Note 32

Mandatory Convertible Notes

At the Extraordinary General Meeting on 27 February 2008, the shareholders of UBS AG approved a conditional capital increase to issue up to 252,525,253 new shares to satisfy the conversion into UBS AG shares of CHF 13 billion mandatory convertible notes (MCN) issued on 5 March 2008. The MCN were purchased by the Government of Singapore Investment Corporation Pte Ltd (CHF 11 billion) and an investor from the Middle East (CHF 2 billion). The MCN have a coupon of 9% per annum and will be converted into UBS shares at the latest within two years. Conversion is linked to the share price at the date of conversion, but is not lower than CHF 51.48 per share and not higher than CHF 60.23 per share. Conversion at CHF 51.48 would result in issuing the maximum number of shares (252,525,253), while conversion at CHF 60.23 would result in issuing the minimum number of shares (215,839,283). If at the date of conversion, the share price is between the lower and upper boundary, the number of shares issued is determined by dividing CHF 13 billion by that price. The issue of MCN immediately strengthens UBS AG's capital base as the notes will 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 will initially be recognized as a liability measured at fair value and accounted for at amortized cost. The equity component, which 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 boundary prices, is immediately recognized as a reduction to share premium and subsequently not remeasured to fair value.

For the acquisition of Caisse Centrale de Réescompte Group refer to Note 35.

There have been no further material post-balance sheet events which would require disclosure or adjustment to the 31 December 2007 Financial Statements.

On 6 March 2008, the Board of Directors reviewed the Financial Statements and authorized them for issue. These Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 23 April 2008 for approval.