Balance Sheet & Capital Management

Risk-weighted assets stood at CHF 315.9 billion, up CHF 4.1 billion from 31 March 2006. Off-balance sheet positions rose, mainly due to undrawn credit facilities provided to corporate clients in the Investment Bank’s syndicated finance business. There was a slight increase in risk-weighted assets on our balance sheet, mainly in our Investment Bank, reflecting the net effect of higher money market lending almost fully offset by lower collateral trading after the completion of the European dividend season, the reduced US mortgage origination business and the decrease in the matched book volume (see balance sheet text for more details).

BIS Tier 1 capital on 30 June 2006 stood at CHF 38.4 billion, down from CHF 40.3 billion on 31 March 2006, driven by the announced acquisitions of Banco Pactual, Piper Jaffray and ABN AMRO’s global futures and options business, which reduced Tier 1 capital by CHF 3.9 billion and the Tier 1 ratio by 1.2 percentage points. Dividend accruals, currency impacts and share repurchases further reduced BIS Tier 1 capital. These effects were largely offset by our strong quarterly net profit. We also issued USD 1,000 million in trust preferred stock in May, leading to a net increase of USD 700 million in Tier 1 capital following redemptions of USD 300 million later in the quarter. As a result, the BIS Tier 1 ratio was 12.2% on 30 June 2006, down from 12.9% on 31 March 2006. Total capital was CHF 45.3 billion, up from CHF 44.0 billion at March 2006, because of the new issuance of lower Tier 2 capital securities.

Recent corporate actions (number of shares on a pre-split basis)

Annual dividend, par value repayment

In April, after receiving shareholder approval by the Annual General Meeting (AGM), we paid an annual dividend for the 2005 financial year of CHF 3.20 a share. In total, CHF 3.2 billion was paid out to our shareholders. On 12 July 2006, we also made a par value repayment of CHF 0.60 a share, allowing shareholders to benefit from the sale of Private Banks amp; GAM in 2005.

Creation of conditional capital

At the same AGM, UBS also received shareholder permission to create conditional capital of a maximum of 75 million shares to fund employee share option programs.

End of 2005/2006 buyback program

Shareholders also approved the cancellation of a total of 37,100,000 shares bought back under the 2005/2006 share buyback program. The shares were canceled on 5 July 2006.

2-for-1 share split

In addition, shareholders approved a 2-for-1 share split, which was effected on 10 July 2006.

Treasury shares (number of shares on a post-split basis)

IFRS requires a company that holds its own shares for trading or non-trading purposes to record those shares as treasury shares and deduct them from shareholders’ equity.

Our holding of own shares rose to 202,183,442, or 9.3% of shares issued on 30 June 2006, from 180,116,142, or 8.3% of all shares issued on 31 March 2006. The rise reflects shares bought under our buyback program (so-called “second line_) as well as shares bought to satisfy future employee share and option program obligations (so-called “first line_).

Of the treasury shares held at quarter-end, 78,520,000 were bought for cancellation whereas the other 123,663,442 mainly cover employee share and option programs, and, to a limited extent, market-making activities at the Investment Bank. The Investment Bank acts as a market maker in UBS shares and derivatives in UBS shares. It issues derivatives to retail and institutional investors and may hold shares to hedge these products. Changes in the trading approach can lead to fluctuations in the size of our direct holding of UBS shares.

2006/2007 buyback program (number of shares on a post-split basis)

Our policy is to invest in the growth of our businesses by growing organically or with bolt-on acquisitions. Our strong balance sheet and high return on equity allow us to do this from internal resources. After exploiting opportunities to invest in growth, we will continue to return excess capital to our shareholders through dividends, par value reductions and, ultimately, through share buybacks, while maintaining our BIS Tier 1 ratio at a high level.

Under the current 2006 / 2007 second line buyback program, 4,320,000 shares were purchased at an average price of CHF 69.72, representing a total cost of CHF 301 million. Our share buybacks in first half were fairly limited because of the use of capital for the acquisitions agreed in the period and further repurchases of UBS shares made on the first trading line for employee compensation purposes. The value of “first line_ buybacks continues to grow in line with the value of share-based compensation.

The second line program, which runs until 7 March 2007, allows us to repurchase up to CHF 5 billion in shares in total. Under current assumptions, it seems unlikely that we will use the 2006 / 2007 buyback program to the full extent possible. We will seek approval for the cancellation of shares bought back under this program from the Annual General Meeting in April 2007.

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