Notes (unaudited)

On 9 December 2007, UBS entered into a binding agreement with the Government of Singapore Investment Corporation Pte Ltd and an investor from the Middle East to issue mandatory convertible notes (MCN) with a face value of CHF 13 billion, subject to the approval of a capital increase by an Extraordinary General Meeting of shareholders. At the Extraordinary General Meeting held on 27 February 2008, the shareholders approved a conditional capital increase to issue up to 277,750,000 new shares to satisfy the conversion into UBS AG shares of the MCN, which were issued to the two investors on 5 March 2008. The MCN have a coupon of 9% per annum and are converted into UBS shares after two years, with earlier conversion options for the investors and UBS. Conversion is linked to the share price at the date of conversion, but is not lower than CHF 51.48 and not higher than CHF 60.23 per share. The conversion prices are subject to anti-dilution adjustments in the event of certain corporate actions. Conversion at CHF 51.48 would result in issuance of the maximum number of shares, which is 252,525,253, while conversion at CHF 60.23 would result in issuance of the minimum number of shares, which is 215,839,283. If at the date of conversion the share price is between the lower and upper conversion price, the number of shares is determined by dividing CHF 13 billion by the actual market price determined immediately before conversion. The issue of the MCN immediately strengthened UBS AG's regulatory capital base as the notes count as tier 1 capital from the date of issue.

Under IFRS, the MCN is treated as a compound financial instrument that consists of a debt host and an embedded equity component. The debt host has been recognized as a liability initially measured at fair value and accounted for at amortized cost. The fair value of the debt host component on 5 March 2008 was determined to be approximately CHF 14,553 million, resulting in a yield to maturity of 2.78% per annum. The debt host is accounted for at amortized cost and interest expense of approximately CHF 393 million per year will be recognized.

The equity component reflects the value of the net premium paid to the investors for obtaining the right to convert the MCN into a variable number of shares if the share price at the date of conversion is between the lower and higher conversion prices. The terms of this component were agreed on 9 December 2007, at which time the issuance of the MCN was conditional on shareholder approval. At that date, the value attributed to the equity component was CHF 1,590 million. This value increased during the period to 5 March 2008 to approximately CHF 5,413 million as a result of the UBS AG share price falling to CHF 32.24.

The total change in fair value on the contract to issue the MCN of approximately CHF 3,860 million was recognized as a gain in first quarter 2008. Approximately CHF 3,823 million was attributable to the equity component and recognized as a reduction to share premium on 5 March 2008. The remaining approximately CHF 37 million was applied to the liability component. The value of both the equity and the liability component is not re-measured to fair value after 5 March 2008.