectly.
EUROCLEAR SYSTEM
Euroclear was created in 1968 to hold securities for its participants and to
clear and settle transactions between its participants through simultaneous
electronic book-entry delivery against payment, thereby eliminating the need for
physical movement of certificates and any risk from lack of simultaneous
transfers of securities and cash. The Euroclear System is owned by Euroclear
Clearance System Public Limited Company (ECS plc) and operated through a license
agreement by Euroclear Bank S.A./N.V., a bank incorporated under the laws of the
Kingdom of Belgium (the "Euroclear Operator").
The Euroclear Operator holds securities and book-entry interests in securities
for participating organizations and facilitates the clearance and settlement of
securities transactions between Euroclear participants, and between Euroclear
participants and participants of certain other securities intermediaries through
electronic book-entry changes in accounts of such participants or other
securities intermediaries.
The Euroclear Operator provides Euroclear participants, among other things, with
safekeeping, administration, clearance and settlement, securities lending and
borrowing, and related services.
- --------------------------------------------------------------------------------
39
BOOK-ENTRY ISSUANCE OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
Non-participants of Euroclear may hold and transfer book-entry interests in the
securities through accounts with a direct participant of Euroclear or any other
securities intermediary that holds a book-entry interest in the securities
through one or more securities intermediaries standing between such other
securities intermediary and Euroclear Operator.
Securities clearance accounts and cash accounts with the Euroclear Operator are
governed by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System, collectively, the Euroclear Terms
and Conditions, and applicable Belgian law. The Euroclear Terms and Conditions
govern transfers of securities and cash within Euroclear, withdrawals of
securities and cash from Euroclear, and receipts of payments with respect to
securities in Euroclear. All securities in Euroclear are held on a fungible
basis without attribution of specific certificates to specific securities
clearance accounts. The Euroclear Operator acts under the Euroclear Terms and
Conditions only on behalf of Euroclear participants, and has no record of or
relationship with persons holding through Euroclear participants.
PARTICIPANTS AND BENEFICIAL OWNERS
Purchases of trust preferred securities within the DTC system must be made by or
through DTC participants, which will receive a credit for the trust preferred
securities on DTC's records and on the records of Clearstream or Euroclear, if
applicable. The ownership interest of each actual purchaser of trust preferred
securities, which is that of a beneficial owner of an interest in a global
certificate, is in turn to be recorded on the DTC participants' and indirect
participants' records.
Beneficial owners of interests in a global certificate will not receive written
confirmation from DTC of their purchases, but beneficial owners of an interest
in a global certificate are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the DTC participants or indirect participants through which the beneficial
owners of an interest in a global certificate purchased their ownership
interests in the relevant trust preferred securities. Transfers of ownership
interests in trust preferred securities will be accomplished by entries made on
the books of DTC participants and indirect participants acting on behalf of
beneficial owners of an interest in a global certificate. Beneficial owners of
interests in a global certificate will not receive certificates representing
their ownership interests in the relevant trust preferred securities, unless use
of the book-entry system for such trust preferred securities is discontinued.
TRANSFERS AMONG DTC, CLEARSTREAM AND EUROCLEAR
Transfers between DTC participants will occur in accordance with the rules of
DTC. Transfers between Clearstream and Euroclear participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly through
DTC, on the one hand, and directly or indirectly through Clearstream or
Euroclear participants, on the other, will be effected in DTC in accordance with
the rules of DTC on behalf of the relevant European international clearing
system by the relevant European depositary. However, those cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in that system in accordance
with its rules and procedures and within its established deadlines, European
time. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
relevant European depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment in accordance with normal procedures for same-day funds settlement
applicable to DTC. Clearstream and Euroclear participants may not deliver
instructions directly to the European depositaries.
- --------------------------------------------------------------------------------
40
BOOK-ENTRY ISSUANCE OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
Because of time zone differences, credits of trust preferred securities received
in Clearstream or Euroclear as a result of a transaction with a person that does
not hold trust preferred securities through Clearstream or Euroclear will be
made during subsequent securities settlement processing and dated the business
day following the DTC settlement date. Those credits or any transactions in
those securities settled during that processing will be reported to the relevant
Euroclear or Clearstream participants on that business day. Cash received in
Clearstream or Euroclear as a result of sales of trust preferred securities by
or through a Clearstream or Euroclear participant to a DTC participant will be
received with value on the DTC settlement date, but will be available in the
relevant Clearstream or Euroclear cash account only as of the business day
following settlement in DTC.
LIMITATIONS ON RESPONSIBILITIES OF DTC, CLEARSTREAM AND EUROCLEAR
DTC, Clearstream and Euroclear have no knowledge of the actual beneficial owners
of interests in a global certificate representing trust preferred securities.
DTC's records reflect only the identity of the DTC participants, including
Clearstream and Euroclear, to whose accounts those trust preferred securities
are credited, which may or may not be the beneficial owners of interests in a
global certificate. Similarly, the records of Clearstream and Euroclear reflect
only the identity of the Clearstream or Euroclear participants to whose accounts
those trust preferred securities are credited, which also may or may not be the
beneficial owners of interests in a global certificate. DTC, Clearstream and
Euroclear participants and indirect participants will remain responsible for
keeping account of their holdings on behalf of their customers.
DTC'S PROCEDURES FOR NOTICES, VOTING AND PAYMENTS
So long as DTC, or its nominee, is the registered owner or holder of a global
certificate, DTC or that nominee, as the case may be, will be considered the
sole owner or holder of trust preferred securities represented by the global
certificate for all purposes under the relevant Amended and Restated Trust
Agreement. No beneficial owner of an interest in a global certificate will be
able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the relevant Amended and
Restated Trust Agreement.
DTC has advised UBS AG, as provider of the UBS AG subordinated guarantees, that
it will take any action permitted to be taken by a holder of relevant trust
preferred securities, including the presentation of trust preferred securities
for exchange as described below, only at the direction of one or more of its
participants to whose account the DTC interests in the global certificates are
credited and only in respect of that portion of the aggregate liquidation amount
of trust preferred securities as to which that participant or participants has
or have given the direction.
Conveyance of notices and other communications by DTC to its participants, by
those participants to its indirect participants, and by participants and
indirect participants to beneficial owners of interests in a global certificate
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
The relevant trustee will send redemption notices in respect of trust preferred
securities held in book-entry form to Cede & Co., and will also give those
notices in the manner indicated under "Description of Trust Preferred
Securities--Notices." If less than all the trust preferred securities of any UBS
Preferred Funding Trust are being redeemed, DTC will determine the amount of the
interest of each DTC participant to be redeemed in accordance with its
procedures.
Although voting with respect to trust preferred securities is limited, in those
cases where a vote is required, neither DTC nor Cede & Co. will itself consent
or vote with respect to such trust preferred securities. Under its usual
procedures, DTC will mail an Omnibus Proxy to the relevant UBS Preferred Funding
Trust as soon as possible after the record date. The Omnibus Proxy assigns Cede
& Co.'s
- --------------------------------------------------------------------------------
41
BOOK-ENTRY ISSUANCE OF TRUST PREFERRED SECURITIES
- --------------------------------------------------------------------------------
consenting or voting rights of those participants to whose accounts such trust
preferred securities are allocated on the record date identified in a listing
attached to the Omnibus Proxy.
Distributions on trust preferred securities held in book-entry form will be made
to DTC in immediately available funds. DTC's practice is to credit its
participants' accounts on the relevant payment date in accordance with their
respective holdings shown on DTC's records unless DTC has reason to believe that
it will not receive payments on that payment date. Payments by DTC's
participants and indirect participants to beneficial owners of interests in a
global certificate will be governed by standing instructions and customary
practices. Such payments will be the responsibility of those participants and
indirect participants and not of DTC, the relevant UBS Preferred Funding Trust
or UBS AG, as the guarantor, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of any dividends or other
amounts to DTC is the responsibility of the relevant UBS Preferred Funding
Trust, disbursement of such payments to participants is the responsibility of
DTC, and disbursement of those payments to the beneficial owner of an interest
in a global certificate is the responsibility of participants and indirect
participants.
Except as described in this prospectus, a beneficial owner of an interest in a
global certificate will not be entitled to receive physical delivery of the
trust preferred securities. Accordingly, each beneficial owner of an interest in
a global certificate must rely on the procedures of DTC to exercise any rights
under its trust preferred securities.
TERMINATION OF AND CHANGES TO DEPOSITARY ARRANGEMENTS
A global certificate is exchangeable for trust preferred securities in
registered certificated form if DTC:
- notifies the relevant UBS Preferred Funding Trust that it is unwilling or
unable to continue as depositary for the global certificates and such UBS
Preferred Funding Trust does not appoint a successor depositary, or
- has ceased to be a clearing agency registered under the Securities
Exchange Act of 1934.
Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures
in order to facilitate transfers of interests in the global certificates among
participants, none is under any obligation to perform or continue to perform
those procedures, and those procedures may be discontinued at any time. Neither
UBS AG nor any UBS Preferred Funding Trust will have any responsibility for the
performance by DTC, Clearstream, Euroclear or their participants or indirect
participants under the rules and procedures governing them. DTC, Clearstream or
Euroclear may discontinue providing its services as securities depositary with
respect to any trust preferred securities at any time by giving notice to the
relevant UBS Preferred Funding Trust. Under those circumstances, definitive
trust preferred security certificates with respect to such trust preferred
securities would be delivered as described under "Description of Trust Preferred
Securities--Transfer and Issue of Definitive Trust Preferred Securities."
LIMITATIONS ON RIGHTS RESULTING FROM BOOK-ENTRY FORM
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. These laws may impair
the ability to transfer beneficial interests in the global trust preferred
securities as represented by a global certificate.
- --------------------------------------------------------------------------------
42
- --------------------------------------------------------------------------------
Description of UBS AG Subordinated Guarantees
At or prior to the issuance of any trust preferred securities and the related
company preferred securities, UBS AG and Wilmington Trust Company, as guarantee
trustee, will execute the related UBS AG Subordinated Guarantee Agreements. We
will qualify the UBS AG Subordinated Guarantee Agreements as indentures under
the Trust Indenture Act. The terms of the UBS AG subordinated guarantees will
include both those stated in the UBS AG Subordinated Guarantee Agreements and
those made part of the UBS AG Subordinated Guarantee Agreements by the Trust
Indenture Act. The following summary of the material terms and provisions of the
UBS AG subordinated guarantees is not complete and is subject to, and qualified
in its entirety by reference to, the UBS AG Subordinated Guarantee Agreements
and the Trust Indenture Act. We have filed a copy of a form of UBS AG
Subordinated Guarantee Agreement as an exhibit to the registration statement of
which this prospectus is a part.
GUARANTEED OBLIGATIONS
In each UBS AG Subordinated Guarantee Agreement, UBS AG will unconditionally
guarantee, on a subordinated basis, the payment by the related UBS Preferred
Funding Company of the following, without duplication:
- any dividends on the related company preferred securities that are due
and payable on any mandatory dividend payment date in an amount equal to
the mandatory dividend payment;
- any discretionary dividends on the related company preferred securities
that become definitive because UBS AG does not deliver a no dividend
instruction;
- the redemption price payable with respect to any related company
preferred securities called for redemption by the relevant UBS Preferred
Funding Company;
- the liquidating distribution on each related company preferred security
payable upon liquidation of the relevant UBS Preferred Funding Company;
and
- any additional amounts payable by the relevant UBS Preferred Funding
Company as described under "Description of Company Preferred
Securities--Additional Amounts."
Subject to the subordination provisions described below, UBS AG will be
obligated to make such payments as and when due, regardless of any defense,
right of set-off or counterclaim that the relevant UBS Preferred Funding Company
may have or assert, other than the defense of payment, and whether or not the
relevant UBS Preferred Funding Company has legally available funds for the
guaranteed payments. UBS AG's obligations under the UBS AG Subordinated
Guarantee Agreements are several and independent of the obligations of each
relevant UBS Preferred Funding Company with respect to its company preferred
securities.
See "Description of Company Preferred Securities--Dividends" for a description
of circumstances when dividend on company preferred securities are mandatory,
"Description of Company Preferred Securities--Redemption" for a description of
the company preferred securities' redemption provisions, and "Description of
Company Preferred Securities--Ranking and Liquidation Preference" for a
description of the liquidation claim to which the holders are entitled in a
liquidation of any UBS Preferred Funding Company.
- --------------------------------------------------------------------------------
43
DESCRIPTION OF UBS AG SUBORDINATED GUARANTEES
- --------------------------------------------------------------------------------
SUBORDINATION
Each UBS AG subordinated guarantee will be a general and unsecured obligation of
UBS AG and, in liquidation of UBS AG, will rank, both as to payment and in
liquidation:
- subordinate and junior to all deposits and other liabilities (including
those in respect of bonds, notes and debentures of UBS AG) that do not
expressly rank equally with the obligations of UBS AG under the relevant
UBS AG Subordinated Guarantee Agreement, and
- senior to the ordinary shares of UBS AG and any other securities or
shares of UBS AG expressed to rank junior to the most senior preference
shares of UBS AG (if any) from time to time outstanding.
The foregoing liabilities that rank senior to the UBS AG subordinated guarantees
are collectively called "UBS AG senior liabilities."
Payments under the UBS AG subordinated guarantees (other than payments upon a
winding-up or dissolution, by bankruptcy or otherwise, in Switzerland of UBS AG
as provided below) will be conditional upon UBS AG not being in default in the
payment of UBS AG senior liabilities and being solvent at the time of payment. A
report as to the insolvency of UBS AG by two persons, each being a managing
director, director or other authorized officer or agent of UBS AG or employees
of the independent accountants of UBS AG will, in the absence of manifest error
be treated and accepted by UBS AG, the holders of company preferred securities
and all other interested parties as correct and sufficient evidence thereof.
If UBS AG is liquidated, whether voluntarily or involuntarily, (i) each UBS
Preferred Funding Company will be liquidated and (ii) under the UBS AG
Subordinated Guarantee Agreements, the holders of related company preferred
securities (whether through a UBS Preferred Funding Trust or as direct holders
who have withdrawn their related company preferred securities from a UBS
Preferred Funding Trust) will have a claim entitling them to substantially the
same liquidating distributions in the liquidation of UBS AG that they would have
been entitled to if they had purchased preferred shares of UBS AG having an
aggregate liquidation preference equal to the aggregate liquidation preference
of their related company preferred securities and bearing dividends at the rate
of dividends applicable to their related company preferred securities. Each UBS
AG Subordinated Guarantee Agreement and each related UBS Preferred Funding
Company's LLC Agreement, taken together, will provide that the holders of
company preferred securities of the relevant UBS Preferred Funding Company will
not receive liquidating distributions in a liquidation of such UBS Preferred
Funding Company and payments under the related UBS AG subordinated guarantee
that, taken together, exceed the liquidating distributions to which they would
have been entitled had they instead owned non-cumulative perpetual preferred
shares of UBS AG with equivalent terms as described above.
The subordination provisions set out above will be irrevocable. UBS AG will not
be permitted to create or permit to exist any charge or other security interest
over its assets to secure its obligations in respect of the UBS AG subordinated
guarantees.
The obligations of UBS AG in respect of the UBS AG subordinated guarantees will
be, prior to the winding up or dissolution of UBS AG, conditional upon UBS AG
being solvent immediately before and after payment by the Cayman Islands branch.
If this condition is not satisfied, any amounts that might otherwise have been
allocated in or towards payment in respect of a UBS AG subordinated guarantee
will be used to absorb losses of UBS AG.
If a capital loss (as defined below) occurs, the board of directors of UBS AG
will be required by Article 725 paragraph 1 of the Swiss Code of Obligations to
call a general meeting of the shareholders of UBS AG and propose at such meeting
measures for a financial reorganization of UBS AG. Holders
- --------------------------------------------------------------------------------
44
DESCRIPTION OF UBS AG SUBORDINATED GUARANTEES
- --------------------------------------------------------------------------------
of trust preferred securities and company preferred securities will not have any
right to attend or take any action at any such meeting because they are not
shareholders of UBS AG. Neither the calling of such a meeting nor the proposal
of such financial organization will itself affect the obligations of UBS AG
under any UBS AG Subordinated Guarantee Agreement.
If at any time UBS AG's unconsolidated unsubordinated liabilities exceed its
unconsolidated total assets (valued at the higher of their going-concern and
their liquidation value), as calculated based on the most recent unconsolidated
interim balance sheet of UBS AG, the board of directors of UBS AG is required by
Article 725 paragraph 2 of the Swiss Code of Obligations to notify the competent
court of such excess, unless unsubordinated creditors of UBS AG will agree to
subordinate their claims to the extent that such unsubordinated liabilities
exceed such assets. Upon any such notification, such court must declare the
bankruptcy of UBS AG in accordance with Article 725a paragraph 1 of the Swiss
Code of Obligations and Article 35 paragraph 2 of the Swiss Banking Law. In the
past, however, the Swiss Federal Banking Commission has usually exercised the
broad discretion granted to it under Swiss banking law before the occurrence of
such an excess when it has perceived the interests of creditors of a Swiss bank
to be at risk. In such cases, the Swiss Federal Banking Commission has generally
withdrawn the banking license of the affected bank, which has then been required
to go into liquidation (pursuant to Article 23 quinquies of the Swiss Banking
Law).
As used in this prospectus and the applicable prospectus supplement:
"assets" means the consolidated gross assets of UBS AG.
A "capital loss" will be deemed to occur if UBS AG's assets are less than
the sum of (i) its liabilities and (ii) one-half of its share capital and
statutory reserves, each as shown on and as calculated based on the latest
published annual unconsolidated balance sheet of UBS AG.
"liabilities" means the consolidated gross liabilities of UBS AG, all as
shown by the latest published audited consolidated balance sheet of UBS AG
as adjusted for contingencies and for subsequent events, all valued in such
manner as UBS AG or any liquidator (as the case may be) may determine and
calculated in accordance with IAS.
"solvent" means (i) UBS AG is able to pay its debts as they fall due and
(ii) UBS AG's assets exceed its liabilities (other than its liabilities to
persons who are not senior creditors).
Subject to applicable law, no beneficiary of the UBS AG subordinated guarantees
will be able to exercise, claim or plead any right of set-off, compensation or
retention in respect of any amount owed to it by UBS AG arising under or in
connection with the UBS AG subordinated guarantees and each beneficiary of the
UBS AG subordinated guarantees will, by virtue of being a beneficiary of the UBS
AG subordinated guarantees, be deemed to have waived all such rights to set-off,
compensation or retention.
ADDITIONAL AMOUNTS
UBS AG will make all payments under the UBS AG subordinated guarantees without
withholding or deducting for, or on account of, any present or future tax,
duties, assessments or governmental charges imposed or levied by Switzerland or
the jurisdiction of residence of the issuer of any subordinated notes held by
any UBS Preferred Funding Company or from which any payment on such notes is
made or any authority of any of those jurisdictions that has the power to tax,
unless UBS AG is required by law to withhold or deduct the present or future
tax, duties, assessments or governmental charges. If UBS AG is required to
withhold or deduct any portion of a payment, UBS AG will pay additional amounts
in order to cause the net amounts received by the holders of the relevant trust
preferred securities and company preferred securities to be the same as the
holders would have received in the absence of the withholding or deduction,
subject to the same limitations or additional amounts payable
- --------------------------------------------------------------------------------
45
DESCRIPTION OF UBS AG SUBORDINATED GUARANTEES
- --------------------------------------------------------------------------------
by each UBS Preferred Funding Company as described above under "Description of
Company Preferred Securities--Additional Amounts."
If payment of the amounts described above cannot be made by reason of any
limitation referred to above, those amounts will be payable in proportion to the
amounts that would have been payable but for that limitation.
OTHER PROVISIONS
The relevant guarantee trustee, on behalf of the holders of the related company
preferred securities, may enforce each UBS AG subordinated guarantee directly
against UBS AG if UBS AG defaults under such UBS AG subordinated guarantee. Each
UBS AG Subordinated Guarantee Agreement will provide that, to the fullest extent
permitted by law, without the need for any other action of any person, including
the relevant guarantee trustee or any other holder of related trust preferred
securities or related company preferred securities, each holder of related trust
preferred securities or related company preferred securities will be entitled to
enforce the rights of the holders of such company preferred securities under the
related UBS AG Subordinated Guarantee Agreement represented by the trust
preferred securities or company preferred securities held by such holder.
CERTAIN COVENANTS OF UBS AG AND THE UBS PREFERRED FUNDING COMPANIES
ISSUANCE AND GUARANTEE OF PREFERENCE SHARES
UBS AG will not issue any preferred or preference shares with liquidation rights
effectively ranking senior to its obligations under the UBS AG subordinated
guarantees or give any guarantee in respect of any of its preferred shares or
preferred shares issued by any of its subsidiaries if the guarantee would rank
senior to the UBS AG subordinated guarantees unless the UBS AG subordinated
guarantees are amended to give the holders of related company preferred
securities and the related trust preferred securities the same rights and
entitlements as are contained in or attached to the other guarantees so that the
UBS AG subordinated guarantees rank equally with those guarantees and, from a
financial point of view, effectively, with those preferred shares. Except to the
extent described above, the UBS AG subordinated guarantees do not limit the
incurrence or issuance of other secured or unsecured debt or other obligations
of UBS.
PAYMENT OF DIVIDENDS
UBS AG will agree in the UBS AG subordinated guarantees that if any amount
required to be paid under the UBS AG subordinated guarantees in respect of any
dividends on related trust preferred securities or related company preferred
securities payable in respect of the most recent dividend period has not been
paid, UBS AG will pay that amount before paying any dividend or other payment on
any UBS AG junior obligations, except dividends in the form of the ordinary
shares.
NO ASSIGNMENT
UBS AG will not be permitted to assign its obligations under the UBS AG
subordinated guarantees, except in the case of merger, consolidation or sale of
substantially all of its assets where UBS AG is not the surviving entity.
TERMINATION
Each UBS AG subordinated guarantee will terminate on the earlier of:
- the payment of the redemption price for all related company preferred
securities or purchase and cancellation of all related company preferred
securities, and
- full payment of the liquidating distribution on all related company
preferred securities.
- --------------------------------------------------------------------------------
46
DESCRIPTION OF UBS AG SUBORDINATED GUARANTEES
- --------------------------------------------------------------------------------
However, each UBS AG subordinated guarantee will continue to be effective or
will be reinstated, as the case may be, if the holder is required to return any
payment made under the related company preferred securities or the related UBS
AG subordinated guarantee.
AMENDMENTS
Any changes to the provisions of a UBS AG subordinated guarantee that establish
the amount and timing of the payments under that UBS AG subordinated guarantee
must be approved by each holder of related company preferred securities. Any
other provision of a UBS AG subordinated guarantee may be modified only with the
prior approval of the holders of not less than two-thirds (based on the
aggregate liquidation preference) of the related company preferred securities.
Notwithstanding the foregoing, without the consent of any holder of related
company preferred securities, UBS AG may amend or supplement each UBS AG
Subordinated Guarantee Agreement:
- to evidence the succession of another entity to UBS AG and the assumption
by any such successor of the covenants of UBS AG in such UBS AG
Subordinated Guarantee Agreement,
- to add to the covenants of UBS AG for the benefit of the holders of
related company preferred securities, or to surrender any right or power
conferred upon UBS AG under such UBS AG Subordinated Guarantee Agreement,
- to correct or supplement any provision in such UBS AG Subordinated
Guarantee Agreement which may be defective or inconsistent with any other
provision therein, or to make any other provisions with respect to
matters or questions arising under such UBS AG Subordinated Guarantee
Agreement, so long as any such action shall not materially adversely
affect the interests of the holders of related company preferred
securities, or
- to cure any ambiguity or correct any mistake.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
Wilmington Trust Company will be the guarantee trustee. The guarantee trustee
will be required to perform only those duties that are specifically set forth in
the UBS AG subordinated guarantees, except when a default has occurred and is
continuing with respect to any UBS AG subordinated guarantee. After a default,
the guarantee trustee will be required to exercise the same degree of care a
prudent person would exercise under the circumstances in the conduct of his or
her own affairs. Subject to these requirements, the guarantee trustee is under
no obligation to exercise any of the powers vested in it by any UBS AG
subordinated guarantee at the request of any holder of related company preferred
securities or any holder of related trust preferred securities, as the case may
be, unless the holder offers the guarantee trustee reasonable indemnity against
the costs, expenses and liabilities that might be incurred by exercising those
powers.
GOVERNING LAW
The UBS AG subordinated guarantees will be governed by and construed in
accordance with the laws of the State of New York.
- --------------------------------------------------------------------------------
47
- --------------------------------------------------------------------------------
Description of Subordinated Notes of UBS AG
The following summary of the material terms and provisions of the subordinated
notes is not complete and is subject to, and qualified in its entirety by
reference to, the terms and provisions of the subordinated notes. We have filed
a copy of the form of subordinated note as an exhibit to the registration
statement of which this prospectus is a part.
GENERAL
Each UBS Preferred Funding Company will apply the proceeds of its company
preferred securities and company common securities to purchase from the Cayman
Islands branch of UBS AG newly issued subordinated notes of the Cayman Islands
branch. The subordinated notes are undated perpetual obligations of UBS AG,
acting through the Cayman Islands branch, and will have an aggregate principal
amount of up to $4,529,508,000. Interest on the subordinated notes will be
payable from the date of initial issuance on the dates specified in the
applicable prospectus supplement--which dates will correspond to the dividend
payment dates of the related company preferred securities--(each, an "interest
payment date" and the period from and including an interest payment date, or the
date of initial issuance, as applicable, to but not including the next interest
payment date, an "interest period") for each interest period, at a fixed or
floating rate specified in the applicable prospectus supplement.
Interest due on an interest payment date will be deferrable at the option of UBS
AG's Cayman Islands branch to the extent that dividends on the related company
preferred securities due on the corresponding dividend payment date would
constitute nondefinitive dividends. Interest deferred in this manner will not
itself bear interest.
REDEMPTION
The subordinated notes will be redeemable with the consent of the Swiss Federal
Banking Commission and at the option of the Cayman Islands branch of UBS AG:
- on or after the date specified in the applicable prospectus supplement,
in whole or in part, at a redemption price equal to 100% of their
principal amount plus interest accrued but unpaid to the date fixed for
redemption.
- prior to the date specified in the applicable prospectus supplement, in
whole but not in part, if a Tax Event, an Investment Company Act Event or
a Capital Event occurs at a redemption price equal to 100% of their
principal amount plus interest accrued but unpaid to the date fixed for
redemption.
ADDITIONAL AMOUNTS
If the Cayman Islands branch of UBS AG is required to withhold any taxes, duties
or other governmental charges with respect to any payment in respect of any
subordinated notes, the Cayman Islands branch will pay such additional amounts
as shall be required so that the amount received by each UBS Preferred Funding
Company under the related subordinated notes shall not be reduced as a result of
any such additional taxes, duties or other governmental charges.
- --------------------------------------------------------------------------------
48
DESCRIPTION OF SUBORDINATED NOTES OF UBS AG
- --------------------------------------------------------------------------------
SUBORDINATION
The subordinated notes are a general and unsecured obligation of UBS AG and, in
liquidation of UBS AG, will rank, both as to payment and in liquidation:
- subordinate and junior to UBS AG senior liabilities, as defined under
"Description of UBS AG Subordinated Guarantee--Subordination," and
- senior to the ordinary shares of UBS AG and any other securities or
shares of UBS AG expressed to rank junior to the most senior preference
shares of UBS AG (if any) from time to time outstanding.
Payments under any subordinated notes (other than payments upon a winding-up or
dissolution, by bankruptcy or otherwise, in Switzerland of UBS AG) are
conditional upon UBS AG not being in default in the payment of UBS AG senior
liabilities, and being solvent, as defined under "Description of UBS AG
Subordinated Guarantees--Subordination," at the time of payment. A report as to
the insolvency of UBS AG by two persons, each being a managing director,
director or other authorized officer or agent of UBS AG or employees of the
independent accountants of UBS AG will, in the absence of manifest error be
treated and accepted by UBS AG, the holders of the company preferred securities
and all other interested parties as correct and sufficient evidence thereof.
ENFORCEMENT OF SUBORDINATED NOTES
Any consent, notice or other action (including any enforcement action) given or
taken by or on behalf of a UBS Preferred Funding Company with respect to related
subordinated notes may be given or taken at the discretion of a majority of the
entire board of directors of such UBS Preferred Funding Company.
TRANSFER OF SUBORDINATED NOTES
The subordinated notes held by a UBS Preferred Funding Company will be
represented by a single definitive note registered in the name of such UBS
Preferred Funding Company. Each UBS Preferred Funding Company's LLC Agreement
provides that any UBS Preferred Funding Company may sell its subordinated notes
only upon the affirmative vote of both a majority of the board of directors of
such UBS Preferred Funding Company and the holders of two-thirds (based on the
aggregate liquidation preference) of its company preferred securities and other
company parity preferred securities (if any), voting together as a single class.
Although each UBS Preferred Funding Company will be permitted to sell its
subordinated notes subject to the requirements of the Securities Act of 1933 and
other applicable laws and the foregoing requirements, neither UBS AG nor any UBS
Preferred Funding Company anticipates that any UBS Preferred Funding Company
will sell its subordinated notes and there is no expectation that a market will
develop or exist for any subordinated notes. Unless otherwise specified in the
applicable prospectus supplement, any subordinated notes, by their terms, will
provide that they may be sold in whole and not in part and may not be divided
into denominations of less than USD25 or USD1000, as the case may be.
EVENTS OF DEFAULT
No subordinated notes will provide for acceleration if the Cayman Islands branch
of UBS AG fails to make a payment when due. If the Cayman Islands branch fails
to make a payment when due of an installment of interest on any subordinated
notes, the related UBS Preferred Funding Company will be entitled to seek to
enforce payment only of the defaulted installment but not in respect of any
failure to pay interest due under the related subordinated notes that was
deferred because the dividends on its
- --------------------------------------------------------------------------------
49
DESCRIPTION OF SUBORDINATED NOTES OF UBS AG
- --------------------------------------------------------------------------------
company preferred securities on the corresponding dividend payment date would
have constituted nondefinitive dividends. A "default" under any subordinated
notes will occur if the Cayman Islands branch fails to make a payment when due
of an installment of principal or interest.
MODIFICATION AND AMENDMENT OF SUBORDINATED NOTES
Any subordinated notes will be able to be modified or amended only by the
written agreement of the Cayman Islands branch of UBS AG and the related UBS
Preferred Funding Company. However, each UBS Preferred Funding Company's LLC
Agreement will provide that no UBS Preferred Funding Company may agree to any
such modification or amendment for so long as any of its company preferred
securities or other company parity preferred securities, if any, are outstanding
unless holders of two-thirds (based on the aggregate liquidation preference) of
its company preferred securities and other company parity preferred securities,
if any, voting as a class, consent to such modification or amendment (except
that such consent of the holders of its company preferred securities and any
other company parity preferred securities shall not be required if (a) the
proposed amendment or modification would not materially and adversely affect the
rights, preferences, powers or privileges of such UBS Preferred Funding Company
and (b) such UBS Preferred Funding Company has received a letter from each of
Moody's Investors Service, Inc. and Standard & Poor's Ratings Services to the
effect that such amendment will not result in a downgrading of its respective
rating then assigned to its company preferred securities).
GOVERNING LAW
The subordinated notes will be governed by the laws of the State of New York.
- --------------------------------------------------------------------------------
50
- --------------------------------------------------------------------------------
U.S. Tax Considerations
In the opinion of Sullivan & Cromwell, the following, unless otherwise stated in
the applicable prospectus supplement relevant to the trust preferred securities
being offered thereby, accurately describes the material United States federal
income tax (and, where specifically noted, United States federal estate tax)
consequences of the purchase of the trust preferred securities and the ownership
and disposition of the trust preferred securities and the company preferred
securities.
YOU SHOULD CONSULT WITH YOUR OWN TAX ADVISORS AS TO THE UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TRUST
PREFERRED SECURITIES OR THE COMPANY PREFERRED SECURITIES, AS WELL AS THE EFFECT
OF ANY STATE, LOCAL OR FOREIGN TAX LAWS IN LIGHT OF YOUR PARTICULAR
CIRCUMSTANCES.
This discussion addresses only the tax consequences to a person that acquires
the trust preferred securities on their original issue at their original
offering price and that holds the trust preferred securities, and any company
preferred securities received in exchange for the trust preferred securities, as
capital assets. It does not address all tax consequences that may be applicable
to a beneficial owner of the trust preferred securities or company preferred
securities nor does it address the tax consequences to:
- persons that may be subject to special treatment under United States
federal income tax law, such as tax-exempt entities, certain insurance
companies, broker-dealers, traders in securities that elect to mark to
market, persons liable for alternative minimum tax or persons that
actually or constructively own 10% or more of the voting stock of UBS
AG,
- persons that will hold the trust preferred securities or the company
preferred securities as part of a larger transaction, such as a
"straddle" or a "hedging" or "conversion" transaction, or
- persons whose functional currency is not the United States dollar.
This discussion is based upon the Internal Revenue Code of 1986, as amended,
Treasury regulations, Internal Revenue Service rulings and pronouncements and
judicial decisions as of the date hereof, all of which are subject to change,
possibly with retroactive effect.
CLASSIFICATION OF THE UBS PREFERRED FUNDING TRUSTS AND THE UBS PREFERRED FUNDING
COMPANIES
Under current law, and assuming compliance with the terms of each Amended and
Restated Trust Agreement in the form attached as an exhibit hereto, each UBS
Preferred Funding Trust will be treated as a grantor trust and not as a
partnership or an association taxable as a corporation for United States federal
income tax purposes. As a result, each beneficial owner of the trust preferred
securities will be considered the beneficial owner of a pro rata portion of the
related company preferred securities held by the applicable UBS Preferred
Funding Trust.
Under current law, each UBS Preferred Funding Company will be treated as a
partnership for United States federal income tax purposes. A partnership is not
a taxable entity and incurs no United States federal income tax liability.
Instead, each partner is required to take into account its allocable share of
items of income, gain, loss and deduction of the partnership in computing its
United States federal income tax liability, regardless of whether distributions
are made to the partner. These items generally will be treated as if realized by
the partner directly from the same source realized by the applicable UBS
Preferred Funding Company.
- --------------------------------------------------------------------------------
51
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
UNITED STATES HOLDERS
You are a "United States Holder" if you are a beneficial owner of the trust
preferred securities or company preferred securities and you are:
- an individual citizen or resident of the United States,
- a corporation organized in or under the laws of the United States or any
state thereof or the District of Columbia,
- an estate, and your income is subject to United States federal income
tax regardless of source, or
- a trust, if
- a United States court is able to exercise primary supervision over
your administration, and
- one or more United States persons who are authorized to control all
substantial decisions of the trust.
INCOME FROM THE TRUST PREFERRED SECURITIES
Under the applicable Amended and Restated LLC Agreement in the form attached as
an exhibit hereto, upon the declaration, or deemed declaration, of dividends on
the company preferred securities, a like amount of the applicable UBS Preferred
Funding Company's ordinary income will be allocated to the holders of company
preferred securities. Regardless of when dividends on the related trust
preferred securities are actually paid, income allocated to the holders of
company preferred securities will be includable as ordinary income by a United
States Holder for its taxable year that includes 31 December of the calendar
year in which the income is allocated, except that if the United States Holder
disposes of its entire holding of the trust preferred securities and company
preferred securities (if any), the amount allocated for the calendar year of
that disposition will be includable for the United States Holder's taxable year
that includes the date of that disposition.
Assuming compliance with the terms of the applicable Amended and Restated Trust
Agreement in the form attached as an exhibit hereto, each UBS Preferred Funding
Trust will distribute, until the date and otherwise in the manner specified in
the applicable prospectus supplement, an amount of cash equal to all of the
income that is allocated to it as a holder of company preferred securities. As a
consequence, a United States Holder will not recognize income in respect of
trust preferred securities without receiving the corresponding cash
distribution, unless the United States Holder sells or otherwise disposes of
those trust preferred securities between the declaration date of dividends on
the related company preferred securities and the corresponding record date for
dividends on the trust preferred securities. In the case of a sale between those
dates, a United States Holder will recognize ordinary income in an amount equal
to the dividends on the company preferred securities, which would increase the
United States Holder's basis in the trust preferred securities and reduce the
gain, or increase the loss, recognized on the sale or other disposition.
A United States Holder's allocated share of the applicable UBS Preferred Funding
Company's income from the subordinated notes will be foreign source income for
purposes of determining the limitation on any allowable foreign tax credit. The
overall limitation on foreign taxes eligible for credit is calculated separately
with respect to specific classes of income. For this purpose, a United States
Holder's allocated share of each UBS Preferred Funding Company's income from the
subordinated notes generally will constitute "passive income" or, in the case of
certain United States Holders, "financial services income." If, with respect to
any distribution to a United States Holder, additional amounts are paid by the
applicable UBS Preferred Funding Company as a result of withholding taxes
imposed on the distribution, those additional amounts will be taxable to the
United States Holder as foreign source income. However, withholding taxes in the
amount of those additional amounts will generally be treated as foreign income
taxes eligible for credit against that United States Holder's United States
federal income tax liability, subject to generally applicable limitations and
conditions or,
- --------------------------------------------------------------------------------
52
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
at the election of that United States Holder, for deduction in computing the
United States Holder's taxable income.
No portion of the income derived by a United States Holder from the trust
preferred securities will be eligible for the dividends-received deduction
generally available to United States corporations in respect of dividends
received from other United States corporations.
UBS AG believes that it is not a "passive foreign investment company" (sometimes
known as a "PFIC") for United States federal income tax purposes, but this
conclusion is a factual determination made annually and thus may be subject to
change. A United States Holder might be subject to special rules with respect to
certain amounts earned by the applicable UBS Preferred Funding Company with
respect to the initial subordinated notes if UBS AG were treated as a PFIC for
United States federal income tax purposes.
RECEIPT OF THE COMPANY PREFERRED SECURITIES UPON LIQUIDATION OF EACH UBS
PREFERRED FUNDING TRUST
Under certain circumstances, the company preferred securities may be distributed
to trust preferred securityholders in exchange for their trust preferred
securities and in liquidation of the applicable UBS Preferred Funding Trust.
Unless the liquidation of the applicable UBS Preferred Funding Trust occurs as a
result of that UBS Preferred Funding Trust being subject to United States
federal income taxes, such a distribution to a United States Holder would be
treated, for United States federal income tax purposes, as a non-taxable event.
Each United States Holder would receive an aggregate tax basis in the company
preferred securities equal to the United States Holder's aggregate tax basis in
its trust preferred securities and the United States Holder's holding period in
the company preferred securities received would include the period during which
the trust preferred securities were held by the United States Holder. If,
however, the liquidation of the applicable UBS Preferred Funding Trust were to
occur because that UBS Preferred Funding Trust is subject to United States
federal income taxes, the distribution of the company preferred securities to
United States Holders by the applicable UBS Preferred Funding Trust would likely
be a taxable event to each United States Holder, and a United States Holder
would recognize gain or loss as if the United States Holder had exchanged its
trust preferred securities for the company preferred securities it received. The
gain or loss would be equal to the difference between the United States Holder's
aggregate tax basis in its trust preferred securities surrendered in the
exchange and the aggregate fair market value of the company preferred securities
received in the exchange.
If the company preferred securities are distributed to the holders of trust
preferred securities in liquidation of the applicable UBS Preferred Funding
Trust, under current law, U.S. tax information will be provided to beneficial
owners of the company preferred securities and to the Internal Revenue Service
on Schedule K-1, rather than in the manner described below under "--Information
Reporting and Backup Withholding Tax."
DISPOSITION OF THE TRUST PREFERRED SECURITIES OR THE COMPANY PREFERRED
SECURITIES
A United States Holder will recognize gain or loss on a sale, exchange or other
taxable disposition of the trust preferred securities or the company preferred
securities in an amount equal to the difference between the United States
Holder's adjusted tax basis and the amount realized on the disposition. A United
States Holder's adjusted tax basis in the trust preferred securities generally
will equal the amount paid for the trust preferred securities, increased by the
amount of income allocated to the United States holder and reduced by the amount
of any cash, and the fair market value of any other property, distributed to the
United States Holder. Any gain or loss so recognized generally will be capital
gain or loss, will be long-term capital gain or loss if the United States
Holder's holding period
- --------------------------------------------------------------------------------
53
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
is more than one year and will be U.S. source income or loss for purposes of
determining the limitation on any allowable foreign tax credit. Capital gain of
a non-corporate United States Holder is generally taxed at a maximum rate of 20%
where the property is held for more than one year, and 18% where the property is
held for more than five years.
The trust preferred securities may trade at a price that does not fully reflect
the value of income that may have been allocated to a United States Holder with
respect to the United States Holder's trust preferred securities. A United
States Holder that disposes of the trust preferred securities between the
declaration date of dividends on the company preferred securities and the
corresponding record date for dividends on the trust preferred securities will
be required to include as ordinary income an amount equal to dividends on the
company preferred securities and to add the amount of that income to its
adjusted tax basis in the trust preferred securities. Accordingly, such a United
States Holder will recognize a capital loss to the extent that the selling price
is less than the United States Holder's adjusted tax basis. Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for United States federal income tax purposes.
NON-UNITED STATES HOLDERS
You are a "Non-United States Holder" if you are a beneficial owner of the trust
preferred securities or the company preferred securities and you are for United
States federal income tax purposes:
- a nonresident alien individual,
- a foreign corporation,
- a foreign partnership, or
- an estate or trust in either case that is not subject to United States
federal income tax on a net income basis on income or gain from the trust
preferred securities or company preferred securities.
Each UBS Preferred Funding Company intends to operate so that it will not be
engaged in a trade or business within the United States for United States
federal income tax purposes. Moreover, Each UBS Preferred Funding Company
intends to invest in securities the income from which will be either generally
exempt from United States federal withholding tax or exempt from United States
federal withholding tax to the extent allocable to a Non-United States Holder.
A Non-United States Holder will not be subject to United States federal income
or withholding tax on any allocated share of the applicable UBS Preferred
Funding Company's income or gain, or any gain realized on the sale or exchange
of the trust preferred securities or company preferred securities, unless, in
the case of gains, the Non-United States Holder is an individual who was present
in the United States for 183 days or more in the taxable year in which the gain
is realized and certain other conditions are met. A Non-United States Holder
will not be subject to backup withholding provided certain certification
requirements are satisfied as described under "--Information Reporting and
Backup Withholding Tax."
The treatment of the trust preferred securities and the company preferred
securities for United States federal estate tax purposes is unclear. If you are
an individual Non-United States Holder, you should consult your tax advisor
about the possibility that the trust preferred securities or the company
preferred securities will be includable in your gross estate for purposes of the
United States federal estate tax.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a United States Holder, under current law the amount of income paid
or accrued on the trust preferred securities will generally be reported to you
on Internal Revenue Service Form 1099. In addition, information reporting will
generally apply to the payment of proceeds to a noncorporate United States
Holder from the disposition of the trust preferred securities effected at a
United States
- --------------------------------------------------------------------------------
54
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
office of a broker. Additionally, backup withholding may apply to such amount of
income or payment of proceeds if you are a noncorporate United States Holder
that:
- fails to provide an accurate taxpayer identification number,
- is notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal
income tax returns, or
- in certain circumstances, fails to comply with applicable certification
requirements.
If you are a Non-United States Holder, you are generally exempt from backup
withholding and information reporting requirements with respect to:
- payments made on the trust preferred securities outside the United States
by a non-U.S. payor, and
- other payments made on the trust preferred securities and the payment of
the proceeds from the disposition of the trust preferred securities
effected at a United States office of a broker, as long as the income
associated with such payments is otherwise exempt from United States
federal income tax, and:
- the payor or broker does not have actual knowledge or reason to
know that you are a United States person and you have furnished the
payor or broker:
- an Internal Revenue Service Form W-8BEN or an acceptable
substitute form upon which you certify, under penalties of
perjury, that you are a non-United States person, or
- other documentation upon which it may rely to treat the
payments as made to a non-United States person in accordance
with U.S. Treasury regulations, or
- you otherwise establish an exemption.
Payment of the proceeds from the disposition of the trust preferred securities
effected at a foreign office of a broker generally will not be subject to
information reporting or backup withholding. However, a disposition of the trust
preferred securities effected at a foreign office of a broker will be subject to
information reporting and backup withholding if:
- the proceeds are transferred to an account maintained by you in the
United States,
- the payment of proceeds or the confirmation of the sale is mailed to you
at a United States address, or
- the sale has some other specified connection with the United States as
provided in U.S. Treasury regulations,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption.
In addition, a disposition of the trust preferred securities effected at a
foreign office of a broker will be subject to information reporting if the
broker is:
- a United States person,
- a controlled foreign corporation for United States tax purposes,
- a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period, or
- --------------------------------------------------------------------------------
55
U.S. TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
- a foreign partnership, if at any time during its tax year:
- one or more of its partners are "U.S. persons", as defined in U.S.
Treasury regulations, who in the aggregate hold more than 50% of the
income or capital interest in the partnership, or
- such foreign partnership is engaged in the conduct of a United States
trade or business,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption. Backup withholding will apply if
the sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the United States Internal Revenue Service.
Under current law, U.S. tax information will be provided to beneficial owners of
the company preferred securities and to the Internal Revenue Service on Schedule
K-1, rather than in the manner described above.
- --------------------------------------------------------------------------------
56
- --------------------------------------------------------------------------------
Tax Considerations Under the Laws of Switzerland
GENERAL
The tax information set forth below is based on the opinion of Ernst & Young,
Ltd., Switzerland, dated 12 December 2002, and has been approved by them for its
accuracy. It may be supplemented by and is otherwise subject to the applicable
prospectus supplement relating to a particular offering of securities. The
following is a summary of the material Swiss tax consequences related to the
acquisition, ownership and disposition of the trust preferred securities. The
summary is based on legislation as of the date of this prospectus and does not
aim to be a comprehensive description of all the tax considerations that may be
relevant to a decision to invest in the trust preferred securities. The tax
treatment for each shareholder depends on the particular situation of the
shareholder and prospective investors are therefore advised to consult with
their professional tax advisors as to the respective tax consequences of the
purchase, ownership and disposition of the trust preferred securities.
Furthermore, this summary does not address the tax treatment of the holders of
trust preferred securities subject to special tax rules, and is subject to
anything stated to the contrary in the applicable prospectus supplement relevant
to the trust preferred securities offered thereby.
HOLDERS WHO ARE NOT RESIDENTS OR DOMICILIARIES OF SWITZERLAND AND HAVE NO
PERMANENT ESTABLISHMENT OR REPRESENTATIVE IN SWITZERLAND
Holders of trust preferred securities who are not residents or domiciliaries of
Switzerland and have no permanent establishment or permanent representative in
Switzerland to which or to whom the shares are attributable or to which or to
whom the trust preferred securities belong, will not be subject to Swiss
corporate or individual income and capital tax or capital gains tax on the
holding and disposition of the trust preferred securities. Furthermore, there
will be no inheritance or gift tax imposed in Switzerland on the trust preferred
securities if the holder is an individual who is not domiciled in Switzerland.
ISSUANCE STAMP TAX
The issuance of the trust preferred securities will not be a taxable event for
Swiss issuance stamp tax purposes.
SECURITIES TURNOVER TAX
On the sale or purchase of the trust preferred securities through a registered
Swiss securities dealer a turnover tax of 0.15% will be imposed on each party.
No turnover tax will be imposed on transactions that are not through a
registered Swiss securities dealer.
HOLDERS WHO ARE RESIDENTS OR DOMICILIARIES OF SWITZERLAND OR HAVE A PERMANENT
ESTABLISHMENT OR REPRESENTATIVE IN SWITZERLAND
The following summary of the treatment of the holders of trust preferred
securities who are residents or domiciliaries of, or who have a permanent
establishment or residence in Switzerland, is based upon the conclusion that for
Swiss tax purposes the trust preferred securities are shareholder's equity
rather than debt.
- --------------------------------------------------------------------------------
57
TAX CONSIDERATIONS UNDER THE LAWS OF SWITZERLAND
- --------------------------------------------------------------------------------
WITHHOLDING TAX
No Swiss withholding tax is levied on dividend payments on the trust preferred
securities.
DIVIDENDS
Dividends received by a Swiss resident company or by an individual on the trust
preferred securities are subject to Swiss income tax.
Dividends received by a Swiss resident company qualify for the participation
exemption, if the recipient of the dividend owns at least 20% of the shares of
the distributing corporation or if the recipient holds shares with a market
value of at least CHF 2 million. Moreover, an investment in the trust preferred
securities may qualify as a participation for determining the holder privilege.
CAPITAL GAINS
Capital gains or losses realized by legal entities on the disposal or exchange
of the trust preferred securities are treated as ordinary income or expense. The
basis for determining the gain or loss is the tax value, which is generally the
book value.
As a result of a recent change of the Federal Tax Law, a corporation that
controls a participation of 20% or more in another corporation may claim the
participation relief for capital gains.
Nonbusiness capital gains realized by individuals are not taxed in Switzerland.
Individuals are only taxed on capital gains if they qualify as professional
securities dealers, or if the trust preferred securities are attributable to a
business carried on in Switzerland.
REDEMPTION OF CAPITAL
The amount distributed to individual shareholders in excess of the nominal share
capital is regarded as a dividend, which is subject to Swiss income tax.
For the trust preferred securities attributed to a business in Switzerland or a
legal entity, the principles of taxation of capital gains apply.
INHERITANCE AND GIFT TAXES
Almost all cantons levy separate inheritance and gift taxes. No inheritance or
gift taxes are imposed on the federal level. Inheritance and gift taxes are only
imposed on individuals. No corporate inheritance or gift tax is levied. The tax
is due on the transfer of the trust preferred securities by way of gift or upon
the death of a holder, provided the holder is domiciled in Switzerland. The tax
is based on the fair market value of the trust preferred securities.
- --------------------------------------------------------------------------------
58
- --------------------------------------------------------------------------------
ERISA Considerations
If you are a fiduciary of a pension, profit-sharing or other employee benefit
plan subject to the Employee Retirement Income Security Act ("ERISA"), you
should review the fiduciary standards of ERISA and the plan's particular
circumstances before deciding to invest in the trust preferred securities. You
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and whether the investment would be
consistent with the terms of the plan and the other agreements which apply to
plan investments.
The following summary of certain ERISA considerations relevant to investing in
the trust preferred securities is subject to anything set forth in the
applicable prospectus supplement relating to a particular offering of trust
preferred securities.
A fiduciary of a plan subject to ERISA, as well as a person investing on behalf
of an individual retirement account or a pension or profit-sharing plan for one
or more self-employed persons, should also consider whether an investment in the
trust preferred securities could result in a prohibited transaction. ERISA and
the Internal Revenue Code of 1986, as amended, prohibit plans and individual
retirement accounts from engaging in certain transactions involving plan assets
with persons who are parties in interest under ERISA or disqualified persons
under the Internal Revenue Code of 1986, as amended, with respect to the plan or
individual retirement account. A violation of these rules may result in a
substantial excise tax under the Internal Revenue Code of 1986, as amended, and
other liabilities under ERISA. Employee benefit plans that are governmental
plans, foreign plans or church plans generally are not subject to the prohibited
transaction rules or the fiduciary standards of ERISA.
The assets of each UBS Preferred Funding Trust would be treated as plan assets
for purposes of the prohibited transaction rules under a U.S. Department of
Labor regulation if plans and individual retirement accounts purchase trust
preferred securities, unless an exception under the regulation applies. The
regulation provides an exception if the trust preferred securities are
considered to be publicly-offered securities. The underwriters expect that the
trust preferred securities will be publicly-offered securities under the
regulation because:
- the underwriters expect that the trust preferred securities will be
purchased initially by at least 100 persons who are independent of us
and each other,
- the trust preferred securities can be transferred freely,
- the trust preferred securities are being sold through this prospectus
which is part of an effective registration statement filed with the SEC,
and
- the trust preferred securities will be timely registered with the SEC
under the Securities Exchange Act of 1934.
If we are a party in interest or a disqualified person with respect to a plan or
individual retirement account that buys the trust preferred securities, either
directly or because we own banking or other subsidiaries, the sale could be
treated as a prohibited transaction unless an administrative exemption issued by
the Department of Labor applies. The Department of Labor has issued class
exemptions that may apply to exempt transactions resulting from the purchase or
holding of the trust preferred securities. Among those class exemptions are
Prohibited Transaction Exemption:
- 96-23, for transactions determined by in-house asset managers;
- 95-60, for transactions involving insurance company general accounts;
- 91-38, for transactions involving bank collective investment funds;
- --------------------------------------------------------------------------------
59
ERISA CONSIDERATIONS
- --------------------------------------------------------------------------------
- 90-1, for transactions involving insurance company separate accounts;
and
- 84-14, for transactions determined by independent qualified asset
managers.
These rules are very complicated and the penalties that may be imposed upon
persons involved in prohibited transactions can be substantial. This makes it
very important that fiduciaries or other persons considering purchasing the
trust preferred securities on behalf of a benefit plan investor consult with
their lawyer regarding what could happen if the assets of the applicable UBS
Preferred Funding Trust were deemed to be plan assets and if the investor can
use one of the above class exemptions or another applicable exemption.
A purchaser or holder of trust preferred securities or any interest therein will
be deemed to have represented by its purchase and holding thereof that it either
(a) is not an employee benefit plan and is not purchasing such securities on
behalf of or with plan assets of any employee benefit plan or (b) is eligible
for the exemptive relief available under Prohibited Transaction Exemption 96-23,
95-60, 91-38, 90-1 or 84-14 or another applicable exemption with respect to such
holding.
Before relying on any of these exemptions, a purchaser must conclude that the
exemption provides the necessary relief for all potential prohibited
transactions arising from the purchase of and from holding the trust preferred
securities. Neither the underwriters, UBS AG nor any of their respective
affiliates, agents or representatives have or can represent that these
exemptions apply with respect to any purchase of trust preferred securities by
any holder.
- --------------------------------------------------------------------------------
60
- --------------------------------------------------------------------------------
Plan of Distribution
We may sell any trust preferred securities in a public offering to or through
one or more underwriters, dealers and agents. The names of the underwriters,
dealers or agents involved in any particular offering of trust preferred
securities, the liquidation amount of the trust preferred securities to be
purchased by such underwriters, dealers or agents, any applicable commissions or
discounts and detailed description of any underwriting arrangement will be set
forth in the applicable prospectus supplement.
- --------------------------------------------------------------------------------
Validity of the Securities
Unless otherwise provided in the applicable prospectus supplement, certain
matters of Delaware law relating to the validity of any trust preferred
securities and related company preferred securities will be passed upon by
Richards, Layton & Finger, P.A., special Delaware counsel to UBS AG, the UBS
Preferred Funding Trusts and the UBS Preferred Funding Companies. Unless
otherwise provided in the applicable prospectus supplement, the validity of the
subordinated notes and the UBS AG Subordinated Guarantee Agreements will be
passed upon for UBS AG, the UBS Preferred Funding Trusts and the UBS Preferred
Funding Companies by Sullivan & Cromwell. Sullivan & Cromwell will rely upon the
opinions of Richards, Layton & Finger P.A., as to matters of Delaware law and
the opinions of Bar & Karrer, Swiss counsel to UBS AG, as to matters of Swiss
law. Certain matters relating to United States federal income tax considerations
will be passed upon for UBS AG, the UBS Preferred Funding Trusts and the UBS
Preferred Funding Companies by Sullivan & Cromwell.
- --------------------------------------------------------------------------------
Experts
The consolidated balance sheet of UBS AG at 31 December 2001 and 2000 and the
related consolidated statement of income, cash flows and changes in
shareholder's equity for each of the three years in the period ended 31 December
2001 incorporated by reference into this prospectus have been audited by Ernst &
Young Ltd., independent auditors as set forth in their report thereon
incorporated by reference into this prospectus, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. The consolidated balance sheets of Paine Webber Group Inc. at 31
December 1999 and the related consolidated statements of income, cash flows and
changes in shareholders' equity for the period ended 31 December 1999
incorporated by reference into this prospectus have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
incorporated by reference into this prospectus and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
- --------------------------------------------------------------------------------
61
(UBS LOGO)