The 120mm spacing was standard for 5-speed freewheels and the standard 6-speed freewheels required a frame to have 126mm spacing, but you can use an Ultra 6 freewheel with 120mm spacing, but 6-speeds is your limit. This also raises the issue of an Ultra 6 being designed for use with friction shifters, but 7-speed indexed shifters should work just fine with the Ultra 6 freewheel.

I think using a 7-speed freehub may still be possible by respacing the axle and redishing the wheel, but I am guessing that an 8-speed freehub (designed for 130mm spacing) would be a bit too wide.


SheldonBrown.com - Traditional Thread-on Freewheels
Ultra 6 Freewheel
"Ultra Six spaced 6 speeds used a closer spacing, around 5 mm. This permitted an Ultra Six ® freewheel to directly replace a standard 5-speed unit on a 120 mm hub. The key to making this work was the use of a narrower chain. The interior width of the chain was the same as always, but the new narrower chains used shorter rivets, so the ends of the rivets didn't protrude past the outer chain plates, as the rivets in traditional chains did"

Ultra Spacing
"An early type of 6-speed freewheel made by Sun Tour, in which the sprockets were closer together than those of a 5-speed or normal 6-speed freewheel., allowing the use of a 6-speed freewheel on a hub built for a 5-speed cluster, in a frame with 5-speed (120 mm) dropout spacing. A 7-speed freewheel could be used with 126 mm dropout spacing.

Ultra spacing, 5 mm center to center,is identical with the spacing of Shimano 7-speed cassettes; Shimano 7-speed or 8-speed shifters can be used to index these freewheels. This shifting isn't as clean as with Hyperglide cassettes, but it is much nicer than friction shifting.

Ultra spacing was made possible by the development of chains in which the ends of the rivets did not protrude far past the side plates. 7- and 8-speed freewheels are also Ultra spaced, but the term is mainly used to describe the narrow 6-speed units."