UBS AG — Capital/Financing Update 2011

Jan 28, 2011

| CALCULATION
OF REGISTRATION FEE — Title
of Each Class of Securities Offered | Maximum
Aggregate Offering Price | Amount
of Registration Fee(1) |
| --- | --- | --- |
| UBS
AG Market-Linked Notes Linked
to a Currency Basket Relative to the U.S. dollar due January 31,
2013 | $2,460,480 | $285.67 |

(1) Calculated in accordance with Rule 457(r) of the Securities Act of 1933, as amended.

Filed Pursuant to Rule 424(b)(2)

Registration No. 333-156695

PRICING SUPPLEMENT (To Prospectus dated January 13, 2009 and Product Supplement dated January 11, 2011)

$2,460,480 UBS AG Market-Linked Notes

Linked to a Currency Basket Relative to the U.S. dollar due January 31, 2013

Investment Description

The Market-Linked Notes Linked to a Currency Basket Relative to the U.S. Dollar (the “Notes”) are unsubordinated, unsecured debt securities issued by UBS AG (the “issuer” or “UBS”) and provide exposure to the performance of an equally weighted basket of currencies consisting of the Canadian dollar (“CAD”), the Chinese renminbi (“CNY”), the Indonesian rupiah (“IDR”), the Malaysian ringgit (“MYR”), the Norwegian krone (“NOK”) and the Turkish lira (“TRY”) (each a “basket currency” and together the “basket”) relative to the U.S. dollar (the “reference currency”) from the trade date to the final valuation date. If the basket return is positive, UBS will repay the principal amount at maturity plus pay a return of 137% of the basket return. If the basket return is negative, UBS will repay at least 90% of the principal amount at maturity, and investors will have a loss that is proportionate to the first 10% decline in the basket over the term of the Notes. Investing in the Notes involves significant risks. The Notes do not pay interest. You may lose up to 10% of your principal amount. The repayment of at least 90% of your principal amount is available only if you hold the Notes to maturity. Any payment on the Notes, including any repayment of principal, is subject to the creditworthiness of UBS. If UBS were to default on its payment obligations you may not receive any amounts owed to you under the Notes and you could lose your entire investment.

Features
q	Growth Potential: If the basket
return is positive, you will receive a basket-linked return that may exceed
the return you may receive on a traditional fixed income investment.
q	Limited Downside Market Exposure: Investors are exposed to the first 10% decline in the basket over the term of
the Notes, which could result in a proportionate loss of up to 10% of
principal. If you hold the Notes to maturity, UBS will repay at least 90% of
your principal amount. Any payment on the Notes, including any repayment of
principal, is subject to the creditworthiness of UBS.
q	Diversification Opportunity: The
Notes provide an opportunity to diversify your portfolio through exposure to
the basket currencies.

Key Dates
Trade Date	January 26, 2011
Settlement Date	January 31, 2011
Final Valuation Date (1)	January 25, 2013
Maturity Date (1)	January 31, 2013

(1) Subject to postponement in the event of a market disruption event, as described in the accompanying product supplement.

NOTICE TO INVESTORS: THE NOTES ARE SIGNIFICANTLY RISKIER THAN CONVENTIONAL DEBT INSTRUMENTS. THE ISSUER IS NOT NECESSARILY OBLIGATED TO REPAY THE FULL PRINCIPAL AMOUNT OF THE NOTES AT MATURITY, AND THE NOTES CAN HAVE DOWNSIDE MARKET RISK SIMILAR TO THE BASKET UP TO A -10% RETURN. THIS MARKET RISK IS IN ADDITION TO THE CREDIT RISK INHERENT IN PURCHASING A DEBT OBLIGATION OF UBS. YOU SHOULD NOT PURCHASE THE NOTES IF YOU DO NOT UNDERSTAND OR ARE NOT COMFORTABLE WITH THE SIGNIFICANT RISKS INVOLVED IN INVESTING IN THE NOTES.

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED UNDER “KEY RISKS” BEGINNING ON PAGE 12 AND UNDER “RISK FACTORS” BEGINNING ON PAGE PS-8 OF THE ACCOMPANYING PRODUCT SUPPLEMENT BEFORE PURCHASING ANY NOTES. EVENTS RELATING TO ANY OF THOSE RISKS, OR OTHER RISKS AND UNCERTAINTIES, COULD ADVERSELY EFFECT THE MARKET VALUE OF, AND THE RETURN ON, YOUR NOTES. YOU MAY LOSE UP TO 10% OF YOUR INITIAL INVESTMENT.

Note Offering

These terms relate to Market-Linked Notes Linked to a Currency Basket Relative to the U.S. Dollar. The Notes are offered at a minimum investment of 100 Notes at $10.00 per Note (representing a $1,000 investment), and integral multiples of $10.00 in excess thereof.

Basket Currencies	Currency Weighting	Initial Spot Rate	Reference Currency	Participation Rate	CUSIP	ISIN
Canadian dollar (“CAD”)	1/6	0.9950	USD	137%	902669258	US9026692585
Chinese renminbi (“CNY”)	1/6	6.5820
Indonesian rupiah (“IDR”)	1/6	9,030.0000
Malaysian ringgit (“MYR”)	1/6	3.0500
Norwegian krone (“NOK”)	1/6	5.7576
Turkish lira (“TRY”)	1/6	1.5758

See “Final Terms” on page 3. The Notes we are offering will have the terms set forth in the accompanying product supplement, the accompanying currency and commodity supplement (to the extent specifically referenced herein), the accompanying prospectus and this pricing supplement.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Notes or passed upon the accuracy or the adequacy of this pricing supplement, the accompanying product supplement, the accompanying currency and commodity supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense. The Notes are not deposit liabilities of UBS AG and are not FDIC insured.

	Issue Price to Public	Underwriting Discount	Proceeds to UBS
Per Note	$10.00	$0.20	$9.80
Total	$2,460,480.00	$49,209.60	$2,411,270.40
UBS Financial
Services Inc.		UBS
Investment Bank
Pricing Supplement dated Janary 26, 2011

Additional Information About UBS and the Notes

UBS has filed a registration statement (including a prospectus, as supplemented by a product supplement and a currency and commodity supplement for the various securities we may offer, including the Notes) with the Securities and Exchange Commission, or SEC, for this offering. Before you invest, you should read these documents and any other documents relating to the Notes that UBS has filed with the SEC for more complete information about UBS and this offering. You may obtain these documents for free from the SEC web site at www.sec.gov. Our Central Index Key, or CIK, on the SEC Web site is 0001114446. Alternatively, UBS will arrange to send you these documents if you so request by calling toll-free 800-722-7370.

You may access these documents on the SEC web site at www.sec.gov as follows:

| ¨ | Product supplement dated January
11, 2011: http://www.sec.gov/Archives/edgar/data/1114446/000119312511005724/d424b2.htm |
| --- | --- |
| ¨ | Currency and commodity supplement
dated January 13, 2009: http://www.sec.gov/Archives/edgar/data/1114446/000139340109000045/v136621_69520-424b2.htm |
| ¨ | Prospectus dated January 13,
2009: http://www.sec.gov/Archives/edgar/data/1114446/000095012309000556/y73628b2e424b2.htm |

References to “UBS,” “we,” “our” and “us” refer only to UBS AG and not to its consolidated subsidiaries. In this document, the “Notes” refer to the Market-Linked Notes Linked to a Currency Basket relative to the U.S. dollar that are offered hereby. Also, references to the “product supplement” mean the UBS product supplement titled “Medium Term Notes Linked to a Currency or Commodity or a Basket Comprised of Currencies or Commodities,” dated January 11, 2011, references to the “currency and commodity supplement” mean the UBS Currency and Commodity Supplement Debt Securities and Warrants, dated January 13, 2009, and references to “accompanying prospectus” mean the UBS prospectus titled “Debt Securities and Warrants,” dated January 13, 2009.

Investor Suitability

The Notes may be suitable for you if, among other considerations:

| ¨ | You fully understand the risks
inherent in an investment in the Notes. |
| --- | --- |
| ¨ | You seek an investment with a
return linked to the performance of the basket currencies relative to the
U.S. dollar. |
| ¨ | You can tolerate a loss of up to
10% of your investment and are willing to make an investment that is exposed
to any negative return of the basket between the trade date and the final
valuation date up to -10%. |
| ¨ | You believe the basket return
will be positive over the term of the Notes, meaning that the U.S. dollar will
weaken relative to the basket currencies. |
| ¨ | You are willing to invest in the
Notes based on the participation rate indicated on the cover hereof. |
| ¨ | You are willing and able to hold
the Notes to maturity, a term of 2 years, and you are aware that there may be
little or no secondary market for the Notes. |
| ¨ | You do not seek current income
from this investment. |
| ¨ | You are willing to assume the
credit risk of UBS for all payments under the Notes, and understand that if
UBS defaults on its obligations you may not receive any amounts due to you,
including any repayment of principal. |

| The Notes may
not be suitable for you if, among other considerations: | |
| --- | --- |
| ¨ | You do not fully understand the
risks inherent in an investment in the Notes. |
| ¨ | You do not seek an investment
with a return linked to the performance of the basket currencies relative to
the U.S. dollar. |
| ¨ | You cannot tolerate a loss of up
to 10% of your investment and are unwilling to make an investment that is
exposed to any negative return of the basket between the trade date and the
final valuation date up to -10%. |
| ¨ | You do not believe the basket
return will be positive over the term of the Notes, meaning that the U.S.
dollar will strengthen relative to the basket currencies. |
| ¨ | You require an investment
designed to provide a full return of principal at maturity. |
| ¨ | You are unwilling to invest in
the Notes based on the participation rate indicated on the cover hereof. |
| ¨ | You cannot tolerate fluctuations
in the price of the Notes prior to maturity that may be similar or exceed any
downward fluctuations in the level of the basket. |
| ¨ | You seek current income from this
investment. |
| ¨ | You are unwilling or unable to
hold the Notes to maturity, a term of 2 years, or you seek an investment for
which there will be an active secondary market. |
| ¨ | You are not willing to assume the
credit risk of UBS for all payments under the Notes, including any repayment
of principal. |

The suitability considerations identified above are not exhaustive. Whether or not the Notes are a suitable investment for you will depend on your individual circumstances and you should reach an investment decision only after you and your investment, legal, tax, accounting and other advisors have carefully considered the suitability of an investment in the Notes in light of your particular circumstances. You should also review carefully the “Key Risks” on page 12 and the more detailed “Risk Factors” beginning on page PS-8 of the product supplement for risks related to an investment in the Notes.

2

Final Terms

Issuer	UBS AG, Jersey Branch
Issue Size	$2,460,480
Issue Price	$10.00 per Note (subject to a minimum purchase of 100
Notes).
Currency of the Issue	United States dollars
Term	2 years.

Basket	Basket Currency	Currency
Currencies		Weighting
and Currency	Canadian dollar (“CAD”)	1/6
Weighting	Chinese renminbi (“CNY”)	1/6
	Indonesian rupiah (“IDR”)	1/6
	Malaysian ringgit (“MYR”)	1/6
	Norwegian krone (“NOK”)	1/6
	Turkish lira (“TRY”)	1/6

Participation Rate	137%.
Payment at Maturity (per Note)	If the basket return is zero or positive, we will
repay the principal amount plus pay a return on your investment equal to the
product of the participation rate and the basket return: $10.00 + ($10.00 × Participation Rate × Basket Return) If the basket return is negative and
between zero and -10%, we will pay less than the principal amount
resulting in a loss that is proportionate to the negative basket return: $10.00 + ($10.00 × Basket Return) If the basket return is negative by more
than -10%, we will pay $9.00. Investors may lose up to 10% of their
initial investment in the Notes. Any payment on the Notes, including any
repayment of principal, is subject to the creditworthiness of UBS.
Initial Basket Level	100
Final Basket Level	The final basket level will be calculated as follows: 100 × [1 + (CAD currency return × 1/6) + (CNY currency return × 1/6) + (IDR
currency return × 1/6) + (MYR currency return × 1/6) + (NOK currency return ×
1/6) + (TRY currency return × 1/6)]
	The CAD currency return, CNY currency return, IDR currency
return, MYR currency return, NOK currency return and TRY currency return
refer to the currency return for the Canadian dollar, the Chinese renminbi,
the Indonesian rupiah, the Malaysian ringgit, the Norwegian Krone and Turkish
lira, respectively.
Basket Return	The percentage change in the level of the basket from the
initial basket level to the final basket level, calculated as follows:
	Final Basket Level
– Initial Basket Level
	Initial Basket
Level
Currency Return	For each basket currency:
	Initial Spot Rate – Final Spot Rate
	Initial Spot Rate
Final Spot Rate	For CAD, NOK and TRY: the spot rate for the relevant
basket currency relative to the U.S. dollar determined by the calculation
agent as observed through trades through the Electronic Broking Services,
Reuters Dealing 3000 and various voice brokers at approximately 10:00 a.m.
New York City time on the final valuation date, subject to any further
determination of the calculation agent as set forth in the currency and
commodity supplement. For more information, see “Deliverable
Currencies—Canadian dollar (CAD)” beginning on page CCS-2 of the currency and
commodity supplement, “Deliverable Currencies—Norwegian Krone (NOK)”
beginning on page CCS-5 of the currency and commodity supplement,
“Deliverable Currencies—Turkish lira (TRY)” beginning on page CCS-7 of the
currency and commodity supplement and “Payment at Maturity” on page CCS-8 of
the currency and commodity supplement.

| | For CNY, IDR and MYR: the spot rate for the relevant basket currency relative
to the U.S. dollar on the final valuation date, determined by the calculation
agent as set forth in the currency and commodity supplement. For more
information, see “Non-Deliverable Currencies—Chinese renminbi (CNY)”
beginning on page CCS-15 of the currency and commodity supplement, “Non-Deliverable Currencies—Indonesian rupiah
(IDR)” beginning on page CCS-17 of the currency and commodity supplement and
“Non-Deliverable Currencies—Malaysian ringgit (MYR)” beginning on page CCS-20
of the currency and commodity supplement. |
| --- | --- |
| Initial Spot Rate | For each basket currency, the spot rate determined
by the calculation agent as observed through trades through the Electronic
Broking Services, Reuters Dealing 3000 and various voice brokers at 11:55
a.m. New York City Time on the trade date. |

Initial Spot	USD/CAD	0.9950
Rates	USD/CNY	6.5820
	USD/IDR	9,030.0000
	USD/MYR	3.0500
	USD/NOK	5.7576
	USD/TRY	1.5758

No Interest Payments	We will not pay you interest during the term of the Notes.
Final Valuation Date	January 25, 2013, unless the calculation agent determines
that a market disruption event (as set forth in the product supplement and
the currency and commodity supplement) occurs or is continuing with respect
to a basket currency on any such day. In such case, or if the final valuation
date is not a business day for such basket currency, the final valuation date
for the affected basket currency (and only for such basket currency) will be
the first preceding or first following business day on which the calculation
agent determines that a market disruption event does not occur and/or is not
continuing with respect to such basket currency. In no event, however, will
the final valuation date for any basket currency be postponed by more than 10
consecutive days for the calculation of the USD/CAD, USD/NOK and USD/TRY spot
rates and 17 consecutive days for the calculation of the USD/CNY, USD/IDR and
USD/MYR spot rates. See “General Terms of the Notes—Market Disruption Event”
on page PS-22 of the product supplement and the descriptions of additional
market disruption events applicable to USD/CNY, USD/IRY and USD/MYR,
respectively, on pages CCS-15, CCS- 18 and CCS-20 of the currency and
commodity supplement.
Defeasance	Neither full defeasance nor covenant defeasance will apply
to the Notes.

Investment Timeline

| ● |
| --- |
| The initial basket level is set equal to 100. The
participation rate is set. |
| The final spot rate for each basket currency is determined
on the final valuation date and the basket return is calculated. |
| If the basket return is zero or positive, we will
repay the principal amount plus pay a return equal to the product of the
participation rate and the basket return: $10.00 + ($10.00 × Participation
Rate × Basket Return) |
| If the basket return is negative and
between zero and -10%, we will pay less than the
principal amount resulting in a loss that is proportionate to the negative
basket return: $10.00 + ($10.00 × Basket Return) |
| If the basket return is negative by more
than -10%, we will pay $9.00. |
| Investors may lose up to 10% of their
initial investment in the Notes. |
| INVESTING IN THE NOTES INVOLVES
SIGNIFICANT RISKS. YOU MAY LOSE UP TO 10% OF YOUR PRINCIPAL AMOUNT. ANY
PAYMENT ON THE NOTES, INCLUDING ANY REPAYMENT OF PRINCIPAL, IS SUBJECT TO THE
CREDITWORTHINESS OF UBS. IF UBS WERE TO DEFAULT ON ITS PAYMENT OBLIGATIONS,
YOU MAY NOT RECEIVE ANY AMOUNTS OWED TO YOU UNDER THE NOTES AND YOU COULD
LOSE YOUR ENTIRE INVESTMENT. |

3

How is the basket return calculated?

The payment at maturity will depend on the basket return. The following steps are necessary to calculate the basket return:

Step 1: Calculate the Currency Return for each of the Basket Currencies.

The CAD currency return is the difference between the USD/CAD initial spot rate and the USD/CAD final spot rate relative to the USD/CAD initial spot rate, expressed as a percentage and calculated as follows:

| CAD Currency
Return = |
| --- |
| USD/CAD Initial Spot Rate |

An increase in the value of the Canadian dollar relative to the U.S. dollar is expressed as a decrease in the USD/CAD spot rate.

The CNY currency return is the difference between the USD/CNY initial spot rate and the USD/CNY final spot rate relative to the USD/CNY initial spot rate, expressed as a percentage and calculated as follows:

| CNY Currency
Return = |
| --- |
| USD/CNY Initial Spot Rate |

An increase in the value of the Chinese renminbi relative to the U.S. dollar is expressed as a decrease in the USD/CNY spot rate.

The IDR Currency return is the difference between the USD/IDR initial spot rate and the USD/IDR final spot rate relative to the USD/IDR initial spot rate, expressed as a percentage and calculated as follows:

| IDR Currency
Return = |
| --- |
| USD/IDR Initial Spot Rate |

An increase in the value of the Indonesian rupiah relative to the U.S. dollar is expressed as a decrease in the USD/IDR spot rate.

The MYR Currency return is the difference between the USD/MYR initial spot rate and the USD/MYR final spot rate relative to the USD/MYR initial spot rate, expressed as a percentage and calculated as follows:

| MYR Currency
Return = |
| --- |
| USD/MYR Initial Spot Rate |

An increase in the value of the Malaysian ringgit relative to the U.S. dollar is expressed as a decrease in the USD/MYR spot rate.

The NOK Currency return is the difference between the USD/NOK initial spot rate and the USD/NOK final spot rate relative to the USD/NOK initial spot rate, expressed as a percentage and calculated as follows:

| NOK Currency
Return = |
| --- |
| USD/NOK Initial Spot Rate |

An increase in the value of the Norwegian krone relative to the U.S. dollar is expressed as a decrease in the USD/NOK spot rate.

The TRY Currency return is the difference between the USD/TRY initial spot rate and the USD/TRY final spot rate relative to the USD/TRY initial spot rate, expressed as a percentage and calculated as follows:

| TRY Currency
Return = |
| --- |
| USD/TRY Initial Spot Rate |

An increase in the value of the Turkish lira relative to the U.S. dollar is expressed as a decrease in the USD/TRY spot rate.

4

Step 2: Calculate the Final Basket Level.

The final basket level will be calculated as follows:

100 × [1 + (CAD Currency Return × 1/6) + (CNY Currency Return × 1/6) + (IDR Currency Return × 1/6) + (MYR Currency Return × 1/6) + (NOK Currency Return × 1/6) + (TRY Currency Return × 1/6)]

(In the hypothetical examples beginning on the following page we refer to this formula as the following: 100 (1 + Sum of weighted Currency Returns))

Step 3: Calculate the Basket Return.

Basket Return =
Initial Basket Level

5

Hypothetical Examples and Return Table

The following examples show scenarios for the payment at maturity of the Notes, illustrating positive and negative basket returns. The examples are based on a participation rate of 137%, as well as initial spot rates and hypothetical final spot rates (the actual final spot rates will be determined on the final valuation date), for the basket currencies, and the resulting basket return. The hypothetical final spot rate values for the basket currencies have been chosen arbitrarily for the purpose of illustration only, are not associated with UBS research forecasts for any basket currency’s exchange rate and should not be taken as an indication of the future performance of any basket currency. In some instances, values have been rounded for ease of analysis.

Example A: The level of the Basket increases from an Initial Basket Level of 100 to a Final Basket Level of 110.

Because the final basket level is 110 and the initial basket level is 100, the basket return is 10%, calculated as follows:

(110 – 100)/100 = 10%

Because the basket return is equal to 10%, which is positive, UBS will repay the principal amount and pay a return on the Notes equal to the product of the participation rate and the basket return for a payment at maturity equal to $11.37 per Note, calculated as follows:

$10.00 + ($10.00 × 137% × 10%) = $11.37

The table below illustrates how the final basket level in the above example was calculated:

Basket Currency	Initial Spot Rate	Hypothetical Final Spot Rate	Currency Return	Basket Currency Weighting	Weighted Currency Return
CAD	0.9950	0.8955	10.00 %	1/6	1.67%
CNY	6.5820	5.5947	15.00 %	1/6	2.50%
IDR	9,030.0000	9,210.6000	-2.00 %	1/6	-0.33%
MYR	3.0500	2.5010	18.00 %	1/6	3.00%
NOK	5.7576	5.2394	9.00 %	1/6	1.50%
TRY	1.5758	1.4182	10.00 %	1/6	1.67%
		Sum of weighted Currency Returns =			10.00%
Final Basket Level = 100 (1 + Sum of
weighted Currency Returns) =					110.00

Example B: The level of the Basket decreases from an Initial Basket Level of 100 to a Final Basket Level of 95.

Because the final basket level is 95 and the initial basket level is 100, the basket return is -5%, calculated as follows:

(95 – 100)/100 = -5%

Because the basket return is equal to -5%, which is negative, UBS will repay less than the principal amount resulting in a loss that is proportionate to the basket return up to -10%, for payment at maturity equal to $9.50 per Note (a loss of 5%), calculated as follows:

$10.00 + ($10.00 × -5%) = $9.50

The table below illustrates how the final basket level in the above example was calculated:

Basket Currency	Initial Spot Rate	Hypothetical Final Spot Rate	Currency Return	Basket Currency Weighting	Weighted Currency Return
CAD	0.9950	0.9751	2.00%	1/6	0.33%
CNY	6.5820	6.5162	1.00%	1/6	0.17%
IDR	9,030.0000	9,752.4000	-8.00%	1/6	-1.33%
MYR	3.0500	3.3550	-10.00%	1/6	-1.67%
NOK	5.7576	6.4485	-12.00%	1/6	-2.00%
TRY	1.5758	1.6231	-3.00%	1/6	-0.50%
		Sum of weighted Currency Returns =			-5.00%
Final Basket Level = 100 (1 + Sum of
weighted Currency Returns) =					95.00

6

Example C: The level of the Basket decreases from an Initial Basket Level of 100 to a Final Basket Level of 80.

Because the final basket level is 80 and the initial basket level is 100, the basket return is -20%, calculated as follows:

(80 – 100)/100 = -20%

Because the basket return is equal to -20%, which is less than -10%, UBS will repay 90% of the principal amount for a payment at maturity equal to $9.00 per Note (a loss of 10%).

The table below illustrates how the final basket level in the above example was calculated:

Basket Currency	Initial Spot Rate	Hypothetical Final Spot Rate	Currency Return	Basket Currency Weighting	Weighted Currency Return
CAD	0.9950	1.1940	-20.00 %	1/6	-3.33%
CNY	6.5820	8.2275	-25.00 %	1/6	-4.17%
IDR	9,030.0000	10,655.4000	-18.00 %	1/6	-3.00%
MYR	3.0500	3.5075	-15.00 %	1/6	-2.50%
NOK	5.7576	7.0243	-22.00 %	1/6	-3.67%
TRY	1.5758	1.8910	-20.00 %	1/6	-3.33%
		Sum of weighted Currency Returns =			-20.00%
Final Basket Level = 100 (1 + Sum of
weighted Currency Returns )=					80.00

The following return table and graph illustrate the hypothetical payment amount at maturity per Note for a range of basket returns with a participation rate of 137%. The numbers appearing in the table and graph below have been rounded for ease of analysis.

Final Basket Level	Basket Return		Total Return
200.00	100 %	$23.70	137.00 %
190.00	90 %	$22.33	123.30 %
180.00	80 %	$20.96	109.60 %
170.00	70 %	$19.59	95.90 %
160.00	60 %	$18.22	82.20 %
150.00	50 %	$16.85	68.50 %
140.00	40 %	$15.48	54.80 %
130.00	30 %	$14.11	41.10 %
120.00	20 %	$12.74	27.40 %
110.00	10 %	$11.37	13.70 %
105.00	5 %	$10.69	6.85 %
100.00	0 %	$10.00	0.00 %
95.00	-5 %	$9.50	-5.00 %
90.00	-10 %	$9.00	-10.00 %
80.00	-20 %	$9.00	-10.00 %
70.00	-30 %	$9.00	-10.00 %
60.00	-40 %	$9.00	-10.00 %
50.00	-50 %	$9.00	-10.00 %
40.00	-60 %	$9.00	-10.00 %
30.00	-70 %	$9.00	-10.00 %
20.00	-80 %	$9.00	-10.00 %
10.00	-90 %	$9.00	-10.00 %
0.00	-100 %	$9.00	-10.00 %

7

8

Historical Foreign Exchange Rate Levels

The following graphs show the performance of each basket currency at the end of each month in the periods from January 26, 2001 through January 26, 2011. As of January 26, 2011 at 11:55 a.m. New York City time, each of the basket currency spot rates were obtained from observing trades through Electronic Broking Services, Reuters Dealings 3000 and various voice brokers: the USD/CAD spot rate was 0.9950, the USD/CNY spot rate was 6.5820, the USD/IDR spot rate was 9,030.0000, the USD/MYR spot rate was 3.0500, the USD/NOK spot rate was 5.7576 and the USD/TRY spot rate was 1.5785. For purposes of the Notes, the initial basket level was indexed to 100 on the trade date. The historical performance of each basket currency should not be taken as an indication of future performance, and no assurance can be given as to the level of each basket currency on any given day.

Historical Basket Currency Foreign Exchange Rate Levels

A decline in the exchange rate level of any basket currency (meaning that the U.S. dollar weakens vs. such basket currency) will have a positive impact on the basket return. An increase in the exchange rate level of any basket currency (meaning that the U.S. dollar strengthens vs. such basket currency) will have a negative impact on the basket return.

Historical USD/CAD Exchange Rate Level

Historical USD/CNY Exchange Rate Level

9

Historical USD/IDR Exchange Rate Level

Historical USD/MYR Exchange Rate Level

10

Historical USD/NOK Exchange Rate Level

Historical USD/TRY Exchange Rate Level

11

Key Risks

An investment in the Notes involves significant risks. Some of the risks that apply to the Notes are summarized here, but we urge you to read the more detailed explanation of risks relating to the Notes generally in the “Risk Factors” section of the product supplement and the currency and commodity supplement. We also urge you to consult your investment, legal, tax, accounting and other advisors before you invest in the Notes.

| ¨ | Risk
of loss at maturity —The Notes differ from those of ordinary debt
securities in that we will not necessarily repay the full principal amount of
the Notes at maturity. Instead, we will pay you in cash at maturity an amount
based on the performance of the basket currencies. If the basket return is
less than zero you will lose up to 10% of your initial investment in a manner
proportionate to the first 10% decline in the basket return. |
| --- | --- |
| ¨ | Repayment
of at least 90% of your principal amount applies only if you hold the Notes
to maturity —You should be willing to hold your Notes to maturity. UBS will pay
you at least 90% of the principal amount of your Notes only if you hold your
Notes to maturity. The market value of the Notes may fluctuate between the
date you purchase them and the final valuation date. If you are able to sell
your Notes prior to maturity in the secondary market, you may have to sell
them at a loss relative to your initial investment even if the basket level
has increased and you may have to sell them at a loss of more than 10%. |
| ¨ | The
participation rate applies only at maturity —You should be willing to hold
your Notes to maturity. If you are able to sell your Notes prior to maturity
in the secondary market, the price you receive will likely not reflect the
full effect of the participation rate and the return you realize may be less
than the basket’s return even if such return is positive. |
| ¨ | Market
risk —The
return on the Notes at maturity is linked to the depreciation of the U.S.
dollar relative to the basket currencies, and will depend on whether, and the
extent to which, the U.S. dollar depreciates against such currencies during
the term of the Notes. The value of the basket will be affected by movements
in the exchange rates of the basket currencies relative to the U.S. dollar.
The exchange rates for the basket currencies relative to the U.S. dollar are
the result of the supply of, and the demand for, those basket currencies.
Changes in the exchange rates result over time from the interaction of many
factors directly or indirectly affecting economic and political conditions in
the country of each basket currency and the United States, including economic
and political developments in other countries. Of particular importance to
foreign exchange risk are: existing and expected rates of inflation; existing
and expected interest rate levels; the balance of payments; and the extent of
governmental surpluses or deficits in the relevant foreign country and the
United States. All of these factors are in turn sensitive to the monetary,
fiscal and trade policies pursued by the governments of various countries and
the United States and other countries important to international trade and
finance. You, as an investor in the Notes, should make your own investigation
into the respective basket currencies and the merits of an investment linked
to the basket. |
| ¨ | No
interest payments —UBS will not pay any interest with respect to the
Notes. |
| ¨ | The
Notes are not deposit liabilities or other obligations of a bank and are not
insured by the Federal Deposit Insurance Corporation or any other
governmental agency or program of the United States or any other
jurisdiction. |
| ¨ | Credit
risk of UBS —The Notes are unsubordinated, unsecured debt obligations of the
issuer and are not, either directly or indirectly, an obligation of any third
party. Any payment to be made on the Notes, including any repayment of
principal, depends on the ability of UBS to satisfy its obligations as they come
due. As a result, the actual and perceived creditworthiness of UBS may affect
the market value of the Notes and, in the event UBS were to default on its
obligations, you may not receive any amounts owed to you under the terms of
the Notes and you could lose your entire initial investment. |
| ¨ | The
formula for calculating the payment at maturity of the Notes will not take
into account all developments in the basket currencies —Changes in the exchange rates for
the basket currencies relative to the U.S. dollar during the term of the
Notes before the final valuation date may not be reflected in the calculation
of payment at maturity. Generally, the calculation agent will calculate the
payment at maturity by comparing only the initial basket level on the trade
date and the final basket level on the final valuation date. No other levels
will be taken into account. As a result, the basket return may be less than
zero even if the relevant exchange rates for the basket currencies have moved
favorably at certain times during the term of the Notes before moving to an
unfavorable level on the final valuation date. |
| ¨ | Changes
in the value of the basket currencies may offset each other —The Notes are linked to an
equally weighted basket composed of the basket currencies. At a time when the
value of one or more basket currencies relative to the U.S. dollar increases,
the value of one or more of the other basket currencies relative to the U.S.
dollar may not increase as much or may even decline. Therefore, in calculating
the final basket level, increases in the value of one or more of the basket
currencies relative to the U.S. dollar may be moderated, or offset, by lesser
increases or declines in the value of one or more of the other basket
currencies relative to the U.S. dollar. |
| ¨ | The
amount you receive at maturity may result in a return that is less than the
yield on a standard debt security of comparable maturity —The amount you receive at
maturity may result in a return that is less than the return you could earn
on other investments. For example, your return on the Notes may be lower than
the yield you would earn if you bought a standard U.S. dollar-denominated
unsubordinated non-callable debt security of UBS with the same stated
maturity date. |
| ¨ | No
assurance that the investment view implicit in the Notes will be successful —It is impossible to predict
whether the level of the basket will rise or fall. The value of the basket
currencies relative to the U.S. dollar will be influenced by complex and
interrelated political, economic, financial and other factors that affect the
respective basket currencies and the U.S. dollar. You should be willing to
assume the risk that you may not receive any positive return on your Notes
and you may lose up to 10% of your initial investment. |
| ¨ | Owning
the Notes is not the same as owning the individual basket currencies —The return on your Notes may not
reflect the return you would realize if you actually converted your U.S.
dollars into or purchased a foreign exchange contract on the Canadian dollar,
Chinese renminbi, Indonesian rupiah, Malaysian ringgit, Norwegian krone and
Turkish lira. |

12

| ¨ | There
may be little or no secondary market for the Notes —The Notes will not be listed or
displayed on any securities exchange or any electronic communications
network. There can be no assurance that a secondary market for the Notes will
develop. UBS Securities LLC and other affiliates of UBS may make a market in
the Notes, although they are not required to do so and may stop making a market
at any time. If you sell your Notes prior to maturity, you may have to sell
them at a substantial loss. | |
| --- | --- | --- |
| ¨ | The
inclusion of commissions, compensation and projected profits from hedging in
the original issue price is likely to adversely affect secondary market
prices —Assuming no change in market conditions or any other relevant
factors, the price, if any, at which UBS Securities LLC or its affiliates are
willing to purchase the Notes in secondary market transactions will likely be
lower than the issue price to public, since the issue price to public
included, and secondary market prices are likely to exclude, commissions or
other compensation paid with respect to the Notes, as well as the projected
profit included in the cost of hedging our obligations under the Notes. In
addition, any such prices may differ from values determined by pricing models
used by UBS Securities LLC or its affiliates, as a result of dealer
discounts, mark-ups or other transactions. | |
| ¨ | The
market value of the Notes may be influenced by unpredictable factors —The market value of your Notes
may fluctuate between the date you purchase them and the final valuation date
when the calculation agent will determine your payment at maturity. Several
factors, many of which are beyond our control, will influence the market
value of the Notes. We expect that generally the USD/ CAD spot rate, the
USD/CNY spot rate, USD/IDR spot rate, USD/MYR spot rate, the USD/NOK spot
rate and the USD/TRY spot rate on any day will affect the market value of the
Notes more than any other single factor. Other factors that may influence the
market value of the Notes include: | |
| | ¨ | supply and demand
for the Notes, including inventory positions held by UBS Securities LLC, UBS
Financial Services Inc. or any other market maker; |
| | ¨ | Canadian dollar,
Chinese renminbi, Indonesian rupiah, Malaysian ringgit, Norwegian krone,
Turkish lira and U.S. dollar interest rates; |
| | ¨ | the time remaining
to the final valuation date; |
| | ¨ | the
creditworthiness of UBS; and |
| | ¨ | volatility of the
USD/CAD spot rate, the USD/CNY spot rate, the USD/IDR spot rate, the USD/MYR
spot rate, the USD/NOK spot rate and the USD/TRY spot rate. |
| ¨ | Information
on the basket currencies may not be readily available —There is no systematic reporting
of last-sale information for many currencies. Reasonable current bid and
offer information may be available in certain brokers’ offices, in bank
trading offices, and to others who wish to subscribe for this information,
but this information will not necessarily reflect the applicable foreign
exchange rate relevant for determining the value of the Notes. The absence of
last-sale information and the limited availability of quotations to
individual investors make it difficult for you and other investors to obtain
timely, accurate data about the state of the currency markets. Certain
relevant information relating to Canada, China, Indonesia, Malaysia, Norway
and Turkey may not be as well known or as rapidly or thoroughly reported in
the United States as comparable to U.S. developments. Prospective purchasers
of the Notes should be aware of the possible lack of availability of
important information that can affect the value of the basket currencies and
must be prepared to make special efforts to obtain such information on a
timely basis. | |
| ¨ | Even
though the Canadian dollar, the Chinese renminbi, the Indonesian rupiah, the
Malaysian ringgit, the Norwegian krone, the Turkish lira and the U.S. dollar
are traded around-the-clock, if a secondary market develops, the Notes may
trade only during regular trading hours in the United States —The spot market for the Canadian
dollar, the Chinese renminbi, the Indonesian rupiah, the Malaysian ringgit,
the Norwegian krone, the Turkish lira and the U.S. dollar is a global,
around-the-clock market. Therefore, the hours of trading for the Notes may
not conform to the hours during which the Canadian dollar, the Chinese
renminbi, the Indonesian rupiah, the Malaysian ringgit, the Norwegian krone,
the Turkish lira and the U.S. dollar are traded. To the extent that U.S.
markets are closed while the markets for the Canadian dollar, the Chinese
renminbi, the Indonesian rupiah, the Malaysian ringgit, the Norwegian krone
and the Turkish lira remain open, significant price and rate movements may
take place in such markets that will not be reflected immediately in the
price of the Notes on such U.S. market. | |
| ¨ | The
spot rates for the basket currencies will be influenced by unpredictable
factors which interrelate in complex ways —The USD/CAD spot rate, the
USD/CNY spot rate, the USD/IDR spot rate, the USD/MYR spot rate, the USD/NOK
spot rate and the USD/TRY spot rate are a result of the supply of, and demand
for, each currency. Changes in the foreign exchange rate may result from the
interactions of many factors, including economic, financial, social and
political conditions in the United States, Canada, China, Indonesia,
Malaysia, Norway and Turkey. These conditions include, for example, the
overall growth and performance of the economies of the United States, Canada,
China, Indonesia, Malaysia, Norway and Turkey, the relative strength of, and
confidence in, the U.S. dollar, the trade and current account balance between
the United States and Canada, China, Indonesia, Malaysia, Norway and Turkey,
market interventions by the Federal Reserve Board or the respective central
banks of Canada, China, Indonesia, Malaysia, Norway and Turkey, inflation and
expected rates of future inflation, interest rate levels, the performance of
the stock markets in the United States, Canada, China, Indonesia, Malaysia,
Norway and Turkey, the stability of the government of the United States and
the governments of Canada, China, Indonesia, Malaysia, Norway and Turkey and
their respective banking systems, the structure of and confidence in the
global monetary system, wars in which the United States, Canada, China,
Indonesia, Malaysia, Norway and Turkey are directly or indirectly involved or
that occur anywhere in the world, major natural disasters in the United States,
Canada, China, Indonesia, Malaysia, Norway and Turkey and other foreseeable
and unforeseeable global or regional economic, financial, political, judicial
or other events. It is not possible to predict the aggregate effect of all or
any combination of these factors. Your Notes are likely to trade differently
from the exchange rates of the basket currencies relative to the U.S. dollar,
and changes in the exchange rates of the basket currencies relative to the
U.S. dollar are not likely to result in comparable changes in the market
value of your Notes. | |
| ¨ | The
liquidity, trading value and amounts payable under the Notes could be
affected by the actions of sovereign governments of the United States,
Canada, China, Indonesia, Malaysia, Norway and Turkey —Exchange rates of most | |

13

| | economically
developed nations, including the United States, Canada, Norway and Turkey are
“floating,” meaning they are permitted to fluctuate in value relative to the
U.S. dollar. However, governments of other nations such as China, Indonesia
and Malaysia from time to time, do not allow their currencies to float freely
in response to economic forces. Governments, including Canada’s, China’s,
Indonesia’s, Malaysia’s, Norway’s and Turkey’s, use a variety of techniques,
such as intervention by their central bank or imposition of regulatory
controls or taxes, to affect the exchange rates of their respective
currencies. Governments may also issue a new currency to replace an existing
currency or alter the exchange rate or relative exchange characteristics by
devaluation or revaluation of a currency. Thus, a special risk in purchasing
the Notes is that their liquidity, trading value and amounts payable could be
affected by the actions of sovereign governments of Canada, China, Indonesia,
Malaysia, Norway and Turkey, which could change or interfere with freely
determined currency valuation, fluctuations in response to other market
forces and the movement of currencies across borders. There will be no
adjustment or change in the terms of the Notes in the event that exchange
rates should become fixed, or in the event of the issuance of a replacement
currency or in the event of other developments affecting the Canadian dollar,
the Chinese renminbi, the Indonesian rupiah, the Malaysian ringgit, the
Norwegian krone, the Turkish lira, and the U.S. dollar or any other currency. |
| --- | --- |
| ¨ | Legal
and regulatory risks —Legal and regulatory changes could adversely
affect foreign exchange rates. In addition, many government agencies and
regulatory organizations are authorized to take extraordinary actions in the
event of market emergencies. It is not possible to predict the effect of any
future legal or regulatory action relating to foreign exchange rates, but any
such action could cause unexpected volatility and instability in currency
markets with a substantial and adverse effect on the performance of the
basket and, consequently, on the value of the Notes. |
| ¨ | Currency
markets may be volatile —Currency markets may be highly volatile,
particularly in relation to emerging or developing nations’ currencies, and,
in certain market conditions, also in relation to developed nations’
currencies. Significant changes, including changes in liquidity and prices,
can occur in such markets within very short periods of time. Foreign exchange
rate risks include, but are not limited to, convertibility risk and market
volatility and potential interference by foreign governments through
regulation of local markets, foreign investment or particular transactions in
foreign currency. The liquidity, trading value and amount payable under the
Notes could be affected by action of the governments of Canada, China,
Indonesia, Malaysia, Norway and Turkey. These factors may affect the value of
the basket currencies relative to the U.S. dollar and the value of your Notes
in varying ways, and different factors may cause the values of the basket
currencies, as well as the volatility of their exchange rates, to move in
inconsistent directions at inconsistent rates. |
| ¨ | The
calculation agent can make adjustments that affect the basket currencies and
may adversely affect the value of the Notes —The calculation agent may make
certain adjustments or determinations upon certain events that may effect a
basket currency. |
| | Market
Disruption: If a basket currency is no longer available or becomes subject to the
imposition of exchange controls or other circumstances beyond UBS’s direct
control or is no longer used for settlement of transactions by financial
institutions in the international banking community or the foreign exchange
market, or if there is no spot exchange rate for the applicable currency
pair, the calculation agent will make all determinations in respect of the
affected basket currency as appropriate to account for the economic effect of
that event taking into consideration all available information that it deems
relevant. |
| | Substitute
Currency: If a basket currency is converted into another currency, or another
currency is substituted for another currency (in each case the “new
currency”) pursuant to applicable law or regulation (the “relevant law”),
such basket currency shall be substituted by the new currency for all
purposes of the Notes at the conversion rate prescribed in the relevant law
at the time of such substitution. |
| | The occurrence of
these events and the consequent adjustments may materially and adversely
affect your return on the Notes. |
| ¨ | Emerging
markets risk: Three of the basket currencies are emerging market
currencies. The possibility exists of significant changes in rates of exchange
between a non-emerging market currency and an emerging market currency or
between emerging market currencies and the possibility of the imposition or
modification of exchange controls by either the U.S. or a foreign government.
Such risks generally depend on economic and political events over which UBS
has no control and such risks may be more pronounced in connection with
emerging market currencies. Governments in emerging market countries have
imposed from time to time, and may in the future impose, exchange controls
which could affect exchange rates as well as the availability of a currency
at the time of payment. You must be willing to accept that fluctuations in
spot exchange rates involving one or more emerging market currencies that
have occurred in the past are not necessarily indicative of fluctuations that
can occur during the term of this investment and that the volatility inherent
in emerging market currency transactions could significantly affect the
overall return on your investment in the Notes. |
| ¨ | Historical
performance of the basket currencies should not be taken as an indication of
its future performance of the basket currencies during the term of the Notes —It is impossible to predict
whether any of the basket currencies will rise or fall. The basket currencies
will be influenced by complex and interrelated political, economic, financial
and other factors. |
| ¨ | Trading
and other transactions by UBS or its affiliates in the foreign exchange and
currency derivative market may impair the value of the Notes —We or one or more of our
affiliates may hedge our foreign currency exposure from the Notes by entering
into foreign exchange and currency derivative transactions, such as options
or futures related to the basket currencies. Our trading and hedging
activities may affect the USD/CAD spot rate, the USD/CNY spot rate, the
USD/IDR spot rate, the USD/MYR spot rate, the USD/ NOK spot rate and the
USD/TRY spot rate and make it less likely that you will receive a return on
your investment in the Notes. It is possible that we or our affiliates could
receive substantial returns from these hedging activities while the market
value of the Notes declines. |
| | We or our
affiliates may also engage in trading in instruments linked to the USD/CAD
spot rate, the USD/CNY spot rate, the USD/IDR spot rate, the USD/MYR spot
rate, the USD/NOK spot rate and the USD/TRY spot rate on a regular basis as
part of our general foreign exchange trading and services and other
businesses, for proprietary accounts, for other accounts under management or
to facilitate transactions for customers. UBS or its affiliates may also
issue or underwrite other securities or financial or derivative instruments
with returns linked or related to changes in the USD/CAD spot rate, the USD/CNY
spot rate, the USD/IDR spot rate, the USD/MYR spot rate, the USD/NOK spot
rate and the USD/TRY spot rate. By introducing competing products into the
marketplace in this manner, UBS or its affiliates could adversely affect the
market value of the Notes. |

14

| ¨ | There
are potential conflicts of interest between you and the calculation agent —Our affiliate, UBS Securities
LLC, will serve as the calculation agent. UBS Securities LLC will, among
other things, decide the amount paid out to you on the Notes at maturity. For
a fuller description of the calculation agent’s role, see “General Terms of
the Notes—Role of Calculation Agent” on page PS-26 of the product supplement.
The calculation agent will exercise its judgment when performing its
functions. For example, the calculation agent may have to determine whether a
market disruption event affecting the basket currencies has occurred or is
continuing on a day when the calculation agent will determine the final spot
rate for a particular basket currency. This determination may, in turn,
depend on the calculation agent’s judgment whether the event has materially
interfered with our ability to unwind our hedge positions. Since these
determinations by the calculation agent may affect the market value of the Notes
and your payment at maturity, the calculation agent may have a conflict of
interest if it needs to make any such decision. |
| --- | --- |
| ¨ | The
calculation agent can accelerate or postpone the determination of the final
basket level and the maturity date, if a market disruption event occurs on
the final valuation date —If the calculation agent determines that a market
disruption event has occurred or is continuing with respect to a basket
currency on the final valuation date, the final valuation date will be
accelerated or postponed with respect to such basket currency until the first
business day on which no market disruption event occurs or is continuing. If
such an acceleration or postponement occurs, then the calculation agent will
instead determine the final basket level with reference to the final spot
rate of the affected basket currency on the first business day after that day
on which no market disruption event occurs or is continuing with respect to
such basket currency. In no event, however, will the final valuation date be
postponed by more than 10 consecutive days for the calculation of the
USD/CAD, USD/NOK and USD/TRY spot rates and 17 consecutive days for the
calculation of the USD/CNY, USD/IDR and USD/MYR spot rates. As a result, the
maturity date for the Notes could also be accelerated or postponed. |
| | If the final
valuation date is postponed to the last possible day, but a market disruption
event occurs or is continuing on that day, that day will nevertheless be the
final valuation date for such basket currency. If the final spot rate of such
basket currency is not available on the last possible day that qualifies as
the final valuation date, either because of a market disruption event or for
any other reason, the calculation agent will make an estimate of the final
basket that would have prevailed in the absence of the market disruption
event or such other reason. |
| | If no market
disruption event with respect to a particular basket currency occurs or is
continuing on the final valuation date, then the determination of the final
spot rate for such basket currency will be made on the originally scheduled
final valuation date, irrespective of the occurrence of a market disruption
event with respect to one or more of the other basket currencies. |
| | See “General Terms
of the Notes—Market Disruption Event” on page PS-22 of the product supplement
and the descriptions of additional market disruption events applicable to
USD/CNY, USD/IRY and USD/MYR, respectively, on pages CCS-15, CCS-18 and
CCS-20 of the currency and commodity supplement. |
| ¨ | The
business activities of UBS or its affiliates may create conflicts of interest —We and our affiliates expect to
engage in trading activities related to the Canadian dollar, the Chinese
renminbi, the Indonesian rupiah, the Malaysian ringgit, the Norwegian krone
and the Turkish lira that are not for the account of holders of the Notes or
on their behalf. These trading activities may present a conflict between the
holders’ interest in the Notes and the interests of UBS and its affiliates
will have in their proprietary accounts, in facilitating transactions,
including options and other derivatives transactions for their customers and
in accounts under their management. |
| ¨ | Potentially
inconsistent research, opinions or recommendations by UBS —We and our affiliates may publish
research, express opinions or provide recommendations that are inconsistent
with investing in or holding the Notes, and which may be revised at any time.
Any such research, opinions or recommendations could affect the level of the
basket to which the Notes are linked or the value of the Notes. |
| ¨ | You
must rely on your own evaluation of the merits of an investment linked to the
basket currencies —In the ordinary course of business, UBS or one or
more of its affiliates from time to time expresses views on expected
movements in foreign currency exchange rates. These views are sometimes
communicated to clients who participate in foreign exchange markets. However,
these views, depending upon world-wide economic, political and other
developments, may vary over differing time-horizons and are subject to
change. Moreover, other professionals who deal in foreign currencies may at
any time have significantly different views from views of UBS or those of its
affiliates. For reasons such as these, UBS believes that most investors in
foreign exchange markets derive information concerning those markets from
multiple sources. In connection with your purchase of the Notes, you should
investigate the foreign exchange markets and not rely on views which may be
expressed by UBS or its affiliates in the ordinary course of business with
respect to future foreign exchange rates. |
| ¨ | For
United States federal income tax purposes, the Notes should be treated as
debt instruments subject to special rules governing contingent payment debt
obligations —The Notes should be treated as debt instruments subject to special
rules governing contingent payment debt obligations for United States federal
income tax purposes. If you are a U.S. individual or taxable entity, you
generally will be required to pay taxes on ordinary income from the Notes
over their term based on the comparable yield for the Notes, even though you
will not receive any payments from us until maturity. This comparable yield
is determined solely to calculate the amount on which you will be taxed prior
to maturity and is neither a prediction nor a guarantee of what the actual
yield will be. In addition, any gain you may recognize on the sale or
maturity of the Notes will be taxed as ordinary interest income. If you are a
secondary purchaser of the Notes, the tax consequences to you may be
different. Please see “What are the tax consequences of the Notes” below for
a more detailed discussion. Please also consult your own tax advisor
concerning the U.S. federal income tax and any other applicable tax
consequences to you of owning your Notes in your particular circumstances. |
| You are urged to review “Risk Factors” in the product supplement for
a more detailed description of the risks related to an investment in the
Notes. | |

15

What are the tax consequences of the Notes?

The tax treatment of your Notes is generally described under “1. Notes Treated as Long-Term Contingent Payment Debt Obligations” in “Supplemental U.S. Tax Considerations” on page PS-29 of the product supplement. The discussion below supplements and, to the extent inconsistent, replaces the discussion in the product supplement. We urge you to read the more detailed discussion in the product supplement.

In the opinion of Cadwalader, Wickersham & Taft LLP, the Notes should be treated as a debt instrument subject to special rules governing contingent payment debt obligations for United States federal income tax purposes, and the rest of this discussion assumes such treatment is respected.

Under the contingent payment debt obligation rules, regardless of your method of accounting, the amount of interest you are required to take into account for each accrual period will be determined by constructing a projected payment schedule for the Notes, and applying the rules similar to those for accruing original issue discount on a hypothetical noncontingent debt instrument with that projected payment schedule. This method is applied by first determining the yield at which we would issue a noncontingent fixed rate debt instrument with terms and conditions similar to the Notes (the “comparable yield”) and then determining a payment schedule as of the issue date that would produce the comparable yield. These rules will generally have the effect of requiring you to include in income amounts in respect of the Notes prior to your receipt of cash attributable to that income. Your cost basis in your Notes will be increased by the amount you are required to include in income.

We have determined the comparable yield for the Notes is equal to 0.6330% per annum, compounded semiannually, with a projected payment at maturity of $10.13 based on an investment of $10.00. Based upon this comparable yield, if you are an initial holder that holds a Note until the scheduled maturity and you pay your taxes on a calendar year basis, we have determined that you would generally be required to pay taxes on the following amounts of ordinary income from the Note each year: $0.06 in 2011, $0.06 in 2012 and $0.01 in 2013. However, if the amount you receive at maturity is greater than $10.13, you would be required to make a positive adjustment and increase the amount of ordinary income that you recognize in 2013 by an amount that is equal to such excess. Conversely, if the amount you receive at maturity is less than $10.13, you would be required to make a negative adjustment and decrease the amount of ordinary income that you recognize in 2013 by an amount that is equal to such difference. If the amount you receive at maturity is less than $10.12, then you would recognize a net ordinary loss in 2013 in an amount equal to such difference (except to the extent the amount you receive is less than $10.00, in which case you would recognize capital loss). This comparable yield is neither a prediction nor a guarantee of what the actual payment you receive will be, or that the actual payment you receive will even exceed the full principal amount.

You are required to use the comparable yield and projected payment schedule set forth above in determining your interest accruals in respect of the Notes, unless you timely disclose and justify on your federal income tax return the use of a different comparable yield and projected payment schedule.

The comparable yield and projected payment schedule are not provided to you for any purpose other than the determination of your interest accruals in respect of the Notes, and we make no representations regarding the amount of contingent payments with respect to the Notes.

Any gain recognized on the sale or exchange of your Notes will generally be ordinary income and any loss on such Notes will generally be ordinary loss to the extent of interest you include as income in the current or previous tax years in respect of your Notes and, thereafter, capital loss.

Information with Respect to Foreign Financial Assets . Under recently enacted legislation, individuals that own “specified foreign financial assets” with an aggregate value in excess of $50,000 in taxable years beginning after March 18, 2010 will generally be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions (which includes the Notes), as well as any of the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts held for investment that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. Individuals are urged to consult their tax advisors regarding the application of this legislation to their ownership of the Notes.

Medicare Tax. For taxable years beginning after December 31, 2012, a U.S. holder that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, will be subject to a 3.8% tax (the “Medicare tax”) on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals will be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. holder’s net investment income will generally include its gross interest income and its net gains from the sale, redemption, or maturity of Notes, unless such interest payments or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If you are a U.S. holder that is an individual, estate or trust, you are urged to consult your tax advisors regarding the applicability of the Medicare tax to your income and gains in respect of your investment in the Notes.

Backup Withholding and Information Reporting. Please see the discussion under “Supplemental U.S. Tax Considerations—Disclosure Applicable to all Notes” in the accompanying product supplement for a description of the applicability of the backup withholding and information reporting rules to payments made on the Notes. In addition, pursuant to recently enacted legislation, payments on the Notes made to corporate U.S. holders after December 31, 2011 may be subject to information reporting and backup withholding.

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Supplemental Plan of Distribution (Conflicts of Interest)

We have agreed to sell to UBS Financial Services Inc. and certain of its affiliates, together the “Agents,” and the Agents have agreed to purchase, all of the Notes at the price indicated on the cover of this pricing supplement, the document filed pursuant to Rule 424(b) containing the final pricing terms of the Notes.

We or one of our affiliates may enter into swap agreements or related hedge transactions with one of our other affiliates or unaffiliated counterparties in connection with the sale of the Notes and UBS or its affiliates may earn additional income as a result of payments pursuant to the swap or related hedge transactions.

Conflicts of Interest —UBS Securities LLC and UBS Financial Services Inc. are affiliates of UBS and, as such, have a “conflict of interest” in this offering within the meaning of FINRA Rule 5121 In addition, UBS will receive the net proceeds (excluding the underwriting discount) from the initial public offering of the Notes, thus creating an additional conflict of interest within the meaning of Rule 5121. Consequently, the offering is being conducted in compliance with the provisions of Rule 5121. Neither UBS Securities LLC nor UBS Financial Services Inc. is permitted to sell Notes in this offering to an account over which it exercises discretionary authority without the prior specific written approval of the account holder.

Structured Product Categorization

To help investors identify appropriate Structured Products (“Structured Products”), UBS organizes its Structured Products into four categories: Protection Strategies, Optimization Strategies, Performance Strategies and Leverage Strategies. The Notes are classified by UBS as a Protection Strategy for this purpose. The description below is intended to describe generally the four categories of Structured Products and the types of principal repayment features that may be offered on those products. This description should not be relied upon as a description of any particular Structured Product.

| Ø | Protection Strategies are structured to complement and provide the
potential to outperform traditional fixed income instruments. These
Structured Products are generally designed for investors with low to moderate
risk tolerances. |
| --- | --- |
| Ø | Optimization Strategies provide the opportunity to enhance market returns
or yields and can be structured with full downside market exposure or with
buffered or contingent downside market exposure. These structured products
are generally designed for investors who can tolerate downside market risk. |
| Ø | Performance Strategies provide efficient access to markets and can be
structured with full downside market exposure or with buffered or contingent
downside market exposure. These structured products are generally designed
for investors who can tolerate downside market risk. |
| Ø | Leverage Strategies provide leveraged exposure to the performance of
an underlying asset. These Structured Products are generally designed for
investors with high risk tolerances. |

In order to benefit from any type of principal repayment feature, investors must hold the Notes to maturity.

Classification of Structured Products into categories is for informational purposes only and is not intended to guarantee particular results or performance.

The returns on UBS structured products are linked to the performance of the relevant underlying asset or index. Investing in a structured product is not equivalent to investing directly in the underlying asset or index. Before investing, investors should carefully read the detailed explanation of risks, together with other information in the relevant offering materials discussed above, including but not limited to information concerning the tax treatment of the investment. UBS AG has filed a registration statement (including a prospectus, as supplemented by a product supplement and a currency and commodity supplement for the various securities we may offer, including the Notes) with the SEC for the offering to which this communication relates. Before you invest, you should read these documents and other documents UBS AG has filed with the SEC for more complete information about UBS AG and this offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov or by calling toll-free 800-722-7370.

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