Note 3 Net Interest and Trading Income

Accounting standards require separate disclosure of net interest income and net trading income (see the tables on this and next page). This required disclosure, however, does not take into account that net interest and trading income are generated by a range of different businesses. In many cases, a particular business can generate both net interest and trading income. Fixed income trading activity, for example, generates both trading profits and coupon income. UBS management therefore analyzes net interest and trading income according to the businesses that drive it. The second table below (labeled Breakdown by businesses) provides information that corresponds to this management view. Net income from trading businesses includes both interest and trading income generated by our trading businesses and the Investment Bank's lending activities. Net ­income from interest margin businesses comprises interest income from our loan portfolio. Net income from treasury and other activities reflects all income from our centralized treasury function.

Included in the Net trading income table are Net gains / (losses) of CHF (740) million, for the quarter ended 31 March 2007, CHF (2,867) million for the quarter ended 31 December 2006, and CHF (2,721) million for the quarter ended 31 March 2006 related to Financial liabilities designated at fair value. Financial liabilities designated at fair value include the impact of UBS's own credit where market information indicates that it is reflected in the price at which UBS transacts with third parties. Products with UBS's own credit as a valuation input include certain structured debt instruments where either at inception or over their life, UBS receives cash flows that provide funding and thereby expose the counterparty to UBS credit risk. In all periods presented, for counterparties entering into products which are financial liabilities from UBS's perspective, the perception of UBS's credit risk has remained stable.