Letter to shareholders

Peter Kurer & Marcel Rohner

Dear shareholders,

For third quarter 2008, we recorded a profit attributable to UBS shareholders of CHF 296 million, an improvement on the results of the prior four quarters. The result was achieved in the context of a general market environment characterized by falling equity markets, record-level volatility in most asset classes and a sharp decline in indicators of economic activity worldwide. During the quarter, one of our major competitors filed for bankruptcy and the governments of several countries discussed possible measures that could be taken to stabilize the financial system.

Our third quarter result led to a September month-end tier 1 ratio of 10.8% and a total capital ratio of 14.9% at the end of September - levels substantially higher than those of most of our competitors. Key items impacting the third quarter result were USD 4.4 billion of writedowns and losses on risk positions, a gain from own credit of CHF 2.2 billion and a tax credit of CHF 0.9 billion. Total personnel expenses fell 13% compared with the prior quarter.

The divisions - referred to as business groups before the strategic changes announced in the prior quarter's letter to shareholders - had disappointing results in extremely adverse circumstances. Positive contributions were produced by Global Wealth Management & Business Banking, with pre-tax profits of CHF 1.9 billion, and Global Asset Management, with a pre-tax profit of CHF 415 million that includes a gain from the sale of a minority stake in a private equity company. The Investment Bank lost CHF 2.7 billion as the writedowns and losses mentioned above more than offset the gain from own credit and cost-cutting measures related to the repositioning of the division. Corporate Center approximately broke even.

There were sizeable net new money outflows in Global Wealth Management & Business Banking and Global Asset Management in third quarter 2008. Net outflows reflect a number of factors, including: clients seeking to diversify their exposure to individual financial institutions, a general trend of clients to deleverage, the disappointing performance of certain funds managed by Global Asset Management in prior periods, the impact of publicity concerning our ongoing exit from certain US cross-border operations for US private clients, and concerns on the part of some clients about the financial position of UBS.

While the third quarter results illustrate the progress we have made in risk and balance sheet reduction, it became clear that we would be well served by taking further decisive action to exit our legacy risk positions if we were to assuage client concern and bolster client confidence in our bank. Accordingly, as announced on 16 October 2008, UBS reached an agreement with the Swiss National Bank (SNB) under which UBS will sell up to USD 60 billion of currently illiquid securities and other assets to a newly formed fund to be controlled by the SNB. With this transaction, UBS caps its future potential losses from these assets, reduces its risk-weighted assets, materially de-risks and reduces its balance sheet and is no longer subject to the funding risk of the assets transferred. In particular, US real estate-related net risk positions outside the fund will be reduced to nearly zero. As a consequence, UBS will incur no further writedowns or losses on the transferred assets, thus significantly reducing uncertainty for UBS shareholders and clients. UBS will retain an option to participate in the fund's upside and this will be marked at fair value. The fund's equity capital, of up to USD 6 billion, is to be provided by UBS but sold to the SNB for a nominal amount, resulting in a loss to be recognized in fourth quarter 2008 as detailed later in this report. For further information, refer to the "Transaction with the Swiss National Bank" sidebar.

In addition, we have taken the opportunity to strengthen our equity capital base and, as also announced on 16 October 2008, are proposing to issue CHF 6 billion of new mandatory convertible notes (MCNs) to the Swiss Confederation. On full conversion, these notes would give the Swiss Confederation a 9.3% holding in UBS. Upon your approval of this transaction, UBS's tier 1 ratio would be further, and significantly, strengthened.

We have now passed several important milestones on the road to restoring our financial standing and reputation. At the extraordinary general meeting of 2 October 2008, you elected Sally Bott, Rainer-Marc Frey, Bruno Gehrig and William G. Parrett to the Board of Directors (BoD). As already announced, Markus U. Diethelm joined UBS as Group General Counsel and John Cryan has taken over as Group Chief Financial Officer in September 2008. The BoD has appointed Philip Lofts to the Group Executive Board, who will replace Joe Scoby as Chief Risk Officer effective 4 November 2008. On 3 October 2008, we announced the repositioning of the Investment Bank, which will reprioritize its business portfolio to preserve its core strengths and client franchises across the equities, investment banking and fixed income, currencies and commodities business areas, while downsizing or exiting certain business activities. This will lead to greater efficiencies and a further reduction in the Investment Bank's headcount, risk exposures and balance sheet.

Progress continues to be made in our "Risk renewal plan", which is supported and supervised by the Swiss Federal Banking Commission. The plan was implemented in order to overhaul the approach we take to risk management, strategy and planning, the processes used to value and estimate the risk of our positions, the integrity of underlying data on our holdings, and the system architecture needed to support all of these processes. The plan will deliver a robust system of risk control that fully addresses the weaknesses exposed in 2007. It is expected that material progress will have been achieved by the end of 2009, with some components running into 2010.

Outlook - Since the beginning of fourth quarter, we have seen many difficult conditions across equity, credit and money markets worldwide. We expect that such conditions will continue to affect our clients' assets, and therefore our fee-earning businesses. Our operating expenses will continue to be trimmed where possible, and a range of efficiency and personnel reduction programs are already in place to make this happen.

Our results for fourth quarter 2008 will include two large accounting effects. Since the announcement of the SNB transaction, credit spreads on UBS's debts have narrowed significantly. If this persists, some or most of the accumulated CHF 4.8 billion own credit gain on liabilities we hold at fair value will reverse. In addition, a loss will be recognized on the sale of the equity in the fund sold to the SNB - partly offset by recognition of the value of UBS's option to buy the equity back in the future. A possible reversal of the above mentioned own credit gain would not affect our tier 1 capital balance and tier 1 ratio. The transfer of assets into the SNB fund, and the loss recognized on the sale of the equity, will reduce our risk-weighted assets and our tier 1 capital balance. After the planned issuance of the MCNs to the Swiss Confederation, the tier 1 capital balance would be slightly higher than its value prior to the transaction and the tier 1 ratio would improve.

During these extraordinary times, our priority continues to be the management of our resources, including costs and all elements of risk capital, as strictly as possible while continuing to strive for the level of excellence in products, services and advice that our clients are accustomed to expect.

4 November 2008

UBS