UBS Handbook

ab
Handbook 2005/2006
ab
UBS Handbook 2005/2006
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com
Cautionary statement regarding forward-looking statements | This communication contains statements that constitute
forward-looking statements, including, but not limited to, statements relating to the implementation of strategic initiatives, such
as the European wealth management business, and other statements relating to our future business development and economic
performance.While these forward-looking statements represent our judgments and future expectations concerning the development
of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ
materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental
and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3)
competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers,
obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management
changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our
business and financial performance which are contained in other parts of this document and in our past and future filings and
reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document
and in documents furnished by UBS and filings made by UBS with the SEC, including UBSs Annual Report on Form 20-F for the year
ended 31 December 2005. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its
On the cover forward-looking statements whether as a result of new information, future events, or otherwise.
Together the world's most powerful team.
What You & Us means to Gary Wai Bong Chan, who works for us in Tokyo. Imprint | Publisher / Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80532E-0601
Introduction 1
UBS financial highlights
UBS at a glance
2
3
Introduction
Sources of information about UBS 4
Contacts 6
This is the sixth annual edition of our Handbook.
UBS 7
Strategy and structure 8 In it, we describe ourselves our strategy, organization, and
Industry trends 14 businesses. We outline the principles by which we manage
The making of UBS 17 risk, and report on last years developments in our credit risk,
market risk, and treasury management areas. This year, we
Our employees 19 have added a section, starting on page 19, which describes
The UBS workforce 20 the relationship between UBS and its employees.
Our Businesses 27 As in previous years, the Handbook also discusses our corpo-
Global Wealth Management & rate governance arrangements and our relationships with
Business Banking 28 regulators and shareholders, and provides comprehensive in-
Global Asset Management 39 formation on UBS shares.
Investment Bank 43
Corporate Center 48 You should read the Handbook in conjunction with the other
Industrial Holdings 51 information published by UBS, as described on page 4.
Financial Management 53 We sincerely hope that you will find our publications useful
Risk management and control 54 and informative. We believe that UBS is one of the leaders in
Credit risk 57 corporate disclosure, and we would be keen to hear your
Market risk 70 views on how we might improve the content, information or
Liquidity and funding management 80 presentation of our products.
Operational risk 83
Motor-Columbus 85 Tom Hill
Chief Communication Officer
Capital Management & UBS Shares 87 UBS
Capital management 88
Treasury shares 90
Dividends 92
UBS shares in 2005 94
Corporate Governance 97
Introduction and principles 98
Group structure and shareholders 99
Capital structure 101
Board of Directors 103
Group Executive Board 110
Compensation, shareholdings and loans 114
Shareholders participation rights 122
Change of control and defense measures 124
Auditors 125
Information policy 127
Regulation and supervision 129
Compliance with NYSE listing standards on
corporate governance 132
Senior leadership 135
Corporate Responsibility 137
Global Reporting Initiative Content Index 147
1
Introduction
UBS nancial highlights
UBS income statement For the year ended % change from

CHF million, except where indicated 31.12.05 31.12.04 31.12.03 31.12.04
Net profit attributable to UBS shareholders 14,029 8,016 5,904 75
Basic earnings per share (CHF) 1 13.93 7.78 5.44 79
Diluted earnings per share (CHF) 1 13.36 7.40 5.19 81
Return on equity attributable to UBS shareholders (%) 2 39.4 25.5 17.8
Performance indicators from continuing operations 3

Basic earnings per share (CHF) 1 9.78 8.02 5.72 22
Return on equity attributable to UBS shareholders (%) 4 27.6 26.3 18.8
Financial Businesses 5
Operating income 39,896 35,971 32,957 11
Operating expenses 27,704 26,149 25,397 6
Cost / income ratio (%) 6 70.1 73.2 76.8
Net new money, wealth management businesses (CHF billion) 7 95.1 60.4 44.0
Personnel (full-time equivalents) 69,569 67,407 65,879 3
Pre-goodwill earnings from continuing operations 3
Operating income 39,896 35,971 32,957 11

Operating expenses 27,704 25,503 24,720 9
Cost / income ratio (%) 6 70.1 71.4 74.8
UBS balance sheet & capital management As at % change from

CHF million, except where indicated 31.12.05 31.12.04 31.12.03 31.12.04
Balance sheet key figures
Total assets 2,060,250 1,737,118 1,553,979 19
Equity attributable to UBS shareholders 44,324 33,941 33,659 31
Market capitalization 131,949 103,638 95,401 27
BIS capital ratios
Tier 1 (%) 8 12.9 11.9 12.0
Total BIS (%) 14.1 13.8 13.5
Risk-weighted assets 310,409 264,832 252,398 17
Invested assets (CHF billion) 2,652 2,217 2,098 20
Long-term ratings
Fitch, London AA+ AA+ AA+
Moodys, New York Aa2 Aa2 Aa2
Standard & Poors, New York AA+ AA+ AA+
1 For the EPS calculation, see note 8 to the financial statements. 2 Net profit attributable to UBS shareholders / average equity attributable to UBS shareholders less proposed distributions. 3 Excludes
the amortization of goodwill in 2004 and 2003. Due to changes in accounting standards, there is no amortization of goodwill from 2005 onwards. 4 Net profit attributable to UBS shareholders from
continuing operations / average equity attributable to UBS shareholders less proposed distributions. 5 Excludes results from industrial holdings. 6 Operating expenses / operating income less credit
loss expense or recovery. 7 Includes Wealth Management International & Switzerland and Wealth Management US. Excludes interest and dividend income. 8 Includes hybrid Tier 1 capital, please refer
to the BIS capital and ratios table in the capital management section and note 28 to the financial statements.
From 2005 on, all tables, charts, comments and analysis reflect the integration of Wealth Management US into the new Global
Wealth Management & Business Banking Business Group, the change in treatment of the Wealth Management US cash manage-
ment business and the shift of the municipal securities business to the Investment Bank. Prior years have been restated to reflect
those changes. From 2005, the entire private equity portfolio started being reported as part of the Industrial Holdings segment.
Throughout this report, 2004 and 2003 results have been restated to reflect accounting changes (IAS 1, IFRS 2, IFRS 4, IAS 27,
and IAS 28) effective 1 January 2005 as well as the presentation of discontinued operations.
2
Introduction
UBS at a glance
UBS is one of the worlds leading financial firms, serving a dis- fixed income, it is a first-rate global player. In foreign ex-
cerning global client base. As an organization, it combines fi- change, it places first in many key industry rankings. In invest-
nancial strength with a culture that embraces change. As an ment banking, it provides premium advice and execution ca-
integrated firm, UBS creates added value for clients by draw- pabilities to its corporate client base worldwide. All its busi-
ing on the combined resources and expertise of all its businesses are sharply client-focused, providing innovative prod-
nesses. ucts, top-quality research and comprehensive access to the
UBS is present in all major financial centers worldwide, worlds capital markets.
with offices in 50 countries. UBS employs more than 69,500
people, 39% in the Americas, 37% in Switzerland, 16% in Asset management
the rest of Europe and 8% in the Asia Pacific time zone. UBS, a leading asset manager with invested assets of over
UBS is one of the best-capitalized financial institutions in CHF 750 billion, provides a broad base of innovative capabil-
the world, with a BIS Tier 1 ratio of 12.9%, invested assets of ities stretching from traditional to alternative investment so-
CHF 2.65 trillion, shareholders equity of CHF 44.3 billion and lutions for, among other clients, financial intermediaries and
market capitalization of CHF 131.9 billion on 31 December institutional investors across the world.
2005.
Swiss corporate and individual clients
Businesses UBS is the leading bank for Swiss corporate and individual
clients. It serves around 2.6 million individual clients through
Wealth management more than 3 million accounts, mortgages and other financial
With more than 140 years of experience, an extensive global relationships. It also offers comprehensive banking and secu-
network that includes one of the largest private client busi- rities services for 136,500 corporations, institutional investors,
nesses in the US, and more than CHF 1,700 billion in invested public entities and foundations as well as 3,000 financial in-
assets, UBS is the worlds leading wealth management busi- stitutions worldwide. With a total loan book of over CHF 140
ness, providing a comprehensive range of services customized billion, UBS leads the Swiss lending and retail mortgage mar-
for wealthy individuals, ranging from asset management to kets.
estate planning and from corporate finance to art banking.
Corporate Center
Investment banking and securities The Corporate Center works with the businesses, ensuring
UBS is a global investment banking and securities firm with a that the firm operates as a coherent and integrated whole
strong institutional and corporate client franchise. Consisten- with a common vision and set of values. It helps UBSs busi-
tly placed in the top tiers of major industry rankings, it is a nesses grow sustainably through its financial control, risk,
leading player in the global primary and secondary markets treasury, communication, legal, human resources and tech-
for equity, equity-linked and equity derivative products. In nology functions.
3
Introduction
Sources of information about UBS
This Handbook contains a detailed description of UBS, its strategy, organization, businesses and employees and
corporate governance. It comprises sections on financial management including credit, market and operational
risk and treasury processes.
Publications SAP number and the language preference where applicable,

from UBS AG, Information Center, P.O. Box, CH-8098 Zurich,
This Handbook is available in English and German. Switzerland.
(SAP no. 80532).
Information tools for investors
Annual Review 2005
Our Annual Review contains a description of UBS and our Website
Business Groups, as well as a summary review of our perform- Our Analysts and Investors website at www.ubs.com/
ance in 2005. It is available in English, German, French, Ital- investors offers a wide range of information about UBS, finan-
ian, Spanish and Japanese. (SAP no. 80530). cial information (including SEC filings), corporate informa-
tion, share price graphs and data, an event calendar, dividend
Financial Report 2005 information and recent presentations given by senior man-
The Financial Report 2005 contains our audited financial agement to investors at external conferences. Our information
statements for the year 2005 and related detailed analysis. It on the internet is available in English and German, with some
is available in English and German. (SAP no. 80531). sections in French and Italian.
Quarterly reports Messaging service

We provide detailed quarterly financial reporting and analy- On the Analysts and Investors website, you can register to re-
sis, including comment on the progress of our businesses and ceive news alerts about UBS via Short Messaging System
key strategic initiatives. These quarterly reports are available (SMS) or e-mail. Messages are sent in either English or Ger-
in English. man and users are able to state their preferences for the top-
ics of the alerts received.
Compensation Report 2005
The Compensation Report 2005 provides detailed informa- Results presentations
tion on the compensation paid to the members of UBSs Senior management presents UBSs results every quarter.
Board of Directors (BoD) and the Group Executive Board These presentations are broadcast live over the internet, and
(GEB). The report is available in English and German. (SAP no. can be downloaded on demand. The most recent result web-
82307-0501). casts can be found in the Financials section of our Investors
The same information can also be read in the Corporate and Analysts website.
Governance chapter on page 98.
Form 20-F and other submissions to
The making of UBS the US Securities and Exchange Commission
Our The making of UBS brochure outlines the series of
transformational mergers and acquisitions that created We file periodic reports and submit other information about
todays UBS. It also includes brief profiles of the firms an- UBS to the US Securities and Exchange Commission (SEC).
tecedent companies and their historical roots. It is available in Principal among these filings is our annual report on Form
English and German. (SAP no. 82252) 20-F, filed pursuant to the US Securities Exchange Act of 1934.
Our Form 20-F filing is structured as a wrap-around
How to order reports document. Most sections of the filing are satisfied by refer-
Each of these reports is available in PDF format on the inter- ring to parts of this Handbook or to parts of the Financial Re-
net at www.ubs.com/investors in the reporting section. port 2005. However, there is a small amount of additional in-
Printed copies can be ordered from the same website by formation in Form 20-F which is not presented elsewhere, and
accessing the order / subscribe panel on the right-hand side of is particularly targeted at readers in the US. You are encour-
the screen. Alternatively, they can be ordered by quoting the aged to refer to this additional disclosure.
4
Introduction
You may read and copy any document that we file with the inspect our SEC reports and other information at the New York
SEC on the SECs website, www.sec.gov, or at the SECs public Stock Exchange, Inc., 20 Broad Street, New York, NY 10005.
reference room at 100 F Street, N.E., Room 1580, Washington, Much of this additional information may also be found on the
DC, 20549. Please call the SEC at 1-800-SEC-0330 (in the US) UBS website at www.ubs.com/investors, and copies of docu-
or at +1 202 942 8088 (outside the US) for further information ments filed with the SEC may be obtained from UBSs Investor
on the operation of its public reference room. You may also Relations team, at the addresses shown on the next page.
Corporate information
The legal and commercial name of the Banking Law as an Aktiengesellschaft, Aeschenvorstadt 1,
company is UBS AG. The company was a corporation that has issued shares of CH-4051 Basel, Switzerland,
formed on 29 June 1998, when Union common stock to investors. telephone +41-61-288 20 20.
Bank of Switzerland (founded 1862) The addresses and telephone numbers UBS AG shares are listed on the
and Swiss Bank Corporation (founded of our two registered offices are: SWX Swiss Exchange (traded through
1872) merged to form UBS. Bahnhofstrasse 45, its trading platform virt-x), on the
UBS AG is incorporated and domiciled CH-8001 Zurich, Switzerland, New York Stock Exchange and on
in Switzerland and operates under telephone +41-44-234 11 11; the Tokyo Stock Exchange.
Swiss Company Law and Swiss Federal and
5
Introduction
Contacts
Switchboards
For all general queries. Zurich +41-44-234 1111
London +44-20-7568 0000
New York +1-212-821 3000
Hong Kong +852-2971 8888
Investor Relations
Our Investor Relations team supports Hotline +41-44-234 4100 UBS AG
institutional, professional and retail Matthew Miller +41-44-234 4360 Investor Relations
investors from our offices in Zurich
and New York. Caroline Ryton +41-44-234 2281 P.O. Box
www.ubs.com/investors Reginald Cash +1-212-882 5734 CH-8098 Zurich, Switzerland
Nina Hoppe +41-44-234 4307 [email protected]
Fax +41-44-234 3415
Media Relations
Our Media Relations team supports Zurich +41-44-234 8500 [email protected]
global media and journalists from London +44-20-7567 4714 [email protected]
offices in Zurich, London, New York
and Hong Kong. New York +1-212-882 5857 [email protected]
www.ubs.com/media Hong Kong +852-2971 8200 [email protected]
Shareholder Services
UBS Shareholder Services, a unit Hotline +41-44-235 6202 UBS AG
of the Company Secretary, is Fax +41-44-235 3154 Shareholder Services
responsible for the registration of
the Global Registered Shares. P.O. Box
CH-8098 Zurich, Switzerland
[email protected]
US Transfer Agent
For all Global Registered Share- Calls from the US 866-541 9689 Mellon Investor Services
related queries in the US. Calls outside the US +1-201-680 6578 480 Washington Boulevard
www.melloninvestor.com Fax +1-201-680 4675 Jersey City, NJ 07310, USA
[email protected]
6
UBS
We are determined to be the best global nancial services
company. We focus on wealth and asset management, and on
investment banking and securities businesses. We continually
earn recognition and trust from clients, shareholders, and
staff through our ability to anticipate, learn and shape our
future. We share a common ambition to succeed by delivering
quality in what we do.
UBS
Strategy and structure

Our vision
We are determined to be the best global financial services company. We focus on wealth and asset management, and on investment
banking and securities businesses. We continually earn recognition and trust from clients, shareholders, and staff through our ability
to anticipate, learn and shape our future. We share a common ambition to succeed by delivering quality in what we do. Our purpose
is to help our clients make financial decisions with confidence. We use our resources to develop effective solutions and services for
our clients. We foster a distinctive, meritocratic culture of ambition, performance and learning as this attracts, retains and develops
the best talent for our company. By growing both our client and our talent franchises, we add sustainable value for our shareholders.
Our strategy ready significant progress we had made towards a consistent

wealth management offering around the globe, making it
We are, and have for many years been, a truly global firm, even easier to fulfill clients individual needs with sophisti-
working with corporate, institutional and private clients cated products and services from across the firm. Our US-
around the world. Our strategy is to concentrate on wealth based wealth management business now operates alongside
management, investment banking and securities and asset our international and Swiss business as part of one global
management, all on a global scale, as well as retail and cor- wealth management franchise.
porate banking in Switzerland. This long-term commitment In the investment banking and securities businesses, we
has helped us to become the successful, diversified firm we will continue to solidify and enhance our position as a top-
are today. ranked firm, maintaining the growth of our three main busi-
nesses while creating an even more diversified revenue base.
Business strategies Our ambition is to become a leading investment bank world-
In the wealth management business, our services are de- wide in terms of client recognition, market share and prof-
signed for high net worth and affluent individuals around itability using our existing platform to grow organically
the world, whether investing internationally or in their while maintaining our reputation as focused managers of risk.
home country. Many of our potential clients have become in- We will continue to invest in our technological infrastructure
creasingly sophisticated in their financial needs which we in order to develop new systems that facilitate growth in com-
meet by providing them with premium wealth and asset plex businesses. Client demands change, so a current priority
management services, as they have more attractive margins is to satisfy the broadening demand for multi-product solu-
than standardized services in retail or consumer finance. In- tions required by fast-growing segments such as financial
dividualized service and a wide range of choices are central to sponsors, hedge funds and wealth managers. We will con-
our client offering, with our in-house range of products tinue to focus on closing gaps in our existing businesses while
enhanced by a quality-screened selection of third-party prod- targeting new business growth in emerging markets by estab-
ucts. lishing full onshore presences in countries such as China,
In Asia Pacific, our reputation for wealth management is India, Russia, Brazil and the Middle East.
unmatched, helping us to capture a substantial share of the As one of the worlds leading asset managers, we are
current growth in wealth. Another key region for growth is competitively positioned in the institutional and wholesale
Europe. We have established a strong platform in all our five asset management businesses. Our record of strong invest-
target markets France, Germany, Italy, Spain and the UK ment performance and our solid reputation will help us to
which we continue to develop by recruiting qualified advisory benefit from the growth expected in institutional and whole-
staff and making acquisitions. In the US, we continue to ben- sale markets because of the increased need for private sav-
efit from the strong presence of the former PaineWebber, ings to supplement public pension systems. We expect client
which we acquired in 2000. In 2005, we made a key strate- demand to become increasingly polarized. There will be in-
gic step by fully integrating our international, Swiss and US- creasing pressure on fees for commoditized products, but
based wealth management businesses, accelerating the al- there will also be clients willing to pay more for new or tai-
8
lored products. As a major global manager with a wide range above-average growth potential, is both successful and dis-
of traditional and alternative capabilities, we are well placed tinctive. As we have significant scale in our areas of focus, we
to benefit from this. are in a position to concentrate on organic development,
For the Swiss retail and corporate banking business, our avoiding the execution risks and disruptions that large trans-
strategy concentrates on strengthening our position as the actions entail. Bolt-on acquisitions that improve the posi-
countrys leading bank, taking advantage of business oppor- tion of our core businesses quickly and efficiently will con-
UBS
tunities that arise in order to grow our share in selected mar- tinue to be part of our strategy.
ket segments. We will continue, however, to limit our retail Our leading wealth management franchise shows the suc-
banking activities to the Swiss market. cess of our strategy. Since 1999, we have consistently in-
vested in improving the quality of the advice we give clients,
Growth by developing products specifically tailored and segmented
Our future is one of growth, and our industry offers plenty of op- according to the particular needs of our clients. We also con-
portunities some of which are set out in detail on page 1416. tinuously improved our processes and practices the most re-
We will continue to grow, organically and through add-on cent example being the shift in mid-2005 to a global wealth
acquisitions, without radically changing our strategic posi- management organization that now includes our US-based
tioning or our competitive profile. Our strategy, focused on business. Our recent organic growth efforts were comple-
securing global leadership positions in selected areas with mented by a number of acquisitions all painstakingly eval-
Our strategy in Asia Pacific

One of UBSs main challenges in the remain the primary driver of Asian top three in the merger and acquisi-
next few years will be to deepen an growth, and, in the medium term, of tions, equity capital market and debt
already strong business footprint in the the global economy. According to the capital market segments while having
Asia Pacific region. That may sound International Monetary Fund (IMF), fast growing fixed income, rates, and
like a prosaic matter of investing in Chinas GDP in 2000 was the seventh currencies businesses as well as
new products and systems, and largest in the world last year, it was strongly expanding in asset manage-
recruiting more staff. In the case of fourth. By 2015, the IMF expects ment. At the end of 2005, for
Asia Pacific, it is not. In a vast region Chinas economy to be second only to instance, Dealogic ranked us as the
where a flight between Mumbai and the US. The figures speak for them- number one investment bank in Asia
Sydney is two hours longer than it is selves and it is a reasonable projec- Pacific (excluding Japan), with a
between London and Hong Kong, tion that financial services markets in market share of 7.6%. Including
global companies face numerous Asia Pacific, and China, will continue Japan, we have the leading equities
obstacles. The region is far from to become a larger percentage of the franchise in Asia Pacific.
homogenous and boasts its own global total. To achieve its aims, UBS will grow
distinct mix of cultures. Language Operating in 14 countries, but with organically to fill business gaps, includ-
barriers, written and spoken, are major hubs in Hong Kong, Singapore, ing strategic hires, through acquisi-
substantial and time zones are awk- Japan and Australia, UBS is one of the tions, where suitable, and by joint
ward for companies with headquarters largest and fastest growing financial venture, where necessary. Although
in Europe or North America. Many services firms in the region. During investment will be in all countries in
countries have a volatile economic and 2005, UBS staff numbers grew by over the region, the strategic emphasis is
political history with a significant 20%, to around 8% of the global on Japan, China, and India together
number becoming democracies in the workforce. Roughly half of Asias with plans for accelerated growth in
last two decades alone. billionaires are clients of UBS, and with the domestic wealth management and
Still, the region, taken together, forms invested assets of CHF 114 billion we asset management businesses.
more than half the worlds population are currently the leading wealth By September 2005, a strategic coop-
while only contributing 24% of total manager for high net worth individu- eration agreement had been signed
global Gross Domestic Product (GDP), als in the region. And we are growing with the Bank of China and Beijing
26% of the global equity market fast last year, for example, invested SASAC (State-owned Assets
capitalization and 27% of the assets rose 45%. This reflects strong Supervision and Administration
investable liquid assets of the worlds inflows of new client money, which Commission), and UBS and The
affluent individuals. In short, it has totalled CHF 18.5 billion for the year, International Finance Corporation (IFC)
massive growth potential. A clear 78% more than a year earlier. Our had received State Council Approval of
example is China, which is expected to Investment Bank regularly places in the their plans to restructure Beijing
9
UBS
uated for business and cultural fit before purchase. The suc- DRCM will allow us to satisfy the increasing demand from
cess of the policy is particularly evident in Europe, where as- clients for long-term alternative investment opportunities
sets invested by clients have grown to CHF 114 billion at provided by strong industry leaders and will create a new
the end of 2005 from CHF 16 billion in 2001. Our European stream of investment management fees from what has until
wealth management business now represents 12% of our in- now been a purely in-house trading activity.
ternational and Swiss wealth management business up Our brand, a key differentiating factor in the industry, is an-
from 2% in 2001, when we started to build it up. other critically important component in our growth strategy
In 2005, we took a key step in forming a new alternative and our efforts continue to pay off. In 2005, UBS moved up
investment management business, Dillon Read Capital Man- to 44th place in Business Weeks listing of the worlds top 100
agement (DRCM). Its core will be the principal finance and brands, up one place from 2004, when we appeared in the
commercial real estate trading businesses from the fixed in- ranking for the first time. The survey is widely regarded as the
come, rates and currencies area of the Investment Bank, industry benchmark and is based on the methodology of In-
which will move to Global Asset Management. As a result, terbrand, a leading brand consultancy.
around 120 staff will be transferred during the first half of Growing in our areas of focus also implies that we will
2006, and the trading strategies managed by them will be continue to divest non-core businesses and participations. In
opened up to co-investment from a limited number of clients, late August 2005, we signed agreements to sell our 55.6%
and then supplemented by further new investment products. stake in Motor-Columbus to a Swiss-led consortium for about
Our strategy in Asia Pacific (continued from page 9)

Securities. What at first glance appears largest city an important step in UBS will open the UBS Service Centre
an unusually quick implementation of further expanding our presence in the the firms first group-wide initiative
a high-level strategic decision is, in country. Japanese merger and acquisi- in offshoring in Hyderabad in 2006.
fact, the result of patient investment tion activity has surged in recent years Initially, the center will have a capacity
and a long-term approach. UBS was as well, with volumes rising from USD for 500 employees capable of provid-
one of the first foreign firms to gain a 43 billion and 1,014 deals in 2002 to ing services to any UBS business.
foothold in China with the opening of USD 142 billion and 1,718 deals in In Australia, UBSs business is perhaps
a Beijing representative office in 1989, 2005. Notable M&A transactions for the best example of the integrated
followed by another in Shanghai four UBS in Japan in 2005 include advisory business model. UBS is pre-eminent in
years later. Last year, we also opened a roles for Sumitomo Trust & Banking on investment banking and securities
representative office in Guangzhou. its acquisition of First Credit; for trading and has a growing asset
Today, UBSs USD 800 million Qualified Sankyo on forming a joint venture management presence. The wealth
Foreign Institutional Investor (QFII) company with Daiichi Pharmaceutical; management business has a strong
quota, which allows the firm to trade to Nippon Shinpan on its merger with position in a fragmented market, but
in domestic shares and bonds on UFJ Card; and to Shinwa Bank on its plans to grow further by recruiting
behalf of non-Chinese clients, remains formation of a non-performing loan new employees, launching new prod-
the largest of all QFII quotas. The workout joint venture with Orix ucts and upgrading technology plat-
Investment Banks relationship with Corporation. forms while capitalizing on the
China dates back to 1985 and it In India, efforts are concentrated on strength of the UBS brand in Australia.
continues to advise or execute a string investment banking advisory and Although the outlook for Asia Pacific
of landmark transactions, while the securities trading services via our activity is positive, competition remains
Beijing branch, which commenced Mumbai securities company. intense. There are entrenched rivals in
operations in August 2004, offers Established in 1990, unlike many of certain segments; some countries
corporate and institutional clients in our competitors, it does not rely on a remain prone to political upheavals;
China tailor-made solutions to manage joint venture partner. UBS executed a and the regulatory environment is
interest rate and currency risks. number of landmark advisory transac- radically different across jurisdictions.
Japan remains a priority in all of our tions in India last year, including the Despite that, UBS remains extremely
businesses. UBS re-launched its wealth largest M&A transaction in the coun- confident about the regions future
management business in Tokyo in trys electronics sector, the biggest and the opportunities it presents. That
September 2004. In December 2005, acquisition by an Indian pharmaceuti- is why UBS is doing everything possible
we received approval to open a wealth cal company, the largest block trade, to give its businesses in Asia Pacific the
management business office (sub- the biggest ADS (American Depositary facilities, management, and resources
branch) in Osaka, Japans second Share) issue, as well as the largest IPO. they need to expand.
10
CHF 1.3 billion. This will create an opportunity to build a sig- Operating as one firm
nificant Swiss-European energy company with Swiss majority
ownership. The transaction is expected to close, subject to We firmly believe our integrated business model creates more
various regulatory approvals, in 2006. In December 2005, we value than our businesses would as stand-alone units because
also finalized the sale of Private Banks & GAM to Julius Baer, business opportunities do not respect artificial demarcation
following the successful financing of the transaction and after lines between Business Groups. Our clients should be able to
UBS
receiving the necessary regulatory approvals. In 2003, we access all the services our firm can provide, where and when
had created the unit as a platform for our separately branded they are required, and regardless of what combinations of
wealth management businesses as a way of helping them teams lie behind the solutions. This one firm approach fa-
to grow and to create value. We continue to hold a 20.7% cilitates client referrals and the exchange of products and dis-
stake in the new group as a pure financial investment. The tribution services between businesses and contributes signif-
transaction should enable it to play a role in the consolidation icantly to our revenue flows.
of the Swiss private banking industry. We form internal partnerships to make the best use of our
intellectual capital and the proximity of content and distribu-
Financial success, risk and capital management tion. This increases our ability to recognize trends across busi-
Our policy has been to maintain a strong balance sheet, pro- ness segments, serve clients better and ultimately create
tecting our capital ratios and credit ratings, while also putting new revenue opportunities. An example is the research col-
capital to work to create value for shareholders. In normal cir- laboration between our wealth management and asset man-
cumstances, we generate capital well in excess of our require- agement businesses to service ultra-high net worth clients,
ments. As a first priority, this is used for investment in the whose needs are often similar to those of institutional clients.
growth of our businesses. In the absence of attractive rein- Given the turbulent markets seen in the past three years,
vestment opportunities, we return excess capital to our share- these clients are increasingly interested in preserving their
holders, through either direct distributions or share buybacks. capital while achieving reasonable returns at a competitive
Because taking risk is an integral part of our business, our price. As a result, our asset management business started to
overriding goal is to achieve an appropriate balance between develop products for this client segment, such as an absolute
risk and return, limiting the scope for adverse variations in return bond fund. With such targeted products and by link-
our earnings from exposure to major individual stress ing the clients family offices with our investment manage-
events. ment professionals, we were able to attract significant addi-
Credit and market risks have long been regarded as the pri- tional invested assets.
mary risks of any banking business. Now, however, opera- In our US domestic wealth management business, now
tional risk the consequential risk of being in business plays part of our global wealth management franchise, our one
an equally important role. Our operational risk framework, firm model is supporting a transformation from a traditional
into which we are investing considerable management time US brokerage firm into a comprehensive wealth management
and effort, aims to contain the levels of these risks and en- business. The expertise of our treasury unit and the sophisti-
sure we have sufficient information to make informed deci- cated lending practices developed in our Swiss business bank-
sions about adding or adjusting controls. ing unit, have been used widely, particularly for our Utah-
Integrated client-service model
Products
Wealth management Asset management
business
Swiss individual and
Wealthy Corporate and
corporate banking Advice and Advice and Investment banking
clients globally institutional
tailored products tailored products & securities
clients globally
Retail and
affluent clients Third party products
in Switzerland
Client-centered World class
advice Client needs content
11
UBS
based UBS Bank USA, which opened in 2003. It now offers a pendent of each other. In particular, the functions of Chair-
variety of lending products, broadening the scope of our man of the Board of Directors and Chief Executive Officer are
financial relationships with our US clients. UBS Bank USA is conferred on two different people. No member of one board
now one of the top 50 banks in the US. may be a member of the other. Detailed information on our
Another advantage of our one firm model is that it helps corporate governance structures and principles can be read
us to share activities between different parts of our busi- on page 98.
nesses, eliminating redundant infrastructure, services, man-
agement and control functions. One example is our central- Organizational structure
ized treasury process which ensures that cash flows within UBS is structured into three Business Groups, a Corporate
UBS are pooled and netted before being funded through one Center, and Industrial Holdings. It is managed as an inte-
access point to the money markets. At the same time, the way grated firm. Each Business Group is led by a member of the
we embed the same approach to risk management deeply in Group Executive Board who is responsible for the perfor-
all our businesses is one of our most important success fac- mance of their Business Group.
tors. Another example is our information technology infra-
structure (ITI) unit, launched successfully in 2004. This unit, Changes in senior management announced in 2005
housed within Corporate Center, integrates all IT infrastruc- and early 2006
ture functions across UBS data networks, telephone and The continuous strengthening of our leadership and clear suc-
other communications systems, IT security, distributed com- cession planning are among our key priorities. In that context,
puting and servers, mainframes and data centers, market we were pleased to announce a number of appointments in
data services, user services and desktop computing. 2005 and early 2006, as listed below:
Managing our business Effective 1 July 2005, Marcel Rohner, Chief Executive Offi-
cer (CEO) Wealth Management & Business Banking since
Board structure 2002 and a member of the Group Executive Board (GEB),
The management and oversight structure of UBS is based on was appointed CEO and Chairman Global Wealth Manage-
two separate boards the Board of Directors and the Group ment & Business Banking, the new Business Group that
Executive Board. includes the former Wealth Management & Business
The Board of Directors is the more senior body, with ulti- Banking and the Wealth Management US businesses. He
mate responsibility for the strategy and the management of remains a member of the GEB. Effective 1 January 2006,
the company, as well as the supervision of executive manage- he was also appointed Deputy Group CEO.
ment. The Board of Directors also defines UBSs risk frame- Effective 1 January 2006, Rory Tapner, Chairman and CEO
work, principles and overall risk-taking capacity. A clear Asia Pacific, was appointed as a member of the GEB.
majority of the Board of Directors is non-executive and fully Effective 1 July 2005, Raoul Weil, head of our wealth man-
independent. agement business serving international clients, was ap-
The Group Executive Board, on the other hand, assumes pointed to the GEB.
overall responsibility for the daily management of UBS, for the Effective 1 July 2005, Mark Sutton, previously Chairman
implementation of strategy and for business results. Together and CEO of the Wealth Management US business and a
with the Chairmans Office of the Board of Directors (the member of the GEB, was appointed to the new position
Chairman and the Vice Chairmen), it is responsible for devel- of Chairman and CEO, Americas. He remains on the GEB.
oping UBSs strategies. Effective1July 2005, Huw Jenkins was appointed CEO of the
The dual structure establishes a system of checks and bal- Investment Bank and a member of the GEB. He also became
ances, ensuring that the two boards are institutionally inde- Chairman of the Investment Bank from 1 January 2006.
UBSs business structure (as of 1 January 2006)
UBS
Peter A. Wuffli CEO
Marcel Rohner Deputy CEO
Global Wealth Management & Business Banking Investment Bank Global Asset Management Corporate Center
Marcel Rohner Chairman and CEO Huw Jenkins Chairman and CEO John A. Fraser Chairman and CEO Clive Standish Head and UBS CFO
12
Effective 1 July 2005, John Costas, CEO and Chairman In- Alberto Togni, whose term of office expired in 2005,
vestment Bank, was appointed CEO Dillon Read Capital stepped down from the Board as he reached retirement
Management. As of 1 January 2006, he relinquished his age. Shareholders elected the following new members at
functions as Deputy Group CEO, Chairman of the Invest- the same AGM: Marco Suter, formerly UBS Chief Credit
ment Bank and a member of the GEB. Officer, as Executive Vice Chairman, and Peter R. Voser,
Effective 1 March 2005, Walter Stuerzinger, our Chief Risk Chief Financial Officer of the Royal Dutch / Shell Group of
UBS
Officer since 2001, was appointed to UBSs GEB. Walter Companies and Managing Director of The Shell Transport
Stuerzinger has firm-wide responsibility for market, oper- and Trading Company, plc., London, as non-executive
ational and credit risk control. member of the Board. After their election, the Board of Di-
At the Annual General Meeting (AGM) on 21 April 2005, rectors comprised eleven members.
13
UBS
Industry trends
Industry trends
Long-term perspectives (WTO) multilateral trade negotiations under the Doha Round
are currently trying to address some of these issues, but
The world economy is expected to grow at around 3.5% a progress remains halting.
year over the coming decade. There will be continued produc- In general, further liberalization of financial markets is ex-
tivity gains due to global competition, the diffusion of new pected to benefit investment banking and securities firms that
technologies and growing population. This effect may be are positioned to take advantage of any further opening of
somewhat dampened by slowing employment growth due to individual domestic capital markets. Asset managers with a
demographic shifts towards older populations in some coun- global platform should benefit from the facilitation of cross-
tries. border mutual fund business.
We expect the largest growth rates to occur in the emerg-
ing world, notably in Asia, followed by Eastern Europe, Latin Wealth accumulation
America and the Middle East. Although North America and
Western Europe are set to grow at slower rates than Asia, the In many economies, a notable shift is taking place away from
absolute GDP increases will be higher in view of their size. This labor-intensive production to more capital-intensive activity.
underlines the importance in our industry of having a signif- Based on this development, we see a clear trend towards in-
icant presence in both the US and Western Europe. dividual wealth accumulation that is likely to continue over
The financial services sector has been growing faster than the next decade, particularly in Asia. Wealth is expected to
the economy for many years. Financial innovation, closely grow faster than GDP in developed countries. Moreover, the
linked to the evolution of securities markets, will continue to ratio of wealth to GDP in emerging markets is currently low
be the engine for further development in the financial sector. and should increase, due, among other factors, to generally
We see several specific factors driving the development of our higher saving rates. These developments will benefit wealth
industry over the coming decades: management businesses across the world. They will also help
financial liberalization and deregulation the asset management industry as private wealth is a key
wealth accumulation driver for institutional asset growth. Investment banks and se-
retirement provisioning curities businesses should also benefit thanks to rising capi-
securitization talization levels in global financial markets and higher trading
equitization volumes.
alternative investments
corporate activity / restructuring Retirement provisioning
energy and raw materials
In coming decades, most developed countries will be con-
These terms, and their distinct impact on our businesses, fronted with major demographic shifts. Thus, pension reform
are explained in more detail below. is on the agenda of many governments across the world. The
strong reliance in Continental Europe and Japan on unfunded
Financial liberalization and deregulation schemes will make reform especially urgent. Although each
country will follow its own regulatory agenda, in general we
Over the past few decades, deregulation and liberalization in see a gradual shift from public unfunded to private funded
financial services have accelerated the industrys expansion pension schemes.
and triggered considerable improvements in the quality and Institutional asset management is the sector most signifi-
variety of new financial services. This process is now well ad- cantly affected by this trend, but investment banking and
vanced in many countries, and in some markets, for example wealth management also benefit. In asset management, the
the US, we do not expect any further notable deregulation. focus will not only be on serving clients with investment ad-
On the contrary, new regulations are arising in the US and vice and assuming management of pension mandates, but
some other developed countries, increasing the costs of doing also addressing other issues that current and potential clients
business. However, further liberalization is likely in emerging have to deal with, particularly for underfunded corporate
economies where domestic markets are currently still rela- pension funds.
tively protected. These countries are exploring deregulation as Investment banks have recently started to serve pension
a way to increase their competitiveness, especially compared funds in the area of liability-led asset management advice,
with developed nations. The World Trade Organizations where derivatives and structured products are used. In wealth
14
management, we believe that current developments will in- listing, and thereby meet requirements for also issuing debt
fluence the demand for retirement-specific products. Individ- securities.
uals go through different stages in life. While the first four to
five decades of an individuals life are usually dominated by Equitization
wealth accumulation, private clients usually experience a
mind-set change when they enter their sixth decade; the Over the past ten years, global equity market capitalization has
UBS
focus shifts from wealth accumulation to wealth protection. grown at an annual rate of over 10% on a US dollar basis. In-
Appropriate products and services are needed in order to pre- stitutional and individual investors tend to allocate a greater
pare these individuals for their retirement, representing a sub- share of their assets in equities. This reflects the transfer of
stantial growth area for the financial services industry. ownership of assets from government and private owners to
public markets. The corporate sector will also increasingly rely
Securitization on public equity financing. We believe that the underlying
trend towards an increasing role of equity financing and
The transformation of financial services over the last ten to equity investments remains intact. In Western Europe, we see
twenty years has included the increasing de-emphasis of tra- significant growth potential because of continued financial
ditional lending activities and the increasing importance of se- market integration. Growth potential is even higher in the
curities trading and financial markets. Corporations are now emerging markets in view of the relatively low levels of stock
frequently in a position to directly meet their funding needs market capitalization compared with GDP. Equitization is ex-
by accessing the capital markets. This has driven the long- pected to provide growth opportunities not only to investment
term expansion of corporate bond markets, replacing tradi- banking and securities businesses, but also to wealth and
tional bank lending services. At the same time, an increase in asset managers, as assets are increasingly shifted into higher
bank assets such as loans, mortgages and receivables has fu- margin classes. In addition, with the continued commoditiza-
elled growth in the securitization of these assets, increasing tion of trading services, we believe that smaller providers will
the volume of asset-backed securities. start outsourcing these services to larger competitors.
We expect these trends to continue. In continental Europe
securitization is still catching up with the US. In many emerg- Alternative investments
ing markets, the corporate bond market is still underdevel-
oped but growing fast. The ability of financial market partic- The last two decades have seen robust growth in the use of
ipants to assess counterparty risk will further improve, facil- alternative investments meaning investments other than
itating financing by way of the securities market. Addition- cash, bonds, or public equities. North America led the way,
ally, as the number of listed companies increases, they will with real estate and private equity becoming significant com-
have to conform to the transparency standards required by ponents of portfolios from the early 1980s, while hedge
Projected growth in all of UBSs key markets Key drivers of revenue growth in next 510 years
Regional GDP growth forecasts Impact on UBS Business Groups
Financial liberalization
absolute USD GDP and deregulation 5 very high
increase 20052015 5
4 high
Energy and raw 4 Wealth
8% accumulation
Emerging Asia
materials 3 3 moderate
Avg real GDP growth, 20052015
2 2 low
6% 1
Central & Eastern Corporate
1 very low
Europe Retirement
activity / provisioning
South & Central restructuring
4% America North America
Middle East
& Africa
Japan &
2% Oceania Securitization
Alternative
Western
investments
Europe
Source: UBS, IMF Equitization Source: UBS, IMF
0%
0 5,000 10,000 15,000 20,000 Wealth Management Investment Banking Asset Management
GDP level in 2005 (in USD billion)
15
UBS
Industry trends
funds, once considered a fringe investment, continue to move of regulatory restrictions. We see long-term trends pointing
into the mainstream across the globe. An increasing number towards growing demand for advice on mergers and acqui-
of investors rely on alternative investments to boost returns sitions and restructuring.
and increase portfolio diversification. New alternative asset
classes continue to emerge. This increases the demand for a Energy and raw materials
variety of sophisticated products from the providers of these
asset classes. These services range from IPOs and leveraged Production capacities for energy and raw materials currently lag
finance for private equity firms to prime brokerage and ad- behind rising global demand, particularly from emerging
ministrative services for hedge funds. economies. This has shifted the focus to the efficient allocation
of commodities, similar to efficient resource allocation in capi-
Corporate activity / restructuring tal markets. Energy and raw material markets are becoming
steadily more similar to financial markets. Financial firms are
The search for growth, trade liberalization and technological buying and selling futures or making private financial contracts
progress will continue to increase global competition for cor- (derivatives) with other players. With clients asking for more so-
porations, pressuring them to concentrate on activities where phisticated products and services in the commodities area, fi-
they are genuinely competitive. At the same time, the com- nancial firms are in an ideal position to profit from these devel-
plexity of doing business is increasing, for example because opments, as they apply their experience of capital markets.
16
UBS
The making of UBS
The making of UBS

All the firms that have come to make up todays UBS look asset management, while remaining an important commer-
UBS
back on a long and illustrious history. Both the two Swiss cial and retail bank in Switzerland.
predecessor banks and PaineWebber came into being in the Union Bank of Switzerland, the largest and best-capital-
second half of the 19th century, while SG Warburgs roots go ized Swiss bank, opted to pursue a strategy of organic
back to 1934. But it is in the 1990s that UBSs current iden- growth, or expansion by internal means. In contrast, SBC,
tity began to form. then the third-largest Swiss bank, decided to take another
In the early 1990s, the two Swiss banks that are part of the route by starting a joint venture with OConnor, a leading US
current UBS, Swiss Bank Corporation and Union Bank of derivatives firm that was fully acquired by SBC in 1992.
Switzerland, were commercial banks operating mainly out of OConnor was noted for its young, dynamic and innovative
Switzerland. The two banks shared a similar vision: to become culture, its meritocracy and team-orientation. It brought
a world leader in wealth management and a global bulge- state-of-the-art risk management and derivatives technology
bracket investment bank with a strong position in global to SBC. In 1994, SBC acquired Brinson Partners, one of the
1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
1832
Schrder Mnchmeyer Hengst & Co.
1997
1895
Phillips & Drew
1986
1863
Eidgenssische Bank
1945
1862
Bank in Winterthur
1863
Toggenburger Bank 1912 Union Bank of Switzerland
1872 1928
Aargauische Kreditanstalt 1919 Interhandel 1967
1863
Bank in Baden 1915
1832
Dillon Read & Co. 1997
1862 1946
Basler Handelsbank S.G. Warburg Group 1995
1882 1989
Basler Brinson
1872
Depositenbank
1895
Partners
1994 ab
1856 Basler Basler & Zrcher
Bankverein Bankverein Bankverein 1897 Swiss Bank Corporation 1945 1998
1889 1889 1977
Zrcher Schweiz. OConnor &
Bankverein Unionbank Associates 1992
1914
Blyth, Eastman Dillon & Co.
1979
1919
Mitchell Hutchins, Inc. 1977
1880 1942
Paine & Webber Paine, Webber, Jackson & Curtis 1974 PaineWebber, Inc. 2000
1879
Jackson & Curtis
17
UBS
The making of UBS
leading US-based institutional asset management firms. Both But there was still a major item left on the firms broader
the OConnor and Brinson deals represented fundamental strategic agenda. It needed to establish a significant presence
steps in the development of the firm. in the key US market to be a truly global player in investment
The next major move was in 1995, when SBC merged with banking and wealth management, both of which are scale
S.G. Warburg, the British merchant bank. The deal helped to businesses meaning that size matters. That was achieved
fill SBCs strategic gaps in corporate finance, brokerage and when PaineWebber became a part of UBS in 2000.
research and, most importantly, brought with it an institu- Following its successful integration into our business, and
tional client franchise, which is still at the core of todays eq- after a decade of transformational change, we decided that we
uities business. had in place all the fundamental parts of the business that we
The 1998 merger of Swiss Bank Corporation and Union wanted to build. The task then was to improve them and make
Bank of Switzerland brought together these two leading them work together. We therefore adopted a strategy based pri-
Swiss financial institutions, creating the world leader in marily on organic growth aided by carefully chosen acquisitions.
wealth management and improving the new firms chances Our determination to define the future as one firm was
of becoming a bulge-bracket investment bank, not to men- visibly demonstrated in 2003 when we introduced UBS as a
tion providing it with greater capital strength. single brand for all our businesses.
18
Our employees
Competitive strength in the nancial services industry depends,
more than anything else, on the expertise and talent of a rms
employees. In order for UBS to continue to succeed, we have to
be capable of attracting, developing and retaining creative, highly
qualied people. For employees, the strength of a rms core
business, and its culture, are fundamental to giving them the
opportunity for individual success.
Our employees
The UBS workforce

Developments in our workforce Financial Businesses personnel 1:
The number of people employed in our financial businesses Regional distribution
rose to 69,569, up 2,162 or 3% from 67,407 a year earlier. in %, except where indicated
In Swiss and international wealth management (up 1,462), As at 31.12.03 31.12.04 31.12.05
we continued to add client advisors around the world and hire
Total1: 65,879 67,407 69,569
staff in support functions. Our US-based wealth management 100 5.8 6.6 7.8
business (up 65) saw the number of employees increase be- 15.0 15.9 15.8
cause of hiring in support and logistics functions. The Swiss 75
commercial and retail banking business recorded higher per-
38.7 38.9 39.0
sonnel numbers (up 515) with the increase partly due to the 50
first-time inclusion of employees paid by the hour. At the In-
vestment Bank, staff levels (up 1,204) rose mainly in the in- 25 40.5 38.6 37.4
vestment banking and fixed income, rates and currencies
businesses. They were also up in operations, reflecting higher 0
market activity. Hiring was also seen in general counsel func- Switzerland Americas Rest of Europe / Middle East /Africa Asia Pacific
tions, reflecting the more stringent regulatory environment.
The increase was also spread across regions. In Switzerland, Business Unit distribution
staff levels rose by 41 individuals to 26,028. Excluding the im- in %
pact from the sale of Private Banks & GAM, personnel num- As at 31.12.03 31.12.04 31.12.05
bers increased by 1,042. In the rest of Europe, the Middle East
Total1: 65,879 67,407 69,569
and Africa, they were up 256 at 11,007, while in the Ameri- 100 5.4 5.3 5.7
2.5 2.4 0.0
cas they increased by 905 to 27,136. In Asia Pacific, UBS staff 4.0 3.9 4.1
13.9 15.0 16.6
numbers rose by a strong 960 or 22% to 5,398. 75
Last year, UBS personnel worked in 50 countries, with 23.7 25.2 26.1
39% of them employed in the Americas, 37% in Switzerland, 50

16% in the rest of Europe, the Middle East and Africa, and 24.6 23.0 23.0
8% in Asia Pacific. 25
25.9 25.2 24.5
Recruitment and retention 0

Wealth Management US Business Banking Switzerland Investment Bank
Our business always needs talented people and our recruiting Wealth Management International & Switzerland Global Asset Management
efforts in 2005 focused on supporting business growth. Last Private Banks & GAM Corporate Center
year, we hired 836 individuals with university degrees (includ- 1 Total full-time equivalents (FTE).
ing those with a Masters degree in Business Administration),
53% more than a year earlier. students. We also hired 242 apprentices in banking and spe-
In Switzerland, we are one of the top-ranked employers for cialist functions such as Information Technology.
university graduates. The 2005 annual survey by Universum, We believe our ability to retain employees is important
a leading global consultancy, said we were first for business and, as a result, we monitor senior management retention
Graduate and MBA hiring across UBS

2005 2004
Europe Americas APAC Total Europe Americas APAC Total
Investment Bank 158 226 72 456 134 202 42 378
Global Wealth Management & Business Banking 227 82 30 339 96 50 146
Global Asset Management 18 10 7 35 18 18
Corporate Center 6 6 5 5
Total 409 318 109 836 253 252 42 547
20
rates. In recent years, turnover has been moderate, with 167 Employee networks at UBS
of the 224 managing directors hired in 2002 and 2003 still Employee network name Membership (approximate)
employed at the end of 2005. All Bar None Americas 860
We also have well-defined succession processes. In 2005, All Bar None UK 300 1
our ability to manage senior management shifts was under- All Bar None Australasia 200 1
lined by the formation of the Global Wealth Management All Bar None Tokyo 30 1
& Business Banking Business Group and the creation of Dil- Womens Business Network Germany 150 1
lon Read Capital Management. All required related functional Womens Business Network Switzerland 725 1
appointments came from internal management teams. Womens Network Hong Kong 80 1
Womens Network Seoul 40 1
Diversity Womens Network Singapore 120 1
Our employees
Womens Network Taiwan 90 1
Having a diverse workforce benefits our business. Seeking va- UBS Pride EMEA 200
riety of thought, background, skill and experience, as well as UBS Pride Switzerland 150
other factors, including gender, ethnicity, race and national- UBS Pride US 130
ity, helps us understand our clients needs and underpins an Cultural Awareness Network (UK) 200
open work culture. We have a number of workplace policies Cultural Awareness Network (US) 250
in place that promote diversity. The Group Executive Board League of Employees of African Descent 150
and ten Regional Diversity Boards, composed of regional sen- Working Parents Group (US) Subgroup of All Bar None Americas no official membership
ior management, set direction and regularly review how we Working Parents Group (Tokyo) Subgroup of All Bar None Tokyo approximately 30 members
recruit and retain a range of talent at all management, staff Working Parents Network (UK) In formation
and employee levels. Last year, in a number of regions around 1 Estimate based on event attendance.
the world, senior management also underwent a diversity
awareness program that incorporated live actors in real-life
decision-making situations.
Our 16 employee networks worldwide also support diver-
sity, giving employee interest groups a voice in UBSs manage- Gender distribution by region
ment and culture.
We integrate elements of diversity into many of our daily Total: 27,965 5,460 3,901 27,706 7,503
management processes, among them recruiting, orientation, 40,000
training, and development. In 2005, for the first time, we in-

stituted a diversity competency across all of our businesses as 30,000
part of our annual performance management process. We 10,641 9,651

also expanded policies that help employees with families. Ma- 20,000
ternity leave in Switzerland, for example, was extended to at

least six months paid leave. In the US, Wealth Management 10,000 17,324 18,055
1,598 2,567
US increased the amount it reimburses employees for adop- 2,544
4,936
2,916 2,303
tion expenses to USD 5,000 per child, bringing maternity and 0
Americas Asia Pacific Continental Switzerland United
adoption benefits into line with the other businesses in the US. Europe/ Kingdom
We also try to help our employees balance the demands Middle East /Africa
posed by their work and personal lives. For example, we have Male Female
given more than 30,000 employees online access to their com- 1 Calculated on the basis that a person (working full-time or part-time) is considered one headcount
puter files from their homes or other locations. in this graph only.
Gender distribution by employee category 1

Male Female Total
Number Percent Number Percent
Officers 25,590 77.9 7,241 22.1 32,831
Non-Officers 19,944 50.2 19,760 49.8 39,704
Total 45,534 62.8 27,001 37.2 72,535
1 Calculated on the basis that a person (working full-time or part-time) is considered one headcount in this table only. This accounts for the total UBS end-2005 employee number of 72,535 in this table.
Normally, UBS expresses employee numbers in terms of full-time equivalents (FTEs), which is measured as a percentage of the standard hours normally worked by permanent full-time staff. When
calculated according to FTEs, the end-2005 total is 69,569.
21
Our employees
Composition of UBSs workforce by citizenship 1 demonstrated superior leadership and good teamwork and
Country Number Percent whether they conducted themselves in an ethically appropri-
USA 24,857 34.3 ate manner, both professionally and personally. PMM also de-
Switzerland 23,423 32.3 fines expected actions around corporate values such as client
Great Britain 6,724 9.3 focus and diversity. It thus enables the firm to reward results
Germany 2,797 3.9 and behaviors and helps to shape a learning and perform-
Italy 1,790 2.5 ance-oriented culture.
Australia 1,432 2.0 Towards the end of the year, the results achieved are as-
France 1,146 1.6 sessed against these defined targets by the individual em-
Japan 892 1.2 ployee, by his or her line manager, and at senior levels by peers,
Singapore 890 1.2 internal clients and subordinates. The PMM result is one of the
Hong Kong 773 1.1 elements defining individual incentive awards. Top performers
Spain 656 0.9 receive proportionately higher rewards. The total amount of
Canada 642 0.9 incentive awards to be granted is determined based on the fi-
India 601 0.8 nancial performance of the firm and the individual businesses.
Russia 331 0.4 For senior executives (the executive members of the Board
China 289 0.4 of Directors (BoD), members of the Group Executive Board
Ireland 247 0.3 (GEB) and members of the Group Managing Board (GMB)),
Taiwan 245 0.3 the PMM process is broadly the same as for employees. The
Luxembourg 189 0.3 achievement of clearly defined financial targets set for the
Malaysia 177 0.2 Group and the Business Groups also plays a significant role.
South Africa 176 0.2 Additional personal key objectives are defined in the field of
Other countries 4,258 5.9 leadership, cross-business co-operation, and strategic think-
Total 72,535 100.0 ing and contribution. The incentive award for members of the
1 As measured by primary citizenship. Calculated on the basis that a person (working full-time or part- GEB and GMB working in a Business Group is based 50% or
time) is considered one headcount in this table only. This accounts for the total UBS end-2005 75%, respectively, on the performance of that particular busi-
employee number of 72,535 in this table. Normally, UBS expresses employee numbers in terms of full-
time equivalents (FTEs), which is measured as a percentage of the standard hours normally worked by ness, and 50% or 25% on the performance of the Group as
permanent full-time staff. When calculated according to FTEs, the end-2005 total is 69,569. a whole, ensuring that the interests of the Group are repre-
sented. Awards for GEB and GMB members employed in Cor-
Workforce diversity porate Center as well as the executive members of the BoD
are based 100% on the performance of the Group.
The number of women working for UBS rose in 2005. We
promoted and retained more women than in previous years Group compensation policy
and the number of women leaving UBS remained stable. At
the end of last year, 63% of UBSs employees were male and UBSs compensation policy is designed to provide competitive
37% female. total compensation opportunities that will enable the firm to
Our workforce represents 153 nationalities globally. The attract, retain and motivate the talent it requires. Compensa-
largest number of employees, as measured by primary citizen- tion should provide incentives that foster an entrepreneurial
ship, hold US or Swiss citizenship, followed by British. and performance-oriented culture and support the firms in-
tegrated business strategy. Compensation of senior execu-
Performance measurement and management tives is closely linked to the achievement of sustainable share-
holder returns and provides appropriate incentives for long-
Throughout the firm, all employees are subject to a process term value creation.
that evaluates individual achievements against agreed objec- Four guiding principles define the compensation philoso-
tives. Our assessment process, called Performance Measure- phy of UBS. Each element of compensation base salary, in-
ment and Management (PMM), has been in place since 1996. centive awards, stock option awards, benefits is managed
At the beginning of the year, each employee agrees to his or within a total compensation framework, where the effects of
her individual objectives for the year with the evaluating man- modifications to one element are measured against overall
ager. These objectives encompass targets relating to people, compensation. Total compensation levels are determined
clients, economics and technical expertise. During this with consideration given to relevant market pay practices, en-
process, not only is individual performance assessed against suring UBSs ability to recruit and retain the best talent. UBS
business results but UBS also considers, among other things, is committed to provide superior compensation in return for
whether client interests were safeguarded to the standards re- superior performance, both in terms of both business success
quired by the firm. UBS also looks at whether employees and individual contribution. Through the use of equity-based
22
awards that vest or become unrestricted over time, UBS en- ation of UBS, a competitive assessment, and the ability to pur-
sures that there is strong focus on the long-term implications chase underlying shares in the market. The number of options
of decisions and actions taken, thus aligning employees in- to be granted to employees in a given period requires approval
terests with those of shareholders. by the Board of Directors.
The firms compensation policy is designed by the GEB, re- Benefits are a supplemental element of total compensa-
viewed by the Compensation Committee, and approved by tion, varying substantially from location to location, in line
the BoD. It was last updated in September 2002 and describes with local market practice. A benefit offered to all employees
the total compensation components as follows: group-wide except to senior management is the Equity
Base salaries are used to recognize the experience, skills Plus stock option program, which allows employees to pur-
and knowledge that individuals bring to their roles. Salary lev- chase UBS shares at fair market value and receive at no addi-
els are determined primarily based on rank or functional role, tional cost two UBS options for each share purchased. The
level of responsibility and the market environment. For em- program fosters employees commitment to long-term value
Our employees
ployees with a rank of director and above, base salary adjust- creation at UBS.
ments are limited to situations of significant changes in job
responsibility or exceptional market competition. Employee share ownership
Annual incentive awards reflect the performance of the
firm and its various businesses as well as the individual con- We are committed to the principle of employee share owner-
tribution of each employee. All regular employees are eligible ship throughout our organization. We believe it strengthens
to receive incentive awards if individual targets are achieved. the link between employees and shareholders by fostering a
Incentive awards are discretionary and can be highly variable culture that reinforces the entrepreneurial behavior that cre-
from year to year. ates sustainable value for all shareholders.
Above a certain threshold, a portion of the annual incen- Given each employees implicit commitment to UBS and di-
tive award is paid in the form of UBS shares (mandatory long- rect exposure to company performance through annual per-
term incentive award). These shares only vest after a certain formance-based bonuses, the portion of total compensation
period of time, generally three to five years, and are subject delivered in UBS equity must be appropriately weighted
to forfeiture under certain circumstances (e.g. if the employee against other aspects of employment. While participation in
leaves the firm and joins a competitor or otherwise acts in a some programs is mandatory, overall ownership targets are
way detrimental to UBS). not explicitly stated.
The highest performing employees and those with highest UBS offers equity-based programs in over 45 countries. For
potential are eligible for discretionary stock option awards, all employees in these countries, we also offer Equity Plus. For
which are granted at a strike price set at a minimum of the staff with annual incentive awards above a certain threshold,
market value on the date of award and at a premium strike a mandatory component is awarded in restricted UBS shares.
price of 10% above market value for senior management. Additionally, select high-performing employees are granted
These options, which vest over three years after grant and are stock options that only deliver value if the share price appre-
subject to stringent forfeiture rules, represent a powerful ciates. We also provide the opportunity to acquire UBS shares
shareholder alignment incentive. Every year, the Chairmans through a number of country-specific retirement plans.
Office agrees on the maximum number of options available for At end-December 2005, 57% of all employees held UBS
allocation. The overall number depends on the financial situ- shares while 36% of all employees held UBS stock options.
Measuring employee commitment

The dedication of our employees is Moreover, 86% of them were highly of the industry benchmark of 72%.
critical to performance and retention. confident of UBSs future, and a high Of those who answered the surveys,
We assess the engagement of employ- proportion of employees (78%) said 70% felt their teams were effective
ees through surveys. they would recommend UBS as an and that the work environment
Global Wealth Management & employer. was based on respect and mutual
Business Banking (excluding Wealth Overall results from several Investment support, with 69% of them believing
Management US), held a survey Bank, Global Asset Management, and management showed a strong com-
in 2005 in which more than 70% of Corporate Center surveys also showed mitment to ethical decisions and
responding employees said they were a high (76%) level of commitment. conduct, and 67% agreeing that they
satisfied or very satisfied with Satisfaction with UBS as a workplace were able to meet clients needs
their general work situation. was 74%, placing us slightly ahead effectively.
23
Our employees
Business training are closely coordinated across businesses to help ensure that
future senior managers have consistent knowledge of the or-
We have a broad range of training programs. Many are job- ganization and its strategy.
specific, covering topics such as financial market education, Employees moving into senior leadership positions, includ-
sales and client management skills, technical training, infor- ing those identified as key position holders or senior manage-
mation technology, and accounting. These programs are ment succession candidates, become part of a leadership
complemented by specific business training, induction pro- development process managed by the UBS Leadership Insti-
grams, professional and personal skills development, and tute, a small group of 31 employees reporting to the CEO.
legal and regulatory training. All are made available to em- It is supported by strategic mentoring programs under which
ployees based on their specific role. We also run major edu- members of the Group Executive Board mentor members
cational initiatives when a change in the firms business or of the Group Managing Board, who, in turn, mentor key
policies requires people to acquire new skills. talents.
Senior management attends a series of Global Leadership
Key talent development Experience programs focusing on UBSs key strategic objec-
tives. Senior management is actively engaged, nominating
UBSs key talent development process includes leadership de- participants and sponsoring or leading programs. Since 1999,
velopment programs, mentoring and coaching, and a range more than 850 senior leaders have attended one or more of
of other measures to teach people new skills. these learning events.
The process starts with graduate-level employees. All grad- Around 70 members of UBSs senior management meet
uates hired through our campus recruiting process benefit annually at the Annual Strategic Forum. A wider group of
from structured graduate education, both in the classroom more than 500 executives meets every year at the Senior
and on the job. Leadership Conference to analyze UBSs strategy and recom-
High-potential employees at early and mid-career are iden- mend specific action or change to the strategic agenda, the
tified using consistent criteria. Development opportunities business, or the work environment.
Our Values for Action

Our Purpose Partnership: Relationships among our manner that is above reproach. Our
Client Focus: Our clients success is people as well as with our clients are integrity is key to preserving our most
our success. We take the time to driven by the power of partnership. It valuable asset our reputation. We
understand their objectives, and requires respect, contribution, trust respect our clients right to privacy,
commit our resources to develop and mutual support. We encourage and use information with appropriate
effective solutions helping them meet the free exchange of ideas, and discretion.
or exceed their goals. demand teamwork.
Corporate Responsibility: We are a
Our Core Competencies Meritocracy: We ask for entrepre- member of the global community and
Entrepreneurial Leadership: Our neurial spirit and initiative from each behave as a responsible corporate
leaders at all levels engender enthusi- individual. We actively strive to be the citizen. We, both as a corporation and
asm, energy and commitment. best at attracting, developing and through our people strive to contribute
Through innovation, inspiration and retaining talented people. Decisions positively and actively to the communi-
operational excellence we capture regarding recognition, reward and ties where we do business.
opportunities, create better solutions promotion are based on merit. We
and expand our market share. By coach our people and invest in their Diversity: Our strengths are leveraged
leadership and accountability across development. by globally embracing diversity of
our company we establish direction, skills, perspectives and backgrounds.
encourage collaboration and knowl- Our Ethical Beliefs
edge sharing, and provide an attractive Integrity and Privacy: We expect our
environment for our people. people to conduct themselves in a
24
Business-specific senior leadership development programs Selected 2005 awards
complement our global efforts by focusing on refining lead-
ership skills and behaviors, and on strengthening participants
understanding of strategy. Number one in Europe for
Top Companies for
International experience is an important part of develop- Leaders 2005 by benefits
ing a highly qualified workforce and skilled management. We consultant Hewitt Associates
continue to see healthy levels of international mobility across
our firm. In 2005, more than 1,500 staff transferred to new
100 Best Companies
jobs or functions in countries outside their own. Notably, for Working Mothers
there was an increase in overseas assignments supporting ac- (Working Mother
tivity in Asia Pacific, particularly in Hong Kong, Singapore, Magazine; US)
China and India. Programs have been instituted to recruit and
Our employees
develop staff in the Asia Pacific region, among them a sum- 10 Best Employers in Asia
mer school and a graduate program, both of which feature (Hewitt Associates, Straits
short-term assignment opportunities. Times, South China Morning
Post; Singapore & Hong Kong)
We have introduced benefits flexibility in our international
assignment policies that in 2005 lowered the overall costs of
some expatriate assignments. As a result, our business areas
were better able to match employees and costs to the nature
of the assignments. This, in turn, increased the overall number
of international assignments offered in 2005, with particular in-
creases seen among lower ranked employees. We also took
steps to provide additional spouse and family support, helping
assignees and their families adapt to new environments.
Being a responsible employer

Our success depends on our staff. and help resolve issues that occur in help them apply for new jobs, either
We support them both during and everyday life. UBS in Switzerland offers within UBS or outside. To this end,
beyond their careers with UBS. professional assistance for current and COACH advisors work closely with
Our Employee Assistance Programs retired employees, as well as their UBSs human resources managers
(EAPs) are a case in point. family members, through its HR Social and draw on the expertise of UBSs
In the weeks following the December Counseling service. The specialized internal social consultancy service
2004 tsunami, UBS staff in the UK unit provides free confidential counsel- and specialized external agencies.
were able to access an independent ing for personal issues and guidance in Financial assistance of up to
counseling hotline under the auspices solving business-related problems. CHF 6,000 per employee is also avail-
of the UK regions EAP. Provided in Additional programs support employ- able for job-related training where
conjunction with an independent ees when a business is re-organized. this will help applicants change their
organization, the service gives UBS One example is COACH, a set of career path. To date, some 1,600
employees 24-hour confidential access measures in Switzerland designed to staff members have enrolled with
to specialist information, consultants, help staff who lose their jobs because COACH. Of this total, about one-tenth
and advisors. of restructuring. Launched early in has found re-employment within
UBS supports EAPs in a number of 2003, the package extends the stan- UBS. The EAPs and COACH are not
locations. Usually underpinned by dard notice term of each eligible low-cost options, but we believe
independent, third-party organiza- employee by two months. we have a responsibility to our staff
tions, the programs offer confidential During this period, employees retain and to the wider society, to be a
support to help employees balance their full salary and benefits. They also conscientious employer.
their work, family and personal needs receive counseling and support to
25
Our employees
Employee representation ments and collective redundancies. Employee representation in

Switzerland is led by the Employee Representation Committee
The UBS Employee Forum was established following the (ERC). This group of elected, internal representatives acts as an
merger of UBS and SBC to exchange information between intermediary between business and employees, representing the
employees and management on European issues potentially interests of employees whose work contracts are governed by
affecting the performance and prospects of UBS. The forum Swiss law and the Agreement on Conditions of Employment for
fulfils the obligations contained in EU Directive 94 / 45 on the Bank Staff. The ERC participates in annual salary negotiations
establishment of a European Works Council. A UK employee and is involved in employee matters, including health and safety
forum meets on a regular basis to discuss topics particularly issues, social security and pension issues. The ERC also monitors
relevant to employees in the UK, including health and safety and encourages communication between management and
issues, changes to workplace conditions, pension arrange- employees.
26
Our businesses
We manage our Business Groups in a way that optimizes
value for shareholders making the whole worth more than
the sum of the parts.
Our businesses
Global Wealth Management & Business Banking
Global Wealth Management&Business Banking

Global Wealth Management & Business Banking is both the top provider of financial services for wealthy
clients around the world and the leading bank for individual and corporate clients in Switzerland.
Business Group / Business Unit reporting

Global Wealth
Wealth Management Business Banking Management &
CHF million, except where indicated International & Switzerland Wealth Management US Switzerland Business Banking
For the year ended or as at 31.12.05 31.12.04 31.12.05 31.12.04 31.12.05 31.12.04 31.12.05 31.12.04
Total operating income 9,011 7,693 5,156 4,736 5,071 5,039 19,238 17,468
Total operating expenses 4,850 4,297 4,844 4,707 2,882 3,026 12,576 12,030
Business Group / Business Unit
performance before tax 4,161 3,396 312 29 2,189 2,013 6,662 5,438
Net new money (CHF billion) 68.2 42.3 26.9 18.1 3.4 2.6 98.5 63.0
Invested assets (CHF billion) 982 778 752 606 153 140 1,887 1,524
Personnel (full-time equivalents) 11,555 10,093 17,034 16,969 16,023 15,508 44,612 42,570
Business Wealth Management International & Switzerland, serving

wealthy and high-end affluent clients around the world ex-
Our global branch network delivers comprehensive financial cept domestic clients in the United States
services to wealthy private individuals around the world and Wealth Management US, serving wealthy and affluent do-
to private and corporate clients in Switzerland. Our business mestic US clients
is to provide all our clients with the advice, financial products Business Banking Switzerland, serving retail and corporate
and tools that meet their individual needs. clients in Switzerland.
Businesses focusing on client needs can only fully exploit
Organizational structure their potential if they are provided with a reliable and efficient
infrastructure. In Global Wealth Management & Business
Effective 1 July 2005, we brought our US, Swiss and interna- Banking, our support areas provide products and services to
tional wealth management businesses along with our Swiss these three business units as well as to other UBS businesses.
corporate and retail banking unit into one Business Group The services provided by support areas are allocated
called Global Wealth Management & Business Banking. We based on a transfer price mechanism to Business Banking
also transferred the municipal finance unit, until then a part Switzerland, Wealth Management International & Switzer-
of Wealth Management US, to the Investment Banks fixed in- land, Wealth Management US and other UBS businesses.
come area. In 2003, our independent label private banks were inte-
The Business Group is managed in a fully integrated grated into a new holding company within Corporate Cen-
way, although results are reported for the following seg- ter. That holding company, which included specialist asset
ments: manager GAM, was sold to Julius Baer in late 2005.
Marcel Rohner | Chairman & CEO

Global Wealth Management &
Business Banking
28
Our vision
As the global leader in wealth management, we are determined to become the provider of choice for private clients worldwide. The
scale and significance of our wealth management business in UBS ensures the highest levels of long-term commitment to the inter-
ests of our private clients. We will provide our clients with a consistent positive experience at every point of contact with our group,
anywhere in the world. This is founded on the high quality of our advisory process through which we first take the time to listen to
our clients, then develop and implement solutions for and with them, and finally monitor and learn from the results. At the center
of this process is the client advisor. Careful selection, development and support of our client advisors is instrumental in providing a
positive experience to our clients, thus fostering long-term personal relationships with our group.
As the leading bank in Switzerland, we grow by providing a complete range of top quality banking, securities and operational services,
and multi-channel access for individual and corporate clients.
Our Businesses
Leadership replacing budgeting
Cost discipline had been a key success wealth management and Swiss retail This type of decision-making requires
factor for UBS in the phase following and corporate businesses. enhanced transparency and granularity
the merger of UBS and SBC in 1998. The new process ensures clear strate- in management information. As
During that time, traditional targets gic direction by a simplified top-level budget figures the traditional point
helped management and staff to five-year business plan. It focuses on of reference are no longer available,
achieve the efficiency objectives defined strategic projects and initiatives that current performance is measured
for the post-merger integration. support the priorities of the business. against actual results achieved in the
However, they rarely provided guidance Operational leadership is supported by previous periods and benchmarked to
on how to capture revenue opportu- a five-quarter rolling forecast which the performance of a defined group of
nities a feature that became impor- allows senior management to react peers. This encourages managers,
tant in the following cycle of Global quickly to changes in the market client advisors and other employees
Wealth Management & Business environment and initiate corrective to identify best practices and, through
Bankings development the phase measures immediately, if required. an active exchange of ideas, ways to
of growth and market expansion. Entrepreneurial leadership involves learn from each other. In this context,
Arriving at these traditional target decision-making, taking a commercial managers increasingly take the
figures required an extensive process approach that balances income, cost role of coaches who encourage and
which was very thorough, but time- and risk. This had a direct implication support their employees to exploit
consuming for both managers and on the role of managers and on the their full potential and fulfill their
controllers. The three-year business scope of their authorities. They decide own ambitions.
plans as well as operational budgets on staffing levels for their units, on the The concept is innovative and has
with fixed targets were defined both skills required by their teams and on earned UBS recognition by specialist
top down and bottom up. The local marketing activities and they press as well as general media.
consequence of this approach was are held accountable for them and, Since this was not just an operational
that it tended to stand in the way of ultimately, for the units performance. change in process, but rather a radical
inspiring employees to search for In other words, additional investments shift in corporate culture, it is difficult
growth opportunities. That is why, in are expected to yield additional rev- to measure its full bottom-line contri-
2004 as part of a program to foster enues. Employees also have more bution. Experiences over the past year
a more entrepreneurial culture UBS responsibility. Client advisors now have been positive and accompanied
decided to do away with the annual formulate their own business goals, by the business strong financial
budgeting process in its international and decide how best to achieve them. performance.
29
Our businesses
Wealth Management International& Switzerland
With more than 140 years of experience, an extensive global network, and CHF 982 billion in invested assets on
31 December 2005, our 4,154 client advisors consistently deliver high-quality, individually tailored solutions to
our clients worldwide.
Business We also provide financial intermediaries, both inside and

outside Switzerland, with our solutions, products and ser-
The Wealth Management International & Switzerland unit vices, helping them to add substantial value to their client
provides a comprehensive range of products and services in- relationships.
dividually tailored for wealthy clients around the world via its
global branch network and through financial intermediaries. Competitors
Our client advisors combine strong personal relationships
with the resources that are available from across UBS, help- The Wealth Management International & Switzerland units
ing them to provide a full range of wealth management serv- major competitors comprise all globally active wealth managers,
ices from asset management to estate planning and from such as the wealth management operations of Credit Suisse,
corporate finance advice to art banking. Our open product HSBC and Citigroup. We also compete with private banks that
platform gives clients access to a wide array of pre-screened, operate mainly within their respective domestic markets, such as
top-quality products from third-party providers that comple- Pictet and Julius Baer in Switzerland, Coutts in the UK, Deutsche
ment UBSs own lines. Bank and Sal. Oppenheim in Germany, and Unicredito in Italy.
Organizational structure Clients
We are organized into the two business areas of: We are committed to the consistent delivery of tailored and
Wealth Management Swiss Clients, covering clients unbiased financial solutions of the highest quality to our
domiciled in Switzerland, and organized into eight geo- clients. We strive to create long-term personal relationships.
graphic regions A clearly structured advisory process helps client advisors
Wealth Management International Clients, serving add value at each step and provides our clients with a consis-
clients domiciled outside Switzerland. This area is orga- tent and comprehensive experience. Our approach consists of
nized into the seven regions of: Italy; Western Europe; four clear, mutually enhancing steps. In the first, our advisors
Benelux (Belgium, Netherlands, and Luxembourg), Ger- take the time to understand what it is their clients want and
many, and Central Europe; UK, North, and Eastern Europe; need, and look at all the different factors that might affect their
Eastern Mediterranean, Middle East, and Africa; Asia Pa- goals and willingness to take risk. As a second step, the advi-
cific; and Americas International. sor formulates investment proposals crafted for that clients
Invested assets by client domicile Invested assets by client wealth

in %, except where indicated in %, except where indicated
As at 31.12.05 Total: CHF 982 billion As at 31.12.05 Total: CHF 982 billion
6
15
26 Swiss Clients < CHF 1 million
11
46
International Clients CHF 15 million
Europe (part of WM-International) CHF 510 million
16
The Americas (part of WM-International) > CHF 10 million
27
Asia Pacific (part of WM-International)
Middle East / Africa (part of WM-International)
41
12
30
European wealth management office locations
France Italy United Kingdom1

1 Bordeaux 19 Bologna 33 Birmingham
36
2 Cannes 20 Brescia 34 Brighton
39
3 Lille 21 Florence 35 Bury St Edmunds 38
4 Lyon 22 Genoa 36 Edinburgh 33
15
5 Marseille 23 Milan 37 London 35
10
40
6 Nantes 24 Naples 38 Manchester 37
34
7 Paris 25 Padua 39 Newcastle 42
3
13 11
8 Strasbourg 26 Rome 40 Taunton 12
14
9
27 Turin 17
7 8
18
6 41
16
Germany Spain Other countries

9 Bad Homburg2 28 Barcelona 41 Austria (Vienna) 4
1 23 20 25
27
10 Berlin 29 Madrid 42 Belgium (Brussels)
22 19
11 Bielefeld 30 Marbella 5 2 21
12 Cologne 31 Seville
29 28
13 Dusseldorf 32 Valencia
26
14 Frankfurt 24
32
Our Businesses
15 Hamburg 31
16 Munich Locations end-2000 30
17 Offenbach New locations since 2001

18 Stuttgart
1 Includes five locations from the acquisition of Laing & Cruickshank. 2 Headquarters of UBS Sauerborn.
specific requirements by selecting from the best products and Growth initiatives
services available. In the third step, the advisor agrees with the
client which of the solutions should be implemented. The European wealth management
fourth step rounds out the whole experience with comprehen- The European wealth management business was launched in
sive monitoring and reporting of investment performance to early 2001, and is aimed at wealthy clients in the five target
the client by the advisor, as well as regular communication be- countries of France, Germany, Italy, Spain and the UK. Over the
tween the two in which goals and strategies are constantly past five years, the number of European domestic branches,
evaluated and adjusted as required. Our extensive training now 42, has nearly trebled while invested assets have risen to
programs ensure that client advisors become fully versed in all CHF 114 billion from CHF 16 billion in 2001, corresponding to
aspects of this consultative approach. an annual growth rate of 63%. Much of the rise in invested
European wealth management: UBS Client Experience

invested assets by client domicile
in %, except where indicated I am kept informed of the My client advisor listens to me
performance of my assets on Un and takes time to understand
As at 31.12.05 Total: CHF 114 billion de
8
a regular basis and my client iew my needs and objectives.
v
rst
advisor will recommend

Re
17
an
Italy any changes that might

d
Germany need to be made.

38
France Focused on you
UK
Ag r
Spain My client advisor helps My client advisor

ee
30
e
&
mp
os
me to select the most p proposes financing and

I
lem Pro
suitable solution and informs ent investment opportunities that
me about its implementation. meet my individual needs.
7
31
Our businesses
Invested assets by asset class Invested assets by currency

As at 31.12.03 31.12.04 31.12.05 As at 31.12.03 31.12.04 31.12.05
Total: CHF 701 billion CHF 778 billion CHF 982 billion Total: CHF 701 billion CHF 778 billion CHF 982 billion
100 4 6 8
100 5 6 7
7 4 6
12 6
16 20
18 19 18
75 18 75
18
20
19 34 34 33
50 18 50
27
22 17
25 25
37 35 36
24 23 23
0 0
Accounts, money markets , fiduciary investments Bonds UBS mutual funds Equities USD EUR CHF GBP Other
Other (including structured products and alternative investments) External mutual funds
assets was due to the CHF 60 billion in net new money we We offer discretionary and non-discretionary mandates.
took in during the past five years. Clients that opt for a discretionary mandate delegate the man-
In our European wealth management business we cur- agement of their assets including investment decisions to
rently have a total of 803 client advisors, up from 177 advisors a team of professional portfolio managers who work accord-
at the beginning of 2001. After having successfully established ing to an agreed investment strategy. Clients that prefer to be
a European physical presence, our focus in the next two years actively involved in the management of their assets can choose
will be on maintaining the momentum of our growth. a non-discretionary mandate, where our investment profes-
sionals provide analysis and monitoring of portfolios, together
Wealth management in Asia Pacific with tailor-made proposals to support investment decisions. In
Asia Pacific is the fastest-growing wealth management market both cases, we offer relative return programs that aim to out-
in the world. According to an internal UBS estimate, the liquid perform benchmarks. For discretionary mandates, we also
assets held by wealthy individuals in the region (excluding offer absolute return programs. These focus on preserving
Japan) will grow by 8.9% annually between 2004 and 2008. capital, while still participating in market upturns. At the end
The global growth rate will be 5.5% for the same period. of 2005, around 21% of assets invested with Wealth Manage-
The wealth management business has a presence in six do- ment International & Switzerland were discretionary.
mestic Asia Pacific markets and plans to expand its network All our clients can trade in a full range of financial instru-
of branches and offices into further high-potential locations. ments from single securities such as equities and bonds, to
By cooperating with the other Business Groups in the region, structured products and alternative investments. Over the
wealth management can draw on a wide array of products past two years, the assets private clients have invested in al-
and services already on offer and share infrastructure, deliv- ternative investment and structured products have grown
ering significant cost savings. from CHF 43 billion to CHF 125 billion in 2005. We also ful-
At the end of last year, we also received approval to open fill their basic banking needs with a wide range of products
a wealth management business office (sub-branch) in Osaka, ranging from cash accounts and savings accounts to credit
Japans second largest city, an important step in further ex- cards, mortgages, and securities-backed lending.
panding our presence in Japan. Our offering includes expert financial advice supporting our
clients throughout the different stages of their lives. We give
Products and services wealth planning advice on topics such as education funding
and gifts to children, inheritance and succession planning, tax
Our clients can count on the expertise of more than 2,000 planning, insurance, trusts and foundations, and art banking.
professionals worldwide dedicated to developing wealth We also offer corporate finance advice to support clients in the
management solutions. We ensure that our private clients get process of acquiring or disposing of corporate assets. Overall,
access to what we judge as high-quality investments. We our products and services offering is a comprehensive selec-
source internally at UBS when we believe we have the requi- tion that covers the wide-ranging banking needs of our clients.
site expertise. Otherwise, we screen the market for the best
Distribution
products. By aggregating private investment flows into insti-
tutional flows, we are in a position to offer our private clients Our extensive wealth management branch network comprises
access to investments that would otherwise only be available 4,154 client advisors, 111 offices in Switzerland and 72 offices
to institutional clients. worldwide.
32
Wealth Management US
As one of the leading wealth managers in the US, we provide a complete set of sophisticated wealth
management services to our affluent, high net worth and ultra high net worth clients.
Business within UBSs Investment Bank. At the same time, Paine-

Webbers Capital Markets Group was integrated within the
With CHF 752 billion in invested assets, our focus is on wealth Investment Banking & Securities business unit while its asset
management services to core affluent individuals with more management unit (then called Mitchell Hutchins) moved into
than USD 500,000 to invest, high net worth individuals with the Global Asset Management Business Group. Most non-US
more than USD 5 million to invest, and ultra high net worth private client businesses became part of our Wealth Manage-
clients with more than USD 10 million to invest. We have more ment business unit. The US private client business became an
than 7,500 financial advisors in 346 branch office locations that independent Business Group on 1 January 2002.
build and maintain consultative relationships with our clients. In 2003, we sold our wholly owned subsidiary Corres-
pondent Services Corporation (CSC) to Fidelity Investments.
Organizational structure CSC provided investment products and services (including
Our Businesses
clearance, execution, settlement, administrative and man-
PaineWebber merged with UBS in November 2000, and its US agement information services) to the clients of 148 US bro-
private clients business became a separate business unit ker-dealer firms.
Geographical presence in key markets
ALASKA
WASHINGTON NORTH DAKOTA MINNESOTA
MONTANA
MICHIGAN VERMONT
MAINE
SOUTH DAKOTA WISCONSIN
OREGON IDAHO
WYOMING NEW YORK NEW HAMPSHIRE
IOWA MASSACHUSETTS
NEBRASKA
PENNSYLVANIA RHODE ISLAND
ILLINOIS OHIO CONNECTICUT
INDIANA NEW JERSEY
NEVADA UTAH COLORADO WEST
KANSAS DELAWARE
VIRGINIA
MISSOURI MARYLAND
KENTUCKY VIRGINIA WASHINGTON D.C.
CALIFORNIA TENNESSEE NORTH CAROLINA

OKLAHOMA
ARKANSAS
ARIZONA NEW MEXICO SOUTH
CAROLINA
MISSISSIPPI GEORGIA
ALABAMA
TEXAS
LOUISIANA
HAWAII
FLORIDA
PUERTO RICO
Wealth Management US offices:

<5 610 >11
33
Our businesses
That same year, we launched UBS Bank USA. The bank, ning solutions, customized trust and estate planning, as well
headquartered in Salt Lake City, Utah, offers collateralized as philanthropic, stock management and tax planning
lending products and bank deposits insured by the Federal services.
Deposit Insurance Corporation (FDIC). Our asset-gathering strategy emphasizes the importance
As described on page 28, Wealth Management US be- of generating recurring fees from advice and products, as fee-
came part of the new Global Wealth Management & Business based relationships provide us with a source of regular, low
Banking organization in July 2005 while our municipal secu- volatility revenues.
rities unit was transferred to the Investment Bank. As a visible example of our progress, a leading industry sur-
vey based on a select sample of peers indicated that our share
Legal structure of the US private clients market grew to 15.8% in 2005, up
from 13.2% in 2000.
In the US, we operate through direct and indirect subsidiaries Central to helping clients pursue their financial goals is the
of UBS and securities activities are conducted through three personal relationship between our clients and their financial
registered broker-dealers. advisors, each of whom takes the time to understand individ-
ual client needs and goals and then provide solutions. We
Competitors keep clients informed on a periodic basis and can monitor and
update strategies as appropriate in response to ever-chang-
Our major competitors include Citigroups Smith Barney busi- ing markets and needs.
ness, as well as the private client group businesses of Morgan We continually commit considerable resources to further
Stanley, Merrill Lynch and Wachovia. develop and expand the expertise of our financial advisors.
All new advisors undergo a training program that is designed
Clients and strategy to provide them with the necessary financial planning, analy-
sis, client relationship management, and legal and compli-
We aim to meet the financial needs and goals of core ance knowledge. Moreover, this process does not end when
affluent and high net worth clients in the US by providing an advisor starts working at a branch it is continuous. Ex-
them with wealth management services embracing both perience shows that our training programs are a key factor
their assets and liabilities. Our private wealth manage- in helping to develop long-term, mutually beneficial
ment group serves ultra-high net worth clients with plan- relationships with clients.
Invested assets by client wealth Invested assets by asset class

As at 31.12.05 Total: CHF 752 billion As at 31.12.03 31.12.04 31.12.05
Total: CHF 599 billion CHF 606 billion CHF 752 billion
100
21 < CHF 1 million
42 20 21 21
CHF 15 million
75
CHF 510 million
38 39 38
8 > CHF 10 million
50
3 3 4
25 30 29 30
29
9 8 7
0
Accounts, money markets Bonds UBS mutual funds Equities Other
34
Our emphasis on training is one of the reasons our finan- We complement these services with competitive lending
cial advisors are among the most productive in the industry. and cash management services, including our Resource Man-
A leading industry survey put our revenues per financial agement Account product, credit cards, FDIC-insured de-
advisor 17% above the industry average in 2005. posits, securities-backed lending and mortgages.
Our offering includes comprehensive planning to support
Products and services clients throughout the different stages of their lives. This in-
cludes retirement planning, education funding, estate planning
We offer a full array of proprietary offerings and third-party strategies, charitable giving, tax management strategies, insur-
solutions, giving clients access to investments that suit their ance, trusts and foundations. Through Corporate Employee
specific needs and goals. Our size means that individual Financial Services, we provide stock option services to many of
clients can gain access to investments that might otherwise the largest US corporations and their executives.
only be available to institutions.
Clients often have the option of transaction-based or Industry trends
asset-based relationships. For those choosing an asset-based
approach, we offer solutions in the following categories: We are already one of the premier US wealth managers. In
client-directed brokerage accounts; discretionary portfolio 2006, we aim to increase our market share by making use of
management, in which qualified financial advisors make in- the increased range of products and services available since
vestment decisions; and investment management consulting, the creation of Global Wealth Management & Business Bank-
where assets are invested in a mutual fund asset-allocation ing. Further growth will depend on a continued commitment
program, or managed by affiliated and/or non-affiliated in- to recruiting, retaining and developing top-performing finan-
Our Businesses
vestment managers. cial advisors and providing them with the resources that will
Clients have access to a broad range of transactional prod- lead to increased revenue.
ucts, including individual securities such as equities and fixed The long-term outlook for our business remains strong.
income instruments, structured products and alternative in- The aging of the baby boom generation suggests an in-
vestments. In response to high investor interest in hedge funds creased need for retirement and estate planning. The line be-
and funds-of-funds, we have also strengthened our ability to tween banking and brokerage continues to blur, providing
create, structure and manage a range of alternative invest- opportunities to further expand our business. We believe that
ments for qualified high net worth individuals and institutions. we are well positioned to exploit these market trends.
35
Our businesses
Business Banking Switzerland
Business Banking Switzerland, UBSs retail and commercial banking unit, is the market leader in Switzerland
and provides a complete set of banking and securities services for individual and corporate clients.
Business Competitors
We are the leading bank in Switzerland. At the end of 2005, Business Banking Switzerlands major competitors are banks
clients had CHF 153 billion in invested assets with us. With a active in the retail and corporate banking markets in Switzer-
total loan book of CHF 141 billion on 31 December 2005, we land. This group includes Credit Suisse, the countrys cantonal
lead the Swiss lending and retail mortgage markets. banks, Raiffeisen Bank, and other regional or local Swiss
Our aim is to provide clients with optimal levels of conve- banks as well as foreign bank branches in Switzerland.
nience and service. Together with our successful e-banking
offering and customer service centers, our 1,260 automated Clients and products
teller machines (ATMs) and 301 branches across Switzerland
provide a network that is wider than that of any of our do- Business Banking Switzerland offers high-quality, standard-
mestic competitors. ized products to the retail market for individual and small
One of our key objectives is to increase profitability by con- company clients, as well as more complex products and advi-
tinuously realizing cost savings and by improving rev- sory services for larger corporate and institutional clients and
enues through rigorous implementation of our risk-adjusted financial institutions.
pricing model. We aim to create additional value by provid-
ing integrated financial solutions for our clients individual re- Individual clients
quirements. We serve around 2.6 million individual clients in Switzerland
through more than 3 million accounts, mortgages and other
Organizational structure financial relationships. With our extensive Swiss branch net-
work, we offer a wide range of products and services sup-
The Business Banking Switzerland unit comprises the domes- ported by a complete set of distribution channels (ATMs,
tic branch network for corporate and individual clients, which phone services, e-banking). Our range of products and serv-
is organized into eight regions. ices for private clients includes a comprehensive selection of
Invested assets by asset class

in %, except where indicated
As at 31.12.03 31.12.04 31.12.05
100 4 7
9
9
11 12
13
75 11 12
26
25 29
50
13 10
9
25
35 34 31
0
Accounts/money markets Bonds UBS mutual funds
Equities Other External mutual funds
36
cash accounts, savings products, wealth management ser- simplifies their processing and administration arrangements
vices, residential mortgages, pensions and life insurance. We and allows them to take advantage of other services, such as
have a leading position in many Swiss markets. In the mort- flexible consolidated performance reporting, and powerful
gages segment for individual clients, we have a share of 26%, portfolio management tools. In 2005, assets under global
in the savings market for individuals 23%, and in the credit custody for institutional clients grew to CHF 189 billion from
card business 30%. CHF 157 billion a year earlier.
Corporate clients Financial institutions

Business Banking Switzerland services around 136,500 corpo- We also offer payments, securities, and custodial services to
rate clients, including institutional investors, public entities more than 3,000 financial institutions worldwide and play a
and foundations based in Switzerland. leading role, together with the Investment Bank, in the firms
Of our corporate client base, around 200 are major com- Bank for Banks strategy. This focuses on offering state-of-
panies, with operations that span a broad range of markets the-art services to other banks, allowing us to put more busi-
and geographical regions. These clients require our advanced ness through our infrastructure. Other banks that lack our
financing and risk management skills and comprehensive ac- scale can outsource their payment, security or custodial ser-
cess to the capital markets for funding needs. vices, benefiting from our scale efficiencies.
Around 7,300 of our clients are large companies that uti-
lize our expertise in handling complex financial transactions. Distribution
We provide them with a wide range of financial advice, from
the selection and design of investment products to assisting Our private clients needs have changed in recent years.
Our Businesses
in complex mergers and acquisitions or providing structured Today, they want the flexibility of being able to access their
financing, often working in close co-operation with special- accounts using the full range of modern communication
ists from other parts of UBS. technology when it is convenient for them, without restric-
The remaining corporate clients (some 129,000) are small tions imposed by regular business hours.
and medium-sized enterprises requiring local market expert- To meet these needs, we pursue an integrated, multi-chan-
ise and access to our full range of products and services. nel strategy. We use technology to complement, rather than
We also provide substantial business process support to replace, the traditional physical branch network. Standard
our clients, ranging from transactional payments and securi- transactions can be conveniently executed using one of the
ties services to the facilitation of cross-border transactions electronic channels, enabling client advisors to focus on pro-
with trade finance products. viding advice and developing financial solutions. For basic
Our global custody services offer institutional investors the products and services, technology is used to ensure around-
opportunity to consolidate multiple agent bank relationships the-clock availability. Our customer service centers in five lo-
into a single, cost-efficient global custodial relationship. This cations provide basic information and support 24 hours a day
37
Our businesses
Loan portfolio by loan category Development of UBSs recovery portfolio, 19992005

in %, except where indicated CHF billion
As at 31.12.03 31.12.04 31.12.05
31.12. 99
31.12.00
31.12.01
31.12.02
31.12.03
31.12.04
31.12.05
100 5 3 2 32
16 16
18
3 (9)
75 24
21
2 (5)
50 16 15
81 82 1 (4)
77 12
1 (4)
9
25 8 1 (3)
6 1 (2)
4
3
0 0
Mortgages Commercial credits Recovery portfolio Balance New recovery loans added Settlement of recovery loans outstanding
by telephone. Additionally, in 61 of our branches in Switzer- of origination efforts on higher quality exposures with an
land, we have implemented a two-zone concept where stan- attractive risk / return relationship. Thanks to the introduction
dard transactions are executed via ATMs, while client advisors, of this model, the risk profile of our portfolio has clearly im-
sitting in an open plan desk area next to the automated tellers, proved in recent years. For more details of the UBS credit port-
focus on giving clients value-added advice. Our customers folio, please refer to the credit risk section of this Handbook.
make extensive use of our e-banking channels. On 31 Decem-
ber 2005, more than 450,000 clients had active e-banking Recovery portfolio
contracts and payment orders via electronic channels com- Because there will always be a certain percentage of clients
prised 76% of all payments made. unable to meet their financial obligations, we have dedicated
In spring 2005, we started a special campaign in Switzer- teams of recovery specialists to help them pursue a possible
land to attract younger clients. The national drive had gener- economic recovery. This can be achieved through restructur-
ated almost 25,000 new accounts by the end of last year. ing or, alternatively, by achieving the best possible value
through liquidation of available collateral in order to limit fi-
Loan portfolio nancial loss on the loan.
Our recovery portfolio amounted to CHF 3.3 billion on 31
On 31 December 2005, Business Banking Switzerlands loan December 2005. Since the end of 1998, this portfolio has
portfolio was CHF 141 billion. Of the total, mortgages repre- been cut by 87% thanks to our successful recovery efforts.
sented CHF 117 billion, around 80% of them being residen- Over the same seven-year period, non-performing loans de-
tial mortgages. Continued discipline in implementing our risk- creased from CHF 14.0 billion to CHF 2.5 billion, resulting in
adjusted pricing model has resulted in a strengthened focus a non-performing loans to gross loans ratio of 1.6%.
38
Our businesses
Global Asset Management

The Global Asset Management Business Group is one of the worlds leading asset managers, providing tradi-
tional and alternative investment solutions to private, institutional and corporate clients, and through financial
intermediaries.
Our vision
Our global asset management business provides investment management solutions directly to our private, institutional and corporate clients
and through financial intermediaries. We aim to deliver superior investment performance to clients through the management of their in-
vestments, across and within all major asset classes and through a number of investment approaches. The strength of our global asset
management business lies in its globally integrated investment organization and processes, as well as in the quality of its client service.
Business Group reporting
Our Businesses
For the year ended or as at
CHF million, except where indicated 31.12.05 31.12.04
Total operating income 2,487 2,022
Total operating expenses 1,430 1,470
Business Group performance before tax 1,057 552
Net new money institutional (CHF billion) 21.3 23.7

of which: money market funds institutional (CHF billion) (3.0) (1.2 )
Invested assets institutional (CHF billion) 441 344
of which: money market funds institutional (CHF billion) 16 17
Net new money wholesale intermediary (CHF billion) 28.2 (4.5 )
of which: money market funds wholesale intermediary (CHF billion) (9.7) (20.6 )
Invested assets wholesale intermediary (CHF billion) 324 257
of which: money market funds wholesale intermediary (CHF billion) 62 64
Personnel (full-time equivalents) 2,861 2,665
John A. Fraser | Chairman and CEO

39
Our businesses
Investment capabilities and services
Alternative and
Traditional investments quantitative investments Real estate Fund services
Equities Fixed income Global investment solutions
Core (price value) Global Global Single manager hedge funds Global Hedge fund services
Global Country and regional Country and regional Multi-manager hedge funds Country and regional Investment fund services
Country and regional Sector specific Asset allocation Quantitative Private strategies
Emerging markets Emerging markets Currency management Enhanced index Real estate securities
Systematic alpha High yield Return and risk targeted Agriculture
Long-short Structured credit Structured portfolios
Socially responsible Liquidity/short duration Risk management and
investments (SRI) advisory services
Indexed
Indexed
Growth investors
Country and regional
Global investment solutions initiative
Business analysis to identify intrinsic value. In addition, our separate

Growth Investors capability focuses on investing in securities
The diverse range of our specialized investment capabilities with strong growth characteristics.
enables us to offer innovative solutions in nearly every asset The alternative and quantitative investments business has
class. Our approach combines the global expertise of our in- two distinct offerings: a multi-manager or funds of hedge
vestment professionals with sophisticated risk management funds business and a single manager business, which oper-
processes and systems, helping us provide clients with prod- ates its own hedge funds. The multi-manager business con-
ucts and services that meet their needs. structs portfolios of hedge funds (operated by third-party
Invested assets totaled CHF 765 billion on 31 December managers) to give clients diversified exposure to a range of
2005, making us one of the largest global institutional asset hedge fund strategies. The single manager business includes
managers, the second largest mutual fund manager in OConnor, a hedge fund specialist, and DSI, a provider of en-
Europe, and the largest mutual fund manager in Switzerland. hanced equity index and quantitatively-based hedge fund
The traditional investments business offers equities and products.
fixed income, asset allocation and currency capabilities, The real estate business invests in properties in the US,
and risk management. The central investment approach in Europe and Japan and in publicly traded real estate securities
traditional investments is based on rigorous fundamental worldwide. It actively manages investments in property, in-
Invested assets by client type Institutional /wholesale intermediary fees

As at 31.12.03 31.12.04 31.12.05 As at 31.12.03 31.12.04 31.12.05
Total: CHF 574 billion CHF 601 billion CHF 765 billion Total: CHF 1,737 million CHF 2,022 million CHF 2,487 million
100 100
43 42 47 46 47
45
75 75
50 50
57 58
55 53 54 53
25 25
0 0
Institutional Wholesale intermediary Institutional Wholesale intermediary
40
cluding office, industrial, retail, multi-family residential, hotel Institutional
and farmland real estate. The institutional business has a diverse worldwide set of
We also have a global fund administration business pro- clients that includes:
viding services to both internal and external client bases. corporate and public pension plans
endowments, municipalities, charities and private founda-
Reporting structure and local organization tions
insurance companies
Our main offices are in Chicago, Frankfurt, Hong Kong, Lon- governments and their central banks; and
don, New York, Sydney, Tokyo and Zurich. We have some supranationals.
3,000 employees located in 20 countries.
We report revenues and key performance indicators In consultant-driven markets, such as the US and UK, we
according to our two principal asset management client rely on developing and maintaining strong relationships with
segments of institutional and wholesale intermediary clients. the major consultants that advise corporations and public
pension plans. We also dedicate resources to generating new
Competitors business directly with clients.
We have a range of competitors in traditional investments Wholesale intermediary

that extend from firms organized on a global basis such as The wholesale intermediary business offers some 400 invest-
Fidelity Investments, Alliance Bernstein and Merrill Lynch In- ment funds, exchange traded funds and other investment ve-
vestment Managers to firms organized on a regional or local hicles, across all asset classes in diverse country, regional and
Our Businesses
basis and those that specialize in a particular asset class. In real industry sectors.
estate and alternative investment, our competitors tend to be Our investment funds are overwhelmingly distributed
far more specialized and likely to be organized on a regional using financial intermediaries and selected third parties in-
or local basis. cluding the Global Wealth Management & Business Banking
Business Group.
Clients and distribution
Products and services
We aim to provide our clients with the most appropriate
investment solutions for their needs through our combina- Investment management products and services are offered in
tion of investment expertise, risk management, and local the form of segregated, pooled and advisory mandates and
delivery. a range of registered investment funds.
We place great importance on maintaining an ongoing di- In response to a changed investment environment featur-
alogue with our clients. As well as the advisory and reporting ing lowered projected returns for equities and increased mar-
aspects of our client relationships, we aim to keep clients in- ket volatility, we have developed a number of innovative in-
formed of the latest investment and business issues through vestment solutions to meet the needs of wholesale and insti-
a range of publications, events and training. tutional clients. These include value-added services such as
Institutional invested assets by asset class Wholesale intermediary invested assets by asset class
As at 31.12.03 31.12.04 31.12.05 As at 31.12.03 31.12.04 31.12.05
Total: CHF 313 billion CHF 344 billion CHF 441 billion Total: CHF 261 billion CHF 257 billion CHF 324 billion
100 100 4 4 4
11 15 18
19 20 25
75 24 20 75
19
21
24
26
50 33 36
50
37 23
27
26
25 25
27 24 33
22 25 19
5 5 4
0 0
Money market Fixed income Equity Asset allocation Others Money market Fixed income Equity Asset allocation Others
41
Our businesses
absolute return and dynamic alpha products. We can also broad-based multi-manager funds generated positive returns.
combine traditional and alternative investments and services Our real estate offering was strengthened this year with
into integrated packages. the launch of additional institutional private real estate funds
With demand for outsourcing and administration services in the euro zone and the acquisition of 51% of the Siemens
set to increase, we are well positioned to benefit by provid- Real Estate business. The global real estate securities capabil-
ing a range of professional services from legal fund set-up to ity continued to deliver strong investment performance and
full reporting and distribution support. corresponding growth in assets. These developments, along
with overall strong return figures and increasing investor de-
Investment performance mand for high-quality real estate, led to a significant increase
in assets on a global basis in 2005.
Equity markets rose in 2005, although progress varied by re-
gion. The US made modest gains, while Japan saw a 40% rise Strategic opportunities
on increased optimism about the economic outlook. The
global energy and materials sector soared on the back of ris- Our business performance in recent years has shown the
ing commodity prices and robust demand from China. Our soundness of our strategy of offering a wide range of invest-
strategies that were underinvested in these areas underper- ment products and solutions to various major markets and
formed during the year. Regional equity strategies were mostly distribution channels. We remain focused on the effective ex-
ahead of benchmarks, with particularly strong performance in ecution of our strategy, ensuring that our initiatives deliver
US and Asian equities, due to excellent stock selection. both revenue and profit growth.
In US equities, our Growth Investors team generated solid Demand for alternative investments and for high value-
returns. In particular, the large capitalization growth strate- adding products continues to grow strongly. We have a num-
gies significantly outperformed benchmarks again in 2005. ber of initiatives underway that address these client needs.
With the addition of a team specializing in mid-sized growth The formation of Dillon Read Capital Management is one
companies we were able to round out our investment cover- example. The transfer of the Investment Banks Principal
age of the US growth equity market. Finance and Commercial Real Estate business to Global Asset
Global bonds performed strongly in the first half of 2005, Management will enable a select number of long-term
with yields in several markets reaching record low levels. clients to co-invest with UBS in these trading strategies. It will
Some of this was retraced in fourth quarter when it became provide UBS with a new stream of fees and a new alterna-
clear that the momentum of economic growth was proving tive investment management business. The investments in
resilient despite the rise in energy prices and tighter monetary our European real estate business and our Growth Investors
policy in the US. Bonds with long maturity dates saw the capability are further examples of this business diversifica-
largest declines in yield, reflecting investors confidence about tion.
the outlook for inflation, allowing several governments to Access to a wide span of investment capabilities also sup-
issue 50-year maturity bonds. Credit markets failed to provide ports the development of holistic investment solutions that
the returns seen in preceding years as yield spreads dimin- address trends such as the increasing emphasis on liability-
ished and due to growing concern over the deteriorating out- driven investments and on retirement products.
look in several sectors (e.g. autos). Our active interest rate At the same time, we aim to strengthen our distribution
strategies had mixed results in 2005. power and have seen very strong momentum in a number of
Global balanced strategies finished above benchmarks for mature markets, such as the German and UK wholesale mar-
the year, mainly due to asset allocation decisions that favored kets. We also see great growth potential in our joint venture
equities. in China and in the various other opportunities we are explor-
In alternative and quantitative investments, performance ing in emerging markets.
was strong in 2005 despite difficult market conditions for While business growth continues to be a priority, we rec-
most hedge fund strategies in the first half of the year. Over- ognize the importance of a robust risk and compliance cul-
all, industry returns in the second half of the year were gen- ture to the sustainability of our business. Managing opera-
erally positive, resulting in good risk-adjusted returns for the tional risk continues to be a key focus. In 2005, we conducted
year. Our core multi-strategy and proprietary hedge fund a comprehensive recruitment and training program to ensure
strategies produced very good relative performance, with that our people, processes and systems can deal appropriately
equities performing exceptionally well. Additionally, the core with all types of risk.
42
Our businesses
Investment Bank
Investment Bank
UBS is one of the worlds leading firms in the investment banking and securities business, providing a full
spectrum of services to corporate and institutional clients, governments and financial intermediaries.
Our vision
Our investment banking and securities business provides innovative solutions, independent research and advice for our corporate,
institutional, intermediary and alternative asset management clients through complete access to the worlds financial markets across
all product classes. We are a global leader in the services we provide and the leading risk manager in our industry.

For the year ended or as at
Our Businesses
Business Group performance before tax 5,181 4,610
Huw Jenkins | CEO Investment Bank

(and Chairman from 1 January 2006)
John P. Costas | Chairman Investment Bank

(until 31 December 2005)
43
Our businesses
Investment Bank
Business businesses are run functionally on a global basis and organ-

ized into the three distinct areas of:
The Investment Bank is a global investment banking and se- Equities
curities firm. Our salespeople, research analysts and invest- Fixed income, rates and currencies (FIRC)
ment bankers, supported by our risk and logistics teams, de- Investment banking.
liver advice and execution to clients all over the world. In ad-
dition to serving the worlds key corporate and institutional Although we generally pursue a strategy of organic
clients, governments and financial intermediaries, we work growth, we also take the opportunity to enhance our fran-
with financial sponsors and hedge funds and indirectly meet chise with acquisitions where necessary. In 2003, we
the needs of private investors, through both our own wealth strengthened our equities business by acquiring ABN Amros
management business and other private banks. prime brokerage business in the US. In 2004, we bought
For both our corporate and institutional clients and the in- Charles Schwab SoundView Capital Markets, the capital mar-
dividual clients of other parts of UBS, the Investment Bank kets division of Charles Schwab. In order to expand our trad-
provides innovative products, research and advice, and coming technology, we acquired Prediction Company in Novem-
prehensive access to the worlds capital markets. Client de- ber 2005, a financial engineering and trading software com-
mands are always changing, so we continually adapt our pany. This specialized group will contribute to the develop-
range of products to remain competitive. This means that we ment of our trading infrastructure.
invest in new areas, making our overall portfolio less sensitive In July 2005, UBSs highly successful municipal securities
to demand cycles in individual products and keeping control business transferred into our fixed income area from the US-
of cost and risk. based wealth management business. We also announced a
Our corporate client financing and advisory business is a plan to transfer our principal finance and commercial real es-
market leader whose strengths lie in providing advice on tate trading businesses, currently part of the fixed income
cross-border mergers and acquisitions and raising capital for area, into Dillon Read Capital Management, a new alterna-
companies and governments. We have always been among tive investment management business within Global Asset
the leaders in European corporate finance, and we have ex- Management.
perienced very strong growth in the US and Asia Pacific in re-
cent years. Legal structure
We are an important partner for institutional clients, with
particular strengths in equity research and distribution as well The Investment Bank operates through branches and sub-
as in structuring and distributing fixed income cash, deriva- sidiaries of UBS AG. Securities activities in the US are con-
tives, and commodities products. Our risk management skills ducted through UBS Securities LLC, a registered broker-dealer.
run across all product areas, covering cash and derivative
products, and we make use of them to provide a broad array Competitors
of risk management products for both our institutional and
corporate clients. As a global investment banking and securities firm, we
We also manage cash and collateral trading and interest compete against other major international players such as
rate risks on behalf of UBS, while executing the majority of Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JP
securities, derivatives and foreign exchange transactions for Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan
the firms individual clients. Our risk management capabilities, Stanley.
treasury funding, and distribution services are among the
many qualities which have enabled us to be pre-eminent in Products and services
this field. We are now reinvesting in the business to expand
the scope and functionality of our e-commerce platform. Equities
To core clients and to important new clients, we offer The Investment Bank is a leading participant in the global pri-
lending products to support their financing needs, although mary and secondary markets for equity, equity-linked and eq-
risk / return considerations still determine balance sheet uity derivative products. We sell, trade, finance and clear cash
usage. We also provide them with bridge financing, in line equity and equity-linked products. We also structure, origi-
with our strategy of further expanding our leveraged finance nate and distribute new equity and equity-linked issues and
and high yield business. provide research on companies, industry sectors, geographic
markets and macro-economic trends. We are a member of
Organizational structure 108 stock exchanges in 35 countries. This multi-local ap-
proach allows us to deliver the advantages of our scale and
Our headquarters are in London and New York. We employ global reach to clients regardless of their home market.
roughly 18,200 people in 34 countries around the world. Our Our equity research supplies independent assessments of
44
Income by business area Equities: share of secondary trading
CHF million Global market share: 11.3% (No. 1)
For the year ended 31.12.03 31.12.04 31.12.05 As of 30.9.05
Total: 14,510 16,090 17,448 Europe

20,000 No. 1
16,000 2,506
1,915
United States
1,703
No. 4 Asia (excl. Japan)
6,980 No. 1 Japan
12,000 No. 1
5,906
4,875
8,000
8,269 7,962 Australia,

7,932
4,000 New Zealand
No. 1
Source: Leading industry survey
0
Fixed income, rates and currencies Equities Investment banking
the prospects for approximately 3,000 companies (correspon- trading, to our clients. Our focus on technology allows us to
ding to some 80% of world market capitalization) across adapt and continuously improve our business processes and
Our Businesses
most industry sectors, and all geographical regions, as well as client services.
economic, strategy, quantitative and derivative research. We Our prime services business provides integrated global
consistently have more highly rated analysts than any other services, including stock borrowing and lending, prime bro-
broker globally, according to Starmine, which measures ana- kerage and exchange-traded derivatives to our rapidly ex-
lysts based on the return of their stock recommendations. We panding roster of hedge fund clients. We have continued to
also ranked first in Institutional Investors surveys of equity reinvest globally in people and our technology platform to po-
search analysts in Europe, Asia, and Latin America and are sition ourselves to be a leader in the industry and strengthen
highly ranked in Japan and the US. our global cross-product capability. We have made significant
By carefully coordinating the efforts of our regional and strides in building our prime brokerage business and have
product distribution teams, we have built the worlds leading now climbed to the fourth rank globally, according to pub-
cash equities business. This offers liquidity and efficient com- lished competitor research reports.
pletion in executing orders in every major world market. Ac-
cording to a leading industry survey, we have had the largest Fixed income, rates and currencies
global market share in secondary cash commissions for the Our fixed income, rates and currencies business delivers a
last 14 consecutive quarters. In fact, one in nine shares traded broad range of products and solutions to corporate and insti-
globally is handled by UBS. tutional clients in all major markets. With professionals work-
We are also a recognized market leader in derivatives, ing in the Americas, Europe and Asia Pacific, we offer our
being named the number one brokerage firm in equity deriv- clients global service in our four major business lines:
atives in Risk Magazines corporate end-user survey in 2005. credit fixed income, incorporating credit trading and
Risk management products remain among the segments of credit derivatives
our business with the fastest pace of growth, and we will con- rates, incorporating interest rate derivatives, residential
tinue to focus on providing innovative and customized invest- mortgages, government bonds and energy trading
ment solutions to institutional and corporate clients, includ- municipals, incorporating origination, retail trading and
ing other parts of UBS. distribution, derivatives, short-term trading and institu-
Our equity capital markets team manages many of the tional trading
worlds largest and most complex transactions, demonstrat- FX/CCT, incorporating foreign exchange, cash and
ing the cross-border nature of our relationships and the collateral trading as well as base and precious metals.
strength of our distribution network. We have built a leading
global position as a distributor of block trades, rights offer- Our approach to products and markets varies. Where there
ings, initial public offerings, and hybrid and convertible issues is enough potential for risk-adjusted returns, we seek market
to both institutional and private clients in every market. share leadership in high-volume, liquid markets. Our global
We have made significant investments in our technology origination and distribution platforms, as well as our highly
platform, and are recognized as a market leader in providing regarded research capabilities, underpin our major business
a number of electronic services, such as equity research and lines. In research, we ranked first in European Fixed Income
45
Our businesses
Investment Bank
Strategy in the Thomson Financial Extel survey for the second ing to expand our FX e-commerce platform and deliver a suite
year running, first in European Investment Grade Research by of services tailored to meet the demands of each client seg-
Institutional Investor, and second in Fixed Income Research in ment.
Asia by FinanceAsia.
Our capital markets and distribution teams have also Investment banking
achieved high accolades, being named Euroweeks Best In the investment banking business, we provide first-class ad-
Provider of Support in the Secondary Market, and Best Lead vice and execution capabilities to global corporate, financial
Manager of Financial Institutions Bonds as well as ranking first sponsor and hedge fund clients. Our services include advising
in Orions Emerging Markets Sales survey. We were also re- on mergers and acquisitions, strategic reviews and corporate
cently named 2005 Swiss Franc Bond House of the Year by restructuring solutions. In partnership with other business areas
IFR. Our municipals origination business is a clear market of the Investment Bank, and other Business Groups, we also
leader with a 12% market share in the United States, and it arrange the execution of debt and equity issues worldwide.
has been in the top two positions in league tables for the past Our business has grown dramatically since 2003 as we
nine years, according to Thomson Financial. have captured the upside of the market rebound through
Based on our unique risk management and distribution ca- strategic hiring and a number of fill-in investments across our
pabilities, we are a market leader in foreign exchange and regions. In 2005, we established the Alternative Capital
cash and collateral trading. The close integration of FX, Group to cover hedge funds, the Strategic Solutions Group
money market, repo and metals creates significant client, to increase our penetration of Fortune 500 companies in the
processing and risk management synergies. Scale is the foun- US and the Life and Pensions Solutions Group in Europe. In
dation of our business model as we run these businesses on 2006, we will focus on leveraging our global platform and en-
a highly automated and integrated basis, with an award-win- hancing the scope and quality of the products and services we
ning suite of e-commerce tools providing direct interfaces be- offer our clients.
tween our sales force and clients. In 2005, we assisted our clients in a range of merger and
Our top positions in a vast series of industry surveys and acquisition transactions and capital markets issues. Some of
rankings show the success of our businesses and our FX re- the more notable mandates included:
search. In 2005, we were named Currency Derivatives House joint financial advisor to Gillette on its USD 57 billion sale
of the year by Risk magazine and were ranked first in to Procter & Gamble
Euromoneys technology awards for FX. Over the course of lead financial advisor to Gas Natural on its USD 47 billion
the last five years our volumes have outgrown the market. We public tender offer for Endesa
are also a market leader in precious metals, trading both non- joint global coordinator / bookrunner on the USD 4.6 bil-
physical spot, forwards and options as well as physical pre- lion follow-on global offering for Central Japan Railway
cious metals. We are rapidly expanding in base metals as well, joint bookrunner on the USD 2.2 billion global primary and
having become a member of the London Metals Exchange in secondary equity offering of American Depositary Shares
summer 2005. (ADSs) and ordinary shares in LG Philips LCD
We are seeking to expand our fixed income business fur- dealer-manager on the USD 81.8 billion debt exchange
ther by pursuing opportunities in credit, high yield and asset- offer for the Republic of Argentina
backed securities. We will expand our leveraged finance and joint bookrunner on a EUR 3 billion two-tranche unsecured
high yield appetite and extend our client footprint in debt bond offering for Deutsche Telekom
capital markets. Within asset-backed securities, we will match joint lead arranger and joint bookrunner on USD 2.2 billion
our strength in the agency business with non-agency and sub- of financing in support of the USD 2.3 billion leveraged
prime business as well as developing local currency asset- buyout of MeadWestvacos coated papers business and as-
backed and mortgage-backed securities. We are also reinvest- sociated timberlands by Cerberus Capital Management.
46
UBS underwriting and fee revenues
CHF million 2005 2004 2003
Corporate finance fees 1,460 1,078 761
Equity underwriting fees 1,341 1,417 1,267
Debt underwriting fees 1,516 1,114 1,084
Other capital markets revenues 1 436 294 471
Gross capital market and corporate finance fees 4,753 3,903 3,583
Capital market fees booked outside investment banking 2 (943) (813 ) (819 )
Amounts shared with equities and FIRC (1,182) (991 ) (1,017 )
Financing, hedging and risk adjustment costs (122) (184 ) (44 )
Net investment banking area revenues 2,506 1,915 1,703
1 Other capital markets revenues comprises equities and debt revenues with investment banking involvement that are not underwriting fees (for example, derivative or trading revenues). 2 Capital market
fees booked outside investment banking comprises equity and debt underwriting revenues that had no investment banking involvement (for example, municipal or mortgage-backed securities).
We participated in some of the industrys largest and most as well as private clients, who are increasingly seeking yield
complex transactions this year, reflecting our strategic goal to from alternative asset classes that cut across products and
Our Businesses
expand our global client franchise. To maintain our competi- business areas. Specifically, we aim to close the gaps to mar-
tive position, we will continue to invest in our growing US ket leaders in prime brokerage, expand our investment bank-
business and protect and enhance our strong positions in the ing franchise in Europe, and continue to grow our footprint
European and Asia Pacific markets. in Asia Pacific.
Companies still have strong balance sheets and cash flows, We will also target new business growth in commodities
leading us to expect current M&A levels to continue. While and emerging markets. We are expanding our base metals
tight credit spreads will continue to be positive for debt and energy businesses, driven by client demand. We will cap-
underwriting and trading, a slight increase in credit defaults italize on significant growth and the opening up of financial
may lead to a flat to slightly smaller fee pool in debt capital markets in areas such as China, India, Russia, Brazil, and the
markets. Middle East. We will also further expand our fixed income
business by growing our credit, high yield and asset-backed
Strategic opportunities securities products organically.
To support these efforts, we are increasing our investment
Our industry is always competitive, but the strength of the in infrastructure. Our businesses in securities areas continue
markets and the level of client activity continue to offer at- to commoditize and we must therefore further develop a scal-
tractive investment opportunities. The Investment Bank is po- able and convergent infrastructure that allows us to expand
sitioned to take full advantage of market trends, and we have capacity at low marginal cost. We will also continue to invest
great ambitions for the future based on an investment pro- in our employees and make further progress in our human re-
gram that targets our fastest growing clients and emerging sources strategy from a business that seeks talent in the
asset classes. market to one that forges talent internally.
We plan to increase business with our alternative asset
management clients hedge funds and financial sponsors
47
Our businesses
Corporate Center
Corporate Center
Corporate Center works with the Business Groups to ensure that the firm operates as an effective and inte-
grated whole with a common vision and set of values. It helps UBSs businesses grow sustainably through its
risk, financial control, treasury, communication, legal, human resources strategy and technology functions.

For the year ended
or as at
Total operating income 687 398
Business Group performance from continuing operations before tax (708) (778 )
Business Group performance from discontinued operations before tax 4,564 396

Personnel excluding IT Infrastructure (ITI) (full-time equivalents) 1,370 2,848
Personnel for ITI (full-time equivalents) 2,552 2,354
Aims and objectives and its risk control, legal and compliance activities. The Corpo-
rate Center is responsible for communicating with all UBS stake-
Our commitment to an integrated business model means holders, for branding, and for positioning the firm as the em-
that our complementary businesses must be managed to- ployer of choice. The Corporate Center has operational respon-
gether to optimize returns and control risk. Corporate Cen- sibility for certain shared services, such as information technol-
ter supports UBSs businesses, enabling them to operate ogy infrastructure (ITI) and for Group Offshoring (including the
effectively within this framework. new UBS Service Center being established in India).
It fosters the long-term financial stability of UBS by main-
taining an appropriate balance between risk and reward, and Organizational structure
establishes and controls UBSs corporate governance
processes including compliance with relevant regulations. Until the sale of UBSs private label banks and specialist asset
The functional heads within the Corporate Center exercise manager GAM, Corporate Center was reported as two sep-
authority across UBSs businesses for their area, including the arate business units: Corporate Functions and Private Banks
authority to issue group-wide policies in their respective areas & GAM. Starting in fourth quarter 2005, Corporate Center
of responsibility and with each of their Business Group coun- was again reported as one single unit.
terparts having a functional reporting line to them. They are In addition to the functional roles set out below, the CFO
responsible for UBSs financial, tax, and capital management is head of the Corporate Center.
Clive Standish | UBS Chief Financial Officer

and Head Corporate Center
48
Corporate Functions tors, Group Executive Board (GEB), Group Managing Board
(GMB), the Audit Committee, internal and external auditors,
Chief Financial Officer (CFO) and the CFOs of the Business Groups. He establishes and en-
The CFO is responsible for transparency in the financial per- forces Group-wide financial and management accounting
formance of the Group and its individual businesses, for its fi- policies, and manages relations with external auditors and
nancial reporting, forecasting, planning, and controlling accounting standard bodies. He leads the forecasting process
processes as well as providing advice on financial aspects of and supports the CFO in the Groups planning process. The
strategic plans and mergers and acquisitions transactions. He Group Controller coordinates and controls tax issues.
is also responsible for UBSs tax and capital management. To-
gether with the CEO, the CFO provides external certifications Group Treasurer
under the Sarbanes-Oxley Act 2002, defines the standards for The Group Treasurer is responsible for the management of
accounting, reporting and disclosure, and manages relations UBSs financial resources and financial infrastructure. He is re-
with investors. He coordinates working relationships with in- sponsible for Group-level governance of treasury processes
ternal and external auditors. and transactions which relate to UBSs corporate legal struc-
The CFO is the GEB member responsible for ITI and Group ture, regulatory capital, balance sheet, funding and liquidity,
Offshoring, and for the own-use corporate real estate port- and non-trading currency and interest rate risk. His responsi-
folio across the firm. bility includes the issuance of policies in order to ensure
proper management and efficient co-ordination of treasury
Chief Risk Officer (CRO) processes on a Group-wide basis. The Group Treasurer man-
The CRO is responsible for developing UBSs risk management ages the Groups equity, taking into account financial ratios
Our Businesses
and control principles and for formulating and implementing and regulatory capital requirements, with a view to maintain-
its risk policies and control processes for market risk, credit risk ing strategic flexibility, sound capitalization and strong
and operational risk, ensuring that UBSs approach is consis- ratings. He manages UBSs holdings of its own shares and
tent with best market practice and that the firm is operating recommends corporate actions to the Group Executive Board
within its agreed risk bearing capacity. He develops risk quan- and the Board of Directors.
tification methods and sets and monitors associated limits
and controls. He ensures complete and consistent recording Chief Communication Officer
and aggregation of risk exposures and continuous monitor- The Chief Communication Officer is responsible for manag-
ing and pro-active control of risks. The CRO exercises direct ing UBSs communication to its various stakeholders, ensur-
approval authority for market risk limits and exposures. In ing that a truthful, balanced, positive and powerful image of
March 2005, a new Group Executive Board (GEB) position UBS is established and broadcast to all stakeholders globally.
was established for the Chief Risk Officer. He develops strategy, content and positioning of communi-
cations of corporate importance, emphasizing transparency,
Chief Credit Officer (CCO) consistency, speed and integrity. He presents UBS and its busi-
The CCO is responsible for formulating and implementing nesses to the media, enhancing and protecting the firms rep-
UBSs risk policies and control processes for credit risk. He en- utation. To employees, he promotes understanding of the
sures that counterparty and country risks conform to ap- firms strategies, performance and culture. He presents UBS
proved risk profiles, and controls exposures to individual to investors, analysts and rating agencies and is responsible
counterparties and counterparty groups. He provides the for preparing and publishing quarterly and annual reporting
tools required for consistent quantification of credit and products. He manages and promotes the UBS corporate
country risk across UBS and sets, monitors and controls con- brand via advertising, sponsorship, art, and visual design,
centration risk limits, ensuring adequate risk diversification. represents UBSs interests to policy-makers, and coordinates
He ensures complete and consistent recording and aggrega- UBSs approach to corporate responsibility.
tion of credit and country exposures and continuous monitor-
ing and pro-active control of risks. The CCO exercises direct Group General Counsel
approval authority for counterparty credit and country limits The Group General Counsel has group-wide responsibility for
and exposures. legal affairs and compliance as well as for regulatory manage-
ment and insurance management. He defines the strategy,
Group Controller the goals and the organizational structure of the legal func-
The Group Controller has UBS-wide responsibility for finan- tion, and sets and monitors quality standards for handling
cial control. He is responsible for production and analysis of legal affairs and compliance across UBS. He supervises the
accurate and objective regulatory, financial and management Group Head of Compliance and the General Counsels of the
accounts and reports. The Group Controller provides consis- Business Groups, ensuring that UBS meets relevant regulatory
tent and appropriate communication to the Board of Direc- and professional standards. He issues group-wide policies
49
Our businesses
Corporate Center
and guidelines relating to legal, compliance, and, together towards a consistent technical architecture across UBS
with the Group CRO, on regulatory matters. He develops and through the execution of our technology infrastructure strat-
formulates the Groups policies and control processes for legal egy.
and compliance risks.
Group Offshoring
Group Head Human Resources
The Group Head Human Resources has UBS-wide responsibil- The head of Group Offshoring leads the Group Offshoring
ity for the human resources function. He is responsible for team, established in late 2004. He is responsible for ensuring
shaping a meritocratic culture of ambition, performance and all offshoring activities of UBS on a firm-wide basis are well
learning, promoting UBSs values for action. He builds UBSs co-ordinated, optimally planned and executed in line with
capacity to attract, develop and retain the best talent and cre- UBSs strategy and values. The Group Offshoring team is cur-
ates an environment and processes which ensure that all em- rently overseeing the building of the UBS Service Center in Hy-
ployees from different cultures and backgrounds and with dif- derabad, India, that will initially be able to accommodate 500
ferent perspectives can develop and succeed. He supports offshored roles when it becomes operational at the end of
succession planning for senior executives and designs and ad- first quarter 2006.
ministers global compensation and benefits programs.
Private Banks & GAM
Leadership Institute
The UBS Leadership Institute facilitates the development of In December 2005, UBS successfully completed the sale of its
the Banks current and future leadership team in direct align- Private Banks & GAM unit to Julius Baer. As a result of the
ment with UBSs Vision and Values. It offers a series of strate- transaction, UBS holds a 20.7% stake in the enlarged Julius
gically aligned top level programs and customized forums Baer. The stake is held as a financial investment. UBS will not
that are designed to shape UBSs strategic agenda, address take a seat on Julius Baers board of directors nor will it exer-
critical challenges and opportunities, leverage leadership ca- cise any influence on its strategy or operational decisions, or
pability across business groups and enable cross-organiza- vote the shares it holds.
tional learning. Private Banks & GAM comprised the fully owned private
banking subsidiaries Ehinger & Armand von Ernst, Banco di
Chief Technology Officer (CTO) Lugano, and Ferrier Lullin and GAM, its specialist asset man-
The CTO is the head of the information technology in- ager.
frastructure (ITI) unit. ITI encompasses all IT infrastructure
teams across UBS, covering management of data networks, The Chairmans Office
telephone and other communications systems, IT security,
distributed computing and servers, mainframes and data Although not formally a part of Corporate Center, the costs
centers, market data services, user services and desktop for the Chairmans Office (which comprises the Company Sec-
computing. The unit focuses on serving all UBSs businesses retary, Board of Directors, and Group Internal Audit) are re-
in a client-driven and cost-efficient way, as well as building ported in Corporate Center results.
50
Industrial Holdings
The Industrial Holdings segment is where our majority stakes
in industrial companies and large non-nancial businesses
are held.
Industrial Holdings
Industrial Holdings
Income statement
For the year ended
or as at
CHF million, except where indicated 31.12.05 31.12.04 1
Continuing operations
Operating profit from continuing operations before tax 857 465
Tax expense 253 120
Net profit from continuing operations 604 345
Discontinued operations
Profit from discontinued operations before tax 124 140
Tax expense 9 32
Net profit from discontinued operations 115 108
Net profit 719 453

Net profit attributable to minority interests 207 93
from continuing operations 202 93
from discontinued operations 5 0
Net profit attributable to UBS shareholders 512 360
from continuing operations 402 252
from discontinued operations 110 108
1 Results for Motor-Colombus include the six month period beginning on 1 July 2004.
Business and structure UBS. At the date of the print order of this annual report (8 March
2006), the transaction is expected to be completed as soon as
On 31 December 2005, the Industrial Holdings segment con- all contractual conditions have been met and the boards of the
sisted of UBSs private equity investments and Motor-Colum- buyers have passed the appropriate resolutions.
bus, a financial holding company whose only significant asset In first quarter 2005, our private equity investments, pre-
is a 59.3% interest in the Atel Group, a European energy viously within the Investment Bank, were moved to the Indus-
provider. trial Holdings segment. This represents a further step in our
In late September 2005, UBS signed agreements to sell its strategy of de-emphasizing and reducing exposure to this
55.6% stake in Motor-Columbus to a consortium of Atels Swiss asset class while capitalizing on orderly exit opportunities
minority shareholders, EOS Holding and Atel, as well as to when they arise.
French utility Electricit de France (EDF). At the end of February, It also adds transparency to our accounts as it helps us to
the European Commission and the Swiss Competition Commis- more clearly separate our core financial businesses from the
sion have cleared the acquisition of the participation held by stakes held in industrial holdings.
52
Financial Management
Taking risks is an integral part of our business. Our aim is
to achieve an appropriate balance between risk and
return based on our assessment of potential risk developments
in both normal and stressed conditions.
Risk management and control

Good risk management and control lie at the heart of any tory or accounting reasons, and adopt a cautious approach
business, particularly a financial services firm they are inte- to any risks that cannot be sensibly evaluated or priced. We
gral parts of providing consistent, high-quality returns to adopt the highest standards in protecting the confidentiality
shareholders. If we fail to adequately manage and control our and integrity of our client information, and aim to maintain
risks we may suffer significant financial losses. Potentially the highest ethical standards in all our business dealings.
more important is the resultant damage to our reputation, All employees, but in particular those involved in risk de-
which could undermine our share price by reducing our client cisions, must make UBSs reputation an overriding concern.
base and impairing our ability to retain talented employees. Responsibility for our reputation cannot be delegated or syn-
Ultimately, regulators might be forced to impose constraints dicated.
upon our business.
We recognize that taking risk is core to our financial busi- Key responsibilities
ness and that operational risks are an inevitable consequence
of being in business. Our aim is not, therefore, to eliminate Excellence in risk management is fundamentally based upon
all risks but to achieve an appropriate balance between risk a management team that makes risk identification and con-
and return. Thus, in our day-to-day business and in the strate- trol critical components of its processes and plans. Responsi-
gic management of our balance sheet and capital, we seek bility therefore flows from the top.
to limit the scope for adverse variations in our earnings and The Board of Directors is responsible for the firms funda-
exposure to stress events for all the material risks we face. mental approach to risk, for approving our risk principles and
We base our approach to risk management and control on for determining our risk capacity.
five principles. The Chairmans Office oversees the risk profile of the firm
Business management is accountable for all the risks as- on behalf of the Board of Directors and has ultimate author-
sumed throughout the firm and is responsible for the contin- ity for credit, market and other risk related matters.
uous and active management of risk exposures to ensure that The Group Executive Board (GEB) is responsible for imple-
risk and return are balanced. This responsibility applies not menting the risk principles, including approval of core risk
only to the traditional banking risks of credit and market risk policies, for appointing Business Group management that
but also to the many and varied operational risks that poten- demonstrates both business and control competence, and for
tially arise from inadequate or failed internal processes, peo- managing the risk profile of UBS as a whole.
ple or systems or from external causes, which may be delib- The Group Chief Risk Officer (CRO) has overall responsibil-
erate, accidental or natural. ity for the development and implementation of the Groups
An independent control process is implemented when re- risk control principles, frameworks, limits and processes
quired by the nature of the risks, in particular to balance across market, credit and operational risk. Effective 1 March
short-term profit incentives and the long-term interests of 2005, a new GEB position was established for the Group
UBS. The control functions are responsible for providing an Chief Risk Officer. Together with the Group Chief Credit Of-
objective check on risk-taking activities. ficer (CCO) and the Group Head of Operational Risk, he for-
Comprehensive, transparent and objective risk disclosure mulates risk policies and determines methodologies for meas-
to our senior management, the Board of Directors, sharehold- urement and assessment of risk.
ers, regulators, rating agencies and other stakeholders is the The Group Chief Financial Officer (CFO) is responsible for
cornerstone of the risk control process. transparency in the financial performance of UBS and its Busi-
We protect our earnings by controlling risk at the level of ness Groups, including high-quality and timely reporting and
individual exposures, at a portfolio level and in aggregate, disclosure in line with regulatory requirements, corporate
across all risk types and businesses, relative to our risk capac- governance standards and global best practice. He is respon-
ity the level of risk we are capable of absorbing, based on sible for implementation of the risk control principles in the
our earnings power. areas of capital management, liquidity, funding and tax.
We protect our reputation by managing and controlling The Group General Counsel is responsible for implemen-
the risks incurred in the course of our business, and for this tation of the risk control principles in the areas of legal and
reason we avoid concentrations of exposure and limit poten- compliance.
tial stress losses, not only from credit, market and liquidity Within the Business Groups, the control functions are em-
risks but also from operational risks. We avoid extreme posi- powered to enforce the risk principles and are responsible for
tions in transactions that are sensitive for tax, legal, regula- the implementation of independent control processes.
54
Risk management and control framework
Board of Directors
Audit Committee Group Internal Audit
Chairmans Office
Risk Policy
Group Executive Board
GEB Risk Subcommittee

Independent Risk Control
Corporate Center Group CRO & Group CCO Group General Counsel
Corporate Risk Control Legal and Compliance
Risk Management
Business Group Business Group Business Group

Global Wealth Management &
CRO CCO General Counsel
Business Banking

Business Group Risk Committees
Investment Bank Business Group Control
and Logistics Functions
The risk control process ness, risk control, legal, compliance, financial control and lo-
gistics functions, ensure that all critical elements are addressed
There are five critical elements in our independent risk control in a comprehensive and holistic way, including the assurance
process: that transactions can be booked in a way that will permit ap-
we identify risk, through the continuous monitoring of propriate ongoing risk monitoring, reporting and control.
portfolios, by assessing new businesses and complex or
unusual transactions, and by reviewing our own risks in the The risks we take
light of market developments and external events
we measure quantifiable risks, using methodologies and Business risks are the risks associated with a chosen business
models which have been independently validated and ap- strategy, including business cycles, industry cycles, and tech-
proved nological change. They are the sole responsibility of the rele-
we establish risk policies to reflect our risk principles, risk vant business, and are not subject to an independent control
capacity and risk appetite, consistent with evolving busi- process. They are, however, factored into the firms planning
ness requirements and international best practice and budgeting process and the assessment of our risk capac-
we have comprehensive risk reporting to stakeholders, ity and overall risk exposure.
and to management at all levels, against the approved risk The primary and operational risks inherent in our business
control framework and, where applicable, limits activities are subject to independent risk control. Primary risks
we control risk by monitoring and enforcing compliance are exposures deliberately entered into for business reasons,
with the risk principles, and with policies, limits and regu- which are actively traded and managed. Operational risks
latory requirements. arise as a consequence of business undertaken and as a con-
Coordinated processes involving all relevant control and lo- sequence of internal control gaps.
gistics functions are applied before commencement of any Primary risks are credit risk, market risk and liquidity and
new business or significant change in business, and before the funding risk:
execution of any transaction which is complex or unusual in credit risk is the risk of loss resulting from client or coun-
its structure or is sensitive to tax, legal, regulatory or account- terparty default and arises on credit exposure in all forms,
ing considerations. These processes, which involve the busi- including settlement risk
55
market risk is exposure to market variables such as interest Risk categories

rates, exchange rates and equity markets, and to price move-
Inherent risks
ments on securities and other obligations which we trade
liquidity and funding risk is the risk that we are unable to Primary risks Operational risks
meet our payment obligations when due, or that we are Credit risk Transaction processing risk Compliance risk
unable, on an ongoing basis, to borrow funds in the mar- Market risk Legal risk Liability risk
ket on an unsecured, or even secured basis at an accept- Liquidity and funding risk Security risk Tax risk
able price to fund actual or proposed commitments. Reputational risk

Operational risk can arise in a number of ways:
transaction processing risk arises from errors, failures or
shortcomings at any point in the transaction process, from Stress loss is the loss that could arise from extreme events.
deal execution and capture to final settlement Our primary day-to-day quantitative controls govern nor-
compliance risk is the risk of financial loss due to regula- mal periodic adverse results (statistical loss) and protect us
tory fines or penalties, restriction or suspension of busi- from stress events. These are the limits we apply to individual
ness, or mandatory corrective action. Such risks may be in- risk types, to portfolios and sub-portfolios, and to specific
curred by not adhering to applicable laws, rules, regula- concentrations of risk and individual exposures. The identifi-
tions, accounting standards, local or international best cation of stress events and scenarios to which we are vulner-
practice, or our own internal standards able and an assessment of their potential impact, and in par-
legal risk is the risk of financial loss resulting from the non- ticular the danger of aggregated losses from a single event
enforceability of our actual or anticipated rights arising through concentrated exposures, is therefore a key compo-
under law, a contract or other arrangement nent of the risk control process.
liability risk is the risk that we, or someone acting on our To complement these operating controls, we also moni-
behalf, fail to fulfill the obligations, responsibilities or du- tor and constrain our aggregate risk exposure across all
ties imposed by law or assumed under a contract and that risk types and businesses, relative to our risk capacity. In
claims are therefore made against us this context, we define our risk exposure as the level of
security risk is the risk of loss of confidentiality, integrity or potential loss inherent in our business in the current eco-
availability of our information or other assets nomic cycle, across all business lines, and from all sources,
tax risk is the risk of additional tax arising from technically including operational and business risks. It is measured
incorrect positions taken on tax matters, or failure to com- against a severe, low probability but nevertheless plausible
ply with tax withholding or reporting requirements on be- constellation of events. Our risk capacity is the level of risk
half of clients or employees; and the risk of claims by we are capable of absorbing based on our earnings power,
clients or counterparties as a result of our involvement in without unacceptable damage to our dividend paying abil-
tax sensitive products or transactions. ity, our strategic plans and, ultimately, our reputation and
Failure to identify, manage or control any of these risks, in- ongoing business viability. We refer to this measure as
cluding business risks, may result not only in financial loss but Earnings-at-Risk. It has been developed over the past
also in loss of reputation, and repeated or widespread failure three years and is now a core element of our risk manage-
compounds the impact. Reputation risk is not directly quan- ment and control process.
tifiable and cannot be managed and controlled independently Although measurement of risk is clearly important, quan-
of other risks. tification does not always tell the whole story, and not all risks
are quantifiable. We therefore pay equal attention to soft
How we measure risk risks, avoiding the temptation to ignore those that cannot be
properly quantified. We also place great emphasis on quali-
In principle, for risks that are quantifiable, we measure the po- tative controls and rigorous risk control processes to ensure
tential loss at three levels expected loss, statistical loss and that both quantifiable and unquantifiable risk is identified, as-
stress loss. sessed and reported.
Expected loss is the loss that is expected to arise on aver- Stress situations can arise from many sources and when ex-
age in connection with an activity. It is an inherent cost of such treme events occur, quantitative and qualitative risk assess-
activity and is budgeted and, where permitted by accounting ments alone are not sufficient. The essential complements are
standards, deducted directly from revenues. a tried and tested process which can be invoked immediately
Statistical loss (also known as unexpected loss) is an es- in response to any crisis, and well prepared business continu-
timate of the amount by which actual loss can exceed ex- ity management processes and plans. We continue to develop
pected loss over a specified time horizon, measured to a spec- and refine these processes as we learn from our own and oth-
ified level of confidence (probability). ers experience.
56
Credit risk
Credit risk
Credit risk is the risk of loss to UBS as a result of failure by a UBS internal rating scale and mapping
client or counterparty to meet its contractual obligations. It is of external ratings
an integral part of many of our business activities and is inher- UBS Moodys Investor Standard & Poors
ent in traditional banking products loans, commitments to Rating Description Services equivalent equivalent
lend and contingent liabilities, such as letters of credit and in 0 and 1 Investment grade Aaa AAA
traded products derivative contracts such as forwards, 2 Aa1 to Aa3 AA+ to AA
swaps and options; repurchase agreements (repos and reverse 3 A1 to A3 A+ to A
repos); and securities borrowing and lending transactions. 4 Baa1 to Baa2 BBB+ to BBB
Some of these products are accounted for on an amortized 5 Baa3 BBB
cost basis while others are recorded in the financial statements 6 Sub-investment grade Ba1 BB+
at fair value. Banking products are generally accounted for at 7 Ba2 BB
amortized cost, but loans which have been originated by UBS 8 Ba3 BB
for subsequent syndication or distribution via the cash markets 9 B1 B+
are carried at fair value. From second quarter 2006, UBS will 10 B2 B
also adopt the fair value option available under IAS39 for new 11 B3 B
loans and commitments where credit risk is substantially 12 Caa to C CCC to C
hedged with credit default swaps. Within traded products, 13 Impaired and defaulted D D
OTC derivatives are carried at fair value, while repos and secu- 14 D D
rities borrowing and lending transactions are carried at amor-
tized cost. Regardless of the accounting treatment, all bank- determining portfolio risk, not only for our internal credit risk
ing and traded products are governed by the same risk man- measures but also for future regulatory capital calculations,
agement and control framework the Group Credit Policy since they are the basis of the Basel II Advanced Internal Rat-
Framework and our detailed credit policies and procedures. ing Based approach, which we intend to adopt when it comes
Global Wealth Management & Business Banking and the In- into force in 2008.
vestment Bank, which take material credit risk, have independ- We assess the likelihood of default of individual counter-
ent credit risk control units, headed by Chief Credit Officers parties using rating tools tailored to the various categories of
(CCOs) reporting functionally to the Group CCO. They are re- counterparty. They have been developed internally and com-
sponsible for counterparty ratings, credit risk assessment and bine statistical analysis with credit officer judgment and are val-
the continuous monitoring of counterparty and portfolio credit idated, where appropriate, by comparison with externally
exposures. Credit risk authority, including authority to establish available data. Clients are segmented into 15 rating classes,
allowances, provisions and valuation adjustments for impaired two being reserved for cases of impairment or default. The
claims, is vested in the Chairmans Office and the GEB, and from UBS rating scale, which is shown above, reflects not only an
there is delegated ad personam to the Group CCO and credit ordinal ranking of our counterparties, but also the range of de-
officers in the Business Groups. The level of credit authority del- fault probabilities defined for each rating class. This means
egated to holders varies according to the quality of the coun- that, in principle, clients migrate between rating classes as our
terparty and any associated security, and takes into account the assessment of their probability of default changes. The rating
seniority and experience of the individual. tools are kept under review and upgraded as necessary. We
regularly validate the performance of our rating tools and
Credit risk measurement their predictive power with regard to default events. Where
statistical analysis suggests that the parameters of a model re-
Components of credit risk quire adjustment, we reflect such changes in our external re-
Credit risk exists in every credit engagement. In measuring porting once the calibration is confirmed and implemented
credit risk at a counterparty level we reflect three components across the portfolio concerned. In the interim we estimate the
the probability of default by the client or counterparty on impact which the future model amendments might have on
its contractual obligations; our current exposure to the coun- our internal credit risk measures and adjust them accordingly.
terparty and its likely future development, from which we de- The ratings of the major rating agencies shown in the table
rive the exposure at default; and the likely recovery ratio above are mapped to our rating classes based on the long-term
on the defaulted obligations to give us the loss given de- average default rates for each external grade. We use the exter-
fault. These components are also important parameters in nal ratings where available to benchmark our internal credit risk
57
Credit risk
assessment. Observed defaults per rating category vary year-on- Expected loss is the basic measure for quantifying credit
year, especially over an economic cycle, and therefore this map- risk in all our credit portfolios. Not only is it an important risk
ping does not imply that UBS expects this number of defaults in indicator in itself, it is also the starting point for further port-
any given period.As we validate our own internal rating tools for folio analyses (statistical and stress loss). Additionally, for
their ability to predict defaults, we also monitor long-term aver- products carried at amortized cost, it can be used for risk ad-
age default rates associated with external rating classes. If our justed pricing, and to assess credit loss for management ac-
analysis suggests that the probability of default associated with counting purposes, which differs from the credit loss expense
external rating grades has substantially changed, we adjust their reported in the financial statements.
mapping to our internal rating scale. We reflect such changes in
our external reporting once the calibration is confirmed. Statistical and stress loss
Exposure at default is based on the amounts we expect to Our credit portfolio is heterogeneous, varying significantly in
be owed at the time of default. For a loan this is the face value. terms of client type, sector, geographical diversity and the size
For a commitment, we include any amount already drawn plus of exposures. For the assessment of both statistical loss and
the further amount which may have been drawn by the time stress loss in material credit portfolios, the starting point for
of default, should it occur. For repos and securities borrowing these analyses is a series of sub-portfolios with more homo-
and lending transactions, we assess the net amount which geneous characteristics.
could be owed to or by us following adverse market moves over We aggregate statistical loss across these portfolios using
the time it would take us to close out all transactions (close our own proprietary credit Value at Risk (credit VaR) method-
out exposure). Exposure on OTC derivative transactions is de- ology. This provides an indication of the level of risk in the
termined by modelling the potential evolution of the value of portfolio and the way it changes over time. It is also a com-
our portfolio of trades with each counterparty over its life (po- ponent of our Earnings-at-Risk measure (see page 56)
tential credit exposure), taking into account legally enforceable Modeling stress losses is complex because they are driven
close-out netting agreements where applicable. From this much less by systematic factors than is generally the case for
model we can derive both an expected future exposure pro- market risk. We apply scenarios which allow us to assess the
file and a maximum likely exposure profile measured to a impact of variations in default rates and asset values, taking into
specified confidence level. The ability to call collateral and any account risk concentrations in each portfolio. We also measure
collateral actually held are also taken into account. industry and geographical contributions to stress loss results.
Loss given default (LGD) or loss severity represents our ex-
pectation of the extent of loss on a claim should default occur. Credit risk control
It is expressed as percentage loss per unit of exposure and typ-
ically varies by type of counterparty, type and seniority of Limits and controls
claim, and availability of collateral or other credit mitigation. Disciplined processes are in place within the Business Groups
In line with our own internal governance standards and the and Corporate Center to ensure prompt identification, accu-
requirements of the new regulatory capital framework, we rate assessment, proper approval and consistent monitoring
subject all models developed for credit risk measurement, in- and reporting of credit risk. We manage, limit and control
cluding the components of such measures, to independent re- concentrations of credit risk wherever we identify them, in
view by a specialist team in Corporate Center prior to imple- particular to individual counterparties and groups and to in-
mentation, and to ongoing validation once they are deployed. dustries and countries, where appropriate.
We set limits on our credit exposure to both individual
Portfolio risk measures counterparties and counterparty groups. Credit limits for indi-
vidual counterparties are applied to all exposure types, includ-
Expected loss ing the close out exposure on repos and securities borrowing
Credit losses must be expected as an inherent cost of doing and lending and the maximum likely exposure on OTC deriv-
business. But the occurrence of credit losses is erratic in both atives. The Investment Bank also uses, as a management tool,
timing and amount and those that arise usually relate to a measure which translates all exposures into a benchmark
transactions entered into in previous accounting periods. In loan equivalent, taking into account expected changes in ex-
order to reflect the fact that future credit losses are implicit in posure profile of traded products and credit rating migration
todays portfolio, we use the concept of expected loss. of the counterparty, with the possibility that exposure reduc-
Expected loss is a forward-looking, statistically based con- tion through syndication, sale or hedging may be required if
cept from which we estimate the annual costs that will arise, maximum guidelines are exceeded.
on average over time, from positions in the current portfolio We apply limits in a variety of forms to portfolios or sectors
that become impaired. It is derived from the three compo- where we consider it appropriate to restrict credit risk concentra-
nents described above probability of default, exposure at tions or areas of higher risk, or to control the rate of portfolio
default and loss given default. growth. Typically, these situations arise in the Investment Bank.
58
In the Investment Bank, where it is most relevant, we dif- In addition to these lending activities, property financing
ferentiate between take and hold and temporary expo- is an important part of the business of Global Wealth Man-
sures, the latter being those accepted with the intention of agement & Business Banking. The majority of our exposure
syndicating, selling or hedging within a short period. consists of home loans to private individuals. We are also ac-
For take and hold exposures, the quality of the credit over tive in financing income producing real estate, primarily apart-
the prospective term of the engagement is the primary con- ment buildings and, to a lesser extent, commercial properties.
sideration and we assess on an ongoing basis the way in In all cases we apply prudent loan to value ratios and consider
which the credit risk in these portfolios (both in aggregate and the ability to service the debt from income.
in sub-portfolios) is evolving over time. Loans made by the Investment Bank to corporates are not
For temporary exposures, by contrast, a more critical factor typically supported by collateral or other security but over the
is the potential for distribution. In a disciplined approach to un- past five years we have engaged in a substantial credit risk
derwriting, we make a rigorous assessment of current market hedging program for our banking product take and hold ex-
conditions and the marketability of the assets, and all commit- posures. For the most part, we have effected these hedges by
ments must be agreed by the distribution function, as well as transferring underlying credit risk to high-grade market coun-
the originating business unit, and approved by both business terparties using single name credit default swaps. We have
management and risk control. Many of our temporary expo- also created a number of credit-pooling vehicles to transfer a
sures arise from leveraged buyout (LBO) financings which are portion of our global credit risk portfolio via credit linked
used by financial sponsors (typically private equity firms) to ac- notes to outside investors. We use such tools as part of our
quire or recapitalize entire companies. As capital has been at- general strategy of avoiding undue concentrations of risk to
tracted to the sector over recent years, the number and size of individual names or sectors, or in specific portfolios.
transactions have grown significantly, and leverage has in- The OTC derivatives market continues to grow and with the
creased, with the result that average credit ratings are lower consolidation of financial institutions through mergers and
and risk concentrations higher than the average in our lending takeovers outstanding transaction volumes with individual pro-
portfolio. Given the focus on distribution in our commitment fessional counterparties have the potential to be very large, al-
process, these large concentrations are generally brought down though credit exposure is only a small fraction of these amounts.
within a few months to a relatively modest retained exposure In the Investment Bank, we conduct our OTC derivatives busi-
to individual counterparties. Any stale or sticky positions are ness almost without exception under master agreements, which
closely monitored and the business may be required to sell or generally allow for the close out and netting of all transactions
hedge them in the secondary market. There are comprehensive in the event of default by the other party. Provided such agree-
limits covering the portfolio, including a variety of stress loss ments are judged to be enforceable in insolvency in the jurisdic-
limits, which encourage rapid distribution in order to free up tion of the counterparty, we measure our exposure after netting
capacity for further transactions, and which can be adjusted if values in our favor against values in the counterpartys favor,
market conditions or our own performance suggest that con- permitting a much higher volume of business than would oth-
traction or expansion of activity is appropriate. erwise be the case. In line with general market practice we have
also entered into two-way collateral agreements with market
Risk mitigation participants, under which either party can be required to pro-
In our Wealth Management business, loans to private individu- vide collateral in the form of cash or marketable securities when
als are typically secured by portfolios of marketable securities. exposure exceeds a pre-defined level. Under such two-way
We apply appropriate discounts (haircuts) to the current value agreements, both sides benefit from continued flow of business
of collateral in determining the amount we are prepared to lend without creating undue concentrations of credit risk. OTC de-
against securities, reflecting their liquidity and volatility. Expo- rivatives business with lower rated counterparties is generally
sures and collateral positions are continuously monitored and conducted under one-way collateral agreements under which
strict margin call and close-out procedures are enforced when the counterparty provides collateral to UBS. Some of the busi-
the market value of collateral falls below predefined levels. Col- nesses of the Investment Bank, in particular our OTC derivatives
lateral concentrations across client portfolios are monitored and and securities financing business with hedge funds, are con-
reported. Over time the types of financial instrument that our ducted almost entirely against the provision of collateral. In the
clients ask us to accept as eligible collateral has broadened and, case of hedge funds, this allows us to continue expanding our
in line with market practice, we are now accepting more com- client base and the business we conduct in this important and
plex instruments, but the haircuts we apply reflect the additional dynamic sector, while maintaining credit risk at acceptable lev-
risks and our disciplined processes continue to be strictly applied. els and avoiding undue credit risk concentrations.
In Business Banking, loans to corporations may, depend- The mitigation of credit risk in this way creates operational
ing on our assessment of the credit capacity and quality of the risks because it generally requires the execution of legal
borrower, be extended on an unsecured basis, but often ben- agreements and, in the case of collateral agreements, daily val-
efit from collateral in the form of real estate or other assets. uations and adjustments of collateral positions. The controls
59
Credit risk
around these activities must be robust and strictly enforced, Global Wealth Management & Business Banking
especially where the activity is on a large scale and volumes Composition of loan book
are high, as is the case with our hedge fund and OTC deriva- in %
tives businesses. We have strict standards for netting and col- As at 31.12.05
lateral agreements, including assurance that contracts are
3
legally enforceable in insolvency in the relevant jurisdictions. 9
26 Loans to banks
The Investment Bank has rigorous systems and processes in a 9
dedicated unit in the operations group to measure and mon- Unsecured loans
itor the value of both underlying credit instruments and col- Commercial mortgages
lateral to ensure that the potential loss in the event of a coun- 13 Multi-family homes
terparty default is within approved limits and tolerances on Single family homes and apartments
an ongoing basis. Concentrations in collateral type are also Loans secured by marketable securities
40
monitored where relevant.
Composition of credit risk
The table below provides an overview of the aggregate credit

exposure of UBS in gross terms, i.e. without recognition of excluding mortgages, amounted to CHF 75 billion and are
credit hedges, collateral or other risk mitigation. predominantly extended against the pledge of marketable
securities. The volume of collateralized lending to private
Global Wealth Management & Business Banking individuals rose by CHF 14 billion or 34% from the previous
Global Wealth Management & Business Bankings gross loans year, as the low interest rate environment triggered an in-
on 31 December 2005 amounted to CHF 217 billion, of which crease in demand for this product and as we accepted a
CHF 136 billion (62%) were secured by real estate and slightly broader and more complex range of investment in-
CHF 56 billion (26%) by marketable securities. The pie chart struments as eligible collateral.
above shows that exposure to the real estate sector is well Unsecured loans consist predominantly of exposures to
diversified with 40% of loans being secured on single-family corporate clients in Switzerland. They are widely spread across
homes and apartments, which, historically, have exhibited a rating categories and industry sectors, reflecting our position
low risk profile. The 13% of exposure secured on residential as a market-leading lender to this segment of mostly small-
multi-family homes consists of rented apartment buildings. to medium-sized enterprises in Switzerland. During 2005 we
Loans and other credit engagements with individual clients, have continued to focus on improving the quality of our
Total credit exposure

Wealth Management
International & Switzerland Wealth Management US
CHF million 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
Lending portfolio, gross 58,907 43,571 36,238 17,105 14,617 13,072
Contingent claims 4,778 3,444 3,154 265 274 355
Unutilized committed lines 372 669 408 0 0 25
Total banking products 64,057 47,684 39,800 17,370 14,891 13,452
Unsecured OTC products 0 0 0 0 0 0
Other derivatives (secured or exchange-traded) 2,691 2,087 853 0 0 1
Securities lending / borrowing 0 0 0 0 0 0
Repo / reverse-repo 0 1 0 191 171 151
Total traded products 3 2,691 2,088 853 191 171 152
Total credit exposure, gross 66,748 49,772 40,653 17,561 15,062 13,604
Total credit exposure, net of allowances and provisions 66,735 49,744 40,637 17,549 15,044 13,576
1Includes Global Asset Management, Corporate Functions and Private Banks & GAM (sold in December 2005). 2 Excludes CHF 728 million, CHF 909 million and CHF 220 million from Industrial
Holdings for the years ended 31 December 2005, 31 December 2004 and 31 December 2003. 3 Traded products exposure is based on internal measurement methodology.
60
Business Banking Switzerland: gross loans (excluding mortgages) by industry sector
As a % of Business Banking Switzerland loan exposure (excluding mortgages)
40
30
20
10
0
Construction Banks and financial Hotels and Manufacturing Private Public Real estate Retail and Services Other
institutions restaurants households authorities and rentals wholesale
31.12.03 31.12.04 31.12.05
Business Banking Switzerland: gross loans (excluding mortgages) by counterparty rating

As a % of Business Banking Switzerland loan exposure (excluding mortgages)
24
18
12
0
0 and 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Investment grade Sub-investment grade Impaired and defaulted
31.12.03 31.12.04 31.12.05
Business Banking Global Wealth Management

Switzerland & Business Banking Investment Bank Other 1 UBS
31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
141,315 137,147 138,534 217,327 195,335 187,844 86,616 68,410 55,023 598 5,479 4,939 304,541 2 269,224 2 247,806 2
6,748 7,570 8,270 11,791 11,288 11,779 4,775 3,370 3,174 0 216 583 16,566 14,874 15,536
1,252 1,275 1,392 1,624 1,944 1,825 71,281 51,224 44,733 0 0 65 72,905 53,168 46,623
149,315 145,992 148,196 230,742 208,567 201,448 162,672 123,004 102,930 598 5,695 5,587 394,012 337,266 309,965
1,749 1,226 1,385 1,749 1,226 1,385 54,361 53,372 53,649 0 329 573 56,110 54,927 55,607
454 322 337 3,145 2,409 1,191 28,282 15,741 14,535 0 0 0 31,427 18,150 15,726
7,082 3,953 1,093 7,082 3,953 1,093 27,904 27,301 22,220 0 0 0 34,986 31,254 23,313
103 37 26 294 209 177 17,726 20,305 19,546 0 0 0 18,020 20,514 19,723
9,388 5,538 2,841 12,270 7,797 3,846 128,273 116,719 109,950 0 329 573 140,543 124,845 114,369
158,703 151,530 151,037 243,012 216,364 205,294 290,945 239,723 212,880 598 6,024 6,160 534,555 462,111 424,334
157,108 149,213 147,911 241,392 214,001 202,124 290,789 239,351 212,279 598 5,962 6,156 532,779 459,314 420,559
61
Credit risk
Global Wealth Management & Business Banking:

distribution of banking products exposure across counterparty rating and loss given default (LGD) buckets
Loss given default buckets (LGD) Weighted
CHF million Gross Exposure 025% 2650% 5175% 76100% Average LGD (%)
0 857 104 389 364 47
1 830 11 353 459 7 54
2 38,070 35,608 1,591 868 3 22
3 27,641 20,824 2,730 2,402 1,685 29
4 8,407 5,020 2,117 1,264 6 30
5 103,492 97,159 2,760 3,523 50 22
6 12,549 9,161 2,158 1,220 10 26
7 14,351 11,075 1,721 1,455 100 26
8 11,333 7,212 2,747 1,160 214 28
9 6,740 4,155 852 795 938 35
10 1,546 874 231 433 8 34
11 832 747 36 48 1 23
12 801 726 15 49 11 24
Total non-impaired 227,449 192,676 17,700 14,040 3,033 24
Investment grade 179,297 158,726 9,940 8,880 1,751
Sub-investment grade 48,152 33,950 7,760 5,160 1,282
Impaired and defaulted 3,293
Total banking products 230,742 192,676 17,700 14,040 3,033
credit portfolio, reducing both individual and sector concen- ment values and other positions which, from a risk perspec-
trations. tive, do not classify as loans but where the underlying credit
The table above shows credit exposure across counterparty risk is incorporated into our traded products measurement
ratings and loss given default (LGD) buckets. The concentra- methodologies. On the other hand, in our internal risk con-
tion in the rating grade 5 and LGD bucket 025% reflects the trol view we consider certain US residential mortgage financ-
dominant residential mortgage business. ing conducted under repo- / reverse repo-like agreements as
banking product exposures. The table on the next page shows
Investment Bank a reconciliation between the IFRS and risk views of banking
A substantial majority of the Investment Banks credit expo- products exposure of the Investment Bank.
sure falls into the investment grade category (internal coun- As described on page 59, the Investment Bank has en-
terparty rating grades 0 to 5), both for banking products gross gaged in a substantial credit risk hedging program through
(64%) and for traded products (96%). The counterparties are which we have hedged our banking products exposure. The
primarily sovereigns, financial institutions, multinational cor- table on page 64 shows that on 31 December 2005 an
porate clients and investment funds. amount of CHF 24 billion of credit hedges was in place
The Investment Banks total banking products exposure on against our banking products exposure. To illustrate the ef-
31 December 2005 was CHF 162.7 billion, as reported in ac- fects of credit hedging and other risk mitigation, the rating
cordance with IFRS, of which CHF 86.6 billion was loans, com- distribution graph on page 64 shows exposures before and
pared with CHF 68.4 billion loans on 31 December 2004. Part after application of risk mitigants. Additionally, in the matrix
of the increase of CHF 18.2 billion over the course of 2005 below right, we show the distribution of Investment Banks
was the result of our expanding prime brokerage and equity take and hold banking products exposure after application of
finance businesses, and part reflects increased underwriting risk mitigants across rating grades and LGD buckets. LGDs in
activity as we capitalized on our strengthened business fran- this portfolio are assigned based on benchmark LGDs which
chise in advising corporate clients. Note that disclosures in this are 40% for senior secured claims, 50% for senior unsecured
section present the credit exposure from a risk management claims and 70% for subordinated claims. There is thus a con-
and control perspective, which differs from disclosure under centration in the 2650% bucket. The significant exposure in
IFRS. In particular, gross banking products exposure in risk the sub-investment grade 025% bucket is mainly comprised
terms amounts to CHF 130.9 billion, a difference of CHF 31.8 of short term loans to US mortgage originators, secured on
billion to the CHF 162.7 billion reported for the Investment their mortgage portfolios, pending securitization or sale. Note
Bank in the table on page 61. This difference is mainly made that exposure distribution across counterparty ratings shown
up of cash collateral posted by UBS against negative replace- elsewhere in this section refers only to gross exposure and
62
Investment Bank: credit exposure banking products risk view
31.12.05 31.12.04
CHF million
Total banking products exposure IFRS
(accounting view) 162,672 123,268
less: IFRS adjustments1 (41,404 ) (24,268 )
less: traded loans (2,388 ) (501 )
plus: residential and commercial real estate 2 11,520 4,250
other reconciliation items 490 (16,344 )
Adjusted banking products exposure, gross 130,890 86,405
Sub- Impaired Sub- Impaired

Investment investment and Investment investment and
grade grade defaulted UBS grade grade defaulted UBS
Adjusted banking products exposure, gross 130,890 86,405
less: funded risk participations and cash collateral (3,505 ) (433 )
risk transfers 3 1,207 (1,176 ) (31 ) 888 (882 ) (6 )
less: specific allowances for credit losses and (131 ) (410 )
loan loss provisions
Adjusted banking products exposure, net 127 254 85,562
less: credit protection bought (24,121 ) (19,532 )
(credit default swaps, credit-linked notes) 4
Adjusted banking products exposure, net, 59,876 43,024 233 103,133 38,050 27,589 391 66,030
after application of credit hedges
Temporary exposure (6,872 ) (14,198 ) (37 ) (21,107 ) (7,716 ) (6,498 ) (68 ) (14,282 )
Net take & hold banking 53,004 28,826 196 82,026 30,334 21,091 323 51,748
products exposure (risk view)
1 IFRS adjustments include cash collateral posted by UBS against negative replacement values on traded products and valuation differences caused by different exposure
treatment between internal risk measurements and IFRS. 2 Certain US mortgage financings conducted under reverse repo-like agreements. 3 Risk transfers include
unfunded risk participations. Risk participations are shown as a reduction in exposure to the original borrower and corresponding increase in exposure to the participant
bank. 4 Notional amount of credit protection bought on adjusted credit exposure positions includes credit default swaps (CDSs) and the funded portion of structured credit
protection purchased through the issuance of credit-linked notes (CLNs).
Investment Bank: distribution of net take and hold banking products exposure across counterparty rating
and loss given default (LGD) buckets
Loss given default buckets (LGD) Weighted
CHF million Exposure 1 025% 2650% 5175% 76100% Average LGD (%)
0 and 1 5,897 36 5,861 0 0 49
2 16,829 495 15,148 1,094 92 50
3 16,185 2,465 12,572 492 656 44
4 9,713 2,132 7,189 378 14 40
5 4,380 963 3,200 202 15 41
6 3,374 1,156 2,188 23 7 30
7 10,889 10,144 709 36 0 8
8 7,625 5,879 1,563 67 116 15
9 2,942 1,405 1,432 105 0 26
10 2,269 659 1,528 82 0 34
11 1,399 579 730 73 17 31
12 328 270 49 9 0 13
Total non-impaired 81,830 26,183 52,169 2,561 917 34
Investment grade 53,004 6,091 43,970 2,166 777 45
Sub-investment grade 28,826 20,092 8,199 395 140 17
Impaired and defaulted 196 21 165 8 2 50
Net take and hold exposure 82,026 26,204 52,334 2,569 919
1 Net take and hold banking products exposure (risk view).
63
Credit risk
Investment Bank: banking products exposure by counterparty rating

As a % of Investment Bank banking products exposure 1
40
30
20
10
0
0 and 1 2 3 4 5 6 7 8 9 10 11 12 13 14
31.12.03 Gross 31.12.03 Net1 31.12.04 Gross 31.12.04 Net1 31.12.05 Gross 31.12.05 Net1
1 Banking products exposure, net, after application of credit hedges.
Investment Bank: banking products exposure by industry sector

As a % of Investment Bank banking products exposure 1
40
30
20
10
0
Banks Chemicals Electricity, gas, Financial Manufacturing Mining Public Retail and Transport, storage Other
water supply institutions authorities wholesale and communication
31.12.03 31.12.04 31.12.05

1 Banking products exposure, net, after application of credit hedges.
Investment Bank: traded products exposure by counterparty rating

As a % of Investment Bank traded products exposure
40
30
20
10
0
0 and 1 2 3 4 5 6 7 8 9 10 11 12 13 14
31.12.03 31.12.04 31.12.05
64
probability of default, without reference to the likely severity CLS does not, of course, eliminate the credit risk on foreign
of loss or loss mitigation from collateral or credit hedges. exchange transactions resulting from changes in exchange
Banking products exposure after application of credit rates prior to settlement. We measure and control this pre-set-
hedges continues to be widely diversified across industry sec- tlement risk on forward foreign exchange transactions as part
tors. At 31 December 2005, the largest exposure (37%) was of the overall credit risk on traded products, as described on
to financial institutions. page 5859, Limits and controls.
A significant proportion of the Investment Banks credit risk
arises from its trading and risk management activities and Country risk
from the provision of risk management solutions to clients,
which includes the use of derivative products. We assign ratings to all countries to which we have exposure.
The graph opposite shows the Investment Banks traded Sovereign ratings express the probability of occurrence of a
products exposure by counterparty rating on 31 December country risk event that would lead to impairment of our
2005. Further details of derivative instruments are provided in claims. The default probabilities and the mapping to the rat-
note 22 to the financial statements and details of securities bor- ings of the major rating agencies are the same as for coun-
rowing, securities lending, repurchase and reverse repurchase terparty credit risks (see table on page 57), the three lowest
activities can be found in note 10 to the financial statements. ratings being designated distressed.
For all countries rated 3 and below, we set country risk ceil-
Settlement risk ings approved by the Chairmans Office or under delegated
authority. The country risk ceiling applies to all transactions
Settlement risk arises in transactions involving exchange of with counterparties in these countries, and extension of credit
value when we must honor our obligation to deliver without may be denied on the basis of a country risk ceiling, even if
first being able to determine that we have received the adequate counterparty limits are available. Within this group
counter-value. The most significant portion of our settlement of countries, those that have yet to reach a mature stage of
risk exposure arises from foreign exchange transactions. economic, financial, institutional, political and social develop-
Through our membership of Continuous Linked Settlement ment or have significant potential for economic or political in-
(CLS), a clearing house for foreign exchange settlement which stability are defined as emerging market countries. The coun-
allows transactions to be settled on a delivery versus payment try data provided in the table below and on the next page
basis, we have significantly reduced our foreign exchange re- cover only emerging market countries and not all countries
lated settlement risk relative to the volume of our business. In which are subject to ceilings.
2005, the transaction volume settled through CLS continued Counterparty defaults resulting from multiple insolvencies
to increase in absolute terms and reached 59% of overall (systemic risk) or general prevention of payments by authori-
gross volumes by fourth quarter 2005, compared to 57% in ties (transfer risk) are the most significant effects of a country
fourth quarter 2004. 76% of the CLS volume was with other crisis, but in our internal measurement and control of country
CLS Settlement Members and the remainder with so-called risk we also consider the probable financial impact of market
Third Party Members, who settle their eligible trades via CLS disruptions arising prior to, during and following a country cri-
Settlement Members. While the number of CLS Settlement sis. These might take the form of severe falls in the countrys
Members is relatively stable, the number of Third Party Mem- markets and asset prices, longer-term devaluation of the cur-
bers we deal with has again nearly doubled during 2005. rency, and potential immobilization of currency balances.
Overall market growth has also been significant but CLS has We measure the potential financial impact of severe
allowed us to increase our own volumes without our settle- emerging markets crises by stress testing. This entails identi-
ment risk increasing by the same proportion. fying countries that may be subject to a potential crisis event,
Emerging markets exposure by major geographical area and product type

CHF million Total Banking products Traded products Tradable assets
As at 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
Emerging Europe 3,955 2,878 1,833 970 683 441 808 955 606 2,177 1,240 786
Emerging Asia 13,003 9,461 6,822 3,326 2,398 1,517 2,954 2,438 1,113 6,723 4,625 4,192
Latin America 2,000 1,646 1,849 305 193 425 378 319 568 1,317 1,134 856
Middle East / Africa 2,491 2,219 2,363 1,065 842 882 1,003 842 1,083 423 535 398
Total 21,449 16,204 12,867 5,666 4,116 3,265 5,143 4,554 3,370 10,640 7,534 6,232
65
Credit risk
making conservative assumptions about potential recovery Emerging markets exposure by country rating category
rates depending on the types of transaction involved and their in %
economic importance to the affected countries, and thereby As at 31.12.05
determining potential loss.
1
Country risk exposure 26

Investment grade
Our cross-border country risk exposure to emerging markets Sub-investment grade
amounted to CHF 21.4 billion on 31 December 2005, com- Distressed
pared with CHF 16.2 billion on 31 December 2004. Of this

amount, CHF 15.6 billion or 73% is to investment grade
countries. The growth of CHF 5.2 billion in total emerging 73
markets exposure arose to a large extent in Asia as we actively

sought and captured market opportunities in targeted coun-
tries we consider to have long-term potential.
The graph opposite and the table on the previous page an-
alyze the cross-border emerging market country exposures by charged to the income statement as credit loss expense. For
country rating category, by major geographical area and by products recorded at fair value, impairment is recognized
product type on 31 December 2005 compared to 31 Decem- through a credit valuation adjustment, which is charged to
ber 2004 and 31 December 2003. the income statement through the net trading income line.
We have established policies to ensure that the carrying val-
Impairment and provisioning policies ues of impaired claims are determined on a consistent and fair
basis, especially for those impaired claims for which no mar-
We classify a claim as impaired if we consider it probable that ket estimate or benchmark for the likely recovery value is avail-
we will suffer a loss on that claim as a result of the obligors able. The credit controls applied to valuation and workout are
inability to meet commitments (including interest payments, the same for both amortized cost and fair-valued credit prod-
principal repayments or other payments due, for example, on ucts. Each case is assessed on its merits, and the workout strat-
a derivative product or under a guarantee) according to the egy and estimation of cash flows considered recoverable are
contractual terms, and after realization of any available col- independently approved by the CCO organization.
lateral. We classify loans carried at amortized cost as non- We also assess portfolios of claims carried at amortized
performing where payment of interest, principal or fees is cost with similar credit risk characteristics for collective impair-
overdue by more than 90 days and there is no firm evidence ment. A portfolio is considered impaired on a collective basis
that they will be made good by later payments or the liqui- if there is objective evidence to suggest that it contains im-
dation of collateral, or when insolvency proceedings have paired obligations but the individual impaired items cannot
commenced or obligations have been restructured on con- yet be identified. Note that such portfolios are not included
cessionary terms. in the totals of impaired loans in the tables on page 62 / 63 or
The recognition of impairment in the financial statements in note 9c in the financial statements.
depends on the accounting treatment of the claim. For prod- Collective loan loss allowances and provisions also include
ucts carried at amortized cost, impairment is recognized a component for country risk. We establish country-specific
through the creation of an allowance or provision, which is scenarios, which are kept under review and updated as nec-
Credit loss (expense) / recovery versus adjusted expected credit loss charged to the Business Groups
Wealth Management
CHF million International & Switzerland Wealth Management US
For the year ended 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
Total banking products exposure 1 64,057 47,684 39,800 17,370 14,891 13,452
Credit loss (expense) / recovery 1 (8) (1 ) 4 0 3 (3 )
as a proportion of total banking products exposure (bps) (1) (0 ) 1 0 2 (2 )
Adjusted expected credit loss charged to the Business Groups 2 (13) (8 ) (4 ) (2) (5 ) (8 )
as a proportion of total banking products exposure (bps) (2) (2 ) (1 ) (1) (3 ) (6 )
1 Includes Global Asset Management, Corporate Functions and Private Banks & GAM (sold in December 2005). 2 See note 2 of the 2005 Financial Report excludes Corporate Functions.
66
essary, to evaluate the extent to which the value of our bank- Swiss corporate bankruptcy rates (19952005)
ing and traded product exposures would be affected by coun- As a % of total registered companies
try risk incidents or country-specific systemic risks. Appropri-
ate allowances and provisions are then determined by evalu- 2.0
ating the type of credit exposure in the portfolio for each coun-
try and the loss severities that have been attributed to each ex- 1.5
posure type. Where fair-valued portfolios are affected by coun-
try risk, it is recognized in the fair values of individual claims. 1.0
Credit loss expense 0.5
Our financial statements are prepared in accordance with 0.0

IFRS, under which credit loss expense charged to the finan- 95 96 97 98 99 00 01 02 03 04 05
Source: Creditreform
cial statements in any period is the sum of net allowances and
direct write-offs minus recoveries arising in that period, i.e.
the credit losses actually incurred. By contrast, in our internal
management reporting and in the management discussion US provided a strong stimulus for growth worldwide. Almost
and analysis section of our financial report, we measure credit without exception, credit spreads contracted in all the major
loss expense based on the expected loss concept described on developed and emerging capital markets, as healthy expan-
page 58. To hold the Business Groups accountable for credit sion of cash flows allowed the corporate sector to de-lever-
losses actually incurred, we additionally charge or refund age and build liquidity.
them with the difference between actual credit loss expense Net credit loss recovery at Global Wealth Management
and expected loss, amortized over a three-year period. The & Business Banking amounted to CHF 223 million in 2005
difference between the amounts charged to the Business compared to net credit loss recovery of CHF 94 million in 2004
Groups (adjusted expected credit loss) and the credit loss and net credit loss expense of CHF 70 million in 2003. The be-
expense recorded at Group level is reported in Corporate Cen- nign credit environment in Switzerland where the corporate
ter (see note 2 to the financial statements). bankruptcy rate has receded in 2005 coupled with the meas-
The table below shows both credit loss expense recorded ures taken in recent years to improve the quality of our credit
under IFRS, and the adjusted expected credit loss charged portfolio have resulted in a continued low level of new de-
to the Business Groups. The discussion which follows covers faults while our success in managing the impaired portfolio
only the credit loss expense recorded under IFRS. has resulted in a higher than anticipated level of recoveries.
In 2005, we experienced a net credit loss recovery of CHF The Investment Bank realized a net credit loss recovery of
375 million, compared to net credit loss recovery of CHF 241 CHF 152 million in 2005, compared to net credit loss re-
million in 2004 and net credit loss expense of CHF 102 mil- covery of CHF 147 million in 2004 and credit loss expense of
lion in 2003. Releases in country allowances and provisions CHF 32 million in 2003. This continued strong performance
of CHF 118 million reflected the generally positive macro-eco- was the result of minimal exposure to new defaults and
nomic environment in key emerging markets. This favorable strong recoveries of previously established allowances and
result was achieved in a period which saw a benign environ- provisions, as we actively sold impaired assets at better than
ment for credit markets globally. Economic expansion in the anticipated terms.
Global Wealth Management

Business Banking Switzerland & Business Banking Investment Bank Other UBS
31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
149,315 145,992 148,196 230,742 208,567 201,448 162,672 123,004 102,930 598 5,695 5,587 394,012 337,266 309,965
231 92 (71 ) 223 94 (70 ) 152 147 (32 ) 0 0 0 375 241 (102 )
15 6 (5 ) 10 5 (3 ) 9 12 (3 ) 0 0 0 10 7 (3 )
122 (25 ) (127 ) 107 (38 ) (139 ) 36 (7 ) (55 ) 0 0 0 143 (45 ) (194 )
8 (2 ) (9 ) 5 (2 ) (7 ) 2 (1 ) (5 ) 0 0 0 4 (1 ) (6 )
67
Credit risk
Impaired loans, allowances and provisions December 2004 and 1.9% on 31 December 2003. This con-
As shown in the table below, allowances and provisions for tinuing positive trend is testament to our success in applying
credit losses decreased by 36.5%, to CHF 1,776 million on 31 stringent risk management and control throughout the firm,
December 2005 from CHF 2,797 million on 31 December resulting in relatively few new impaired and non-performing
2004. Note 9b to the financial statements provides further de- loans, and to our efforts to conclude proceedings and reach
tails of the changes in allowances and provisions during the settlement on existing non-performing loans.
year. In accordance with IAS 39, we have assessed our portfo- In general, Swiss practice is to write off loans only on final
lios of claims with similar credit risk characteristics for collec- settlement of bankruptcy proceedings, sale of the underlying
tive impairment. Allowances and provisions for collective im- assets, or formal debt forgiveness. By contrast, US practice is
pairment on 31 December 2005 amount to CHF 86 million, generally to write off non-performing loans, in whole or in
including CHF 48 million in allowances and provisions for part, much sooner, thereby reducing the amount of such
country risk. Total allowances and provisions related to emerg- loans and corresponding provisions recorded. A consequence
ing market exposures were CHF 65 million on 31 December of applying the Swiss approach is that, for UBS, recoveries of
2005, compared to CHF 183 million on 31 December 2004. amounts written off in prior accounting periods tend to be
Impaired loans have decreased to CHF 3,434 million on 31 small, and the level of outstanding impaired loans and non-
December 2005 from CHF 4,699 million on 31 December performing loans as a percentage of gross loans tends to be
2004. Over the same period, non-performing loans have also higher than for our US peers.
decreased, to CHF 2,363 million from CHF 3,555 million on As explained on page 66, we subject all impaired claims,
31 December 2004. regardless of their accounting treatment, to the same work-
The ratio of impaired loans to total loans has improved con- out and recovery processes. The table above right sets out
tinuously over the past years to 1.1% on 31 December 2005 our portfolio of impaired assets, comprising impaired loans,
from 1.7% on 31 December 2004 and 2.8% on 31 Decem- impaired off-balance sheet claims and defaulted derivatives
ber 2003, while the non-performing loans to total loans ratio contracts by geographical area and by aging on 31 Decem-
improved to 0.8% on 31 December 2005 from 1.3% on 31 ber 2005. CHF 2.2 billion, or 59% of the gross portfolio
Allowances and provisions for credit losses
Wealth Management
CHF million International & Switzerland Wealth Management US
As at 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
Due from banks 441 300 738 1,171 1,518 1,479
Loans 58,466 43,271 35,500 15,934 13,099 11,593
Total lending portfolio, gross 58,907 43,571 36,238 17,105 14,617 13,072
Allowances for credit losses (13) (28 ) (16 ) (12) (18 ) (25 )
Total lending portfolio, net 58,894 43,543 36,222 17,093 14,599 13,047
Impaired lending portfolio, gross 7 10 8 12 18 25
Estimated liquidation proceeds of collateral for impaired loans 0 (2 ) 0 0 0 (2 )
Impaired lending portfolio, net of collateral 7 8 8 12 18 23
Allocated allowances for impaired lending portfolio 7 7 8 12 18 25
Other allowances and provisions 6 21 8 0 0 3
Total allowances and provisions for credit losses 13 28 16 12 18 28
of which country allowances and provisions 0 15 8 0 0 0
Non-performing loans 7 4 2 12 18 25
Allowances for non-performing loans 7 4 0 12 18 25
Ratios
Allowances and provisions as a % of lending portfolio, gross 0.0 0.1 0.0 0.1 0.1 0.2
Impaired as a % of lending portfolio, gross 0.0 0.0 0.0 0.1 0.1 0.2
Allocated allowances as a % of impaired lending portfolio, gross 100.0 70.0 100.0 100.0 100.0 100.0
Allocated allowances as a % of impaired lending portfolio, net of collateral 100.0 87.5 100.0 100.0 100.0 108.7
Non-performing loans as a % of lending portfolio, gross 0.0 0.0 0.0 0.1 0.1 0.2
Allocated allowances as a % of non-performing loans, gross 100.0 100.0 0.0 100.0 100.0 100.0
1 Includes Global Asset Management, Corporate Functions and Private Banks & GAM (sold in December 2005) . 2 Excludes Industrial Holdings.
68
Impaired assets 1
Impaired since
CHF million 0 90 days 91 180 days 181 days 1 year 1 year 3 years > 3 years Total
Switzerland 198 92 197 812 1,916 3,215
Europe 3 6 14 111 79 213
North America 3 3 3 39 56 104
Latin America 13 34 47
Asia Pacific 1 23 27 51
Other 0 4 84 88
Total 31.12.2005 204 102 227 989 2,196 3,718
Allocated allowances, provisions and valuation reserves (52 ) (26 ) (66 ) (559 ) (1,128 ) (1,831 )
Carrying value 152 76 161 430 1,068 1,887
Estimated liquidation proceeds of collateral (118 ) (58 ) (99 ) (281 ) (810 ) (1,366 )
Net impaired assets 34 18 62 149 258 521
1 Impaired assets include loans, off-balance sheet claims and defaulted derivative contracts.
of CHF 3.7 billion relates to positions that defaulted more serves of CHF 1.8 billion plus the estimated liquidation pro-
than three years ago, reflecting the benign environment ceeds of collateral (predominantly Swiss real estate property)
across global credit markets in recent years. Considering of CHF 1.4 billion, net impaired assets amounted to CHF 0.5
allocated specific allowances, provisions and valuation re- billion.
Global Wealth Management
Business Banking Switzerland & Business Banking Investment Bank Others 1 UBS
31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03 31.12.05 31.12.04 31.12.03
3,893 3,052 2,574 5,505 4,870 4,791 26,954 26,572 24,488 502 3,313 2,732 32,961 34,755 32,011
137,422 134,095 135,960 211,822 190,465 183,053 59,662 41,838 30,535 96 2,166 2,207 271,580 234,469 215,795
141,315 137,147 138,534 217,327 195,335 187,844 86,616 68,410 55,023 598 5,479 4,939 304,541 2 269,224 2 247,806 2
(1,500) (2,135 ) (2,876 ) (1,525) (2,181 ) (2,917 ) (131) (308 ) (476 ) 0 (62 ) (3 ) (1,656) (2,551 ) (3,396 )
139,815 135,012 135,658 215,802 193,154 184,927 86,485 68,102 54,547 598 5,417 4,936 302,885 2 266,673 2 244,410 2
3,231 4,171 6,382 3,250 4,199 6,415 184 395 581 0 105 3 3,434 4,699 6,999
(1,335) (1,678 ) (2,460 ) (1,335) (1,680 ) (2,462 ) (31) (33 ) (3 ) 0 (45 ) 0 (1,366) (1,758 ) (2,465 )
1,896 2,493 3,922 1,915 2,519 3,953 153 362 578 0 60 3 2,068 2,941 4,534
1,444 2,038 2,822 1,463 2,063 2,855 130 299 420 0 62 4 1,593 2,424 3,279
151 279 304 157 300 315 26 73 181 0 0 0 183 373 496
1,595 2,317 3,126 1,620 2,363 3,170 156 372 601 0 62 4 1,776 2,797 3,775
53 119 110 53 134 118 12 49 144 0 0 0 65 183 262
2,209 3,161 4,418 2,228 3,183 4,445 135 267 312 0 105 1 2,363 3,555 4,758
1,266 1,883 2,346 1,285 1,905 2,371 108 216 249 0 62 1 1,393 2,183 2,621
1.1 1.7 2.3 0.7 1.2 1.7 0.2 0.5 1.1 0.0 1.1 0.1 0.6 1.0 1.5
2.3 3.0 4.6 1.5 2.1 3.4 0.2 0.6 1.1 0.0 1.9 0.1 1.1 1.7 2.8
44.7 48.9 44.2 45.0 49.1 44.5 70.7 75.7 72.3 0.0 59.0 133.3 46.4 51.6 46.8
76.2 81.7 72.0 76.4 81.9 72.2 85.0 82.6 72.7 0.0 103.3 133.3 77.0 82.4 72.3
1.6 2.3 3.2 1.0 1.6 2.4 0.2 0.4 0.6 0.0 1.9 0.0 0.8 1.3 1.9
57.3 59.6 53.1 57.7 59.8 53.3 80.0 80.9 79.8 0.0 59.0 100.0 59.0 61.4 55.1
69
Market risk
Market risk
Market risk is the risk of loss arising from movements in mar- but their contribution to overall market risk exposure is gen-
ket variables, including observable variables such as interest erally relatively small. Base metals and derivatives on soft
rates, exchange rates and equity market indices, and others commodities are not yet included in VaR but the exposure
which may be only indirectly observable such as volatilities from this business is not material.
and correlations. The risk of price movements on securities Outside the Investment Bank, in Global Asset Manage-
and other obligations in tradable form, resulting from general ment, the seed money invested by our alternative and quan-
credit and country risk factors and events specific to individ- titative investments platform in their funds in the start up
ual issuers, is also considered market risk. phase contributes modestly to our reported market risk expo-
We report our market risk exposure as Value at Risk sure. There is only very limited trading activity, in support of
(VaR), which is explained on page 71, but we also apply a client business, in our Wealth Management operations.
range of other measures and controls which are described in
the sections below. Non-trading
Our Treasury department (part of Corporate Center) assumes
Sources of market risk market risk as a result of its balance sheet and capital man-
agement responsibilities. Interest rate risk arises from the
Market risk is incurred primarily through our trading activities, funding of non-business items such as property and invest-
but also arises in some of our non-trading businesses. ments, from the investment of our equity, and from long-term
interest rate risk transferred from other Business Groups.
Trading These are described in more detail on pages 76 to 77.
Trading activities are centered in the Investment Bank, and in- Other market risks from non-trading activities, mainly in-
clude market-making, facilitation of client business and pro- terest rate risk, arise in all Business Groups but they are not
prietary position taking. We are active in the cash and deriv- significant.
ative markets for fixed income, equities, interest rate prod- We also hold equity financial investments outside our trad-
ucts, foreign exchange, energy and, to a lesser extent, pre- ing activities. The majority are unlisted, and their fair values
cious metals. In 2005 we began to trade derivatives on base tend to be driven mainly by factors specific to the individual
metals and soft commodities. companies rather than movements in equity markets which
In our fixed income business we carry extensive inventory have only a limited impact. For this reason, and because they
in support of market-making and client facilitation. Although are not generally liquid, they are controlled outside the mar-
inventory levels vary and the portfolio is well diversified, the ket risk framework. Our private equity investments make up
credit spread exposure (a component of interest rate risk) from the largest portfolio, but they are being run down. There is a
these positions is generally the largest contributor to VaR. comprehensive control, monitoring and reporting process
Exposure to movements in the level and shape of yield around this portfolio and the positions are included in our
curves arises in all our activities but predominantly in the rates, overall Earnings-at-Risk measure.
FX and cash and collateral trading businesses. Our exposure
to directional interest rate movements is not generally large, Risk control
but it varies depending on our view of the markets. It is often
these variations that drive changes in the level of Investment There is a Chief Risk Officer (CRO) in each Business Group and
Bank VaR, although the impact of any switch depends on the a designated CRO for Treasury. The CROs report functionally
composition of the portfolio at the time. to the Group CRO and are responsible for the independent
Equity risk is the other major contributor to Investment control of market risk. They and their teams ensure that all
Bank market risk. We generally carry exposure to all major and market risks are identified, establish the necessary controls
a number of smaller equity markets, the other significant and limits, monitor positions and exposures, and ensure the
component of equity VaR being proprietary positions taken, complete capture of market risk in risk measurement and re-
for example, to capture arbitrage opportunities or price porting systems. An important element of the CROs role is
movements resulting from mergers and acquisitions. These the assessment of market risk in new businesses and products
positions can be relatively large and can cause significant fluc- and in structured transactions.
tuations in the level of market risk. The CRO organization in the Investment Bank provides
We run positions in foreign exchange, and in precious met- market risk measurement and reporting support to all Busi-
als and energy (which are reported in the risk type other) ness Groups and is responsible for the development and on-
70
going enhancement of market risk measures, in particular the and precious metal and energy prices. It also includes changes
VaR model. in option implied volatilities in all risk types. Residual risks are
Market risk authority is vested in the Chairmans Office and risks that cannot be explained by general market moves
the GEB and from there is delegated ad personam to the broadly changes in the prices of individual debt and equity se-
Group CRO and market risk officers in the Business Groups. curities resulting from factors specific to individual issuers. For
Authorities apply to measurement methodologies and port- equity arbitrage strategies, where we are typically long in the
folio limits and to individual positions and transactions where stock of one company and short in that of another, we apply a
specific approval is required. deal break methodology that assesses the probability of col-
We apply market risk measures, limits and controls at the lapse of a merger or takeover with the stock prices reverting to
portfolio level, and we apply concentration limits and other pre-announcement levels. This is a one-off jump move (event
controls, where necessary, to individual risk types, to particu- risk), generating the same potential loss for both 10-day and
lar books and to specific exposures. The portfolio risk meas- 1-day VaR. It is a somewhat conservative measure but there
ures are common to all market risks, but concentration limits have been isolated occasions when the break up of a deal has
and other controls are tailored to the nature of the activities led to large negative contributions to revenues.
and the risks they create. Such measures therefore differ sig- The distribution of potential profits and losses produced by
nificantly between, for example, the Investment Bank, where historical simulation provides an indication of potential trading
the risks are most varied and complex, and Group Treasury revenue volatility, and a change in the general level of VaR
which carries material market risk but in a limited range of risk would normally be expected to lead to a corresponding change
types and not generally in complex instruments. in the volatility of daily trading revenues. However, the 10-day
VaR measure takes no account of the mitigating action that can
Portfolio risk measures be, and in practice is taken in the event of adverse market
moves. The absolute level of 10-day VaR should not, therefore,
The principal portfolio measures of market risk are Value at be interpreted as the likely range of daily trading revenues. VaR
Risk (VaR a statistical loss measure, as defined on page 56) based on a 1-day holding period provides a closer estimate of
and stress loss which are applied to both trading and non- the likely range of daily mark to market profit and loss we are
trading portfolios. likely to incur on the current portfolio under normal market
conditions, but is still based on past events and is dependent
Value at Risk (VaR) upon the quality of available market data. The quality of the
VaR is a statistically based estimate of the potential loss on the VaR model is therefore continuously monitored by backtesting
current portfolio from adverse market movements. It ex- the VaR results for trading books. In backtesting we compare
presses the maximum amount we might lose, but only to the 1-day VaR calculated on positions at close of business each
a certain level of confidence (99%) and there is therefore a business day with the actual revenues arising on the same po-
specified statistical probability (1%) that actual loss could be sitions on the next business day. These revenues (backtesting
greater than our VaR estimate. Our VaR model assumes a cer- revenues) exclude non-trading revenues such as commissions
tain holding period until positions can be closed (10 days) and fees, and revenues from intraday trading. If the revenue is
and it assumes that market moves occurring over this hold- negative and exceeds the 1-day VaR, a backtesting exception
ing period will follow a similar pattern to those that have oc- is considered to have occurred. When VaR is measured at a
curred over 10-day periods in the past. Our assessment of 99% confidence level, a backtesting exception is expected, on
past movements is based on data for the past five years and average, one day in a hundred. It should be recognized, how-
we apply these historical changes in rates, prices, indices etc. ever, that neither 1-day nor 10-day VaR, nor the worst case
(risk factors) directly to our current positions, a method losses in the VaR distributions, reflect the worst loss that could
known as historical simulation. We also measure and report occur as a result of extreme, unusual or unprecedented market
VaR on a 1-day holding period for information and for the conditions. All backtesting exceptions and any exceptional rev-
purposes of backtesting, as explained below. enues on the profit side of the VaR distribution are investigated,
The Chairmans Office annually approves a 10-day VaR limit and all backtesting results are reported to senior business man-
for UBS as a whole, covering both trading and non-trading agement, the Group CRO and Business Group CROs. Although
businesses, and allocations to the Business Groups, the largest we apply VaR measures to market risk positions arising in non-
being to the Investment Bank. Within the Business Groups, trading books (generally those carried at amortized cost), we
limits are allocated to lower organizational levels as necessary. do not backtest the results because the basis of risk measure-
Our VaR measure captures both general and residual ment is not consistent with the basis of revenue recognition.
market risk. General market risk includes directional movements Our base metals and soft commodities businesses are not
in interest rates, changes in slope or shape of yield curves, currently captured in VaR, but the model is being enhanced to
widening or tightening of credit spreads by rating class, and di- incorporate the new business. In the meantime it is subject to
rectional movements in equity market indices, exchange rates, volume constraints and close monitoring. We estimate that its
71
Market risk
current impact on reported VaR for the Investment Bank as a Our standard scenarios are forward-looking, macro-
whole would be negligible, although it may have a more ma- economic scenarios, bringing together various combinations
terial impact on the risk type other, where it will be re- of potential market events to reflect the most common types
ported. While an expansion of the business is planned we do of stress scenario. They cover the conditions that might be
not expect it to give rise to a significant increase in overall mar- seen in an industrial country market crash with a range of
ket risk, given the relatively low correlation of commodity mar- yield curve and credit spread behavior, and in an emerging
kets with financial markets and the continuing dominance of market crisis, with and without currency pegs breaking. We
credit spread and equity arbitrage positions in our risk profile. also have a general recovery scenario. We run the standard
scenarios continuously, and it is against these that we track
Stress loss the development of our stress loss exposure and make com-
Stress loss measures quantify our exposure to more extreme parisons from one period to the next. We also set limits on
market movements than are normally reflected in VaR and are stress loss exposure measured against these scenarios for all
an essential complement to VaR. VaR measures market risk on Business Groups. The scenarios and their components are re-
a continuous and consistent basis, but it is based on observed viewed and re-approved annually by the Chairmans Office.
historical movements and correlations. Stress loss measures do We also run ad hoc and position-centric scenarios i.e. sce-
not have to be (and should not be) constrained by historical narios reflecting current concerns, such as sharp movements
events they are designed to ensure that a wide range of pos- in energy prices or the impact of increased geopolitical insta-
sible outcomes is explored and that we have a full understand- bility in specific regions, and scenarios that attempt to capture
ing of our vulnerabilities. We therefore consider a variety of any particular vulnerabilities or aspects of our exposure that
stress scenarios within a governance and control framework are not fully covered by the standard scenarios. Such scenar-
that is designed to be comprehensive, transparent and respon- ios, by definition, must be constantly adapted to changing cir-
sive to market conditions and developments in the world cumstances and portfolios. We do not apply limits against
economy. them but the results are reported to senior management.
Inside VaR
We disclose in the tables on page 75 a government bond markets. If, as is meaning it cannot be tied to any
separate 10-day VaR exposure for each often the case, we have a long position particular positions or risk factors.
risk type within Investment Bank and in government bonds, these historical 10-day and 1-day VaR results are
for each Business Group of UBS. In periods will not be significant for calculated independently, directly from
each case, the VaR exposure reported interest rate risk, where the largest the underlying positions and historical
is the 99% confidence result for the losses typically come from periods when market moves. Neither can be directly
risk type or Business Group looked at credit spreads have widened signifi- inferred from the other by a square
on a standalone basis. Generally these cantly. Moreover, if the profits on root of time conversion for a number
results are generated by a different government bond positions offset the of reasons:
historical period for each risk type or losses on equities for the historical this formula assumes that consecu-
Business Group. The total in each table periods driving equities 99% confi- tive daily moves are uncorrelated
is the 99% confidence result for all risk dence VaR, these periods will not be (movements follow a random
types or Business Groups looked at as significant drivers of total VaR for the walk), whereas in fact markets can
one portfolio, and generally reflects a Investment Bank as a whole. The trend in one direction for several
different historical period from the difference between the sum of the days or longer, especially in times of
results for any individual risk type or individual results and the result for the market upheaval
Business Group. For example, the worst whole portfolio is a diversification there are positions and products
10-day losses for equities will generally effect, which is shown in the tables. such as options which have a non-
result from a historical period when It provides an indication of the extent linear sensitivity to changes in
equities markets fell and such periods to which we benefit from the diversity market risk factors (the change in
are usually accompanied by a rally in of our businesses but has no intrinsic value is not directly proportional to
72
While the standard scenarios are broadly based on generic sults between institutions can therefore be highly misleading,
elements of past market crises, there may be major stress and for this reason we do not publish quantitative stress results.
events of the past that we consider to be of continuing rele-
vance. Once they have dropped out of the five year historical Trading portfolios concentration limits and
time series used for VaR, we may therefore continue to apply other controls
them directly to our positions. The results can be used to
benchmark the severity of our other stress scenarios and to The market risk VaR and stress loss limits are the principal
ensure that we retain the memory of past events, although portfolio controls on UBSs exposure to day-to-day move-
we would not apply limits to such scenarios. ments in market prices, but controls are also applied to pre-
Finally, we analyze the VaR results beyond the 99% confi- vent any undue risk concentrations, taking into account vari-
dence level (the tails of the distribution) to better under- ations in price volatility and market depth and liquidity. They
stand the potential risks of the portfolio and to help identify include controls on exposure to individual market risk factors
risk concentrations. The results of this analysis are valuable in and to single name issuers (issuer risk positions).
their own right but can also be used to formulate position- In the Investment Bank, a comprehensive set of risk factor
centric stress tests. limits has been established. They are applied to potential
Most major financial institutions employ stress tests, but losses arising from moves in a wide range of general market
their approaches differ widely and there is no benchmark or in- risk factors including exchange rates and interest rates, equity
dustry standard in terms of stress scenarios or the way they are indices and credit spreads. The market moves used are
applied to an institutions positions. Furthermore, the impact of broadly consistent with the basis of VaR, i.e. 10 day 99%
a given stress scenario, even if measured in the same way across confidence moves, and they are reviewed annually but may
institutions, depends entirely on the make up of each institu- be amended in the interim if the need arises. Limits are set for
tions portfolio, and a scenario highly applicable to one institu- individual risk factors or groups of highly correlated risk
tion may have no relevance to another. Comparison of stress re- factors, and each limit applies to exposures arising from all
the change in the market risk Thus, not only is 1-day VaR not directly prominence to more recent events. In
factor, nor is it necessarily even in measurable from 10-day VaR or vice addition, they may model the risks on
the same direction positions versa, but it is also possible, and it a different basis, for example by
can be constructed, for example, frequently happens, that the changes approximating the changes in individ-
to make money for a large move in in the two from one period to another ual risk factors as normally distributed
either direction) and thus even if are quite different in magnitude, with given volatilities and correlations
markets follow a random walk, the absolutely and relatively, and even, on (variance / co-variance) or by simu-
relationship between the 1-day and occasion, that they are in opposite lating more complex distributions for
10-day VaR cannot be determined directions. the risk factors (Monte Carlo simula-
by a formula VaR is the industry standard meas- tion). Furthermore, conversions
our deal break methodology for ure of market risk but VaR is a generic between different confidence intervals
equity long-short positions is not term within which there are many typically rely on an assumption of
time dependent variants. Institutions may use different statistical normality, which is gener-
the potential returns of the portfo- confidence levels or holding periods; ally not fully valid and, as we have
lio are not normally distributed they may use shorter or longer time already observed, conversions
and the combination of all these series, which may result in the exclu- between 10-day and 1-day VaR based
effects means that the correlations sion of earlier market upheavals on the square root of time formula
and consequent diversification (shorter time series) or dilution of the cannot be relied upon. Comparison of
effect between risk types are effect of more recent market events VaR levels between institutions can
different for the 1-day and the (longer time series), or they may therefore be misleading and must be
10-day VaR. weight their time series to give greater treated with caution.
73
Market risk
trading businesses of the Investment Bank. Separate risk Market risk developments trading
factor limits are set for other Business Groups where they are
considered necessary in our alternative and quantitative The year in general was one of positive investor sentiment
investments business in Global Asset Management, for exam- with equity markets in particular performing strongly on the
ple, a comparable set of concentration limits and guidelines back of excellent corporate earnings. The more buoyant mar-
is applied. kets supported high trading volumes with strong new is-
Issuer risk is the risk of loss on securities and other obliga- suance and merger and acquisition activity. Despite short
tions in tradable form, arising from credit-related and other term rate hikes during 2005, long-term rates throughout
events and, ultimately, default and insolvency of the issuer much of the world finished the year at low levels. In currency
or obligor. We take a comprehensive approach to measure- markets, the US dollar appreciated against other major cur-
ment, including both debt and equity, not only in physical rencies, but the expectation of a slowdown in growth in 2006
form but also synthetic positions arising from forwards, op- halted the trend towards the end of the year. Higher energy
tions, default swaps and other derivatives. Our measures of and commodity prices and concerns in the US automotive in-
issuer risk exposure are generally based on the loss we would dustry in the spring, and the damage caused by the unusu-
expect to incur following an event and therefore take account ally severe hurricane season in the autumn resulted in periods
of different seniority and whether obligations are secured or of market volatility.
unsecured. We also track the maximum amount we could Market risk for the Investment Bank, as measured by 10-
lose if all securities of the issuer became worthless. Positions day 99% confidence VaR, ended the year at CHF 355 million
are controlled in the context of the depth and liquidity of the and averaged CHF 346 million for 2005, a slight increase on
market in which they are traded, and all material positions are the 2004 year-end value of CHF 332 million but slightly below
kept under constant scrutiny in light of changing market con- the 2004 average of CHF 358 million. The rise in period-end
ditions and specific public issuer information. VaR was driven by the increase in our equities risk, but it was
Exposures arising from security underwriting commit- the increased diversification between the risk types which led
ments are subject to the same measures and controls as sec- to the reduction in average Investment Bank VaR.
ondary market positions but the commitments themselves are Equities risk in particular increased year on year, ending the
also subject to control processes. This generally includes re- year at CHF 235 million, compared to CHF 126 million at the
view by a commitment committee with representation from end of 2004. The average, at CHF 173 million, was also up on
the origination and distribution / sales sides of the business, CHF 153 million for 2004. Much of this increase was a response
and from risk control and other relevant functions, as well as to good trading conditions, particularly in the latter part of the
approval under specific delegated authorities. year greater market volatility, increases in major indices, many
As explained on page 65 under Country risk, we include of which reached annual highs in fourth quarter, heavy trading
in our measures of country risk all positions for issuers domi- volumes, and strong new issuance and merger and acquisition
ciled in countries subject to country ceilings and exposures to activity. We were able to capitalize on these conditions in both
stress moves in the currency, interest rate and equity markets client business and proprietary trading.
of those countries. Credit spread exposures remained the dominant element
In addition to the standard portfolio and concentration lim- of interest rate VaR, but fluctuations in the level of risk
its, we have an array of operational limits bespoke limits throughout the year were driven by our outright interest rate
developed for a specific purpose where the standard portfo- exposures. These exposures varied in both amount and direc-
lio and concentration limits may not provide comprehensive tion over the year as we actively managed our risk in response
control. They may address concerns about, for example, mar- to market conditions. Interest rate VaR ended the year at CHF
ket depth or liquidity, operational capacity, or exposure to 269 million, a significant decrease on the 2004 year-end VaR
complex products for which valuation parameters may not be of CHF 361 million, reflecting uncertainty about the longer
observable with consequent difficulties in valuation and risk term trend of interest rates. The average of CHF 364 million
measurement. was up from CHF 340 million in 2004.
We adopt prudent valuation standards, and apply valua- Average Corporate Center VaR for 2005 was CHF 63 mil-
tion adjustments where appropriate to reflect expected loss. lion, an increase on the 2004 average of CHF 47 million. This
Valuation adjustments are also made for positions which rely resulted from increased interest rate exposure in the Treasury
on complex models for valuation or on models incorporating book, but Corporate Centers contribution to total UBS VaR
unobservable parameters for further details see our Finan- remained relatively small. Market risk positions in the other
cial report 2005, Critical accounting policies and note 29 Fair Business Groups have only a marginal impact on the total UBS
value of financial instruments. All models used for valuation VaR, as can be seen from the middle table on the right.
or which feed risk positions to risk control systems are sub- In third quarter this year, our Wealth Management &
ject to independent verification by specialist quantitative units Business Banking and Wealth Management US businesses
within the CRO organization. were combined and the municipal securities business of
74
Investment Bank: Value at Risk (10-day 99% confidence)
Year ended 31.12.05 Year ended 31.12.04
CHF million Min. Max. Average 31.12.05 Min. Max. Average 31.12.04
Risk type
Equities 120 266 173 235 121 188 153 126
Interest rates 1 223 514 364 269 244 441 340 361
Foreign exchange 11 63 30 23 5 73 30 29
Other 2 6 88 38 46 9 87 37 32
Diversification effect 3 3 (259) (218) 3 3 (202 ) (215 )
Total 245 512 346 355 274 457 358 332
1 Interest rate VaR includes the municipal securities business of Wealth Management US from 1 January 2005. The business was transferred to the Investment Bank on 1 July 2005. Figures for first and
second quarter 2005 have been restated. 2 Includes energy and precious metals risk. 3 As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate
a portfolio diversification effect.
UBS: Value at Risk (10-day 99% confidence)

As at 31.12.05 Year ended 31.12.05 Year ended 31.12.04
CHF million Limits Min. Max. Average 31.12.05 Min. Max. Average 31.12.04
Business Groups
Investment Bank 1 600 245 512 346 355 274 457 358 332
Global Asset Management 2 30 3 13 10 8 5 16 11 7
Global Wealth Management & Business Banking 3 25 4 14 9 12 10 26 16 16
Corporate Center 4 150 32 84 63 62 35 69 47 38
Diversification effect 5 5 (62) (64) 5 5 (67 ) (61 )
Total 750 255 520 366 373 274 453 365 332
1 VaR for the Investment Bank includes the municipal securities business of Wealth Management US from 1 January 2005. The business was transferred to the Investment Bank on 1 July 2005. Figures
for first and second quarter 2005 have been restated. 2 Only covers UBS positions in alternative & quantitative investments. 3 VaR for Global Wealth Management & Business Banking includes all
businesses of Wealth Management US up to 31 December 2004, but excludes the municipal securities business from 1 January 2005. All quarters up to second quarter 2005 have been restated. 4 VaR
for Corporate Center includes non-trading interest rate exposures in the Treasury book. The sale of the Private Banks was completed on 2 December 2005 and their exposures are excluded from this date.
5 As the minimum and maximum occur on different days for different Business Groups, it is not meaningful to calculate a portfolio diversification effect.
UBS: Value at Risk (1-day 99% confidence)

Year ended 31.12.05 Year ended 31.12.04
CHF million Min. Max. Average 31.12.05 Min. Max. Average 31.12.04
Investment Bank 2, 3 105 206 150 155 106 168 133 114
UBS 109 211 157 164 107 173 137 118
1 10-day and 1-day VaR results are separately calculated from the underlying positions and historical market moves. They cannot be inferred from each other. 2 Positions in the Investment Bank subject
to market risk regulatory capital contributed average VaR of CHF 147 million in 2005 and CHF 130 million in 2004. 3 VaR for the Investment Bank includes the municipal securities business of Wealth
Management US from 1 January 2005. The business was transferred to the Investment Bank on 1 July 2005. Figures for first and second quarter 2005 have been restated.
Wealth Management US was transferred to the Investment our credit spread exposures remained the dominant contrib-
Bank. The VaR exposures shown in the tables above have utor, but fluctuations in the level of stress loss exposure dur-
been restated to reflect these changes. The exposure for ing the year were significantly impacted by the varying level
Global Wealth Management & Business Banking includes all of option risk in the equity portfolio.
the businesses of Wealth Management US for 2004 but for As for the seven preceding years, UBS had no regulatory
2005 excludes the municipal securities business. This busi- backtesting exceptions in 2005. The graph on the next page
ness is included in VaR for the Investment Bank from 1 Jan- shows 1-day VaR for portfolios subject to a market risk regu-
uary 2005, but its impact on total VaR and interest rate VaR latory capital charge and the corresponding backtesting
of the Investment Bank was not material. revenues. The 10-day VaR, which is the basis of the limits and
Stress loss for the Investment Bank, defined as the worst- utilizations shown above, is also provided for information. In
case outcome from our standard scenarios, ended 2005 vir- the histogram on the next page we show backtesting rev-
tually unchanged from the end of 2004, and remained well enues alongside the daily full revenues from all sources in
within the approved limit throughout the year. As with VaR, the Investment Bank.
75
Market risk
Non-trading portfolios Investment Bank:

average 10-day 99% confidence VaR by product type
Management of non-trading interest rate risk in %
Most material non-trading interest rate risks, the largest items Year ended 31.12.05
being those arising from the Global Wealth Management &
6
Business Banking Business Group, are transferred from the 5
originating business units to one of the two centralized inter- 29
Equities
est rate risk management units, Treasury, which is part of Cor- Interest rates
porate Center, or the Investment Banks Cash and Collateral Foreign exchange
Trading unit (CCT). These units manage the risks on an inte- Other 1
grated basis to exploit the full netting potential across risks

from different sources. 60
Risks from long-term Swiss franc transactions with fixed

maturities are transferred to Treasury by individual back-to-
back transactions. Risks from all fixed maturity, short-term 1 Includes precious metals and energy exposures.
Swiss franc and all non-Swiss franc transactions are generally
transferred to CCT. Client current and savings accounts and
many other products of Global Wealth Management & Busi- market-linked rate, and their interest rate risk cannot be
ness Banking have no contractual maturity date or direct transferred by simple back-to-back transactions. Instead, they
Investment Bank: distribution of daily revenues, 2005

Frequency in number of days
80
60
40
20
0
<(85) (85)(70) (70)(50) (50)(30) (30)(10) (10)10 1030 3050 5070 7090 90110 110130 130150 150170 170190 >190
Revenues in CHF million
Full revenues Backtesting revenues1

1 Excluding non-trading revenues such as commissions and fees, and revenues from intraday trading.
UBS Investment Bank: backtesting revenues1 and VaR

CHF million 1 January 2005 31 December 2005
200
200
400
600
End of March 05 June 05 September 05 December 05
Backtesting revenues 1 1-day 99% VaR 2 10-day 99% VaR
1 Backtesting revenues exclude non-trading revenues such as commissions and fees, and revenues from intraday trading. 2 1-day 99% VaR includes only positions subject to market risk regulatory capital.
76
are transferred on a pooled basis via replication portfolios Non-trading interest rate risk development
portfolios of revolving transactions between the originating The equity held by the parent bank is invested predominantly
business unit and Treasury at market rates designed to ap- in Swiss francs, but since 2002 the investment of equity at the
proximate the average cash flow and re-pricing behavior of overall Group level has been diversified into a portfolio of
the pooled client transactions. The originating business units major currencies, in order to reflect the significant business
are thus immunized as far as possible against market interest activities denominated in foreign currencies. Accordingly, the
rate movements, but retain and manage their product mar- consolidated equity, which includes the equity of subsidiaries,
gins, while Treasury acquires market-based interest rate posi- is invested not only in Swiss francs but also in US dollars and,
tions that can be managed within its approved limits. The to a lesser extent, euro and UK sterling. At 31 December 2005
structure and parameters of the replication portfolios are the Swiss franc portfolio had an average duration of approx-
based on long-term market observations and client behavior imately 3.3 years and an interest rate sensitivity of CHF 7.48
and are reviewed periodically. million per basis point. For the US dollar portfolio, the dura-
A significant amount of interest rate risk also arises from tion was 4.8 years and its sensitivity CHF 8.31 million per basis
non-business related balance sheet items, such as the financ- point. For the euro portfolio the duration was 3.3 years and
ing of bank property and equity investments in associated its sensitivity CHF 0.52 million per basis point and for the UK
companies. These risks are generally transferred to Treasury sterling portfolio the duration was 3.2 years and its sensitiv-
through replicating portfolios, the replication in this case ity CHF 0.54 million per basis point.
being designed to approximate the mandated funding pro- The interest rate sensitivity of these investments is directly
file. Similarly, our own equity is represented in the treasury related to the chosen investment duration. Investing in signif-
book in the form of equity replicating portfolios which reflect icantly shorter maturities would lead to a reduction in the ap-
the investment profile defined by senior management. parent interest rate sensitivity and economic value sensitivity
In addition to the standard portfolio measures (VaR and of our treasury positions (excluding the equity itself), but
stress loss) three key risk measures are applied to the interest would lead to higher net interest income at risk and to higher
rate risks managed by Treasury: volatility in our actual interest earnings.
Interest rate sensitivity, which expresses the impact of a The first table on the next page shows the interest rate sen-
one basis point (0.01%) parallel rise in interest rates on the sitivity of the Treasury book overall interest rate risk positions
fair value (net present value) of the interest rate positions on 31 December 2005. The first total is the sensitivity includ-
Economic value sensitivity, which measures the potential ing the equity replicating portfolio, while the final total, which
change in fair value of Treasurys interest rate positions re- is significantly larger, excludes this portfolio.
sulting from a large instantaneous shock to interest rates The second table on the next page shows the change in
Net interest income at risk, which is defined as the poten- risk under the economic value sensitivity and net interest
tial change in net interest income resulting from adverse income at risk measures between 31 December 2003 and 31
movements in interest rates over the next twelve months. December 2005.
Interest rate sensitivity is a simple unit measure of sensitiv- The net interest income at risk figure shown is the worst
ity, which does not, in itself, provide an indication of poten- case among various interest rate scenarios that have been an-
tial loss. By contrast, the economic value sensitivity and net alyzed, and results from an assumed downward interest rate
interest income at risk measures provide different, but com- shock (parallel shift) of 200 basis points. On 31 December
plementary, views of potential loss from interest rate risk. Eco- 2005, the difference in the projected outcome in this scenario
nomic value sensitivity provides a long-term view covering the from that projected in a constant market rate scenario repre-
whole book, since it takes into account the present value of sented a reduction of CHF 386 million in the years total net
all future cash flows generated from existing balance sheet interest income, compared with a reduction of CHF 321 mil-
positions. Net interest income at risk, on the other hand, con- lion on 31 December 2004.
siders only the re-pricing effect from positions maturing over Economic value sensitivity shows the effect of a 100 basis
the next twelve months, and thus provides a shorter-term point adverse interest rate shock. On 31 December 2005, a
view but one consistent with the accounting basis (amortized 100 basis point upward shock of interest rates would have led
cost). In all three measures we assess the exposure both in- to a CHF 1,439 million decline in fair value, compared with
cluding and excluding the replication portfolio representing an exposure of CHF 1,214 million to the same scenario on 31
our equity (but always including the assets in which the eq- December 2004.
uity is invested). When the replication portfolio is excluded,
the exposure under all three measures is greater. Management of non-trading currency risk
To the extent that Treasury needs to hedge its consolidated
positions and exposures, it deals with the Investment Banks We report our results in Swiss francs, the currency of the
trading units, which are the sole interface to the external mar- country in which we are incorporated, but a substantial pro-
kets for both cash and derivative transactions. portion of our assets and liabilities, revenues and costs arises
77
Market risk
Interest rate sensitivity of the Treasury book

As at 31.12.04
CHF thousands per basis point increase Within 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
CHF (202 ) (12 ) (61 ) 91 (254 ) (438 )
USD 69 (19 ) 1 182 340 573
EUR 10 (24 ) 31 193 1,175 1,385
GBP 2 (2 ) (13 ) 28 537 552
JPY 0 0 0 (4 ) 0 (4 )
Others (1 ) 0 0 (1 ) (3 ) (5 )
Total 1 (122) (57) (42) 489 1,795 2,063
of which
equity replicating portfolio (CHF) 12 12 215 4,049 3,190 7,478
equity replicating portfolio (USD) (9 ) 8 158 3,086 5,068 8,311
equity replicating portfolio (EUR) 1 1 16 286 217 521
equity replicating portfolio (GBP) 1 1 17 301 217 537
Total equity replicating portfolio 5 22 406 7,722 8,692 16,847
Treasury book without replicating portfolio (total) (127 ) (79 ) (448 ) (7,233 ) (6,897 ) (14,784 )
1 Total risk position includes risk on variable-rate products transferred from replication portfolios.
Change in risk under the two measures

As at
CHF million 31.12.05 31.12.04 32.12.03
Net interest income at risk (386) (321 ) (233 )
Economic value sensitivity (1,439) (1,214 ) (1,169 )
in other currencies. Our corporate currency management ac- Swiss francs in order to reduce earnings volatility resulting
tivities are designed to protect UBSs BIS Tier 1 capital ratio from subsequent exchange rate movements. This monthly
and expected future foreign currency earnings from adverse sell-down reduces the volatility in our Swiss franc results that
movements of the Swiss franc against the currencies of our would result from repeated re-translation, although it cannot
assets, revenues and costs, while preserving the option to protect the banks earnings against a sustained downward or
take advantage of opportunities which may arise. upward move of one of the main currencies against the Swiss
To maintain the flexibility to divest foreign currency assets franc. Where appropriate, a similar process is applied to ma-
at any time without adverse currency impact, we match-fund terial foreign currency profits and losses in subsidiaries.
where it is practical and efficient to do so, i.e. a US dollar asset In order to protect our future Swiss franc net profits against
is funded in US dollars, a euro asset in euros, etc. As noted adverse currency fluctuations we first make use of natural
above, at the Group level the consolidated equity is invested hedge opportunities. Such opportunities exist because, over-
in a diversified portfolio, broadly reflecting the currency dis- all, the currency composition of our net profit shows stable
tribution of our risk-weighted assets, in Swiss francs, US dol- patterns of specific short and long positions in core foreign
lars, euro and UK sterling. This creates structural foreign cur- currencies such as UK sterling, euros and US dollars, and be-
rency exposures, the gains or losses on which are recorded cause some foreign currency pairs demonstrate high and sta-
through equity in the consolidated financial statements, lead- ble correlations. This combination is exploited by offsetting
ing to fluctuations in our capital base in line with the fluctu- core positions in certain currencies.
ations in risk-weighted assets, thereby protecting our BIS Tier Our Treasury department from time to time proactively
1 capital ratio. These foreign currency exposures are closely hedges the remaining currency exposures arising on future
controlled by senior management but are not subject to in- earnings in accordance with the instructions of the Group CFO
ternal market risk limits (VaR or stress) or to market risk reg- in line with policies approved by the GEB. Economic hedging
ulatory capital requirements. strategies employed include a cost-efficient options purchase
For financial accounting purposes, final profits or losses are program, which provides a safety net against unfavorable cur-
translated each month from the original transaction curren- rency fluctuations while preserving upside potential. We are,
cies into Swiss francs at the prevailing rate at the end of the however, willing to accept, within clearly defined tolerances,
month. At the same time, Treasury centralizes profits or losses a certain volatility in our financial results due to currency fluc-
in foreign currencies in the parent bank, and sells them into tuations. The hedge program has a time horizon of up to
78
twelve months and is not restricted to the current financial asset ceases to be eligible for trading book treatment (for ex-
year. Although intended to hedge future earnings, these trans- ample if it becomes illiquid) it must be underpinned by capi-
actions are considered open currency positions and are in- tal on a banking book basis, but it remains subject to a mar-
cluded in VaR for internal and regulatory capital purposes. ket risk control framework for internal control purposes. Mar-
For 2005 the net currency impact on UBSs Swiss franc ket risk regulatory capital is based on 10-day VaR while reg-
financial net profit was positive and within our internally ulatory backtesting is based on 1-day VaR. As required by reg-
agreed volatility tolerance. ulation, backtesting exceptions are notified to our internal
and external auditors and relevant regulators.
Regulatory capital treatment of market risk Our base metals and soft commodities derivatives trading
business is currently subject to the standardized approach
Our VaR model is consistent with the regulatory measure of for market risk capital, which is a very conservative treatment,
market risk capital and has been approved by the Swiss Fed- but we are seeking SFBC approval to incorporate it in the ap-
eral Banking Commission (SFBC), our main regulator. proved VaR model.
The majority of our trading activities fall under the defini- Non-trading foreign exchange exposures other than struc-
tion of trading book for regulatory capital treatment. This tural positions are subject to a market risk regulatory capital
means that both general and residual market risks in these charge and are included in VaR for this purpose. Other non-
books are subject to a market risk capital requirement. It also trading market risks are not subject to such a charge but inter-
means that the securities and other assets in tradable form are est rate risk in the banking book is reported to Swiss regulators.
not generally subject to banking book capital require- For further explanation of regulatory capital treatment
ments, which are typically higher. If a trading position in an please see note 28 of our Financial Report 2005.
Non-trading currency risk VaR (10-day 99% confidence)

CHF million 2005 2004 2003
Minimum 3.1 2.2 0.7
Maximum 66.7 41.9 32.0
Average 26.3 17.2 12.3
End of period 29.8 3.5 28.3
79
Liquidity and funding management

Liquidity and funding management are critical to a financial have sufficient liquidity to meet liabilities when due, under
institution. Liquidity must be continuously managed to ensure both normal and stressed conditions, without incurring un-
that the firm can survive a crisis, whether it is a general mar- acceptable losses or risking sustained damage to our various
ket event, a localized difficulty affecting a smaller number of business franchises. Our integrated framework incorporates
institutions, or a problem unique to an individual firm. An in- an assessment of all material, known and expected cash flows
stitution that is unable to meet its liabilities when they fall due and the level of high-grade collateral that could be used to
may collapse, even though it is not insolvent, because it is un- raise additional funding. This framework entails both careful
able to borrow on an unsecured basis, or does not have suf- monitoring and control of our daily liquidity position, and reg-
ficient good quality assets to borrow against or liquid assets ular liquidity stress testing. Risk limits are set by the GEB and
to sell to raise immediate cash without severely damaging its monitored by Treasury and contingency plans for a liquidity
net asset value. At UBS, we manage our liquidity position in crisis are incorporated into our general crisis management
order to be able to ride out a crisis without damaging the on- process.
going viability of our business. This is complemented by our The liquidity position is assessed and managed under a va-
funding risk management which aims to achieve the optimal riety of potential scenarios encompassing both normal mar-
liability structure to finance our businesses cost-efficiently ket conditions and stressed conditions. We consider not only
and reliably. The long term stability and security of our fund- general market crises but also the possibility that our access
ing in turn helps protect our liquidity position in the event of to markets could be impacted by a stress event affecting some
a UBS-specific crisis. part of our business or, in the extreme case, if we were to suf-
Our business activities generate asset and liability portfo- fer a severe rating downgrade.
lios which are intrinsically highly diversified with respect to
market, product and currency. This reduces our exposure to Liquidity position
individual funding sources, and also provides a broad range The daily liquidity position the net cumulative funding re-
of investment opportunities, which in turn reduces liquidity quirement for a specific day is projected under conservative
risk. We adopt a centralized approach to liquidity and fund- assumptions for each business day from the current day out
ing management to exploit these advantages to the full. to one month to produce a cumulative cash ladder.
The liquidity and funding process is undertaken jointly by The starting point for these analyses is a breakdown of the
our Treasury department, which is part of Corporate Center, contractual maturity of our assets and liabilities. This is dis-
and the Investment Banks Cash and Collateral Trading unit played in note 28 to the financial statements, which shows
(CCT). Treasury establishes a comprehensive control frame- the contractual profile of UBSs overall cash flow under a
work, while CCT undertakes operational cash and collateral business as usual scenario on 31 December 2005. Since a
management transactions within the established parameters. liquidity crisis could have a myriad of causes, we then focus
This centralized cash and collateral management structure on a worst-case scenario that encompasses all potential stress
permits tight control of both our global cash position and our effects across all markets, currencies and products.
stock of highly liquid securities. We assess the likelihood of maturing assets and liabilities
Our central treasury process ensures that our general ac- being rolled over in a UBS-specific crisis, and gauge the ex-
cess to wholesale cash markets is concentrated in CCT. As a tent to which the potential crisis-induced shortfall could be
rule, all funds raised externally are channelled into CCT in- covered by available funding. This would be raised on a se-
cluding the proceeds of debt securities issued by UBS, an ac- cured basis against available collateral, which includes secu-
tivity for which Treasury is responsible. CCT in turn meets all rities eligible for pledging at the major central banks, or by
internal demands for funding by channelling funds from units selling liquid inventory. In both cases we apply crisis-level dis-
generating surplus cash to those requiring finance. In this counts to the value of the assets. We assume that we would
way, we minimize our external borrowing and use of available be unable to renew any of our unsecured debt, including all
credit lines, and present a consistent and co-ordinated face our maturing money market papers (outstanding volume CHF
to the market. 102.7 billion on 31 December 2005) and that no contingency
funding could be raised on an unsecured basis. We also fac-
Liquidity approach tor in potential liquidity outflows from contingent liabilities,
in particular those due to the drawdown of committed credit
Our approach to liquidity management, which covers all lines. Exposures to other contingent commitments, such as
branches and subsidiaries, is to ensure that we will always guarantees and letters of credit, are included in this analysis,
80
although they are not as vulnerable since they are generally a core crisis team with representatives from Treasury, which is
not unconditional but, rather, are linked to other, independ- the liquidity risk control unit, from CCT, which is the primary
ent conditions being fulfilled. liquidity manager, and from related areas including the func-
This scenario also assumes that the crisis would engulf tions responsible for payments and settlements, market and
UBSs source of retail deposits, thereby leading to heavy with- credit risk control, collateral and margin management, and IT
drawals from current accounts, savings accounts and de- and infrastructure. The cornerstone of our contingency plans
posits. Furthermore, access to the client collateral pool is as- is our access to secured funding either from the market or
sumed to be restricted as a result of securities lending agree- from the major central banks, coupled with the ability to turn
ments being cancelled during such a crisis. sufficient liquid assets into cash within a short timeframe.
We regularly monitor unutilized committed credit facilities Moreover, CCTs centralized global management model lends
and latent liquidity risks that could materialize if we were to itself naturally to efficient liquidity crisis management.
suffer a downgrade. Rating trigger clauses, especially in de- We are continuing to strengthen our relationships with the
rivative contracts, can result in an immediate cash outflow major central banks, consistent with our general policy, which
due to the unwinding of derivative positions, or the need to is to base our contingency plans on secured funding against
deliver additional collateral. Our contingent exposure arising pledges of high-quality collateral, rather than relying on third-
directly from these rating triggers is judged not to be mate- party credit lines.
rial compared to our liquidity-generation capacity, even in a While we engage in financial transactions that involve the
crisis situation. We also analyze the potential impact on our utilization of non-consolidated special-purpose entities, our
net liquidity position of adverse movements in the replace- funding and liquidity capacity is not reliant upon these enti-
ment values of our OTC derivative transactions which are sub- ties to any material extent. Additionally, should any or all of
ject to bilateral collateral arrangements. Given the diversity of these financial channels become unusable, the impact on
our derivatives business and our counterparties, there is not UBSs liquidity resources would be insignificant. All of UBSs
necessarily a direct correlation between the factors influenc- major sources of liquidity are channelled through entities that
ing net replacement values with each counterparty and a are fully consolidated and are included in the scenario analy-
firm-specific crisis scenario. It is, nonetheless, conceivable ses described above.
that market volatility could substantially increase under such
circumstances and exacerbate our situation. Funding sources and approach
Liquidity limits and controls With a broad diversification of funding sources (by market,
While UBSs estimated capacity to generate liquidity when re- product and currency), we maintain a well-balanced portfo-
quired will naturally vary, we generally apply a constant limit lio of liabilities, which generates a stable flow of financing and
structure, which imposes a ceiling on the projected net fund- provides protection in the event of market disruptions. This,
ing requirement along the cash ladder. We base our limits on together with our centralized funding management, enables
the amount of cash we believe we could raise in a worst case us to pursue a strategy to fund business activities at the low-
scenario a firm-specific crisis. The limits vary by time-zone est possible cost.
since access to liquidity will depend on the time of day at In this context, UBSs strong domestic retail business is a very
the beginning of the global trading day, during Asia-Pacific valuable, cost-efficient and reliable source of funding. Further-
trading hours, the limits are less severe since more time is more, through the establishment of short-, medium- and long-
available to mobilize funding sources or, if necessary, initiate term funding programs in Europe, the US and Asia, we can pro-
asset sales to generate additional liquidity. As the day provide specialized investments to our customers while efficiently
ceeds and currency zones begin to close, the limits become raising funds globally from both institutional and private in-
tighter, with the strictest limits applied later in the day when vestors, minimizing our dependence on any particular source.
only the US markets are available. CCTs day-to-day liquidity We plan our medium- and long-term funding activities by
management is based on global books that are handed over assessing the overall funding profile of the balance sheet, tak-
from time-zone to time-zone, ensuring 24-hour coverage. ing due account of the effective maturity of our asset base
Compliance with the risk limits and actual credit liquidity ex- and the amount of maturing debt that will have to be re-
posures are regularly reported to the GEB. placed. We also factor in our ability to continue to fund our
To complement and support the limit framework, regional ongoing business activities through periods of difficult mar-
teams monitor the markets in which UBS operates for poten- ket conditions.
tial threats and regularly report any findings to Treasury. We To ensure that we preserve a well-balanced and diversified
have also developed detailed contingency plans for liquidity liability structure, Treasury routinely monitors UBSs funding
crisis management as an integral part of our global crisis status and reports its findings on a quarterly basis to the GEB.
management concept, which covers all types of crisis events. We employ two main analysis tools cash capital and se-
The liquidity contingency plan would be implemented under cured funding capacity. We complement these analyses with
81
regular assessments of any concentration risks in our main has no long-term commitments to continue to purchase the
funding portfolios. types of assets being securitized.
Cash capital is the excess of our long-term funding over The charts below show a breakdown by product type and
the total of illiquid assets. Long-term and illiquid both by currency of our secured and unsecured funding as at 31
refer to a time horizon of one year. December 2005. UBS has a strong secured funding base that
The secured funding capacity concept ensures that short- reduces our exposure to periods of stressed market conditions
term unsecured (wholesale) funding is effectively only in- when the ability to raise unsecured funding could be tem-
vested in freely marketable (unencumbered) assets. As a porarily restricted. Of our total funding, 39% was raised on
precautionary measure, we maintain a minimum stock of un- a secured basis and 61% unsecured. The unsecured funding
encumbered assets and cash that exceed our outstanding base is well diversified, with 17% of total funding stemming
short-term unsecured wholesale borrowings. The discounts from savings and demand deposits, 12% from long-term
we apply in assessing the surplus are more severe than those debt, 10% from time deposits, 9% from short-term interbank
applied in the cash capital analysis since the secured funding borrowing, 7% from money market papers and 4% from fi-
capacity represents a stressed scenario, as it assumes we duciary deposits. Most of our funding is originated in US dol-
would have no access to wholesale unsecured funding mar- lars, with major portions also being raised in Swiss francs and
kets for an entire year. in euros, roughly mirroring the currency breakdown of our as-
We make frequent use of asset-securitization structures, in sets. Around 16% of our funding was denominated in other
particular in connection with the sale of corporate loans and currencies (primarily UK sterling and Japanese yen). UBS does
retail mortgages. These do not, however, constitute a mate- not rely on buying committed credit facilities from third-party
rial portion of UBSs funding activities and our funding status banks, but instead we base our contingent funding sources
would not be significantly affected if capital markets were to on our ability to raise secured funding through the use of
become inaccessible for such securitization transactions. UBS high-quality collateral.
UBS: funding by product type UBS: funding by currency

in % in %
As at 31.12.05 As at 31.12.05
Retail savings/deposits
7 8 Demand deposits
16 14
9 Fiduciary CHF
9
Time deposits EUR

4
16
Long-term debt USD
10 Securities lending Other
Repurchase agreements
Interbank 54
34
12
Money market papers
5
82
Operational risk
Operational risk
Operational risk is the risk of loss resulting from inadequate work in the Business Group and to ensure transparent assess-
or failed internal processes, people and systems, or from ex- ment and reporting of operational risks to senior manage-
ternal causes, whether deliberate, accidental or natural. It is ment.
inherent in all our activities, not only in the business we con- The foundation of the operational risk framework is the
duct but also from the fact that we are a business because definition by all functions of their roles and responsibilities so
we are an employer, we own and occupy property, and we that, collectively, they can ensure that there is adequate seg-
hold assets, including information, belonging to ourselves regation of duties, complete coverage of risks and clear ac-
and to our clients. Our approach to operational risk is not de- countability. From this analysis, they develop control objec-
signed to eliminate risk per se but, rather, to contain it within tives and standards to protect our tangible and intangible as-
acceptable levels, as determined by senior management, and sets and interests, based on the types of operational risk
to ensure that we have sufficient information to make in- event that might arise, ranging from every day reconciliation
formed decisions about additional controls, adjustments to problems to potentially severe events such as fraud. We rec-
controls, or other risk responses. The Group CRO and the ognize that we cannot eliminate all risks, because errors and
Head of Operational Risk, who reports to him, are responsi- accidents will always happen, and that even where it is pos-
ble for the independence, objectivity and effectiveness of our sible it is not always cost effective to do so. We therefore
operational risk framework. adopt a risk-based approach to the design and implementa-
tion of our internal control framework.
Operational risk framework The functions monitor compliance with their controls and
assess their operating effectiveness in several ways, including
Every function, whether a front-end business or a control or self-certification by staff, and evaluation of responses by man-
logistics unit, must manage the operational risks that arise agement. Additionally, they track a wide-ranging set of met-
from its own activities. Because operational risk is all perva- rics to provide potential early warning of increased risk asso-
sive, with a failure in one area potentially impacting many oth- ciated with non-attainment of control objectives. These in-
ers, our framework is based on mutual oversight across all clude numbers and characteristics (severity, size, age etc.) of,
functions. Each Business Group has therefore established for example, client complaints and claims, deal cancellations
cross-functional bodies as an integral part of its governance and corrections, unreconciled items on cash and customer ac-
structure, to actively manage operational risk. counts, and systems failures. We also assess the implications
To ensure the integrity of risk management decisions, each of internal and external audit findings and other relevant
Business Group also has an Operational Risk Control unit, the sources of information.
head of which reports functionally to the Group Head of Op- As major operational risk events occur, we assess their
erational Risk. The primary remit of these units is to confirm causes and the implications for our control framework,
the effective implementation of the operational risk frame- whether or not they lead to direct financial loss. This includes
Operational risk in practice

Following public disclosure of two imately 9,500 accounts in Japan, tional risk in terms of regulatory
major incidents (relating to bank notes reported in May 2005, highlights the requirements and management over-
trading and US withholding tax) in continuing challenges we face in sight. Those measures made signifi-
2004, operational risk events in 2005 managing a complex, integrated, fast cant progress in 2005. As part of the
have been less high profile. Among changing, global business, particularly overall project, a firm-wide communi-
the more notable was the outcome of against the backdrop of heightened cation and education framework has
the US investigation into market regulatory and public sensitivity to been rolled out to all employees to
timing in the mutual funds business, shortcomings in corporate processes. raise awareness of operational risk
which led to a financial settlement At the end of 2004, the GEB started issues and to provide specific training
with several US regulatory authorities. developing a number of measures that where necessary.
A loss of client data relating to approx- addressed areas exposed to opera-
83
Operational risk
events affecting third parties that are relevant to our business correlated to actual financial losses or their frequency of oc-
if sufficient information is made public. It is important that we currence, which are, at best, only indicative.
use all available information to test our control framework be- As far as accounting for operational risks is concerned,
cause, even if an internal event does not lead to a direct or many potential loss situations are identified before the prob-
indirect financial loss, it may indicate that our standards are ability, timing or amount of future expenditure are known
not being complied with. with certainty. IFRS requires us to make a provision, based on
The totality of this information is reviewed by functional the best estimate of a liability, when it is probable that a pay-
managers to assess their operational risk exposure and the ac- ment will be required, even if the amount to be paid has not
tions needed to address specific issues. Regular reports are yet been exactly determined. This requires the exercise of
made both within the Business Groups and to the Group CRO judgment. Once we are able to quantify any potential oper-
to allow senior management to assess the overall operational ational risk more accurately, the corresponding provision is re-
risk profile. vised up or down.
Operational risk measurement Operational risk developments
The specific risks that are identified by operational risk man- Regulatory compliance is a prerequisite for effective oper-
agement and reported to senior management are evaluated ational risk management and control and comes primarily in
in terms of their potential frequency of occurrence and sever- the form of Basel II, Sarbanes-Oxley Section 404 (SOX 404) and
ity of the resulting impact. These assessments are validated other related requirements (e.g. the Federal Deposit Insurance
by the Operational Risk Control functions within the Business Corporation Improvement Act in the US). The Operational Risk
Groups. Framework serves broadly as the backbone of the Banks ap-
We maintain a database of financial events (both profits proach to internal control requirements, and thus forms a key
and losses) and their underlying causes, and are developing a component of the SOX 404 compliance requirement that will
model to quantify our operational risk. This will ultimately come into effect at the end of 2006. Because this evaluation
form the basis of our operational risk regulatory capital re- is a specialized form of risk assessment, a specific SOX Office
quirement under Basel II, for which we intend to use an ad- has been created under the Group CFO. This office liaises
vanced measurement approach. This quantification, while closely with the Group and Business Group Operational Risk
useful, does not necessarily tell the whole story. A single Controllers to ensure an efficient flow of information.
event can impact us financially in ways other than direct costs The operational risk framework provides information that
or losses such as fines, compensation to clients or asset write- can be used in specialized risk evaluations. The operational risk
downs we may also suffer lost revenues from business dis- assessments by the Business Groups can, for example, provide
ruption, and incur costs associated with remediation. The im- valuable information in support of legal and compliance risk as-
pact of an event may also be larger than its immediate mon- sessments. This concept will be developed further for use in
etary cost might suggest a publicly disclosed regulatory fine other specialist areas such as human resources and tax to en-
can, for example, result in withdrawal of clients or loss of busi- sure that the operational risk framework continues to help us
ness. In summary, the level of risk at any time is not directly achieve excellence in operational risk management and control.
84
Motor-Columbus
Motor-Columbus
The Atel Group, the operating arm of Motor-Columbus, is ex- Interest rate risk
posed to electricity price risk, interest rate risk, currency risk,
credit risk, and other business risks. Interest rate swaps are permitted to hedge capital markets in-
Risk limits are allocated to individual risk categories and terest rate exposure, with changes in fair value being re-
compliance with these limits is continuously monitored, the ported in the income statement.
limits being periodically adjusted in the broad context of the
companys overall risk capacity. Currency risks
A risk policy has been established and is monitored by a
risk committee composed of executive management. It was To minimize currency risk, Atel tries to offset operating in-
approved by the Board of Directors of Atel and is reviewed come and expenses in foreign currencies. Any surplus is
and ratified by them annually. The policy sets out the princi- hedged through currency forwards and options within the
ples for Atels business. It specifies requirements for entering framework of the financial risk policy.
into, measuring, managing and limiting risk in its business and Net investment in foreign subsidiaries is also subject to ex-
the organization and responsibilities of risk management. change rate movements, but differences in inflation rates
The objective of the policy is to provide a reasonable balance tend to cancel out these changes over the longer term and
between the business risks entered into and Atels earnings for this reason Atel does not hedge investment in foreign sub-
and risk-bearing shareholders equity. sidiaries.
A financial risk policy sets out the context of financial risk
management in terms of content, organization and systems, Credit risk
with the objective of reducing financial risk, balancing the
costs of hedging and the risks assumed. The responsible units Credit risk management is based on assessment of the credit-
manage their financial risks within the framework of this pol- worthiness of new contracting parties before entering into any
icy and limits defined for their area. transaction giving rise to credit exposure, and continuous
monitoring of creditworthiness and exposures thereafter. In
Energy price risk the energy business, Atel only enters into transactions leading
to credit exposure with counterparties that fulfill the criteria
Price risks in the energy business arise from, among others, laid out in the risk policy. Concentration risk is minimized by
price volatility, changing market prices and changing correla- the number of customers and their geographical distribution.
tions between markets and products. Derivative financial in- Financial assets reported in the balance sheet represent the
struments are used to hedge underlying physical transac- maximum loss to Atel in the event of counterparty default at
tions, subject to the risk policy. the balance sheet date.
85
86
Capital Management& UBS Shares
We strive to create value for shareholders while protecting
our strong capitalization and credit ratings.
Capital Management & UBS Shares
Capital management
Capital management
The approach we take to capital management is one of our UBS: BIS Tier 1 capital ratio
hallmarks. We endeavour to maintain strong debt ratings and Tier 1 ratio %
sound capital ratios (see capital strength box on the next 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05
page), as they help ensure our position as one of the best-cap- 14
italized financial services firms in the world. Being strongly
capitalized allows us to invest in the growth of our businesses 13
12.9
whether organically or by acquisition. If we do not see op- 12.4

12.0 12.1 12.2
portunities to invest in growth, we return capital to our share- 12 11.7
11.9
11.5
holders while maintaining a high BIS Tier 1 ratio. 11.3
In managing our capital, we look at eligible and required 11

capital and forecast their future development. Dividend pay-
ments and share buyback programs are the main tools by 10
which we manage our capital base. That, along with the cap-
ital securities we issue, gives us the means to manage our Tier
1 and total capital ratios, helping us protect our strong capi-
talization and credit ratings while ensuring we continue to
create sustainable value for shareholders. capital on 31 December 2005. In total, UBS has CHF 5.0 bil-
lion in preferred shares (outstanding), issued through trusts
Distribution of cash to shareholders in 2005 or subsidiaries and qualifying as Tier 1 capital under regula-
tory rules.
We transferred a total of CHF 6.7 billion in equity to our share-
holders in 2005. The total amount was split between our div- Capital requirement
idend payment of CHF 3.1 billion made in April 2005 and the
CHF 3.6 billion in shares we repurchased during 2005 for pur- The capital we are required to hold by our regulator, the Swiss
poses of cancellation. For more details on our dividend pay- Federal Banking Commission (SFBC), is determined by our
ments, see page 92 of this section. balance sheet, off-balance sheet and market risk positions
risk-weighted according to defined criteria. For instance,
Capital securities counterparty-related risks are weighted according to type of
counterparty instrument and collateral. Market risk positions
In 2005, UBS placed CHF 1.6 billion in euro denominated pre- are generally risk-weighted based on VaR (for more details
ferred shares and raised CHF 2.6 billion in subordinated debt please refer to note 28 to the financial statements). Most of
in various currencies in the capital markets. Outstanding Tier our capital requirement arises from balance sheet assets. Off-
2 capital securities accounted for CHF 7.2 billion in eligible balance sheet positions and market risk positions each repre-
Capital adequacy
As at
CHF million, except ratios 31.12.05 31.12.04 32.12.03
BIS Tier 1 capital 39,943 31,629 30,189
of which hybrid Tier 1 capital 1 4,975 2,963 3,224
BIS total capital 43,917 36,444 34,005
BIS Tier 1 capital ratio (%) 12.9 11.9 12.0
BIS total capital ratio (%) 14.1 13.8 13.5
Balance sheet assets 252,363 218,476 212,673
Off balance sheet and other positions 37,011 28,205 21,456
Market risk positions 2 21,035 18,151 18,269
Total BIS risk-weighted assets 310,409 264,832 252,398
1 Preferred securities. 2 BIS risk-weighted asset equivalent of market risk capital requirement.
88
sent less than 10% of risk-weighted assets and, correspond- On 31 December 2005, risk-weighted assets were CHF
ingly, of our total capital requirement. For the calculation of 310.4 billion, up 17% from CHF 264.8 billion a year earlier.
BIS capital adequacy, risk-weighted assets are related to cap- The increase was driven by the loan portfolio of the Invest-
ital eligible according to BIS rules. ment Bank, and an increase in our mortgage lending activi-
The calculation of the capital requirement, as applicable to ties.
UBS under SFBC regulations, differs in certain respects from
the calculation under the Basel Capital Accord (BIS guide- Capital ratios
lines). The most important differences are:
where BIS guidelines apply a maximum risk weight of The ratios we report measure capital adequacy by comparing
100%, the SFBC applies risk weights above 100% to cer- our eligible capital (Tier 1 and total) with total risk-weighted
tain asset classes (for example real estate, fixed assets, in- assets. UBS has always had total capital and Tier 1 capital well
tangibles, and non-trading equity positions) in excess of the minimum requirements of both the BIS and
where the BIS guidelines apply a 20% risk weight to obli- the SFBC.
gations of OECD banks, the SFBC applies risk weights of BIS Tier 1 capital increased to CHF 39.9 billion on 31 De-
25% to 75%, depending on maturity. cember 2005 from CHF 31.6 billion a year earlier, reflecting
As a result of the differences in regulatory rules, UBSs risk- the extraordinary gain from the disposal of Private Banks &
weighted assets are higher, and our ratios of total capital and GAM and a strong operational profit in 2005. As a result, our
Tier 1 capital to risk-weighted assets, are lower, when calcu- BIS Tier 1 ratio increased by 1 percentage point to 12.9% at
lated under the SFBC regulations than under BIS guidelines. the end of 2005 from 11.9% on 31 December 2004.
Capital strength
Our financial stability stems from the its chosen markets. The key strengths cial institutions worldwide.
fact that we are one of the best- of its business profile are the strong UBSs long-term credit ratings are
capitalized banks in the world. We cash flow, high returns, and low shown in the table below. Each of
believe that this is a key part of our capital requirements of its asset- these ratings reflects only the view of
value proposition for both our clients gathering businesses. the applicable rating agency at the
and our investors. In December 2005, Fitch Ratings time the rating was issued, and any
In December 2005, Moodys affirmed affirmed UBSs AA+ / F1+ / A/B ratings explanation of the significance of a
UBSs Aa2 long-term, Prime-1 short- and commented: UBSs ratings reflect rating may be obtained only from the
term, and B+ bank financial strength its excellent private banking / wealth rating agency. A security rating is not a
ratings and commented that the management franchise, diversified recommendation to buy, sell or hold
Capital Management
ratings of UBS remain underpinned by revenues, consistently good profitabil- securities and each rating should be
its strong client franchises with leader- ity, a cautious approach to risk, and evaluated independently of any other
& UBS Shares

ship positions in the majority of its strong capitalization. rating. There is no assurance that any
core businesses, resilient cross-cyclical UBSs ratings remain among the best credit rating will remain in effect for
revenue generation through diversifi- of any major globally active financial any given period of time or that a
cation across products and regions, institution. Well capitalized, with rating will not be lowered, suspended
good growth prospects for most of its strong and balanced cash-flow gener- or withdrawn entirely by the rating
businesses, and strong economic and ation, and a well-controlled risk pro- agency if, in the rating agencys judg-
regulatory capital positions. file, UBS is one of the soundest finan- ment, circumstances so warrant.
In February 2006, the rating agency
Standard & Poors affirmed UBSs AA+
long-term, and A-1+ short-term Long-term ratings
ratings and commented: The affirma-
As at
tion reflects UBS success in leveraging
31.12.05 31.12.04 32.12.03
its strong and diverse franchise to
Fitch, London AA+ AA+ AAA
produce robust profitability, coupled
Moodys, New York Aa2 Aa2 Aa2
with solid capitalization and sound
Standard & Poors, New York AA+ AA+ AA+
liquidity. UBS holds leading positions in
89
Treasury shares
Treasury shares
Under IFRS accounting rules, UBS shares held for trading or Share buyback
non-trading purposes are recorded as treasury shares and de- Shares (in millions)
ducted from shareholders equity. Our holding of treasury
1Q01
2Q01
3Q01
4Q01
1Q02
2Q02
3Q02
4Q02
1Q03
2Q03
3Q03
4Q03
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
shares decreased to 104,259,874 or 9.6% of shares issued on
31 December 2005, from 124,663,310 or 11.1% on the 36
same date a year ago. Of the treasury shares held,
33,885,000 are earmarked for cancellation whereas the other 27
70,374,874 cover employee share and option programs and,
to a limited extent, market-making activities at the Investment 18
Bank.
9
Treasury shares earmarked for cancellation (share
buyback program 2005/2006) 0
2001 program 2002 second program 2004 program
Strong earnings and careful management of our balance 2002 first program 2003 program
sheet allowed us to conduct a share buyback program for the
sixth consecutive year in 2005 giving us the opportunity to
reduce the number of issued UBS shares, enhancing earnings
per share. Under Swiss regulations, a company wishing to At the Annual General Meeting on 21 April 2005, share-
cancel shares must purchase them on the stock exchange holders gave the Board of Directors a mandate to set up a re-
under a special security code that clearly identifies to the mar- purchase program in 2005 / 2006 for a maximum amount of
ket the time and quantity of shares repurchased for that spe- CHF 5 billion. At the AGM on 19 April 2006, shareholders will
cific purpose. As in previous years, we announced a maximum be asked to approve the cancellation of 37,100,000 shares
Swiss franc amount to be used for share purchases under the representing a total value of CHF 4.0 billion under the pro-
buyback program. The level of repurchases is determined by gram that ended on 7 March 2006. The shares will be can-
our capital management plan, which is adjusted throughout celled in summer 2006.
the year to reflect changes in business plans or acquisition op- The table below shows the impact on basic earnings per
portunities. Our strong cash flow generation combined with share of the purchase of treasury shares through the second
our sound capitalization allows us to invest in the growth of line buyback program.
our businesses by growing organically or making acquisitions.
In the absence of such opportunities, we would return any ex- Treasury share holdings for employee
cess capital to shareholders through share buybacks or divi- participation plans
dends. UBS publishes the number of shares repurchased and
the average price paid on a weekly basis on the internet at UBS shares are also purchased and held to satisfy share deliv-
www.ubs.com/investors. ery obligations under UBSs share and option-based participa-
Effect of second trading line program on basic earnings per share (EPS)
For the year ended
31.12.05 31.12.04 31.12.03
Weighted average shares for basic EPS after treasury shares 1,006,993,877 1,029,918,463 1,086,161,476
Weighted average second trading line treasury shares 1 272,169,755 236,970,415 182,301,119
Basic EPS 13.93 7.78 5.44
Cumulative impact of treasury shares on basic EPS (CHF) 1 2.96 1.45 0.79
Cumulative impact of treasury shares on basic EPS (%) 1 21.2 18.6 14.5
1 From first share buyback program in 2000.
90
tion plans that align the long-term interests of executives, Treasury shares held by the Investment Bank
managers, staff and shareholders. For share-based participa-
tion plans, UBS shares are purchased in the market and set The Investment Bank, acting as liquidity provider to the eq-
aside for future distribution to employees once the holding uity futures market and as a market maker in UBS shares and
period criteria have been met. For satisfying future share de- derivatives, has issued derivatives linked to UBS stock. Most
livery obligations out of employee option plans, UBS shares of these instruments are classified as cash-settled derivatives
are also purchased in the market and held to partially hedge and are held for trading purposes only. To hedge the eco-
the future obligations. nomic exposure, a limited number of UBS shares are held by
At year-end, a total of 90.9 million outstanding employee the Investment Bank.
options at an average exercise price of CHF 84 represented The presentation in the table below does not include move-
potential future share delivery obligations to employees, ments in UBS share positions held by the Investment Bank.
which UBS currently mainly satisfies through the delivery of
treasury shares purchased in the market. In 2005, a total of Treasury shares statutory limit
30.7 million employee options were exercised and an addi-
tional 22.6 million new options were granted. In future, and Under the Swiss Stock Exchange Act, treasury shares held by
subject to the approval by the AGM, UBS will use conditional the company must be reported once they rise above a certain
capital to cover newly granted employee options. For more threshold. UBSs holding in its shares remained between 5%
information, read page 93. and 10% throughout 2005.
Treasury share activities

Treasury shares purchased for
employee share and option parti-
Share buyback program cipation plans and acquisitions 1 Total number of shares
Number Average Remaining volume of share Number Average Number Average
Month of purchase of shares price in CHF buyback program in CHF million of shares price in CHF of shares price in CHF
January, 2005 0 0.00 2004 / 2005 program 2,457 94,650 95.04 94,650 95.04
February, 2005 0 0.00 2004 / 2005 program 2,457 90,555 102.67 90,555 102.67
March, 2005 0 0.00 2005 / 2006 program 5,000 11,872,485 102.38 11,872,485 102.38
April, 2005 3,050,000 101.30 2005 / 2006 program 4,691 2,461,870 100.92 5,511,870 101.13
May, 2005 0 0.00 2005 / 2006 program 4,691 3,525,905 95.90 3,525,905 95.90
June, 2005 3,000,000 99.00 2005 / 2006 program 4,394 792,535 97.27 3,792,535 98.64
July, 2005 7,365,000 102.30 2005 / 2006 program 3,641 118,834 102.75 7,483,834 102.30
Capital Management
August, 2005 5,950,000 104.77 2005 / 2006 program 3,017 974,188 103.79 6,924,188 104.63
September, 2005 7,705,000 106.93 2005 / 2006 program 2,193 5,381,325 106.96 13,086,325 106.94
& UBS Shares

October, 2005 4,650,000 111.20 2005 / 2006 program 1,676 1,134,848 111.49 5,784,848 111.25
November, 2005 0 0.00 2005 / 2006 program 1,676 8,933,201 119.33 8,933,201 119.33
December, 2005 2,165,000 126.31 2005 / 2006 program 1,403 5,086,761 124.16 7,251,761 124.80
1 This table excludes market-making and related hedging purchases by UBS. The table also excludes UBS shares purchased by investment funds managed by UBS for clients in accordance with specified
investment strategies that are established by each fund manager acting independently of UBS; and also excludes UBS shares purchased by pension and retirement benefit plans for UBS employees, which
are managed by a board of UBS management and employee representatives in accordance with Swiss law guidelines. UBSs pension and retirement benefit plans purchased 82,225 UBS shares during
the year and held 1,794,576 UBS shares as at 31 December 2005.
Maximum Unutilised
Volume Amount Total shares Average Price volume
Program Announcement Beginning Expiration Cancellation CHF billion CHF billion purchased CHF CHF billion
2000 / 2001 14.12.99 17.01.00 02.03.01 13.07.01 4 4.0 55,265,349 1 72.37 0
2001 / 2002 22.02.01 05.03.01 05.03.02 05.07.02 5 2.3 28,818,690 79.46 2.7
2002 / 2003 14.02.01 06.03.02 08.10.02 10.07.03 5 5.0 67,700,000 73.84 0
2002 / 2003 09.10.02 11.10.02 05.03.03 10.07.03 3 0.5 8,270,080 64.07 2.5
2003 / 2004 18.02.03 06.03.03 05.03.04 30.06.04 5 4.5 59,482,000 75.93 0.5
2004 / 2005 10.02.04 08.03.04 07.03.05 08.07.05 6 3.5 39,935,094 88.72 2.5
2005 / 2006 2 08.02.05 08.03.05 07.03.06 5 3.6 33,885,000 106.16 1.4
1 Restated for stock split. 2 Status as per 31 December 2005. Program will continue until 7 March 2006.
91
Dividends
Dividends
UBS normally pays an annual dividend to shareholders regis- Dividend yield1
tered as of the date of the Annual General Meeting (the in %
record date). Payment is usually scheduled three business 2000 2001 2002 2003 2004 2005
days thereafter. 4
The level of our dividend is dependent on our targeted 3.59
3.45
capital ratios and the cash flow generation of the company. 3 3.31
Our dividend policy takes into account the fact that our share- 2.63 2.72
2.41
holders have different preferences for receiving shareholder 2
returns: some prefer cash dividends, some prefer share buy-
backs. By pursuing both avenues, we aim to attract and re- 1
tain the widest, most diverse global shareholder base.
The decision on dividend payments falls under the AGMs 0
authority and is subject to shareholder approval. 1 Dividend and par value reduction paid /average share price of the year
1 for which dividend or par value reduction were paid.
Dividend in 2005
We were able, after the approval of the Annual General sure that shareholders on the Swiss and US registers are sim-
Meeting of shareholders on 21 April 2005, to pay a dividend ilarly treated in connection with dividend payments, and to
of CHF 3.00 for 2004, 15.4% higher than the previous years avoid disparities between the two markets, NYSE trading
CHF 2.60. Shareholders in the US received a net dividend pay- takes place with due bills for the two-business day period pre-
ment of USD 1.65 per share. This excludes the 35% Swiss ceding the dividend record date.
withholding tax that can partly be reclaimed by US investors. UBS pays dividends in Swiss francs. For UBS ordinary shares
The ex-dividend date was 22 April 2005. Payment took place held in street name through The Depository Trust Company
on 26 April 2005 for shareholders of record on 21 April 2005. a member of the US Federal Reserve System, a limited-pur-
For details on the distribution planned in 2006 for the pose trust company under New York State banking law and
2005 financial year (dividend and par value repayment), a registered clearing agency with the Securities and Exchange
please refer to the sidebar on the next page. Commission any dividend will be converted into US dollars.
Holders of UBS ordinary shares registered on the US register
US shareholders will receive dividend payments in US dollars unless they pro-
vide notice to Mellon Investor Services that they wish to re-
UBSs share registry is divided into two parts. There is a ceive dividend payments in Swiss francs.
Swiss register, which is maintained by UBS acting as Swiss UBS will fix the US dollar dividend and par value payment
transfer agent, and a US register, which is maintained by amount on the basis of the DJ Interbank Foreign Exchange
Mellon Investor Services, as US transfer agent. A shareholder rate for sale of Swiss francs against US dollars on 20 April
is entitled to hold shares registered in his / her name on either 2006 and 10 July 2006 respectively.
register and to transfer shares from one register to the other Holders of UBS shares are subject to 35% withholding tax
upon giving proper instruction to the transfer agents. on dividends they receive from UBS. Shareholders in the US
For more details on Shareholders participation rights can normally reclaim part of this, bringing their tax rate down
refer to page 122 in this report. to 15%. Par value repayments are not subject to withholding
The norm in the US is to declare dividends at least ten days tax and are distributed in full. Further disclosure relating to the
in advance of the applicable record date with ex-dividend taxation of US holders of UBS shares can be found in our Form
trading commencing two days before the record date. To en- 20-F, in section E of item 10.
92
Capital management and shareholder distribution in 2006
At the AGM on 19 April in Basel, the 12 July 2006 for shareholders of shares at the point when options are
Board of Directors will propose a series record on 7 July 2006). exercised. If approved by shareholders,
of corporate actions impacting the the creation of conditional capital will
capital management of UBS. Share split 2-for-1 help UBS to avoid substantial holdings
The Board will also recommend a 2- of own shares over extended periods
Distribution to shareholders for-1 share split. If approved by share- and add transparency to its capital
For the financial year 2005, the Board holders, it will become effective on 10 management. Neither UBSs use of
of Directors will recommend a total July 2006. Combined with the par options as part of its overall compen-
payout of CHF 3.80 per share at the value repayment, this will reduce the sation strategy, nor its disciplined
AGM. The payout comprises a regular par value of each share to CHF 0.10. approach to capital management, will
dividend of CHF 3.20, up 7% from a UBS believes this will improve trading change.
year earlier to be distributed in April and liquidity of its shares, and bring
(ex-dividend date 20 April 2006, with the price more in line with other major New share buyback program for
payment on 24 April 2006 for share- companies whose shares are traded on 2006/2007
holders of record on 19 April 2006), international financial markets. Given our continued strong cash flow
plus a one-time par value repayment generation, the Board of Director will
of CHF 0.60 per share. The repayment Creation of conditional capital propose a new share buyback program
will allow UBS shareholders to benefit The Board will ask the AGM to for capital reduction. This will be
from the gain realized from the sale of approve the creation of conditional the eighth consecutive second line
Private Banks & GAM. The par value capital of a maximum of 75 million buyback program. It started on
repayment is exempt from Swiss shares (150 million after the split) to 8 March 2006 and will allow for a
withholding tax and it will be paid out fund our employee share option maximum of CHF 5 billion in shares
two months after the dividend (ex- programs. Currently, UBS holds treas- to be repurchased. The program
date 10 July 2006, with payment on ury shares to cover the need to deliver will run until 7 March 2007.
Capital Management
& UBS Shares
93
UBS shares in 2005
UBS shares in 2005

UBS share price chart vs DJ Stoxx banks
in % 1 January 2003 31 December 2005
220
180
140
100
60
1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05
UBS registered share DJ Stoxx Banks Europe Index
Note: For current share price refer to: www.ubs.com/quotes
UBS shares are listed on the Swiss Exchange (where they are Ticker symbols
traded on virt-x), and on the New York and Tokyo stock ex- Trading exchange Bloomberg Reuters
changes. For a detailed definition of UBS shares (par value, virt-x UBSN VX UBSN.VX
type, rights of security), see page 99 of the Corporate Gover- New York Stock Exchange UBS US UBS.N
nance section. Tokyo Stock Exchange 8657 JP UBS.T
Major equity markets, except in the US, saw significant
gains in 2005. Investor sentiment was buoyed by the positive
rate of economic growth around the world and the generally higher at CHF 125.10 outstripping its main benchmark, the
high level of corporate earnings. In the US, the crisis of the DJ Stoxx Banks Europe index.
automobile industry sharpened in spring and was a tempo- The first quarter started with mixed sentiment in the finan-
rary drag on market sentiment and performance, with the cial markets, with many investors expecting US interest rates
fall-out from Hurricane Katrina slowing US consumer senti- to rise, bringing with it a flatter yield curve, wider spreads and
ment in the second half of the year. Banking and financial lower market volatility. UBS shares rose 4.4% in first quarter
stocks recorded strong gains in 2005, with the DJ Stoxx Banks 2005 to CHF 101 as its fourth quarter 2004 results, an-
Index rising 21.2%. The DJIA eased 0.6%, the S&P 500 rose nounced in February, beat the market consensus by 5%. It
3% and the MSCI (World) Index increased 7.6%. UBS shares also raised its dividend for 2004 by 15% to CHF 3.00 a share.
outpaced the markets overall gains, closing the year 31.2% In second quarter, markets slowed perceptibly. Credit
spreads widened unexpectedly, driven by the GM and Ford
credit downgrades. There were also fears that hedge fund
losses would trigger massive redemptions from investors. Oil
Market capitalization prices increased rapidly, prompting observers to forecast sig-
CHF billion nificantly slower economic growth, corporate activity and pri-
As at 31.12.00 31.12.01 31.12.02 31.12.03 31.12.04 31.12.05 vate consumption. Towards the end of the quarter, however,
160 equity markets staged a strong recovery on expectations of
an improvement in the credit environment and the belief that
120 132 financial sector shares would benefit most. UBS shares fell 1%
113
105 104
to CHF 100 in second quarter, tracing the overall market, and
80 95 after it released first quarter results in line with the market
79
consensus.
40 The third quarter saw the strong recovery in the equity
markets continue as investors, taking their cue from buoyant
0 corporate earnings and continued solid economic growth,
94
UBS share data
As at
Registered shares 31.12.05 31.12.04 31.12.03
Total shares outstanding 1,088,632,522 1,126,858,177 1,183,046,764
Total shares ranking for dividend 1,054,747,522 1,086,923,083 1,126,339,764
Treasury shares 104,259,874 124,663,310 136,741,227
Weighted average shares (for basic EPS calculations) 1,006,993,877 1,029,918,463 1,086,161,476
Weighted average shares (for diluted EPS calculations) 1,048,595,770 1,081,961,360 1,138,800,625
For the year ended

CHF 31.12.05 31.12.04 31.12.03
Earnings per share
Basic EPS 13.93 7.78 5.44
Basic EPS from continuing operations, before goodwill 9.78 8.02 5.72
Diluted EPS 13.36 7.40 5.19
Diluted EPS from continuing operations, before goodwill 9.39 7.64 5.46
UBS shares and market capitalization

As at % change from
Number of shares, except where indicated 31.12.05 31.12.04 31.12.03 31.12.04
Total ordinary shares issued 1,088,632,522 1,126,858,177 1,183,046,764 (3 )
Second trading line treasury shares
2002 first program
2002 second program
2003 program (56,707,000 )
2004 program (39,935,094 )
2005 program (33,885,000)
Shares outstanding for market capitalization 1,054,747,522 1,086,923,083 1,126,339,764 (3 )
Share price (CHF) 125.10 95.35 84.70 31
Market capitalization (CHF million) 131,949 103,638 95,401 27
Total treasury shares 104,259,874 124,663,310 136,741,227 (16 )
Trading volumes
For the year ended
Capital Management
1000 shares 31.12.05 31.12.04 31.12.03
SWX total (virt-x) 957,896 827,064 987,743
& UBS Shares

SWX daily average (virt-x) 3,684 3,256 3,951
NYSE total 99,347 80,853 71,096
NYSE daily average 382 321 282
became increasingly active. Activity in the merger and acqui- UBS shares rose to their all-time high just above CHF 125 in
sitions market was at its strongest level seen in six years. UBS fourth quarter. It rose 13.7% in the quarter, significantly out-
shares traced those developments, rising 10% to CHF 110. pacing the S&Ps 4.8% and the SMIs 9.3% gains. In early No-
Its second quarter results came in sharply above expectations, vember, the firm reported third quarter earnings that were
beating the market consensus by 26%. 8% above the market consensus.
The fourth quarter was characterized by a further strong
improvement in investor sentiment. Markets believed that Share liquidity
economies around the world would continue to grow briskly
and that energy prices would soon start to decline. Corporate During 2005, daily average volume in UBS shares on virt-x was
merger and acquisition activity remained very strong as well. 3.7 million shares. On NYSE, it was 383,973 shares. Because
95
UBS shares in 2005
Stock exchange prices 1

SWX Swiss Exchange New York Stock Exchange
High (CHF) Low (CHF) Period end (CHF) High (USD) Low (USD) Period end (USD)
2005
Fourth quarter 2005 127.00 105.50 125.10 98.04 82.43 95.15
December 127.00 123.20 125.10 98.04 95.11 95.15
November 124.30 113.00 121.30 94.42 87.60 91.92
October 112.90 105.50 109.50 87.30 82.43 85.67
Third quarter 2005 112.30 100.80 110.00 86.80 77.83 85.50
September 112.30 103.00 110.00 86.80 83.25 85.50
August 106.20 102.00 102.60 83.93 80.70 82.10
July 105.90 100.80 105.90 82.43 77.83 81.96
Second quarter 2005 102.80 94.45 100.00 85.86 77.19 77.85
June 100.20 97.95 100.00 79.25 77.19 77.85
May 97.25 94.45 96.25 81.49 77.35 77.35
April 102.80 94.65 95.20 85.86 78.95 80.30
First quarter 2005 104.60 93.50 101.00 89.42 79.39 84.40
March 103.40 100.50 101.00 89.42 83.55 84.40
February 104.60 97.15 100.90 87.72 81.72 86.75
January 97.20 93.50 96.45 84.13 79.39 81.38
2004 98.35 81.60 95.35 84.37 64.94 83.84

Fourth quarter 2004 96.35 84.00 95.35 84.37 70.10 83.84
Third quarter 2004 91.00 81.60 87.90 72.38 64.94 70.33
Second quarter 2004 98.35 88.25 88.25 76.05 68.89 71.06
First quarter 2004 97.05 85.70 94.10 79.25 67.92 74.49
2003 85.40 49.80 84.70 68.16 38.00 67.99

Fourth quarter 2003 85.40 74.85 84.70 68.16 57.54 67.99
Third quarter 2003 80.50 73.50 74.10 59.25 54.38 56.23
Second quarter 2003 75.75 58.90 75.35 58.35 43.58 55.40
First quarter 2003 72.10 49.80 57.50 51.86 38.00 42.70
2002 84.30 51.05 67.20 51.99 34.54 48.12

Fourth quarter 2002 75.45 51.05 67.20 50.88 34.54 48.12
Third quarter 2002 75.15 56.80 61.30 49.94 37.86 41.00
Second quarter 2002 84.15 69.80 74.85 51.99 46.90 49.89
First quarter 2002 84.30 73.00 82.80 50.50 43.27 49.75
2001 96.83 62.10 83.80 58.49 40.12 50.00

Fourth quarter 2001 86.85 69.70 83.80 52.83 43.23 50.00
Third quarter 2001 86.33 62.10 75.60 49.73 40.12 46.15
Second quarter 2001 92.00 77.50 85.83 51.47 44.87 47.02
First quarter 2001 96.83 72.33 83.17 58.49 43.02 47.68
1 The share prices and volumes have been adjusted for the two-for-one share split that became effective on 8 May 2000 and for the three-for-one share split effective 16 July 2001.
of the greater volume on virt-x, trading of UBS shares there is price will therefore typically be expected to depend on both
expected to remain the main factor determining the move- the virt-x price and the prevailing US dollar / Swiss franc ex-
ment in our share price. change rate. When virt-x is closed for trading, traded vol-
During the hours in which both virt-x and NYSE are simul- umes will typically be lower. However, the specialist firm
taneously open for trading (currently 3:30 pm to 5.30 pm making a market in UBS shares on the NYSE, Van der
Central European Time), price differences are likely to be ar- Moolen, is required to facilitate sufficient liquidity and an or-
bitraged away by professional market makers. The NYSE derly market in UBS shares.
96
Corporate Governance
UBS is committed to meeting high standards of corporate
governance. Our corporate and executive bodies are organized
in line with leading codes of best practice. The ultimate aim
of our corporate governance is to lead UBS to success.
Introduction and principles
Introduction and principles

Corporate governance the way that the leadership and SWX Swiss Exchange Reporting on
management of the firm are organized and how they oper- Corporate Governance
ate in practice ultimately aims to lead UBS to success, pro-
tecting the interests of its shareholders and creating value for The Corporate Governance section contains the following in-
them and for all stakeholders. Good corporate governance formation required by the SWX Swiss Exchange Directive on
seeks to balance entrepreneurship, control and transparency, Information relating to Corporate Governance:
while supporting the firms success by ensuring efficient de- Group structure and shareholders
cision-making processes. Capital structure
UBS fully complies with the standards established in the Board of Directors
Swiss Code of Best Practice for Corporate Governance and Senior management (Group Executive Board/GEB)
the SWX Swiss Exchange Directive on Information Relating Compensation, shareholdings and loans
to Corporate Governance, both effective since 1 July 2002. Shareholders participation rights
UBS also meets the New York Stock Exchange (NYSE) corpo- Change of control and defense measures
rate governance standards applicable to listed foreign com- Auditors
panies and complies with the overwhelming majority of NYSE Information policy
standards for US domestic issuers. The few exceptions, mainly
due to different legal systems in Switzerland and the US re- This section summarizes the regulatory and supervisory en-
lating to the role, responsibilities and authorities of the Board vironment of UBS in its principal locations and describes how
of Directors and the Annual General Meeting (AGM), are ex- UBS complies with the NYSE listing standards on corporate
plained on pages 132134. UBS complies with the applicable governance. In addition, it provides a list of all members of
requirements of the US Sarbanes-Oxley Act of 2002, includ- the Group Managing Board and the Vice Chairmen of the
ing the certification of UBSs Annual Report on Form 20-F by Business Groups who, together with the GEB, form the sen-
the CEO and the CFO. ior leadership of the firm.
The chapter on executive compensation has been further
enhanced, providing a broader picture of UBSs overall com-
pensation philosophy. It also provides information on how ex-
ecutive compensation decisions are made.
98
Group structure and shareholders

Under Swiss company law, UBS is organized as a limited company, a corporation that has issued shares of
common stock to investors. UBS AG is the parent company of the UBS Group.
UBS Group legal entity structure 55.6%, Valor No 212427 / ISIN CH0002124276, was fully
consolidated in UBSs financial statements in third quarter
The legal entity structure of UBS is designed to support its 2004 following the acquisition of a majority stake on 1 July
businesses within an efficient legal, tax, regulatory and fund- 2004. UBS announced the intended sale of Motor-Columbus
ing framework. None of the Business Groups of UBS or its AG on 30 September 2005.
Corporate Center are separate legal entities. They operate out The UBS Group includes a great number of other sub-
of the parent bank, UBS AG, through its branches worldwide. sidiaries, none of which, however, is listed. For details of sig-
The goal of this structure is to capitalize on the increased busi- nificant subsidiaries, see note 35 to the financial statements.
ness opportunities and cost efficiencies offered by the use of
a single legal platform and to enable the flexible and efficient Significant shareholders
use of capital.
Where it is either not possible or not efficient to operate Chase Nominees Ltd., London, acting in its capacity as a nom-
out of the parent bank, usually due to local legal, tax or reg- inee for other investors, was registered with 8.55% of all
ulatory rules or as a result of additional legal entities joining shares issued as of 31 December 2005, compared to 8.76%
the UBS Group through acquisition, businesses operate at year-end 2004 and 8.27% at year-end 2003. DTC (Cede &
through local subsidiaries. The significant operating subsidiary Co.), New York, The Depository Trust Company, a US se-
companies of the Group are listed in note 35 to the financial curities clearing organization, was registered as a shareholder
statements. for a great number of beneficial owners with 9.95% of all
shares issued as of 31 December 2005 (5.77% as of 31 De-
Operational group structure cember 2004). According to UBSs Regulation on the Regis-
tration of Shares, voting rights of nominees are restricted to
The three Business Groups Global Wealth Management & 5%, while clearing and settlement organizations are exempt
Business Banking (with its three business units Wealth Man- from this restriction. No other shareholders hold more than
agement International & Switzerland, Wealth Management 5% of all shares issued. Ownership of UBS shares is widely
US, and Business Banking Switzerland), Global Asset Man- spread. The tables on the next page provide information
agement, and Investment Bank together with Corporate about the distribution by category of shareholders and by ge-
Center form the operational structure of the Groups finan- ography. This information relates only to registered sharehold-
cial businesses. Performance is reported according to this ers and cannot be assumed to be representative of the entire
structure (see our Financial Report 2005). A description of the UBS investor base. Only registered shareholders are entitled
Business Groups and their strategy, structure, organization, to exercise voting rights.
products and services is contained in this Handbook on pages Under the Swiss Stock Exchange Act, anyone holding
813. In addition, the UBS Group accounts contain a sepa- shares in a company listed in Switzerland has to notify the
rate reporting segment called Industrial Holdings, which was company and the stock exchange if the holding attains, falls
created in 2004 following the full consolidation of Motor- below or exceeds the following thresholds: 5, 10, 20, 3313,
Columbus AG into the financial statements (and which also 50, or 6623% of the voting rights, whether they are exercis-
includes our private equity holdings). This allows UBS to main- able or not. The methodology for calculating the limit is de-
tain continuity in the presentation and analysis of the core fi- fined in the Ordinance of the Swiss Federal Banking Commis-
nancial businesses. sion on the Stock Exchange (disclosure of shareholdings) and
includes, among others, securities lending and share acquisi-
Listed and non-listed companies belonging to the tion rights that provide entitlement for the future acquisition
Group (consolidated entities) of shares. Since 13 September 2002, UBSs holdings of its
own shares have been above the 5% threshold requiring
Motor-Columbus AG, Baden (Switzerland), listed on the SWX disclosure under the Swiss Stock Exchange law. UBSs position
Swiss Exchange, share capital CHF 253 million, capitalization in its own shares remained between 5 and 10% throughout
on 31 December 2005 CHF 2,464.2 million, UBS stake 2005.
99
At year-end, UBSs holdings in its own shares were 8.5% Cross shareholdings
of the total share capital in the form of shares. It also held a
further potential 0.5% of total share capital through deriva- UBS has no cross shareholdings in excess of a reciprocal 5%
tives UBS held on its own shares. of capital or voting rights with any other company.
Distribution of UBS shares

As at 31.12.05 Shareholders registered Shares registered
Number of shares registered Number % Number % of shares issued
1 100 45,707 24.9 2,514,038 0.2
101 1,000 110,138 60.0 41,234,198 3.8
1,001 10,000 25,641 14.0 64,654,096 5.9
10,001 100,000 1,896 1.0 49,471,331 4.5
100,001 1,000,000 252 0.1 73,679,613 6.8
1,000,001 5,000,000 57 0.0 111,164,245 10.2
5,000,001 10,886,325 (1%) 10 0.0 73,829,006 6.8
1 2% 2 0.0 38,631,861 3.6
2 3% 1 0.0 25,633,959 2.4
3 4% 0 0.0 0 0.0
4 5% 0 0.0 0 0.0
Over 5% 21 0.0 191,568,442 17.6
Total registered 183,706 100.0 672,380,789 61.8
Unregistered 2 416,251,733 38.2
Total shares issued 1,088,632,522 3 100.0
1 As at 31.12.2005, DTC (Cede & Co.), New York, the US securities clearing organization, was registered with 9.95% of all shares issued. Chase Nominees Ltd., London, was entered as a
trustee / nominee holding 8.55% of all shares issued. 2 Shares not entered in the share register at 31 December 2005. 3 Registered shares of 151,713,384 do not carry voting rights.
Shareholders: type and distribution

Shareholders Shares
As at 31.12.05 Number % Number %
Individual shareholders 176,651 96.2 128,924,931 11.8
Legal entities 6,542 3.5 145,887,707 13.5
Nominees, fiduciaries 513 0.3 397,568,151 36.5
Unregistered 416,251,733 38.2
Total 183,706 100.0 1,088,632,522 100.0
Switzerland 166,338 90.5 242,702,252 22.3

Europe 12,089 6.6 224,247,509 20.6
North America 2,441 1.3 159,272,770 14.6
Other countries 2,838 1.6 46,158,258 4.3
Unregistered 416,251,733 38.2
Total 183,706 100.0 1,088,632,522 100.0
100
Capital structure
Capital structure
UBS is committed to capital management that is driven by shareholder value considerations. At the same time,
UBS is dedicated to remaining one of the best-capitalized financial services firms in the world.
Capital UBS has currently no further approval from shareholders

to issue new shares under conditional or authorized capital.
Under Swiss company law, shareholders have to approve in However, at the 2006 AGM, shareholders will also be asked
a shareholders meeting any increase in the total number to approve conditional capital in the amount of 75,000,000
of issued shares, which may be an ordinary share capital UBS shares to be used for employee option grants limited to
increase or the creation of conditional or authorized capital. a period of three years. For details see the Capital Manage-
At year-end 2005, the ordinary share capital was CHF ment & UBS Share section on pages 8896 of this Handbook.
870,906,017.60.
At the Annual General Meeting (AGM) on 21 April 2005, Changes of shareholders equity
shareholders gave the Board of Directors a mandate to con- Equity attributable to UBS shareholders for the Group
tinue a repurchase program during 2005/2006 for a maxi- amounted to CHF 44.3 billion on 31 December 2005. For all
mum amount of CHF 5 billion. At the AGM on 19 April 2006, details on changes in shareholders equity over the last three
shareholders will be asked to approve the cancellation of years, please refer to pages 7677 of the Financial Report 2005.
37,100,000 shares repurchased under this program and to re-
duce the ordinary share capital accordingly. Shares, participation and bonus certificates,
capital securities
Conditional and authorized share capital
At year-end 2005, conditional share capital totaled CHF UBS shares are issued as Global Registered Shares. Each share
1,458,800.80, corresponding to a maximum of 1,823,501 has a par value of CHF 0.80 and carries one vote. Voting rights
shares. The conditional capital was created in 2000 in connec- may, however, only be exercised if the holder expressly de-
tion with the acquisition of Paine Webber Group Inc. to cover clares having acquired these shares in his own name and for
option rights granted by the PaineWebber Group to its em- his own account. Global Registered Shares provide direct and
ployees. The subscription ratio, time limits and further details equal ownership for all shareholders, irrespective of the coun-
of these options were determined by PaineWebber before the try and stock exchange where they are traded. For details, see
merger and were assumed by UBS. Options under these plans the Shareholders participation rights section on pages
are exercisable at any time between their vesting and the ex- 122123 of this Handbook.
piry date. Shareholders pre-emptive rights are excluded. Dur- On 31 December 2005, 520,667,405 shares carried vot-
ing 2005, options with respect to 1,709,439 shares were ex- ing rights, 151,713,384 shares were entered in the share reg-
ercised under these plans, and 72 options expired without ister without voting rights, and 416,251,733 shares were not
being exercised. registered. All 1,088,632,522 shares were fully paid up, and
Proposed corporate actions for the AGM 2006

Dividend payment of CHF 3.20 per GAM to Julius Baer in 2005. to be launched on 8 March 2006
share (increase of CHF 0.20 com- The par value reduction will be after the 2005/2006 program ends
pared to last year), to be distributed paid out to the shareholders in Creation of conditional capital in
to shareholders in April 2006 July 2006 the amount of 75,000,000 UBS
One off capital repayment of CHF A 2-for-1 share split, effective shares (150,000,000 after the
0.60 per share, leading to a par 10 July 2006, reducing the par 2-for-1 share split) to be used for
value reduction from CHF 0.80 to value from CHF 0.20 to CHF 0.10 employee option grants, limited
CHF 0.20 per share. This is due to New CHF 5 billion share repur- to a period of three years
the sale of the Private Banks & chase program for 2006 / 2007
101
Capital structure
Ordinary share capital

Share capital in CHF Number of shares Par value in CHF
As at 31 December 2004 901,486,542 1,126,858,177 0.80
Share repurchase programs 2004 / 2005: Cancelation of shares upon AGM decision of 21 April 2005 (31,948,075 ) (39,935,094 ) 0.80
Options excercised from conditional capital 1,367,551 1,709,439 0.80
As at 31 December 2005 870,906,018 1,088,632,522 0.80
1,054,747,522 shares ranked for dividends. There are no shares. An exception to the 5% rule exists for securities clear-
preferential rights for individual shareholders. ing organizations such as The Depository Trust Company
UBS has not issued any participation certificates or bonus (DTC) in New York and SIS SegaInterSettle in Switzerland.
certificates.
UBS raised CHF 1.6 billion hybrid Tier 1 capital in the form Convertible bonds and options
of preferred shares denominated in euros and raised CHF 2.6
billion in subordinated debt in various currencies in capital UBS currently has no convertible debt on UBS shares out-
markets in 2005 to fund its operations with capital securities. standing. The only options outstanding were 90,882,545 em-
Outstanding Tier 2 capital securities accounted for CHF 7.2 ployee options on UBS shares as reported in note 31c to the
billion in eligible capital as of 31 December 2005. Addition- financial statements. For a total of 1,823,501 of those op-
ally, UBS has CHF 5.0 billion in preferred shares outstanding tions, exercise will be satisfied through the creation of newly
which count as Tier 1 capital under regulatory rules. issued shares (conditional capital). Share capital would there-
fore be increased by a maximum of CHF 1,458,800.80. Once
Limitation on transferability and nominee registration the proposed conditional capital is approved by the Annual
General Meeting 2006, the number of options exercisable
UBS does not apply any restrictions or limitations on the against the creation of newly issued shares will increase. For
transferability of its shares. Shares registered according to the the other employee options, exercise would be satisfied by
provisions in the Articles of Association (express declaration the delivery of already issued treasury shares.
of beneficial ownership) may be voted without any limit in The Investment Bank, acting as liquidity provider to the eq-
scope. uity futures market and as a market maker in UBS shares and
UBS has issued special provisions for the registration of fi- derivatives, has issued derivatives linked to UBS stock. Most
duciaries / nominees. Fiduciaries / nominees are entered in the of these instruments are classified as cash-settled derivatives
share register with voting rights up to a total of 5% of all and are held for trading purposes only. To hedge the eco-
shares issued, if they agree to disclose, upon request from the nomic exposure, a limited number of UBS shares are held by
firm, beneficial owners holding 0.3% or more of all UBS the Investment Bank.
102
Board of Directors
Board of Directors
The Board of Directors is the most senior body with ultimate responsibility for the strategy and management of
the company and for the supervision of its executive management. The shareholders elect each member of the
Board, which appoints the Chairman, the Vice Chairmen, and the members of the various Board Committees.
Members of the Board of Directors functions for important interest groups and official functions
and political mandates.
The texts in the boxes below provide information on the com- As of the AGM held on 21 April 2005, Marcel Ospel and
position of the Board of Directors as of 31 December 2005. Lawrence A. Weinbach were re-elected as their term of office
It shows each members functions in UBS, nationality, year of expired. Alberto Togni, who had reached retirement age, did
initial appointment to the Board and current term of office, not stand for re-election. Marco Suter and Peter Voser were
professional history and education, date of birth, and other newly elected to the Board.
activities and functions such as mandates on boards of impor- As of 31 December 2005, the Board consisted of 11 di-
tant corporations, organizations and foundations, permanent rectors, of which the majority eight members were non-
executive and independent.
Marcel Ospel Professional history, education and date of birth

Marcel Ospel has been Chairman of the Board of Directors of UBS AG since 2001. Prior to this, he served
as Group Chief Executive Officer of UBS. He was the President and Group Chief Executive Officer of Swiss
Address UBS AG Bank Corporation (SBC) from 1996 to 1998. He was appointed CEO of SBC Warburg in 1995, having been
Bahnhofstrasse 45 a member of the Executive Board of SBC since 1990. From 1987 to 1990, he was in charge of Securities
CH-8098 Zurich Trading and Sales at SBC. From 1984 to 1987, Mr. Ospel was a Managing Director with Merrill Lynch
Function in UBS Chairman Capital Markets, and from 1980 to 1984, he worked at SBC International London and New York in the
Capital Markets division. He began his career at SBC in the Central Planning and Marketing Division in 1977.
Nationality Swiss Mr. Ospel graduated from the School of Economics and Business Administration (SEBA) in Basel and holds
Year of initial appointment 2001 an Honorary Doctor of Laws Degree of the University of Rochester. He was born on 8 February 1950.
Current term of office runs until 2008
Other activities and functions
Mandates on boards of important corporations, organizations, and foundations:
Marcel Ospel is a member of the International Capital Markets Advisory Committee of the Federal Reserve
Bank of New York, and holds mandates with the Monetary Authority of Singapores International Advisory
Panel. He is a trustee of the Foundation Board of the Patronate Committee for the Basel Museums of Art,
and of the Committee for the Museum of Antiques, Basel, and is the Chairman of the Optimus Founda-
tion, a charitable foundation administered by UBS.
Permanent functions for important interest groups:
Marcel Ospel is the treasurer of Economiesuisse, the Swiss business federation, Zurich, and is a member
of the European Financial Services Round Table, Brussels.
Stephan Haeringer Professional history, education and date of birth

Before being elected to the Board of Directors in 2004, Stephan Haeringer was Deputy President of the
Group Executive Board, a position he held between 2002 and 2004. Between 2000 and 2002, he was
Address UBS AG CEO of UBS Switzerland and the Private and Corporate Clients business. In 1998, following the UBS-SBC
Bahnhofstrasse 45 merger, he was appointed the Division Head of Private and Corporate Clients. He originally joined the for-
CH-8098 Zurich mer Union Bank of Switzerland in 1967, assuming a broad variety of responsibilities within the firm
Function in UBS Executive Vice Chairman among them Chief Executive Officer Region Switzerland, Division Head Private Banking and Institutional
Member of the Asset Management and Head of the Financial Division. Between 1967 and 1988, Mr. Haeringer was as-
Corporate Responsibility signed various management roles in the areas of Investment Counseling, Specialized Investments, Port-
Committee folio Management, Securities Administration, and Collateral Loans. He received professional training at
Williams de Broe Hill Chaplin & Cie, London, and at Goldman Sachs & Co. and Brown Brothers Harriman
Nationality Swiss in New York. Mr. Haeringer was born on 6 December 1946.
Year of initial appointment 2004
Current term of office runs until 2007 Other activities and functions
Stephan Haeringer is a member of the Board of the Helmut Horten Foundation, Croglio (Ticino, Switzer-
land), Chairman of the Foundation Board of the UBS Pension Fund, a member of the Board Committee of
the Zurich Chamber of Commerce and a member of the German-Swiss Chamber of Commerce.
103
Board of Directors
Marco Suter Professional history, education and date of birth

Marco Suter has been with UBS and its predecessor, Swiss Bank Corporation, since 1974. Between 1999
and 2005, he was Group Chief Credit Officer and a member of the Group Managing Board. From 1996
Address UBS AG until the merger of SBC and Union Bank of Switzerland in 1998 he served as regional manager of the Zurich-
Bahnhofstrasse 45 Eastern Switzerland-Ticino area for the corporate and commercial banking activities of SBC. Prior to that,
CH-8098 Zurich he held a number of different management roles in Zurich, following various assignments with SBC
Function in UBS Executive Vice Chairman in St. Gallen, Nyon, Zurich, New York, and London. Mr. Suter graduated from the Commercial School in
Chairman of the St. Gallen and the American Institute of Banking in New York. He was born on 7 May 1958.
Corporate Responsibility
Committee Other activities and functions
Nationality Swiss Marco Suter is a member of the Swiss Institute of International Studies, the Latin-American Chamber of
Year of initial appointment 2005 Commerce (Switzerland), the Swiss-Chinese Chamber of Commerce and the IIF Special Committee on Crises
Current term of office runs until 2008 Prevention and Resolution in Emerging Markets.
Peter Bckli Professional history, education and date of birth

Peter Bckli, non-executive Vice Chairman since 2002, has been a member of the Board of Directors of UBS
and its predecessor Swiss Bank Corporation since 1985. He has been a partner in the law office of Bckli
Address Bckli Bodmer & Bodmer & Partners since 1981 and was a part-time professor of tax and business law at the University of
Partners Basel from 1975 to 2001. From 1963 to 1981, he was an attorney-at-law in New York, Paris, and Basel.
St. Jakobsstrasse 41 Mr. Bckli graduated as doctor iuris from the University of Basel and as an attorney-at-law and is a non-
CH-4002 Basel resident member of the Association of the Bar of the City of New York. He was born on 7 May 1936.
Functions in UBS Non-executive Vice
Chairman / Chairman Other activities and functions
of the Nominating Mandates on boards of important corporations, organizations, and foundations:
Committee Peter Bckli is a member of the Board of Directors of Nestl S.A.,Vevey (Switzerland), where he is the Chair-
man of its Remuneration Committee. He is a member of the Board of Manufacture des Montres Rolex S.A.,
Nationality Swiss Bienne (Switzerland), and is the Secretary of the Board of Trustees of the Wilhelm Doerenkamp Foundation,
Year of initial appointment 1998 Chur (Switzerland), and a member of the Board of Trustees of the Holler Foundation, Munich (Germany).
Current term of office runs until 2006 (not standing Official functions and political mandates:
for re-election) Peter Bckli acts as an expert advising the Swiss Federal Government on various legislative projects.
Ernesto Bertarelli Professional history, education and date of birth

Since 1996, Ernesto Bertarelli has been the Chief Executive Officer of Serono International SA, Geneva. He
started his career with Serono in 1985 and held several positions in sales and marketing. Prior to his ap-
Address Serono International SA pointment as CEO, he served for five years as Deputy CEO. Mr. Bertarelli holds a bachelor of science from
Chemin des Mines 15bis the Babson College Boston and a Harvard MBA. He was born on 22 September 1965.
CH-1211 Geneva 20
Function in UBS Member of the Other activities and functions
Nominating Committee Mandates on boards of important corporations, organizations and foundations:
Ernesto Bertarelli has been the Vice Chairman of the Board of Serono S.A., Coinsins (Switzerland), since
Nationality Swiss 1991. He is the Chairman of Bertarelli Biotech SA, Chserex (Switzerland), of Kedge Capital Partners Ltd.
Year of initial appointment 2002 Jersey, of Team Alinghi SA, Ecublens (Switzerland), and of Alinghi Holdings Ltd, Jersey. He holds various board
mandates in professional organizations of the biotech and pharmaceutical industries.
Current term of office runs until 2006 (proposed for
re-election at the
AGM 2006)
Sir Peter Davis Professional history, education and date of birth

Sir Peter Davis was Group Chief Executive Officer / Chairman of J Sainsbury plc, London between 2000 and
2004. He was the Group Chief Executive of Prudential plc from 1995 to 2000 and Chief Executive and
Address 41 Bloomfield Terrace, Chairman of Reed International and Chairman of Reed Elsevier (following the merger of Reed International
UK-London SW1W 8BQ with Elsevier) from 1986 to 1995. From 1976 to 1986, he had responsibility for all buying and marketing
Functions in UBS Member of the Audit operations at J Sainsbury plc. Prior to that, he served as Marketing Director and Managing Director for Key
Committee / Member Markets, part of Fitch Lovell Ltd., and as Marketing and Sales manager at General Foods Ltd., Banbury
of the Compensation (United Kingdom). He is today a company director and investor. Mr. Davis was educated at Shrewsbury
Committee School. He graduated from the Chartered Institute of Marketing and holds a Hon LL.D (Dr Law) from
Exeter University. He was born on 23 December 1941.
Nationality British
104
Rolf A. Meyer Professional history, education and date of birth
Rolf A. Meyer has been a member of the Boards of UBS and its predecessor, Union Bank of Switzerland,
since 1992. He was Chairman and CEO of Ciba Specialty Chemicals Ltd. until November 2000. He first joined
Address Heiniweidstrasse 18 Ciba-Geigy Group in 1973 as a financial analyst, and subsequently became Group Company Controller in
CH-8806 Bch Johannesburg, South Africa, Head of Strategic Planning and Control in Basel, Head of Finance and Infor-
Functions in UBS Chairman of the Com- mation Systems in Ardsley, N.Y., and later Chief Financial Officer of the Group. After the merger of Ciba-
pensation Committee / Geigy and Sandoz to create Novartis, he led the spin-off of Ciba Specialty Chemicals. He is today a com-
Member of the Audit pany director. Mr. Meyer graduated in Political Science (Ph.D.) and holds a Master of Business Administra-
Committee tion (lic. oec. HSG). He was born on 31 October 1943.
Nationality Swiss Other activities and functions
Year of initial appointment 1998 Mandates on boards of important corporations, organizations, and foundations:
Current term of office runs until 2006 (proposed for Rolf A. Meyer is a member of the Board of DKSH AG (Diethelm Keller Siber Hegner), Zurich, and is the
re-election at the Chairman of its Audit and Finance Committee. He is also a member of the Board of Directors of Ascom
AGM 2006) (Switzerland) Ltd., Berne.
Helmut Panke Professional history, education and date of birth

Helmut Panke has been Chairman of the Board of Management of BMW AG, Munich, since May 2002. He
has been with the company since 1982, when he joined as head of Planning and Controlling in the Re-
Address BMW Group search and Development Division. He subsequently assumed management functions in corporate planning,
Knorrstrasse 147 organization and corporate strategy. Before his appointment as Chairman, he was a member of BMWs
D-80788 Munich Board of Management from 1996. Between 1993 and 1996, he was Chairman and CEO of BMW Holding
Function in UBS Member of the Corporation in the US. Mr. Panke graduated from the University of Munich with a doctoral degree in physics
Nominating Committee (Ph.D.) and was assigned to the University of Munich and the Swiss Institute for Nuclear Research before
joining McKinsey in Dsseldorf and Munich as a consultant. He was born on 31 August 1946.
Nationality German
Year of initial appointment 2004 Other activities and functions
Current term of office runs until 2007 Mandates on boards of important corporations, organizations and foundations:
Helmut Panke is a member of the Board of Directors of Microsoft Corporation, Redmond, WA (USA) and is
a member of the Board of Trustees of the BMW Foundation Herbert Quandt.
Helmut Panke is a member of the Board of Directors of ACEA, the Association des Constructeurs Europens
dAutomobiles, Belgium, of VDA, the association of the German automobile industry, and of the American
Chamber of Commerce in Germany.
Peter Spuhler Professional history, education and date of birth

Peter Spuhler is the owner of Stadler Rail AG (Switzerland), which he acquired in 1989 when it was a small
firm with 18 employees. Today the Stadler Rail Group has more than 1,000 staff and is an internationally
Address Stadler Bussnang AG successful light railway vehicle business. Since 1997, Peter Spuhler has taken over a number of companies
Bahnhofplatz and founded new units within the Stadler Rail Group, mainly in Switzerland and in Germany. Mr. Spuhler
CH-9565 Bussnang joined Stadler AG in 1987 as an employee after studying economics at the University of St. Gallen. He was
Function in UBS Member of the Com- born on 9 January 1959.
pensation Committee
Nationality Swiss Mandates on boards of important corporations, organizations and foundations:
Year of initial appointment 2004 Peter Spuhler is Chairman of Stadler Rail AG and of Stadler Bussnang AG, as well as of various companies
within the Stadler Rail Group.
He is Vice President of LITRA, a Swiss organization providing information services in the interests of public
transport, Berne.
Official functions and political mandates:
Peter Spuhler is a member of the National Council of the Swiss Parliament (lower house).
Peter Voser Professional history, education and date of birth

Peter Voser has been Chief Financial Officer of the Royal Dutch Shell plc in London since 2004. Between
2002 and 2004, he was Chief Financial Officer of Asea Brown Boveri (ABB) in Switzerland. Between 1982
Address Royal Dutch Shell plc. and 2002, he worked for the Royal Dutch/Shell Group, holding various assignments in Switzerland, UK,Ar-
2501 AN gentina and Chile. Mr. Voser graduated at the University of Applied Sciences, Zurich. He was born on 29
NL-The Hague August 1958.
Function in UBS Member of the Board
Nationality Swiss Mandates on boards of important corporations, organizations and foundations:
Year of initial appointment 2005 Peter Voser is a member of the Board of Directors and a member of the Audit Committee of Aegon N.V,The
Netherlands (he will step down at its AGM in April 2006).
105
Board of Directors
Lawrence A. Weinbach Professional history, education and date of birth

Lawrence A. Weinbach was the Chairman, President and CEO of Unisys Corporation from 1997 to 2004.
As of 1 January 2005 he stepped down as President and CEO, concentrating on the function of Executive
Address Unisys Corporation Chairman. From 1961 to 1997 he was with Arthur Andersen / Andersen Worldwide as Managing Partner,
Unisys Way and was Chief Executive of Andersen Worldwide from 1989 to 1997, Chief Operating Officer from 1987 to
USA-Blue Bell, PA 19424 1989, and Managing Partner of the New York office from 1983. He was elected to partnership at Arthur
Function in UBS Chairman of the Audit Andersen in 1970 and became Managing Partner of the Stamford, Connecticut, office in 1974 and Part-
Committee ner in charge of the accounting and audit practice in New York from 1980 to 1983. Mr. Weinbach is a Cer-
tified Public Accountant and holds a bachelor of science in Economics from the Wharton School of the Uni-
Nationality American (US) versity of Pennsylvania. He was born on 8 January 1940.
Current term of office runs until 2008 Other activities and functions
Mandates on boards of important corporations, organizations and foundations:
Lawrence A. Weinbach is the Chairman of Unisys Corporation, Blue Bell, PA (USA), and a member of the
Board of Directors of Avon Products Inc., New York, where he is the chairman of the audit committee. He
is a trustee and member of the audit committee of Carnegie Hall.
Lawrence A. Weinbach is a member of the NYSE Listed Company Advisory Committee and of the National
Security Telecommunications Advisory Committee.
Elections and term of office Changes in 2006
All the members of the Board of Directors are elected individ- As of the Annual General Meeting on 19 April 2006, Peter
ually by the AGM for a term of office of three years. The ini- Bckli, whose term of office expires in 2006, is stepping down
tial term of each member is fixed in such a way as to ensure from the Board as he has reached retirement age. The Board of
that about one third of all the members have to be newly Directors will propose as non-executive directors the following
elected or re-elected every year. new members for election: Gabrielle Kaufmann-Kohler, partner
A director shall normally not stand for re-election if he / she with the Swiss-based international law firm Schellenberg
has reached the age of sixty-five when the mandate expires. Wittmer and professor of private international law at the Uni-
The Board may propose to the AGM that a director be re- versity of Geneva, and Joerg Wolle, President and CEO of DKSH
elected despite having reached this age limit. No director Holding Ltd., a Swiss-based services group for Asia that focuses
shall, however, hold office beyond the age of seventy. on sourcing, marketing, logistics and distribution for small and
The year of first appointment to the Board and the expiry medium sized companies as well as multinationals worldwide.
of the current mandate of each Board member are listed in The Board of Directors will then consist of twelve members and
the table on pages 103106. hence will reach the maximum statutory limit.
The Board of Directors

The Board of Directors is the key body know-how of complex business activi- with the wide range of global strategy
that shareholders rely on for the ties and processes inherent to a mod- and business issues that UBS faces.
ultimate direction of the firm and the ern global financial services provider, They are specialists from different
effective supervision of management. are often in a better position to chal- business and industry sectors. Some
To this end, UBS relies on a Board that lenge management decisions. are entrepreneurs who have built their
consists of highly qualified individuals. Moreover, as they do not have any own businesses; some are senior
A Board that combines the experience significant business commitments executives of global companies and
of former members of UBS senior outside UBS or external directorships some are senior legal and accounting
management with the diverse skills of they have the resources and time experts. The drive, success and reputa-
fully independent external members is necessary to dedicate themselves to tion of the companies they represent
one that is best positioned to carry out their comprehensive responsibilities as reflect many of UBSs qualities. In
the governance responsibilities given UBS Board members. selecting candidates, UBS also strives
to it by shareholders. The executive members of the Board for an adequate balance of nationality,
UBS believes this approach has many are complemented by a number of mirroring our global presence. It is this
inherent advantages. Former UBS fully independent directors, who have blend of experience and skill that
executives, with the experience and the competence and expertise to deal ensures successful leadership at UBS.
106
Organizational principles Group CEO, GEB candidates for appointment or dismissal by
the full Board.
The Board of Directors has ultimate responsibility for the mid- The members of the Chairmans Office, as of 31 Decem-
and long-term strategic direction of the Group, for appoint- ber 2005, were Marcel Ospel, Chairman, Stephan Haeringer,
ments and dismissals at top management levels and the def- Marco Suter, Executive Vice Chairmen and Peter Bckli, Non-
inition of the firms risk principles and risk capacity. While the executive Vice Chairman.
majority of the Board members are always non-executive and The Chairmans Office held 13 meetings in 2005 and once
independent, the Chairman and at least one Vice Chairman met with the lead partners of Group Auditors Ernst & Young.
have executive roles in line with Swiss banking laws, and as- It additionally met seven times as supervisory body for Group
sume supervisory and leadership responsibilities. Internal Audit, with these meetings chaired by Stephan
Haeringer. The Chairmans Office was also asked to take two
Internal Organization, Board committees and circular decisions. Participation at the Chairmans Office meet-
meetings in 2005 ings including the meetings relating to Group Internal Audit
issues was 100%.
After each Annual General Meeting of Shareholders, the
Board elects its Chairman and one or more Vice Chairmen Audit Committee
and appoints its Secretary. It meets as often as business re- The Board appoints an Audit Committee with three members
quires, but at least six times per year. In 2005, the Board held from among the non-executive, independent directors. The
seven meetings with the members of the Group Executive Audit Committee assists the Board in monitoring the integrity
Board participating, one telephone conference and a full-day of the financial statements of the firm, compliance with legal
strategy seminar. In addition, the Board met six times without and regulatory requirements, the qualification, independence
participation of executive management. On average, 97% of and performance of UBSs external auditors and their lead
Board members were present at the meetings, and 98% at partners, and the integrity of the systems of internal controls
the ones without executive management. for financial reporting. All members of the Audit Committee
The new Board members were introduced to their new have been determined by the Board as being fully independ-
function by a tailored program, consisting of two sessions ent and financially literate. Lawrence A. Weinbach, chairman,
with the following main topics: the legal and regulatory en- and Rolf A. Meyer have accounting or financial management
vironment for UBS, group strategy, risk policy, management expertise and are therefore considered financial experts,
and control, financial accounting and applicable reporting according to the rules established by the US Sarbanes-Oxley
standards, corporate governance, human resources manage- Act of 2002. The Audit Committee does not itself perform au-
ment and internal audit. dits, but supervises the work of the auditors. Its primary re-
sponsibility is thereby to monitor and review the organization
The Board is organized as follows: and efficiency of internal control procedures and the finan-
cial reporting process. The Audit Committee plays an impor-
Chairmans Office tant role in ensuring the independence of the external audi-
The Chairman operates a Chairmans Office, including the tors and therefore has to authorize all mandates assigned to
Vice Chairmen, which meets together with the Group CEO them. It also has responsibility for the treatment of complaints
to address fundamental issues for the firm, such as overall regarding accounting and auditing matters (whistle-blow-
strategy, mid-term succession plans at GEB level, compen- ing).
sation systems and principles, and the risk profile of the As of 31 December 2005, Lawrence A. Weinbach was the
firm. It may also hold meetings without the Group CEO. The chairman of the Audit Committee and Sir Peter Davis and Rolf
Chairmans Office acts as Risk Committee of the Board. In A. Meyer its additional members. The Audit Committee met
this capacity it assumes ultimate approval responsibility seven times in 2005, with representatives of the external au-
for credit, market and other risk-related matters, approves ditors, the Group CFO, the Group Controller and the Head of
standards, concepts and methodologies for risk control Group Internal Audit participating. The seven meetings in-
within the principles approved by the Board, and allocates clude regular separate sessions with these representatives. In
the major risk limits to the Business Groups. It also acts as the addition, the Group General Counsel attended several meet-
supervisory body for Group Internal Audit. The Chairmans ings. A special session was organized with the Group CEO to
Office is responsible for shaping the corporate governance discuss the annual financial results. In December 2005, the
of the firm and formulates appropriate principles, which members of the Audit Committee met with the Committee
it submits to the Nominating Committee for review and of the Swiss Federal Banking Commission to discuss its man-
subsequent submission to the full Board. It also assumes date, responsibilities and working methods and regulatory
responsibility for long-term succession planning at Board developments. All three members of the Committee were
level and reviews, upon proposal by the Chairman and the present at all the meetings.
107
Board of Directors
Compensation Committee The Corporate Responsibility Committee met twice during

The Compensation Committee, comprising three non-exec- 2005. For additional information on corporate responsibility,
utive, independent members of the Board, has responsibility please refer to the specific chapter at the end of this Hand-
for reviewing the Group compensation policy for submission book.
to the Board and for approving the design of the compensa-
tion system for the members of the GEB and the executive Charters and additional information
members of the Board. It determines the individual salaries The Charters of the Board, of the Chairmans Office and of all
and incentive awards for the executive members of the Board, Board Committees are available on www.ubs.com/boards
the Group CEO and the members of the GEB, and reviews
and approves termination agreements with GEB members re- Roles and responsibilities of executive Board members
linquishing their positions. For details on the decision-making
procedures within the Committee, please refer to pages Marcel Ospel, Stephan Haeringer and Marco Suter, the Chair-
116117 of this Handbook. man and the two Executive Vice Chairmen of the Board, have
As of 31 December 2005, Rolf A. Meyer chaired the Com- entered into employment contracts with UBS AG in connec-
mittee, with Sir Peter Davis and Peter Spuhler as its additional tion with their services on the Board, and are entitled to re-
members. The Committee met seven times during 2005. ceive pension benefits upon retirement. They assume clearly
With one exception, all the meetings were attended by all defined management responsibilities.
three members. Chairman Marcel Ospel takes a leading role in mid- and
long-term strategic planning, the selection and supervision of
Nominating Committee the CEO and the members of the Group Executive Board,
The Nominating Committee comprises three non-executive, mid-term succession planning and developing and shaping
independent directors. It assumes responsibility for defining compensation principles. He also actively supports major
the principles governing the selection of candidates for client and transaction initiatives.
Board membership, reviewing possible candidates and pro- Stephan Haeringer is responsible for strategic planning as
posing to the full Board those to be submitted for election well as corporate governance issues on behalf of the Board
to the Board by the AGM. The Committee supports the and supervises financial and business planning. In addition, he
Chairmans Office and the full Board in evaluating Board per- chairs the Chairmans Office meetings on group internal audit
formance. It reviews the proposals of the Chairmans Office issues, where the Chairmans Office acts as supervisory body
on corporate governance principles and design for submis- for Group Internal Audit. He also assumes responsibility for
sion to the full Board. supporting major client relationships.
As of 31 December 2005, Peter Bckli was the chairman, Credit and market risk approval authorities have been del-
Helmut Panke and Ernesto Bertarelli the additional members egated by the Chairmans Office to Vice Chairman Marco
of the Committee. In 2005, the Nominating Committee held Suter, who brings his decisions to the Chairmans Office for
three meetings; with all three members present at all the ratification. He also assumes the function of Chairmans Of-
meetings. Ernesto Bertarelli, who replaced Sir Peter Davis in fice delegate to the GEB Risk Subcommittee, where all major
April 2005, was briefed on important UBS nominations as risk issues (credit, market, and operational risks) are dealt
well as corporate governance philosophy, policies and proce- with.
dures in a special session.
Non-executive Board members
Corporate Responsibility Committee
UBS has a Corporate Responsibility Committee with the The eight non-executive members of the Board have never
mandate to discuss and judge the relevance of current or an- had any management responsibility at UBS or any of its sub-
ticipated developments in stakeholder expectations related sidiaries; neither have any of their close family members.
to responsible corporate conduct and their possible conse- These non-executive directors and their close family members
quences for UBS. The Committee suggests appropriate ac- have not been employed by UBSs principal Auditors, Ernst &
tion to the GEB or other bodies within the organization. As Young. There are no employment or service contracts with
of 31 December 2005, Marco Suter chaired the Committee. any of them. They receive fixed fees for their Board mandate
Additional members were Stephan Haeringer, representing and for the special functions they assume in the various Board
the Board, Peter Wuffli, Group CEO, Peter Kurer, Group Gen- Committees.
eral Counsel, Clive Standish, Group CFO, Huw Jenkins, CEO
Investment Bank, Raoul Weil, Head of Wealth Management Important business connections of non-executive Board
International, Mark Branson, Chief Communication Officer, members with UBS
Bob Silver, President and COO of Wealth Management US, UBS as a global financial services provider and the major bank
and Kathryn Shih, Head of Wealth Management Asia Pacific. in Switzerland typically has business relationships with most
108
large companies and therefore with companies in which UBS Information and control instruments vis--vis the
Board members assume management or non-executive board Group Executive Board
responsibilities. None of the relationships with companies The Board of Directors is kept informed of the activities of the
represented on the Board by their chairman or chief execu- Group Executive Board in various ways. The Chairman of the
tive is of a magnitude to jeopardize the Board members in- Board or one of the Executive Vice Chairmen participate in
dependent judgment, and no non-executive director has per- each meeting of the GEB in an advisory capacity, thus keep-
sonal business relationships with UBS which might infringe his ing the Chairmans Office apprised of all current develop-
independence. ments. The minutes of the GEB meetings are filed with the
All relationships and transactions with UBS directors and executive Board members and made available for inspection
their affiliated companies are in the ordinary course of to the non-executive members. At Board meetings, the Group
business and are on the same terms as those prevailing at CEO and the members of the GEB regularly update the Board
the time for comparable transactions with non-affiliated on important issues.
persons. Directors may request any information necessary to fulfill
their duties. Outside of meetings, any director may request in-
Board of Directors and Group Executive Board: formation from members of the Group Executive Board con-
checks and balances cerning the Groups business development. Requests for in-
formation about individual business relationships or transac-
UBS operates under a strict dual Board structure, as mandated tions must be addressed to the Chairman of the Board.
by Swiss banking law. The functions of Chairman of the Board Group Internal Audit monitors compliance of business ac-
of Directors (Chairman) and Group Chief Executive Officer tivities with legal and regulatory requirements and with all in-
(Group CEO) are assigned to two different people, thus pro- ternal regulations, policies and guidelines. The internal audit
viding separation of powers. This structure establishes checks organization, which is independent from management, re-
and balances and creates an institutional independence of the ports its significant findings to the Chairman of the Board, the
Board of Directors from the day-to-day management of the Chairmans Office and the Audit Committee.
firm, for which responsibility is delegated to the Group Exec- The Group Executive Board submits to the Chairmans
utive Board. No member of one Board may be a member of Office for approval a quarterly Risk Report, which provides an
the other. update on all categories of risk and contains a comprehensive
The supervision and control of the executive management assessment of the risk situation of the Group. The full Board
remains with the Board of Directors. All details as to author- is briefed quarterly on the major developments through an
ities and responsibilities of the two bodies are governed by executive summary of the report and an oral update. For
the Articles of Association and the Organization Regulations further details on the organization of Risk Management and
with their Appendix. Please refer to www.ubs.com/corporate- Control, please refer to the Financial Management chapter of
governance. this Handbook.
109

The Group Executive Board (GEB) has business management responsibility for UBS. The Group CEO and the
members of the GEB are appointed by the Board of Directors and are accountable to the Chairman and the
Board for the firms results.
Members of the Group Executive Board In March 2005, a new Board position was established, that
of the Group Chief Risk Officer, with Walter Stuerzinger being
The text in the boxes below provide information on the com- appointed to the GEB in this capacity. In July 2005, Huw Jenk-
position of the Group Executive Board as of 31 December 2005. ins, former Global Head of Equities, was appointed to the GEB
It shows each members function in UBS, nationality, year of as CEO of the Investment Bank with John Costas remaining
initial appointment to the GEB, professional history and edu- on the GEB as Chairman of the Investment Bank. In addition
cation, date of birth, and other activities and functions such Raoul Weil, Head of Wealth Management International, was
as mandates on boards of important corporations, organiza- appointed to the GEB, reflecting the increased size of the new
tions and foundations, permanent functions for important in- Global Wealth Management & Business Banking Business
terest groups and official functions and political mandates. Group.
Peter A. Wuffli Professional history, education and date of birth

Peter A. Wuffli was named President of the Group Executive Board on 18 December 2001 and Group CEO
in 2003. Previously, he was Chairman and CEO of UBS Asset Management, and from 1998 to 1999 Group
Address UBS AG Chief Financial Officer of UBS. From 1994 to 1998, he was the Chief Financial Officer at Swiss Bank Cor-
Bahnhofstrasse 45 poration (SBC) and a member of SBCs Group Executive Committee. In 1984, he joined McKinsey & Co as
CH-8098 Zurich management consultant where he became a partner in 1990. He was a freelance economics reporter for
Function in UBS Group Chief Neue Zrcher Zeitung, a major Swiss daily newspaper, before joining McKinsey. Mr.Wuffli graduated in eco-
Executive Officer nomics and social sciences from the University of St. Gallen and holds a doctors degree in international
management. He was born on 26 October 1957.
Nationality Swiss
Year of initial Other activities and functions
appointment to the GEB 1998 Mandates on boards of important corporations, organizations and foundations:
Peter Wuffli is a Board member of the Zurich Opera House and a member of the Executive Committee of
the Institute of International Finance Inc.,Washington DC. He is a member of the Executive Committee and
Vice Chairman of the Board of IMD International Institute for Management Development in Lausanne
(Switzerland) and the Vice Chairman of the Swiss-American Chamber of Commerce in Zurich.
Official functions and political mandates:
Peter Wuffli is the Chairman of the Friends of the Swiss Liberal Party (Freunde der FDP), an organization
supporting the dialogue between the Swiss Liberal Party and business.
John P. Costas Professional history, education and date of birth

John P. Costas has been Chairman & CEO of the Investment Bank since 2002, having been CEO since 2001.
In 2004, he was additionally named Deputy Group CEO. He was President and Chief Operating Officer of
Address UBS AG UBS Warburg from the beginning of 2001, and COO and Global Head Fixed Income from 1999. Mr. Costas
Bahnhofstrasse 45 joined Union Bank of Switzerland in 1996 as Head of Fixed Income. From 1981 to 1996, he was with Credit
CH-8098 Zurich Suisse First Boston, his last position being co-head of Global Fixed Income. Mr. Costas graduated from the
Functions in UBS Chairman Tuck School at Dartmouth with an MBA in Finance and holds a BA (Bachelor of Arts) in political science
Investment Bank from the University of Delaware. He was born on 27 January 1957.
Nationality American (US) Other activities and functions
Year of initial Mandates on boards of important corporations, organizations, and foundations:
appointment to the GEB 2001 John P. Costas is a member of the New York City Partnership & Chamber of Commerce, Inc.
110
John A. Fraser Professional history, education and date of birth
John A. Fraser was appointed as Chairman & CEO of the Global Asset Management Business Group in late
2001. Prior to that, he was President and COO of UBS Asset Management and Head of Asia Pacific. From
Address UBS AG 1994 to 1998 he was Executive Chairman and CEO of SBC Australia Funds Management Ltd. Before join-
Bahnhofstrasse 45 ing UBS, Mr. Fraser held various positions at the Australian Treasury, including two international postings
CH-8098 Zurich to Washington DC first, at the International Monetary Fund and, second, as Minister (Economic) at the
Function in UBS Chairman and Chief Australian Embassy. From 1990 to 1993 he was Deputy Secretary (Economic) of the Australian Treasury.
Executive Officer Global Mr. Fraser graduated from Monash University in Australia in 1972 and holds a first class honors degree in
Asset Management economics. He was born on 8 August 1951.
Nationality Australian
Year of initial
appointment to the GEB 2002
Huw Jenkins Professional history, education and date of birth

Huw Jenkins was appointed CEO Investment Bank in July 2005. Prior to that, he was Global Head of Eq-
uities. Between 1998 and 2004, he held various management functions in the Equities Division Asia Pa-
Address UBS AG cific and the Americas. Before the UBS-SBC merger, he worked for SBC Warburg Dillon Read on various as-
Bahnhofstrasse 45 signments in the Asian Equities Division, having previously worked with BZW (Barclays de Zoete Wedd) as
CH-8098 Zurich Head of Asian Equities. Huw Jenkins holds a Master of Business Administration from the London Business
Function in UBS Chief Executive Officer School. He was born on 20 February 1958.
Investment Bank
Nationality British
Year of initial
Peter Kurer Professional history, education and date of birth

Peter Kurer has been the Group General Counsel since 2001, when he joined UBS. Between 1991 and 2001
he was a partner at the Homburger law firm in Zurich. Between 1980 and 1990 he was with Baker & McKen-
Address UBS AG zie in Zurich, first as associate, later as partner, having been a law clerk at the District Court of Zurich. Mr.
Bahnhofstrasse 45 Kurer graduated as a doctor iuris from the University of Zurich and was admitted as attorney-at-law in
CH-8098 Zurich Zurich. He holds an LL.M. from the University of Chicago and was born on 28 June 1949.
Function in UBS Group General Counsel
Nationality Swiss Permanent functions for important interest groups:
Year of initial Peter Kurer is a member of the Visiting Committee to the Law School of The University of Chicago, and a
appointment to the GEB 2002 member of the Board of Trustees of a foundation which acts as an advisory board to the University of
St. Gallen Program for law and economics.
Marcel Rohner Professional history, education and date of birth

Marcel Rohner was appointed CEO of Wealth Management & Business Banking in mid-2002 and addition-
ally named Chairman in 2004. Before that, in 2001 and 2002, he was COO and Deputy CEO of the Private
Address UBS AG Banking unit of UBS Switzerland. In 1999 he was named Group Chief Risk Officer, after being appointed
Bahnhofstrasse 45 Head of Market Risk Control of Warburg Dillon Read in 1998. Between 1993 and 1998, Mr. Rohner was
CH-8098 Zurich with Swiss Bank Corporations investment banking arm and in 1995 he was appointed Head of Market
Function in UBS Chairman and Chief Risk Control Europe. Mr. Rohner graduated with a Ph.D. in economics from the University of Zurich and was
Executive Officer Global a teaching assistant at the Institute for Empirical Research in Economics at the University of Zurich from
Wealth Management & 1990 to 1992. He was born on 4 September 1964.
Business Banking
Year of initial Marcel Rohner is Vice Chairman of the Swiss Bankers Association, Basel and the Vice Chairman of the Board
appointment to the GEB 2002 of Trustees of the Swiss Finance Institute. Corporate Governance
Clive Standish Professional history, education and date of birth

Clive Standish was named Group Chief Financial Officer on 1 April 2004, having been Chairman and CEO
Asia Pacific from 2002 onwards. In 1998, he was named CEO Asia Pacific of Warburg Dillon Read. Between
Address UBS AG 1991 and 1998, Mr. Standish was with Swiss Bank Corporation (SBC). In 1997 he was appointed Deputy
Bahnhofstrasse 45 Chairman Asia Pacific of SBC Warburg Dillon Read. Between 1994 and 1997 he served as Managing Di-
CH-8098 Zurich rector and CEO of SBC Warburg Dillon Read Australia. In 1991 he was appointed Head of Capital Markets
Function in UBS Group Chief Financial and Managing Director of SBC Dominguez Barry Limited. Between 1983 and 1991, Mr. Standish was Found-
Officer ing Executive Director at Dominguez Barry Samuel Montagu Limited, having been a partner with Dominguez
& Barry Partners from 1979 to 1983. Mr. Standish started his professional career in 1972 with NM Roth-
Nationality British schild & Sons Limited in London, after completing high school. He was born on 17 March 1953.
Year of initial
111
Walter Stuerzinger Professional history, education and date of birth

Walter Stuerzinger has been the Group Chief Risk Officer since 2001. Prior to that, he was Head Group In-
ternal Audit from 1998 until 2001. Before the merger, he was Head Group Internal Audit at UBS. Previously,
Address UBS AG he worked with Credit Suisse on various assignments in the controlling and auditing areas. Walter
Bahnhofstrasse 45 Stuerzinger holds a Swiss banking diploma and is a member of the Institute of Chartered Accountants. He
CH-8098 Zurich was born on 6 July 1955.
Function in UBS Group Chief Risk Officer
Year of initial Walter Stuerzinger is a member of the Foundation Board of the UBS Pension Fund.
Mark B. Sutton Professional history, education and date of birth

Mark B. Sutton was appointed CEO of Wealth Management US in January 2004. Later that year, he was
also named Chairman. In 2002, he became President and Chief Operating Officer of UBS PaineWebber,
Address UBS AG having been head of the PaineWebber US Private Client Group since 2001. In 1998, he was named Presi-
Bahnhofstrasse 45 dent of the Private Client Group. Mr. Sutton became Executive Vice President in 1995 after the acquisition
CH-8098 Zurich of Kidder, Peabody & Co., where, between 1992 and 1994, he served as CEO of the Investment Services
Function in UBS Chairman and Chief Division and CEO of the Brokerage Unit. Previously he was active at Mitchell Hutchins Asset Management,
Executive Officer, a subsidiary of PaineWebber. Between 1984 and 1987, he served as Division Manager at PaineWebber,
Americas Austin, Texas. Mr. Sutton first joined a predecessor company of PaineWebber, Rotan Mosle, as a financial
advisor in 1980, after having assumed the same function with Merrill Lynch in Fayetteville, Arkansas from
Nationality American (US) 1978 to 1980. He holds a bachelor of science in finance from the University of Arkansas, Fayetteville. Mr.
Year of initial Sutton was born on 19 October 1954.
Mandates on boards of important corporations, organizations and foundations:
Mark Sutton is a member of the Board of the Financial Services Forum, Washington D.C.
Raoul Weil Professional history, education and date of birth

Raoul Weil has been Head of Wealth Management International since 2002 and was appointed to the GEB
in July 2005. Previous to that, he assumed different management roles in the Private Banking Division in
Address UBS AG Asia and Europe. Between 1984 and 1998, Mr.Weil was with SBC, holding various assignments within the
Bahnhofstrasse 45 Private Banking Division in Basel, Zurich, Monaco and New York. He graduated with a degree in econom-
CH-8098 Zurich ics from the University of Basel and was born on 13 November 1959.
Function in UBS Head of
Wealth Management Other activities and functions
International Mandates on boards of important corporations, organizations, and foundations:
Raoul Weil is a member of the Optimus Foundation, a charitable foundation administered by UBS.
Nationality Swiss
Year of initial
The Group Executive Board

Only committed and effective execu- The GEB comprises the CEOs of the acquired or merged with in the last
tive teams can ensure that sustainable three Business Groups as well as senior two decades. UBS believes the experi-
value is created for shareholders. The leaders representing major growth ence they have gathered over time is
Group Executive Board (GEB) shares a businesses and geographic markets. It integral to their understanding and
common vision for UBS to be the also includes the heads of the key balancing of the different facets of the
best global financial services company. control functions at UBS risk, finance firm and its complex businesses. The
Achieving this strategic goal requires and legal reflecting their importance four different nationalities of its mem-
that members of the GEB agree on a in the overall success of the firm. The bers also represent the fact that UBS is
fundamental set of values including careers of the present GEB members a truly global firm. This results in a spirit
professional respect, trust and open- indicate that UBS has been successful of partnership that creates a candid,
ness in order to pursue a common in retaining the executive members of productive and healthy ability to
agenda. most of the predecessor firms it has debate, take and implement decisions.
112
Responsibilities, authorities and organizational principles Personnel changes in 2006
The GEB has executive management responsibility for the On 1 January 2006, John Costas assumed responsibility
Group and is accountable to the Board for the firms results. for the newly created Dillon Read Capital Management
Together with the Chairmans Office, the GEB assumes over- unit within Global Asset Management, relinquishing his role
all responsibility for the development of UBSs strategies. The on the Group Executive Board. Marcel Rohner, Chairman &
GEB, and in particular the CEO, is responsible for the imple- CEO Global Wealth Management & Business Banking, as-
mentation and results of the firms business strategies, for the sumed the additional title of Deputy Group CEO that was
alignment of the Business Groups to UBSs integrated busi- previously held by John Costas. On the same date, Rory
ness model, and for the exploitation of synergies across the Tapner, Chairman & CEO Asia Pacific, joined the Group
firm. Through its Risk Subcommittee, the GEB assumes re- Executive Board.
sponsibility for the Groups risk control standards, concepts,
methodologies and limits. The GEB plays a key role in defin- Management contracts
ing the human resources policy and the compensation prin-
ciples of the Group. It also fosters an entrepreneurial leader- UBS has not entered into management contracts with any
ship spirit throughout the firm. The authorities of the GEB are third parties.
defined in the Organization Regulations, which are available
on the internet at www.ubs.com/corporate-governance.
113
Compensation, shareholdings and loans

UBSs compensation policy is designed to enable the firm to attract, retain and motivate the talented people it
requires. Compensation should provide incentives that foster an entrepreneurial and performance-oriented culture
and support the firms integrated business strategy. Compensation of senior executives is closely linked to the
achievement of sustainable shareholder returns and provides appropriate incentives for long-term value creation.
Senior executive compensation policy set at 10% above that of the UBS share price at grant on a
defined date, thus creating a strong incentive for senior ex-
For senior executives the executive members of the Board ecutives to build sustainable shareholder value. Options nor-
of Directors and the members of the Group Executive Board mally vest after three years and remain exercisable for a fur-
equity-based incentive awards play an important role within ther seven years. Any unvested options will generally be for-
total compensation, as senior executives influence on the feited if the senior executive leaves the company and joins
firms success is significant and their decisions should be a competitor or otherwise acts against UBSs interests.
aligned as closely as possible with the long-term interests of Senior executives may voluntarily elect to take an even
shareholders. In 2005 base salaries constituted on average greater portion of their annual performance-based incen-
9% of total compensation for these individuals. The incentive tive compensation in the form of restricted or deferred UBS
component is determined on the basis of the financial per- shares. Executives opting to take a greater than mandatory
formance of the firm and discretionary adjustments of up to portion of their annual incentive in UBS shares receive two
plus or minus 25% reflecting individual performance and stock options for each additional share. These options are
qualitative aspects. In aggregate, discretionary option awards granted under SESOP at the conditions described above.
in 2005 accounted for around 9% of total compensation. For Within five years of appointment, senior executives are re-
details, see note 31 to the financial statements. quired to accumulate and then hold UBS shares with an
Total compensation levels vary considerably from year to aggregate value of five times the amount of the last three
year as incentive awards are fully performance-related. The years average cash component of total compensation (base
relative weight of the base salary, which is a fixed amount, salary plus cash portion of incentive award). Holdings to be
therefore varies significantly as well. accumulated are between CHF 17 million and CHF 61 million
in UBS shares per senior executive. Progress reports are pro-
Senior executive share ownership programs and vided to each senior executive annually, and missed targets
shareholding requirements may lead the Compensation Committee to deny the grant of
With the aim of closely aligning the interests of its senior ex- discretionary stock option awards.
ecutives with those of shareholders, UBS strongly encourages
the build-up of significant levels of stock ownership among Non-executive directors remuneration
its senior executives.
50% of annual performance-based incentive compensa- Remuneration of non-executive directors is not dependent on
tion is delivered on a mandatory basis in the form of re- the Groups financial performance. Board members receive a
stricted or deferred UBS shares (Senior Executive Equity base fee of CHF 300,000, unchanged from last year. The
Ownership Plan, SEEOP). Shares normally vest in equal por- chairmen and the members of the Audit, Compensation and
tions over a period of five years. Shares of Swiss-based sen- Nominating Committees receive additional retainers between
ior executives are in addition restricted from sale for the CHF 150,000 and CHF 500,000 per mandate, dependent on
whole five-year period for tax reasons. Prior to vesting, the the workload associated with the respective mandates. Board
shares will be forfeited under clearly defined circum- fees are paid either 50% in cash and 50% in UBS restricted
stances, primarily if the executive joins a competitor. shares or 100% in restricted shares, according to the individ-
Discretionary stock option awards are made separately as ual directors election. Shares are attributed with a price dis-
long-term incentives, to recognize contribution to the imple- count of 15% and are restricted from sale for four years. Di-
mentation of the integrated business model and to support rectors receive no additional fees for attending meetings, but
long-term alignment to the overall success of the firm (Se- are reimbursed for air travel and hotel expenses incurred in
nior Executive Stock Option Plan, SESOP). The strike price is the performance of their services.
114
Governance taken into account, as appropriate. This review compiles
publicly available data on our key competitors from US
Authorities and responsibilities proxy statements and other filings as well as data provided
The Compensation Committee of the Board of Directors has by compensation consultants in order to develop a per-
authority to develop and approve the compensation system spective on common as well as best practice amongst our
for all senior executives. This comprises plan design, perform- key competitors. UBSs compensation systems compare
ance measures, and the relationship between pay and per- favorably with these nine key competitors, and are specif-
formance. The approval of the level of individual senior exec- ically tailored to support the achievement of UBSs strate-
utive compensation is subject to a rigorous process. The ex- gic objectives. Among other components, UBSs compen-
ecutive members of the Board approve the remuneration sys- sation framework includes several shareholder friendly fea-
tem and the respective fees for the non-executive directors. tures such as share ownership requirements, premium-
No one at UBS has any approval authority for their own com- priced options (at a strike price of 110%), stringent forfei-
pensation. ture rules and no severance packages.
The Charter of the Compensation Committee, which is Review of competitive pay and performance: The numbers
available on the companys website (www.ubs.com/corpo- for 2004 show that UBSs senior executive compensation
rate-governance), describes the approval process in detail. levels are well positioned relative to the market. The
above-mentioned nine competitors paid total compensa-
Compensation Committee activities tion between CHF 16 million and 32 million to their Chair-
The Compensation Committee of the Board of Directors con- men and / or CEOs in 2004. Median pay for the Chairmen
sists of three independent external directors: Rolf A. Meyer, and / or CEOs of this group of competitors was CHF 24 mil-
chairman, Sir Peter Davis and Peter Spuhler. For additional in- lion for 2004, the second highest value stood at CHF 30
formation activities, mandate, meetings see page 108 of million. These numbers normally include base salaries, cash
the Handbook. For its activities the Committee relies on com- bonus and the fair value of equity-based awards.
prehensive background documentation provided by internal Review of Compensation Plan Rules: The Compensation
human resources specialists as well as by the Group Controller. Committee annually performs a review of the Compensa-
During 2005, the Compensation Committee did not appoint tion Plan Rules for senior executives. It ensures that share-
any external compensation consultants, but used internal and holders interests are carefully taken into consideration
external compensation surveys and intelligence provided by and that the plan design provides appropriate incentives
compensation specialists. The Chairman of the Committee for long-term value creation.
participates in external international seminars for compensa- The Committee also regularly reviews the individual em-
tion professionals. The Committee makes its decisions on in- ployment contracts of senior executives. These contracts pro-
dividual compensation for the executive Vice Chairmen, the vide for a general notice period of twelve months, during
Group CEO and the members of the GEB considering individ- which the senior executive is entitled to receive salary and pro-
ual performance and personal contributions of each member, rata incentives, unless he has been terminated for cause.
market data of competitors, actual compensation in prior pe- Shares and options that have not vested at the time of termi-
riods as well as the assessment submitted by the Chairman of nation may be subject to forfeiture, mainly if the senior exec-
the Board. It also takes into consideration the proposals made utive is joining a competitor.
by the Group CEO when it makes compensation decisions for The Compensation Committee has drawn up special em-
GEB members. For its decision on the Chairmans compensa- ployment agreements for the Chairman of the Board and the
tion, the Committee relies on the annual assessment per- Executive Vice Chairmen, due to the fact that they are ap-
formed by the full Board and its own judgement of perform- pointed by the shareholders for a three-year term of office
ance and contributions as well as comparisons with pay levels and may be dismissed by a shareholders vote only, but can-
for comparable functions outside UBS. not otherwise be terminated. In addition, the reorganization
The Committee, as a basis for its decisions, performed the of the Wealth Management US business also required the
following activities during the year: Compensation Committee to draw up a special employment
Best practice review of compensation design, pay mix and agreement for a GEB member. These circumstances call for
disclosure: Generally, nine key competitors are considered special provisions, mainly in respect of termination of employ-
as the most relevant labour market for senior executive ment. The general rule of a twelve-month notice period for
compensation. The peer group comprises Bear Stearns, senior executives, however, is maintained.
Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Neither the GEB employment contracts nor the contracts
JP Morgan Chase, Lehman Brothers, Merrill Lynch and for the executive Board members provide for additional sev-
Morgan Stanley. For certain positions, additional peers are erance payment in case of termination.
115
Actual 2005 senior executive compensation will basic earnings per share of 22% is well in line with UBSs
target of double-digit average annual growth. Total share-
Key elements for decision-making process within the holder returns for the year under review were 35.3%,
Compensation Committee 103.3% cumulatively over a three-year period and 61.0%
over a five-year period. The UBS share price outperformed the
Actual process and decisions taken: DJ Stoxx Banks Europe Index over the last three years. UBSs
In February 2005 the Compensation Committee defined share price appreciation and its total shareholder returns
personal incentive targets for each senior executive for 2005 achieved over the last one, three and five years were signifi-
based on both financial performance and qualitative indica- cantly better than the average performance recorded by the
tors. The 2004 results (Group net profit attributable to UBS nine peers UBS compares its compensation to. At Business
shareholders / Business Group profit before tax and goodwill Group level, performance improved in all core businesses,
amortization) were compared against the 2005 operational with market share and competitiveness significantly en-
plan (budget) and the resultant percentage change applied hanced.
to 2004 target incentives to derive individual target incen- In determining the total compensation of senior execu-
tives for 2005. Increases or decreases to these calculated tar- tives, the Compensation Committee took into account these
gets were applied at the discretion of the Committee, tak- superior results, specifically valuing the facts that EPS growth
ing into account future potential, changing roles and com- was strongly driven by profit and not by share buybacks, and
petitive positioning. that profit increased primarily through revenue growth, not
In early February 2006, actual 2005 results were then as- only by cost cuts. Average total compensation per senior ex-
sessed against the operational plan and with reference to ecutive increased by 15.1% over 2004. This compares favor-
UBSs Group and Business Group financial targets as well ably with the increase in UBSs Group profits of 19% (and
as similar metrics of key competitors. These measurements 18% for the financial businesses).
and assessments defined a theoretical level of incentive However, changes in the composition of the two corporate
award for each senior executive. bodies as well as new definitions of roles impact the disclosed
This theoretical incentive award was finally measured total compensation number and should be taken into consid-
against various additional factors: individually defined cri- eration when making year-on-year comparisons. Walter
teria, further potential, leadership qualities and contribu- Stuerzinger was appointed to the GEB in his capacity as
tions to overall success of UBS. This qualitative assessment Group Chief Risk Officer in March 2005. The combination of
led to increases or decreases from the theoretical target in- Wealth Management US with Wealth Management & Busi-
centive by up to 25%. ness Banking in July 2005 has led to Marcel Rohner assuming
Long-term incentive option awards were granted in Feb- the role of Chairman and CEO of the newly created Global
ruary 2005, based on the individual past performance of Wealth Management & Business Banking. To support Marcel
each senior executive, their contribution to the overall suc- Rohner in his expanded role, Raoul Weil was appointed to the
cess of the firm, and their future potential. GEB in his capacity as Head of Wealth Management Interna-
tional. Mark Sutton, formerly Chairman and CEO of Wealth
Assessment elements for Chairmans compensation Management US became Chairman and CEO, Americas. Also
The Compensation Committee determined the Chairmans in July 2005, Huw Jenkins, formerly Global Head of Equities
incentive award applying the same process as for all senior ex- was appointed to the GEB as CEO of the Investment Bank,
ecutives. His defining contribution to the design and imple- following John Costas decision to focus on a new business
mentation of a very successful strategy, based on efficiently opportunity within Global Asset Management. John Costas
taking advantage of growth opportunities without compro- remained Chairman of the Investment Bank and a member
mising on a stringent risk policy, were taken into account, as of the GEB until the end of 2005. Finally, Alberto Togni did
well as Marcel Ospels contributions to developing a strong not stand for re-election to the Board of Directors as an exec-
and highly motivated executive management team. utive member in April 2005 due to reaching the statutory age
limit. However, Marco Suter, formerly Group Chief Credit Of-
Actual compensation 2005 for executive members of the ficer was elected to the Board of Directors as an executive
Board of Directors and the Group Executive Board member in April 2005.
At the Group level, 2005 financial results exceeded internal The total of all compensation for the financial year 2005
performance targets and outperformed those of many com- (base salary, incentive awards, options, employers contribu-
petitors. From continuing operations (excluding the extraor- tions to retirement benefit plans, benefits in kind and fringe
dinary gain from the sale of Private Banks & GAM and its benefits) for the three executive members of the Board of
operating result), UBS achieved a return on equity of 27.6%, Directors, the ten members of the Group Executive Board
exceeding the target range of 1520% in place until the end in charge as of 31 December 2005 and Alberto Togni, who
of 2005, outperforming its peers. The increase in pre-good- retired as a member of the Board of Directors in April 2005,
116
was CHF 222,556,467. Details are shown in the table on page
118. Total incentive awards granted to the senior executives
represent 2.1% of the overall incentive awards, distributed to
the employees of UBS for 2005.
Actual remuneration 2005 for non-executive members

of the Board of Directors
The eight non-executive members of the Board of Directors

were paid in aggregate CHF 6,065,277 (in cash and re-
stricted shares) for the term between the 2005 and 2006
AGMs. Fees are paid 50% in cash and 50% in restricted UBS
shares. However, non-executive Board members can elect to
have 100% of their remuneration paid in restricted UBS
shares. These UBS shares are issued at a discount of 15% and
are blocked for four years. Details are shown in the table on
page 119.
117
Compensation details and additional information
Compensation for acting executive BoD members and members of the GEB 1
For the year ended
CHF, except where indicated 31.12.05 31.12.04 31.12.03
Base salaries and other cash payments 15,592,026 14,767,068 13,602,045
Incentive awards cash 89,672,195 69,745,013 65,602,513
Employers contributions to retirement benefit plans 1,064,640 1,050,322 1,225,543
Benefits in kind, fringe benefits (at market value) 2,582,112 1,607,166 993,719
Total (requested by SWX) 108,910,973 87,169,569 81,423,820
Incentive awards restricted UBS shares (fair value) 92,877,243 79,723,391 64,176,428
Restricted UBS options (fair value) 2 20,768,251 23,736,337 12,752,019
Total (including shares and options) 222,556,467 190,629,297 158,352,267
Total number of shares granted 655,746 792,256 675,741
Total number of options awarded 2 1,438,763 1,094,052 1,037,000
of which CHF options 968,763 473,666 457,000
of which USD options 470,000 620,386 580,000
1 Related parties of senior executives were not granted any shares or options. 2 Includes options granted to match voluntary increases of the share portion of the incentive award.
Explanations:
Number of senior executives: Retirement benefit plans: In Switzerland, senior executives
2003: two executive BoD, ten GEB members in office as of participate in UBSs general pension plans, which comprise
31 December and one executive BoD who stepped down a basic component operated on the defined benefit prin-
during the year ciple, a savings plan to bridge the income gap between
2004: three executive BoD, seven GEB members in office as UBS retirement age and the age defined for the start of
of 31 December and two who stepped down during the year social security payments, and a defined contribution
2005: three executive BoD, and ten GEB members in of- plan. The cap compensation amount to be included in
fice as of 31 December and one executive BoD who retired these plans was set at CHF 774,000 for all employees in
during the year 2005. This translates into a maximum annual pension of
Benefits in kind: car leasing, company car allowance, staff CHF 313,708 after retirement plus a one-off payout of
discount on banking products and services, health and accumulated capital from the savings plan in the maximum
welfare benefits, general expenses allowances amount of CHF 297,617. There are no special pension
Shares valued at CHF 141.50 per share (average price of schemes offered to senior executives.
UBS shares at virt-x over the last ten trading days of Feb- Senior executives outside Switzerland participate in the rel-
ruary 2006), and USD 107.86 per share (average price of evant local pension plans. In the US there are two differ-
UBS shares at the NYSE over the last ten trading days of ent plans, one operating on a cash balance basis, which
February 2006). entitles the participant to receive a contribution based on
Value per share 2004: CHF 101.80 / USD 86.74; 2003: CHF compensation limited to USD 250,000. This plan is avail-
95.30 / USD 76.40. able to employees of the Investment Bank only. The other
Options on UBS shares were granted at a strike price of plan is a defined contribution plan with compensation in-
CHF 111.50 and USD 95.50 respectively, ten percent cluded up to a limit of USD 210,000. US senior executives
above the average high and low price at the virt-x and the may also participate in the UBS 401K defined contribution
NYSE respectively on the last trading day in February 2005. plan open to all employees. In the UK senior executives
Options vest three years after grant and will expire ten participate in a pension plan operated on a defined con-
years from the date of grant. tribution basis, with compensation for pension purposes
Fair values per option at grant: CHF 12.46 / USD 13.46 for limited to the UK earnings cap of GBP 102,000.
options granted in February 2005 and CHF 20.80 for op- Note 30 to the UBS Group financial statements describes
tions granted to match higher share elections in February the various retirement benefit plans established in Switzer-
2006. No US dollar options will be issued from now on. land and in major foreign markets.
Fair values per option at grant 2004: CHF 23.90 / USD
20.51; 2003: CHF 12.33 / USD 9.90.
118
Compensation details and additional information (continued)
Highest total compensation for a BoD member
Total compensation of the highest paid member of the Board of Directors, Chairman Marcel Ospel, amounted to
CHF 23,975,954 for the financial year 2005:
For the year ended

CHF, except where indicated 31.12.05 31.12.04 31.12.03
Base salary 2,000,000 2,000,000 2,000,000
Incentive awards cash 9,625,000 9,500,000 7,500,080
Employers contributions to retirement benefit plans 98,949 82,588 82,588
Benefits in kind, fringe benefits (at market value) 197,192 190,371 150,000
Incentive award restricted UBS shares (fair value) 9,625,113 9,500,078 7,499,920
Restricted UBS options (fair value) 2,429,700 01 1,565,910
Total 23,975,954 21,273,037 18,798,498
Number of UBS shares granted 68,022 93,321 78,698
Number of UBS options granted 195,000 01 127,000
1 Marcel Ospel chose not to take up his entitlement under the Senior Executive Stock Option Plan.
Additional honorariums and remuneration Compensation for former members of the Board and GEB
No additional honorariums or remuneration were paid to any Six former senior executives of Union Bank of Switzerland and
of the Board or GEB members. Swiss Bank Corporation benefited from the use of office
space and administrative support, mostly in connection with
Additional severance payments mandates they are still holding on behalf of or in the interests
UBS does not pay any additional severance in addition to the of UBS. The total value of these benefits was CHF 1,421,565
salary and bonus entitlements of a departing member of the in 2005.
Board or the GEB. All payments are included in the numbers
reported under compensation for members of the Board and
the GEB.
Remuneration for non-executive members of the Board

For the period
CHF, except where indicated AGM 2005/2006 AGM 2004/2005 AGM 2003/2004
Cash 2,292,321 2,210,130 1,889,097
Restricted UBS shares at fair value 3,772,956 3,516,681 3,513,044
Total 6,065,277 5,726,811 5,402,141
Number of UBS shares granted (15% discount) 26,664 34,545 36,863
Explanations:
Number of non-executive BoD members: Shares valued at CHF 141.50 (average price of UBS shares
2003: seven acting members as of 31 December, one for at virt-x over the last ten trading days of February 2006),
nine months only discount price CHF 120.30. The shares are blocked for four
2004: seven acting members as of 31 December. years. Related parties of non-executive BoD members are
2005: eight acting members as of 31 December. not granted any shares.
Value per share 2004: CHF 101.80; 2003: CHF 95.30
Allowance for Out of pocket expenses (CHF 15,000) in
addition.
119
Additional information on equity-based compensation
Disclosure differences between IFRS and SWX requirements Disclosure of management transactions
Since 1 January 2005, expensing of equity-based compensa- Since 1 July 2005, UBS has disclosed transactions by members
tion has become mandatory. IFRS requires entities to recog- of the Board of Directors and the GEB in the firms own shares
nize the fair value of share-based payments made to employ- and options to the SWX on a no name basis. In the period
ees as compensation expense, recognized over the service pe- from 1 July 2005 to 31 December 2005, shares and options
riod, which is generally equal to the vesting period. Disclosure in the value of CHF 35.6 million were sold by nine senior ex-
in the financial statements is reported on this accounting ecutives. No shares or options were bought during the report-
basis, while the disclosure of compensation in the Handbook ing period. These sales have to be seen in light of the fact that
will continue to relate to figures attributable to performance senior executives receive at least 50% of their incentive pay
in the financial year under review. in shares and options, and that stringent share holding re-
quirements apply. Two non-executive Board members elected
to receive 100%, rather than the mandatory minimum 50%,
of their remuneration for the period AGM 2005/2006 in re-
stricted UBS shares. This election, which was disclosed accord-
ingly to the SWX, will be effective for 2006 only.
Share ownership
No individual BoD or GEB member holds 1% or more of all shares issued.
Executive Board members and members of the Group Executive Board 1
Shares held as of 31 December 2005: 4,225,946
Of which
Vested Vesting 2006 Vesting 2007 Vesting 2008 Vesting 2009 Vesting 2010
1,949,604 665,294 733,912 414,192 298,110 164,834
1 Includes parties closely linked to them.
Non-executive members of the Board 1
Shares held as of 31 December 2005: 131,046
Of which
Non-restricted Blocked until 2006 Blocked until 2007 Blocked until 2008 Blocked until 2009
29,879 12,688 27,832 26,102 34,545
1 Includes parties closely linked to them.
120
Options held
Executive Board members and members of the GEB
Senior executives held the following options on UBS shares as of 31 December 2005:
Number of options Year of grant Vesting date Expiry date Subscription ratio Strike price
633,562 2001 20.02.2004 20.02.2009 1:1 CHF 100.00
292,322 2002 20.02.2005 31.01.2012 1:1 CHF 77.75
188,072 2002 31.01.2005 31.01.2012 1:1 USD 45.26
240,000 2002 28.06.2005 28.06.2012 1:1 CHF 80.75
12,311 2002 20.02.2005 31.07.2012 1:1 CHF 77.75
145,000 2002 28.06.2005 28.12.2012 1:1 CHF 80.75
480,000 2003 31.01.2006 31.01.2013 1:1 USD 48.00
607,000 2003 31.01.2006 31.07.2013 1:1 CHF 65.00
492,282 2004 28.02.2007 28.02.2014 1:1 CHF 103.75
608,536 2004 28.02.2007 28.02.2014 1:1 USD 81.25
1,171,654 2005 01.03.2008 28.02.2015 1:1 CHF 111.50
560,386 2005 01.03.2008 28.02.2015 1:1 USD 95.50
Parties closely linked to the executive members of the Board and the member of the GEB do not hold any options on UBS shares.
Non-executive Board members
The non-executive Board members do not hold any options, nor do parties closely linked to them.
Loans
UBS as a global financial services provider and the major bank Loans granted to executive Board members and members
in Switzerland typically has business relationships with most of the GEB
large companies and therefore with companies in which UBS As of 31 December 2005, collateralized loans and fixed ad-
Board members assume management or non-executive board vances of CHF 1,500,000 were receivable from one member
responsibilities. Granting loans is part of the ordinary business of the GEB, and mortgages in the amount of CHF 18,642,750
of UBS. Executive members of the Board and the members of had been granted to seven members of the group of senior
the GEB have been granted loans, fixed advances and mort- executives and their close family members.
gages at the same terms and conditions as other employees,
based on third-party conditions adjusted for reduced credit Loans granted to non-executive Board members
risk. In 2002, a thorough review of outstanding loans to sen- Individual loans and mortgages granted to one non-executive
ior executives was performed to ensure compliance with the Board member amounted to CHF 480,000. Loans granted to
US Sarbanes-Oxley Act of 2002. companies related to five non-executive Board members
Loans and advances to non-executive Board members and amounted to CHF 919.5 million, including guarantees, con-
related parties are transacted on the same terms as those pre- tingent liabilities and unused committed credit facilities. For
vailing at the time for comparable transactions with non-af- details see note 32 to the financial statements.
filiated persons.
121
Shareholders participation rights
Shareholders participation rights

UBS is committed to making it as easy as possible for shareholders to take part in its decision-making
processes. Almost 200,000 directly registered shareholders and some 70,000 US shareholders registered via
nominee companies regularly receive written information about the firms activities and performance and are
personally invited to shareholder meetings.
Relations with shareholders Statutory quorums
UBS fully subscribes to the principle of equal treatment of all Shareholder resolutions, the election and re-election of Board
shareholders, ranging from large investment institutions to in- members, and the appointment of the Group and Statutory
dividual investors, and regularly informs them about the de- Auditors are decided at the General Meeting of Shareholders
velopment of the company of which they are co-owners. by an absolute majority of the votes cast, excluding blank and
The Annual General Meeting offers shareholders the op- invalid ballots. Swiss company law requires that for certain
portunity to raise any questions regarding the development specific issues a majority of two-thirds of the votes repre-
of the company and the events of the year under review. The sented at the meeting vote in favor of the resolution. These
members of the Board of Directors and Group Executive issues include the introduction of voting shares, the introduc-
Board, as well as the internal and external auditors, are pres- tion of restrictions on the transferability of registered shares,
ent to answer these questions. conditional and authorized capital increases, and restrictions
or exclusion of shareholders pre-emptive rights.
Voting rights, restrictions and representation UBS also requires a two-thirds majority of votes repre-
sented for any change to the provisions in the Articles of As-
UBS places no restrictions on share ownership and voting sociation regarding the number of Board members as well as
rights. Nominee companies and trustees, who normally rep- for any decision to remove one fourth or more of the mem-
resent a great number of individual shareholders, may regis- bers of the Board.
ter an unlimited number of shares, but voting rights are lim- Votes and elections are normally conducted electronically
ited to a maximum of 5% of outstanding UBS shares in order to clearly ascertain the exact number of votes cast. Voting by
to avoid the risk of unknown shareholders with large stakes a show of hands remains possible if a clear majority is pre-
being entered into the share register. Securities clearing or- dictable. Shareholders representing at least 3% of the votes
ganizations such as The Depository Trust Company (DTC) in represented may still request, however, that a vote or election
New York and SIS SegaInterSettle in Switzerland are exempt take place electronically or by written ballot. In order to allow
from the 5% voting limit. SIS, however, does not register its shareholders to clearly express their views on all individual
holdings with voting rights. topics, each item on the agenda is put to vote individually, and
In order to have voting rights registered, shareholders must Board elections are made on a person-by-person basis.
confirm they acquired UBS shares in their own name and for
their own account. Nominee companies / trustees are re- Convocation of general meetings of shareholders
quired to sign an agreement with UBS, confirming their will-
ingness to disclose to the company, upon its request, individ- The Annual General Meeting of Shareholders (AGM) normally
ual beneficial owners holding more than 0.3% of all issued takes place in April, but in any case within six months of the
shares. close of the financial year. A personal invitation including a
All registered shareholders are invited to participate in detailed agenda and explanation of each motion is sent to
shareholder meetings. If they do not wish to attend in per- every registered shareholder at least 20 days ahead of the
son, they can issue instructions to accept, reject or abstain on scheduled meeting. The meeting agenda is also published in
each individual item on the meeting agenda by either giving various Swiss and international newspapers and on the inter-
instructions to an Independent Proxy designated by UBS (as net at www.ubs.com/shareholder-meeting.
required under Swiss company law) or by appointing UBS, an- Extraordinary General Meetings may be convened when-
other bank or another registered shareholder of their choice, ever the Board of Directors or the statutory auditors consider
to vote on their behalf. Nominee companies normally submit it necessary. Shareholders individually or jointly representing
the proxy material to the beneficial owners and transmit the at least 10% of the share capital may, at any time, ask in writ-
collected votes to UBS. ing that an Extraordinary General Meeting be convened to
122
deal with a specific issue put forward by them. Such a request tions to be put forward, together with a short explanation, if
may also be brought forward during the AGM. necessary. The Board of Directors formulates an opinion on
the proposals, which is published together with the motions.
Placing of items on the agenda
Registrations in share register
Shareholders individually or jointly representing shares with
an aggregate par value of CHF 250,000 may submit propos- The general rules for being entered with voting rights in the
als for matters to be placed on the agenda for consideration Swiss or US Share Register of UBS also apply before General
by the shareholders meeting. Meetings of Shareholders (for details see previous page).
UBS publishes the deadline for submitting such proposals There is no closing of the share register in the days ahead
in various Swiss and international newspapers and on its of the meeting. Registrations including the transfer of voting
website (www.ubs.com/shareholder-meeting). Requests for rights are processed for as long as technically possible, nor-
items to be placed on the agenda must include the actual mo- mally until two days before the meeting.
123
Change of control and defense measures
Change of control and defense measures

UBS refrains from restrictions that would hinder developments initiated in or supported by the financial
markets. It also does not have any specific defenses in place to prevent hostile takeovers.
Duty to make an offer ecutive Board and of the Group Managing Board do not
contain clauses triggered by a change of control. UBS does
An investor who acquires 3313 % of all voting rights, whether not offer golden parachutes to its senior executives. Em-
they are exercisable or not, has to submit a takeover offer for ployment contracts contain notice of termination periods of
all shares outstanding, according to Swiss stock exchange law. twelve months for GEB members and six to twelve months
UBS has not elected to change or opt out of this rule. for GMB members, depending on local market practice.
During this notice period they are entitled to salary and
Clauses on changes of control bonuses.
The Compensation Committee of the Board may, however,
The service agreements and employment contracts of the accelerate the vesting of options and the lapse date for re-
executive Board members, of the members of the Group Ex- stricted shares in case of a change of control.
124
Auditors
Auditors
Audit plays an important role in corporate governance. While putting high priority on remaining independent,
the external auditors and Group Internal Audit closely coordinate their work, thereby ensuring the most effec-
tive performance of their responsibilities. The Chairmans Office, the Audit Committee and ultimately the Board
of Directors supervise the functioning of audit work.
External, independent auditors Duration of the mandate and term of office

of the lead partners
Ernst & Young Ltd., Basel, have been assigned the mandate to After the UBS-SBC merger, Ernst & Young Ltd., Basel were
serve as global auditors for the UBS Group. They assume all au- first appointed as UBSs principal external auditor for the
diting functions according to laws, regulatory requests, and the audit of the 1998 financial statements. Following a compre-
UBS Articles of Association (see also the paragraph about audi- hensive evaluation process during 1999, they were proposed
tors responsibilities in the regulation and supervision section on for re-election at the 2000 AGM. The AGMs through 2005
page 129131). The Audit Committee of the Board annually as- annually confirmed their mandate, and they will be proposed
sesses the independence of Ernst & Young and has determined for re-election at the 2006 AGM.
that they meet all independence requirements established by the Due to the seven-year rotation requirement established by
US Securities and Exchange Commission (SEC). Authority for pre- the Swiss Chamber of Auditors and declared mandatory for
approval of all additional audit, audit-related and non-audit banks by the Swiss Federal Banking Commission, the lead part-
mandates to the principal auditors lies with the Audit Commit- ners in charge of the UBS audit, Roger K. Perkin and Peter Heck-
tee, ensuring that independence of the auditors is not jeopard- endorn, had to be replaced. Andreas Blumer took over from
ized by conflicts of interests through additional mandates. Ernst Peter Heckendorn over the course of 2004, and Roger K. Perkin
& Young Ltd. inform the Audit Committee annually of the meas- has been replaced by Andrew McIntyre at the beginning of
ures they are taking to ensure their own and their employees in- 2005, after completion of the audit for the 2004 financial year.
dependence from UBS. The Audit Committee assesses this infor-
mation on behalf of the Board and informs the Board accordingly. Fees paid to principal external auditors
At the Extraordinary General Meeting on 7 September 2000, UBS paid the fees (including expenses) listed in the table
UBS shareholders appointed Deloitte & Touche AG, Basel, as below to its principal external auditors Ernst & Young Ltd.
special auditors. The special auditors provide audit opinions in Audit work includes all services necessary to perform the
connection with capital increases, independently from the Group audit in accordance with applicable generally accepted audit-
auditors. They were re-appointed at the AGM in 2003 for an- ing principles as well as other assurance services that gener-
other three-year term of office. At the 2006 AGM, BDO Visura, ally only the Principal Auditor can provide, including comfort
Zurich, is proposed for election for a three-year term of office. letters, statutory and regulatory audits, attest services, con-
Fees paid to external auditors

UBS paid the following fees (including expenses) to its principal external auditors Ernst & Young Ltd.:
For the year ended
in CHF thousand 31.12.05 31.12.04 Corporate Governance
Audit
Global audit fees 39,802 33,465
Additional services classified as audit (services required by law or statute, including work of non-recurring nature mandated by regulators) 9,984 3,094
Total audit 49,786 36,559
Non-audit
Audit-related fees 10,870 9,513
Tax advisory 2,511 3,451
Other 3,076 3,282
Total non-audit 16,457 16,246
125
Auditors
sents, and reviews of documents filed with regulatory bodies mans Office and the Audit Committee of the Board are
under applicable law. regularly informed of important findings. Group Internal
Audit-related work consists primarily of additional attest Audit closely cooperates with internal and external legal
services, such as retirement and compensation plan audits, advisors and risk control units on investigations into major
agreed upon procedures reports required by contract and au- control issues.
dits performed at the request of management. It also includes To maximize its independence from management, the
due diligence work on acquisitions and initial work relating head of Group Internal Audit, Markus Ronner, reports directly
to the eventual attestation as to UBSs compliance with sec- to the Chairman of the Board. Group Internal Audit has un-
tion 404 of the Sarbanes-Oxley Act of 2002. restricted access to all accounts, books and records and must
Tax work are services performed by professional staff in be provided with all information and data needed to fulfill its
Ernst & Youngs tax division, other than audit work, and in- auditing duties. Group Internal Audit addresses any reports
cludes tax compliance, tax consultation and tax planning in with major issues to the Chairman of the Board. The Chair-
respect of UBSs own affairs. Ernst & Young may not provide mans Office may order special audits to be conducted, and
tax consulting to members of UBS management who serve in the Group Executive Board, with the agreement of the
a financial reporting oversight role. Chairman, may also instruct Group Internal Audit to conduct
Other services are only approved on an exceptional basis. such audits.
In 2004 and 2005, they mainly comprised on-call advisory serv- Coordination and close co-operation with the external au-
ices and selected transaction-related operational reviews. ditors enhance the efficiency of Group Internal Audits work.
In addition to the fees listed in the table, Ernst & Young were
paid CHF 20,575,000 (CHF 14,876,000 in 2004) for audit and Supervisory and control instruments vis--vis the
tax work performed on behalf of UBS Investment Funds, many external auditors
of which have independent fund boards or trustees.
The Audit Committee, on behalf of the Board of Directors,
Pre-approval procedures and policies monitors the qualification, independence and performance of
All services provided by Ernst & Young have to be pre-ap- the Group Auditors and their lead partners. It prepares pro-
proved by the Audit Committee of the Board. A pre-approval posals for appointment or removal of the external auditors for
may be granted either for a specific mandate or in the form review by the full Board, which then submits the proposal to
of a general pre-approval authorizing a limited and well-de- the AGM.
fined type and amount of services. The Audit Committee has The Audit Committee reviews the annual written state-
delegated pre-approval authority to its chairman. After en- ment submitted by the external auditors as to their independ-
dorsement by the Group CFO, requests for mandates are ence. It also reviews the engagement letter between UBS and
routed to the Company Secretary, who submits them to the the external auditors and the fees and terms of the planned
chairman of the Audit Committee for approval. At each quar- audit work. Mandates to the Group auditors for additional
terly meeting, the Audit Committee is informed on the ap- audit, audit-related and permitted non-audit work are subject
provals granted by its chairman. to pre-approval by the Audit Committee. For details see pre-
The SEC prohibits independent auditors from providing a ceding paragraph on external, independent Auditors.
number of specific services. Ernst & Young have not provided The external auditors provide timely reports to the Audit
any such services during the year. Committee on critical accounting policies and practices used,
on alternative treatments of financial information discussed
Group Internal Audit with management, and other material written communica-
tion between external auditors and management.
With 275 staff members worldwide at 31 December 2005, The Audit Committee regularly meets with the lead part-
Group Internal Audit provides an independent review of the ners of the external auditors, at least four times per year. It
effectiveness of UBSs system of internal controls and compli- also regularly meets with the Head of Group Internal Audit.
ance with key rules and regulations. It specifically verifies or At least once per year, the Chairmans Office discusses with
assesses whether the internal controls are commensurate the lead partners of Ernst & Young Ltd. the audit work per-
with the corresponding risks and are working effectively, formed, the main findings and critical issues that arose dur-
whether activities within the firm are being conducted and ing the audit.
recorded properly, correctly and fully, and whether the organ- The Audit Committee and the Chairmans Office report
ization of operations, including information technology, is ef- back to the Board of Directors about their contacts and dis-
ficient and information is reliable. All key issues raised by cussions with the external auditors. Once per year, the lead
Group Internal Audit are communicated to the management partners take part in a Board meeting, normally to present the
responsible, to the Group CEO and to the executive members Long-form Report of the External Auditors, as required by the
of the Board of Directors via formal Audit Reports. The Chair- Swiss Federal Banking Commission.
126
Information policy
Information policy
Our financial disclosure policies aim at achieving a fair market value for UBS shares through open, transparent
and consistent communication with investors and financial markets.
UBS provides regular information to its shareholders and to Financial disclosure principles
the financial community.
Based on our discussions with analysts and investors, we be-
Financial results will be published as follows: lieve that the market rewards companies that provide clear,
consistent and informative disclosure about their business.
First Quarter 4 May 2006
Our aim therefore is to communicate UBSs strategy and re-
Second Quarter 15 August 2006
sults in such a way that shareholders and investors can gain
Third Quarter 31 October 2006
a full and accurate understanding of how the company
Fourth Quarter 13 February 2007
works, what its growth prospects are and what risks they
might entail.
The Annual General Meeting of Shareholders will To continue to achieve these goals, we apply the follow-
take place as follows: ing principles in our financial reporting and disclosure:
Transparency: our disclosure is designed to enhance under-
2006 19 April 2006
standing of the economic drivers and detailed results of
2007 18 April 2007
the business, in order to build trust and credibility
Consistency: we aim to ensure that our disclosure is con-
UBS meets regularly with institutional investors through- sistent and comparable within each reporting period and
out the year, holding results presentations, specialist investor between reporting periods
seminars, roadshows and one-to-one or group meetings Simplicity: we try to disclose information in as simple a
across the world. Where possible, these events involve UBS manner as possible consistent with allowing readers to
senior management as well as the UBS Investor Relations gain the appropriate level of understanding of our busi-
team. As a means of further widening our audience and nesses performance
maintaining contact with our shareholders around the world, Relevance: we aim to avoid information overload by focus-
we also make use of diverse technologies such as webcast- ing our disclosure on what is relevant to UBSs stakehold-
ing, audio links and cross-location video-conferencing. ers, or required by regulation or statute
Our website (www.ubs.com/investors) includes compre- Best practice: we strive to ensure that our disclosure is in
hensive information about UBS, including a complete set of line with industry norms, and if possible leads the way to
our published reporting documents, on-demand access to re- improved standards.
cent webcast presentations and copies of presentations that
senior management have given at industry conferences. Financial reporting policies
Once a year, registered shareholders receive our Annual
Review (unless they chose not to). It provides an overview of We report UBSs results after the end of every quarter, and in-
the firm and its activities during the year as well as key finan- clude a breakdown of results by Business Groups and business
cial information. Each quarter, they are also mailed an update units and extensive disclosures relating to credit and market
about our ongoing initiatives as well as information on our risk.
quarterly financial performance. If they want more detailed We prepare UBSs financial statements according to Inter-
information, shareholders can request our complete financial national Financial Reporting Standards (IFRS), and provide ad-
reports, produced on a quarterly and annual basis, free of ditional information in our Financial Report to reconcile the
charge. UBS accounts to US Generally Accepted Accounting Principles
To ensure fair access to and dissemination of our financial (US GAAP). A detailed explanation of the basis of UBSs ac-
information, we make our publications available to all share- counting is given in note 1 to the financial statements, which
holders at the same time. are published in the Financial Report 2005. An explanation of
A complete list of all sources of information about UBS and the critical accounting policies applied in the preparation of
contact details for shareholders as well as other interested our financial statements is provided in a specific section in our
parties are included in this Handbook on pages 46. Financial Report 2005.
127
Information policy
We are committed to maintaining the transparency of UBSs regular quarterly reports to the SEC under cover of Form
UBSs reported results and to ensuring that analysts and in- 6-K, and file an annual report on Form 20-F. We also provide
vestors can make meaningful comparisons with previous pe- additional disclosure at half-year to meet specific SEC re-
riods. If there is a major reorganization of our business units quirements, which again is provided under cover of Form 6-
or if changes to accounting standards or interpretations lead K. These reports, as well as materials sent to shareholders in
to a material change in the Groups reported results, we re- connection with annual and special meetings, are all available
state UBSs results for previous periods to show how they on our website, at www.ubs.com/investors. As of the end of
would have been reported according to the new basis, and the period covered by this Annual Report, an evaluation was
provide clear explanations of all changes. carried out under the supervision of our management, includ-
ing the Group CEO and Group CFO, of the effectiveness of
US regulatory disclosure requirements our disclosure controls and procedures (as defined in Rule
As a Swiss company listed on the New York Stock Exchange 13a15e) under the US Securities Exchange Act of 1934.
(NYSE), we comply with the disclosure requirements of the Based upon that evaluation, the Group CEO and Group CFO
Securities and Exchange Commission (SEC) and the NYSE for concluded that these disclosure controls and procedures were
private foreign issuers. These include the requirement to effective as of the end of the period covered by this Annual
make certain filings with the SEC. As a private foreign issuer, Report. No significant changes were made in our internal con-
some of the SECs regulations and requirements which apply trols or in other factors that could significantly affect these
to domestic issuers are not applicable to UBS. We provide controls subsequent to the date of their evaluation.
128
Regulation and supervision

We aim to comply with all applicable provisions and to work closely and maintain good relations with regula-
tors in all jurisdictions where we conduct business.
As a Swiss-registered company, UBSs home country regula- vision of large banking groups issued on 21 April 2004. The
tor is the Swiss Federal Banking Commission (SFBC). latter directly applies to UBS and prescribes what information
UBSs operations throughout the world are regulated and we are required to provide the SFBC, the structure of our reg-
supervised by the relevant authorities in each of the jurisdic- ular interaction with them, and the scope of on-site reviews
tions in which we conduct business. (prudential independent controls) as well as extended audits
The following sections describe the regulation and super- by the SFBC. In certain fields, the SFBC officially endorses self-
vision of UBSs business in Switzerland, our home market. regulatory guidelines issued by the banking industry (through
They also describe the regulatory and supervisory environ- the Swiss Bankers Association), making them an integral
ment in the United States and the United Kingdom, our next part of banking regulation. Examples are:
two largest areas of operations.
Allocation Directives for the New Issues Market, 2004
Regulation and supervision in Switzerland Agreement on Swiss banks code of conduct with regard
to the exercise of due diligence (CDB 03), 2003
General Directives on the Independence of Financial Research, 2003
UBS is regulated in Switzerland under a system established by Portfolio Management Guidelines, 2003
the Swiss Federal Law relating to Banks and Savings Banks of Guidelines on Internal Control, 2002
8 November 1934, as amended, and the related Implement- Guidelines on the handling of dormant accounts, custody
ing Ordinance of 17 May 1972, as amended, which are to- accounts and safe-deposit boxes held in Swiss banks, 2000
gether known as the Federal Banking Law. Under this law,
banks in Switzerland are permitted to engage in a full range Certain aspects of securities broking, such as the organi-
of financial services activities, including commercial banking, zation of trading, are subject to self-regulation through the
investment banking and fund management. Banking groups SWX Swiss Exchange (for example, the Listing regulation of
may also engage in insurance activities, but these must be un- 24 January 1996) and the Swiss Bankers Association, under
dertaken through a separate subsidiary. The Federal Banking the overall supervision of the SFBC. As a means of improving
Law establishes a framework for supervision by the SFBC. information flows to investors, the SWX Swiss Exchange on
The Federal Act of 10 October 1997 on the Prevention of 1 July 2005 enacted an amendment requiring the disclosure
Money Laundering in the Financial Sector (Money Launder- of management transactions.
ing Act, MLA) lays down a common standard for due dili-
gence obligations for the whole financial sector, which must Role of external auditors and direct supervision of large
be met in order to prevent money laundering. banking groups
In its capacity as a securities broker, UBS is governed by the The Swiss supervisory system relies on banks external auditors,
Swiss Federal Law on Stock Exchanges and Trading in Securi- who are licensed and supervised by the SFBC, and carry out of-
ties of 24 March 1995, as amended, under which the SFBC is ficial duties on behalf of and subject to sanctions imposed by
appointed as prime regulator for these activities. the SFBC. The responsibility of external auditors not only en-
compasses the audit of financial statements but also entails the
Regulatory policy review of banks compliance with all prudential requirements.

Swiss regulatory policies are formulated on three levels. The The SFBC has direct responsibility for supervision in two
first two are the statutory levels of primary and secondary leg- areas: capital requirements for market risk (which will be fur-
islation issued by Parliament and the Swiss Federal Council. ther expanded to cover the advanced credit and operational
The SFBC has substantial influence on the drafting of these risk models under Basel II), and the supervision of the two
regulatory statutes (for example, the specific ordinance con- large Swiss banking groups, including UBS. The supervisory
cerning the prevention of money laundering of 18 December strategy entails direct supervision in the form of regular meet-
2002, amended in 2003). On a more technical level, the SFBC ings with bank management, supervisory visits to our opera-
is empowered to issue so-called circulars, 27 of which are tions, on-site reviews, direct reporting, both routine and ad
presently effective. These include a circular ruling the super- hoc, and regular meetings with the host regulators of our
129
overseas activities. Close co-operation, including regular tri- The licensing authority of each US branch has the authority
lateral meetings, has been established between the SFBC and to take possession of the business and property of UBS located
UBSs US and UK regulators, and further links are being es- in the state of the office it licenses in certain circumstances.
tablished by the SFBC with other relevant regulators. Such circumstances generally include violations of law, unsafe
business practices and insolvency. As long as UBS maintains
Reporting requirements and capital requirements one or more federal branches, the Office of the Comptroller of
UBS reports financial, capital, legal and risk information to the the Currency also has the authority to take possession of the
SFBC. The SFBC also reviews the banks risk management and US operations of UBS AG under similar circumstances, and this
control principles and procedures in all areas of risk, including federal power may preempt the state insolvency regimes that
Know Your Customer rules and anti-money laundering practices. would otherwise be applicable to our state-licensed branches.
Switzerland applies the internationally agreed capital ade- As a result, if the Office of the Comptroller of the Currency ex-
quacy rules of the Basel Capital Accord, but the SFBC implemen- ercised its authority over the US branches of UBS AG pursuant
tation imposes a more differentiated and tighter regime than the to federal law in the event of a UBS insolvency, all of UBSs US
internationally agreed rules, including a more stringent defini- assets would most likely be applied first to satisfy creditors
tion of capital (see Capital management on page 88). Switzer- of our US branches as a group, and then made available for
land has drafted national laws to implement Basel II following a application pursuant to any Swiss insolvency proceeding.
period of consultation that ended on 31 December 2005. In addition to the direct regulation of our US banking of-
fices, operating US branches subjects UBS to regulation by the
Disclosures to the Swiss National Bank Board of Governors of the Federal Reserve System under var-
Switzerlands banks, according to Swiss banking law, are pri- ious laws, including the International Banking Act of 1978 and
marily supervised by the SFBC while compliance with liquidity the Bank Holding Company Act of 1956. On 10 April 2000,
rules, in particular, is monitored by the Swiss National Bank UBS AG was designated a financial holding company under
(SNB). UBS sends the SNB detailed monthly interim balance the Bank Holding Company Act of 1956. Financial holding
sheets, capital adequacy and liquidity statements. UBS also companies may engage in a broader spectrum of activities, in-
submits an annual statement of condition and quarterly stress cluding underwriting and dealing in securities. To maintain its
testing results and co-operates with the Financial Stability and financial holding company status, UBS, its US subsidiary fed-
Oversight unit of the SNB whenever required. The SNB can also erally chartered trust company, and its US subsidiary bank lo-
require UBS to make additional disclosures of financial condi- cated in Utah are required to meet or exceed certain capital
tion and other information relevant to its regulatory oversight. ratios and UBSs US branches, its US subsidiary federally char-
tered trust company, and its US subsidiary bank located in Utah
Regulation and supervision in the US are required to meet or exceed certain examination ratings.
A major focus of US governmental policy relating to finan-
Banking regulation cial institutions in recent years has been aimed at combating
UBSs operations in the United States are subject to a variety money laundering and terrorist financing. Regulations applica-
of regulatory regimes. It maintains branches in California, ble to UBS and its subsidiaries impose obligations to maintain
Connecticut, Illinois, New York and Florida. UBSs branches lo- appropriate policies, procedures and controls to detect, prevent
cated in California, New York and Florida are federally li- and report money laundering and terrorist financing and to
censed by the Office of the Comptroller of the Currency. US verify the identity of their customers. Failure of a financial insti-
branches located in Connecticut and Illinois are licensed by tution to maintain and implement adequate programs to com-
the state banking authority of the state in which the branch bat money laundering and terrorist financing could have
is located. Each US branch is subject to regulation and exam- serious legal and reputational consequences for the institution.
ination by its licensing authority. In addition, the Board of
Governors of the Federal Reserve System exercises examina- US regulation of other US operations
tion and regulatory authority over our state-licensed US In the United States, UBS Securities LLC and UBS Financial
branches. We also maintain state and federally chartered Services Inc., as well as UBSs other US registered broker-
trust companies and other limited purpose banks, which are dealer entities, are subject to regulations that cover all aspects
regulated by state regulators or the Office of the Comptrol- of the securities business, including:
ler of the Currency. Only the deposits of UBSs subsidiary Sales methods
bank located in the state of Utah are insured by the Federal Trade practices among broker-dealers
Deposit Insurance Corporation. The regulation of our US Use and safekeeping of customers funds and securities
branches and subsidiaries imposes restrictions on the activi- Capital structure
ties of those branches and subsidiaries, as well as prudential Record-keeping
restrictions, such as limits on extensions of credit to a single The financing of customers purchases
borrower, including UBS subsidiaries and affiliates. The conduct of directors, officers and employees.
130
These entities are regulated by a number of different gov- The FSA has established a risk-based approach to supervi-
ernment agencies and self-regulatory organizations, includ- sion and has a wide variety of supervisory tools available to it,
ing the Securities and Exchange Commission and the National including on-site inspections (which may relate to an indus-
Association of Securities Dealers. Depending upon the spe- try-wide theme or be firm-specific) and the ability to commis-
cific nature of a broker-dealers business, it may also be reg- sion reports by skilled persons (who may be the firms audi-
ulated by some or all of the New York Stock Exchange, the tors, IT specialists, lawyers or other consultants as appropri-
Municipal Securities Rulemaking Board, the US Department ate). The FSA also has an extremely wide set of sanctions
of the Treasury, the Commodities Futures Trading Commis- which it may impose under the Financial Services and Markets
sion, and other exchanges of which it may be a member. Act, broadly similar to those available to US regulators.
These regulators have available a variety of sanctions, includ- Some of our subsidiaries and affiliates are also regulated
ing the authority to conduct administrative proceedings that by the London Stock Exchange and other UK securities and
can result in censure, fines, the issuance of cease-and-desist commodities exchanges of which UBS is a member. Our busi-
orders or the suspension or expulsion of the broker-dealer or ness can also be subject to the requirements of the UK Panel
its directors, officers or employees. on Takeovers and Mergers where relevant.
UBS subsidiaries in the United States are also subject to Financial services regulation in the UK is conducted in ac-
regulation by applicable federal and state regulators of their cordance with European Union directives which require,
activities in the investment advisory, mutual fund, trust com- among other things, compliance with certain capital ade-
pany, mortgage lending and insurance businesses. quacy standards, customer protection requirements and con-
duct of business rules. These directives apply throughout the
Regulation and supervision in the United Kingdom European Union and are reflected in the regulatory regimes
in other member states. The standards, rules and require-
UBSs operations in the United Kingdom are regulated by the ments established under these directives are broadly compa-
Financial Services Authority (FSA), as the UKs single regula- rable in scope and purpose to the regulatory capital and cus-
tor, which establishes a regime of rules and guidance govern- tomer protection requirements imposed under applicable US
ing all relevant aspects of financial services business. law.
131
Compliance with NYSE listing standards
on corporate governance
Compliance with NYSE listing standards on

corporate governance
UBS aims to comply with all relevant standards on corporate governance. As a foreign company, listed on the
New York Stock Exchange (NYSE), we are only required to comply with the rules relating to audit committees
and annual certifications. UBS, however, has voluntarily adopted the overwhelming majority of the NYSE rules
for US companies.
Introduction members. They do not receive directly or indirectly any con-

sulting, advisory or other compensatory fees from UBS other
On 4 November 2003, the Securities and Exchange Commis- than in their capacity as directors. They do not hold directly
sion (SEC) approved the revised New York Stock Exchange cor- or indirectly UBS shares in excess of 5% of the outstanding
porate governance rules. Foreign private issuers such as UBS capital, and none of them serves on the audit committees of
were required to comply with the rules on Audit Committees more than two other public companies. The Board deter-
by 31 July 2005 and had to also disclose significant differences mined that all three Audit Committee members are financially
and material non-compliance with all other NYSE standards by literate and that Lawrence A. Weinbach and Rolf A. Meyer are
the first annual shareholders meeting after 15 January 2004. financial experts according to the definitions established by
UBS fully complies with the SEC requirements relating to Audit the Sarbanes-Oxley Act of 2002, Lawrence A. Weinbach
Committees and fulfills the overwhelming majority of the being a certified public accountant and having been in the
NYSE listing standards on corporate governance. The few ex- audit and accounting business during most of his professional
ceptions are mainly due to the different legal system in career, and Rolf A. Meyer through his former responsibility as
Switzerland and are explained in detail in this chapter. Chief Financial Officer of a large listed company.
UBS operates under a strict dual Board structure mandated
Independence of directors by Swiss banking law. No member of the Group Executive
Board may also be a member of the Board of Directors and
The Board of Directors, based on the listing standards of the vice versa. This structure ensures an institutional independ-
NYSE, approved Criteria for defining external Board mem- ence of the entire Board of Directors from the day-to-day
bers independence, which are published on the firms web- management. Therefore all Board members are considered
site under www.ubs.com/corporate-governance. Each exter- non-management directors, although the three executive
nal director has to personally confirm his compliance with the members of the Chairmans Office are former members of the
criteria. The Board, at its meeting of 9 February 2006, affir- executive management and are performing their mandate on
matively determined that Ernesto Bertarelli, Peter Bckli, Sir a full-time basis. The Board meets regularly without executive
Peter Davis, Rolf A. Meyer, Helmut Panke, Peter Spuhler, Peter management, but including the executive members of the
Voser and Lawrence A. Weinbach have no material relation- Board.
ship with UBS, either directly or as a partner, controlling share-
holder or executive officer of a company that has a relation- Board committees
ship with UBS. Each of them also met all the other require-
ments of the Board and of the New York Stock Exchange with UBS has established audit, compensation and nominating
respect to independence, with the exception of Ernesto committees. The charters for all Board Committees are pub-
Bertarelli. Mr. Bertarelli does not satisfy one of the independ- lished on www.ubs.com/corporate-governance. Additional
ence requirements because UBS is the main sponsor to Team information on the Board Committees mandates, responsi-
Alinghi, the defender of the Americas Cup 2007. bilities and authorities and their activities during 2005 can be
Mr. Bertarelli is the owner of Team Alinghi SA. Otherwise found on pages 107108 of this section.
Ernesto Bertarelli fully satisfies the New York Stock Exchange In addition to these three committees, the Chairman of the
independence requirements. The Board of Directors does Board and the Vice Chairmen form a Chairmans Office,
not believe that UBSs sponsorship of Team Alinghi impairs which has clearly defined authorities and duties. It also has re-
Mr. Bertarellis independence in any way. sponsibility for oversight of the internal audit function (as de-
The Board of Directors has also determined that Lawrence fined in the Swiss Federal Banking Commissions Circular Let-
A. Weinbach, Sir Peter Davis and Rolf A. Meyer meet the more ter on Internal Audit) and acts as Risk Committee of the
stringent independence requirements for Audit Committee Board. For more details see page 107 of this section, the UBS
132
Organization Regulations with its Appendix, and the Charter and the members of the Group Executive Board) is done
for the Chairmans Office (www.ubs.com/corporate-gover- by the Chairmans Office and reported to the full Board.
nance). All Board Committees perform a self-assessment of their
activities and report back to the full Board. The Board has
Differences from NYSE standards direct responsibility and authority to evaluate its own per-
formance, without preparation by a Board Committee.
According to Rule 303A.11 of the NYSE Corporate Gover- Proxy statement reports of the Audit and Compensation
nance listing standards, foreign private issuers have to dis- Committees.
close any significant ways in which their corporate gover- Under Swiss Company Law, all reports addressed to share-
nance practices differ from those to be followed by domestic holders are provided and signed by the full Board, which
companies. The UBS Board of Directors has determined the has ultimate responsibility vis--vis shareholders. The Com-
following differences: mittees submit their reports to the full Board.
For US listed companies the NYSE rules require: Shareholders votes on equity compensation plans.
Responsibility of the Audit Committee for appointment, Under Swiss Company Law, the approval of compensation
compensation, retention and oversight of the Independent plans is not within the authority of the AGM, but of the
Auditors. Board of Directors. The reason for this approach is the fact
UBSs Audit Committee has been assigned all these re- that the capital of a Swiss company is determined in the
sponsibilities, except for appointment of the Independent Articles of Association and, therefore, each increase of
Auditors, which according to Swiss Company Law is re- capital has to be submitted for shareholders approval. If
quired to be voted upon by shareholders. The Audit Com- equity-based compensation plans result in a need for a
mittee assesses the performance and qualification of the capital increase, AGM approval is mandatory. If, however,
External Auditors and submits its proposal for appoint- shares for such plans are purchased in the market, share-
ment, re-appointment or removal to the full Board, which holders do not have the authority to vote on their ap-
brings this proposal to the shareholders for vote at the An- proval.
nual General Meeting (AGM). Non-management directors to meet at least once per year
Discussion of risk assessment and risk management poli- separately, without any directors participating who are not
cies by Audit Committee. independent because of their employment by the com-
UBS, as a global financial services firm, has a sophisticated pany.
and complex system of risk management and control. Risk Under Swiss Banking Laws Board members are not al-
management and control is the clear responsibility of the lowed to assume any day-to-day management responsibil-
business. The Board of Directors, of which the Audit Com- ity. UBS therefore considers all its Board members as non-
mittee members are part, has authority to define the firms management directors, despite the fact that three ex-
risk principles and its risk capacity. The Chairmans Office, ecutive Board members perform their mandate on a full-
acting as Risk Committee on behalf of the full Board, is re- time basis and are remunerated by the company for their
sponsible for monitoring the adherence to the defined risk services. The Board meets regularly without executive
principles and for reviewing whether the business and management, but including the three executive Board
control units run appropriate systems for the management members.
and control of risks. The Audit Committee is regularly up-
dated by Group Internal Audit on specific risk issues. The New York Stock Exchange has published new forms
Assistance by Audit Committee of the internal audit func- for the annual and interim written affirmation required under
tion. Section 303A.12 (c) of the NYSE Corporate Governance list-
In accordance with the Swiss Federal Banking Commis- ing standards. NYSE-listed foreign private issuers are required
sions Circular Letter on Internal Audit, dated 14 Decem- to submit an annual written affirmation and accompanying
ber 1995, UBS gave the Chairmans Office responsibility exhibits to the NYSE, certifying that it is in compliance with
and authority for supervising the internal audit function. the NYSE corporate governance requirements applicable to
The complexity of the financial services industry requires foreign private issuers specifically the audit committee re-
in-depth knowledge to allow for an effective supervision quirements and the requirement to provide a statement of
of the internal audit function. The Chairmans Office re- significant corporate governance differences. NYSE-listed for-
ports back to the full Board on all important findings, and eign private issuers have become subject to these require-
the Audit Committee is regularly updated directly by the ments as of 31 July 2005. UBS filed the requested affirmation
head of Group Internal Audit. forms and exhibits in mid-July 2005.
Responsibility of the Nominating Committee for oversight From now on, the annual written affirmation will have to
of management and Board evaluation. be submitted no later than 30 days after filing the annual re-
Management evaluation (performance of the Group CEO port on Form 20-F with the SEC.
133
Compliance with NYSE listing standards
on corporate governance
Corporate Governance Guidelines, Code of Business quired by the Sarbanes-Oxley Act. The code is available on the
Conduct and Ethics, and Whistleblowing Protection UBS website at www.ubs.com/corporate-governance.
The Audit Committee of the Board has established rules
The Board of Directors has adopted corporate governance for the handling of complaints related to accounting and au-
guidelines, which are published on the UBS website at diting matters in addition to the internal policies on Whistle-
www.ubs.com/corporate-governance. blowing Protection for Employees and on Compliance with
The Board of Directors has also adopted a Code of Busi- Attorney Standards of Professional Conduct. The Audit Com-
ness Conduct and Ethics with an Addendum for principal ex- mittee Procedures are available on the UBS website
ecutive, financial and accounting officers or controllers, as re- (www.ubs.com/corporate-governance).
134
Senior leadership
Senior leadership
The senior leadership of UBS, in addition to the Group Executive Board, includes the members of the Group
Managing Board (GMB) and the Vice Chairmen of the Business Groups.
Group Managing Board Global Wealth Management & Business Banking (continued)
New members as of 1 March 2006:

The members of the GMB are drawn from the management
Bernhard Buchs Chief Risk Officer
teams of the Business Groups and the Corporate Center or
Diane Frimmel Director of Operations and Services, Wealth Management US
assume special Group functions. The GMB plays a crucial role
Rolf Olmesdahl Head Information Technology
in achieving UBSs one-firm vision and promoting the UBS
Felix B. Ronner Global Head of Transaction Products and
agenda. Its role is to understand, challenge and contribute to Head of Products & Services Europe
further developing the firms direction, values and principles Klaus W. Wellershoff Global Head Wealth Management Research
and to promote and communicate its culture.
Investment Bank
Members as of 31 December 2005 and announced changes. Andy Amschwand Head of Investment Bank Switzerland
Global Head of Foreign Exchange /
Global Wealth Management & Business Banking Cash and Collateral Trading
Michel Adjadj Head of Wealth Management Eastern Mediterranean, David Aufhauser Global General Counsel
Middle East & Africa Michael Bolin Chief Administrative Officer
Robert J. (Bob) Chersi Deputy Chief Financial Officer Gary Bullock Global Head of Infrastructure Logistics
Michael A. Davis Head of Western Division of Wealth Management US (to step down as of 1 March 2006)
(to retire as of 1 January 2006) Simon C. Bunce Global Head of Fixed Income and Rates
Arthur Decurtins Head of Wealth Management Benelux, Germany & Regina A. Dolan Chief Financial Officer
Central Europe Robert Gillespie CEO EMEA and Vice Chairman
Jrg Haller Head of Products & Services Thomas R. Hill Global Head of Equity Research (as of 1 January 2006
Marten Hoekstra Head Wealth Management US Chief Communication Officer)
Dieter Kiefer Head of Wealth Management Western Europe Stephan Keller Chief Risk Officer
Martin Liechti Head of Wealth Management Americas Ken Moelis President of Investment Bank
Hans-Ulrich Meister Head of Business Banking Rory Tapner Chairman and CEO Asia Pacific
Francesco Morra Head of Wealth Management Italy (Member of the GEB as of 1 January 2006)
Tom Naratil Head of Market, Strategy and Development Robert Wolf Chief Operating Officer
Jeremy Palmer Head of Wealth Management UK, Northern &
Eastern Europe New members as of 1 March 2006:
Werner H. Peyer Head of Wealth Management for Zurich region David A. Bawden Chief Credit Officer
James M. Pierce Head Western Division, Wealth Management US Maria Bentley Global Head of Human Resources
James D. Price Head Eastern Division, Wealth Management US Daniel Coleman Joint Global Head of Equities
Joe Rickenbacher Chief Credit Officer J. Richard Leaman III Joint Global Head Investment Banking Department
Alain Robert Head of Wealth Management Switzerland Jeffrey A. McDermott Joint Global Head Investment Banking Department
Kathryn Shih Head of Wealth Management Asia Pacific Brad Orgill CEO and Chairman, Australasia
Jean Francis Sierro Head of Resources John Pius Wall Joint Global Head of Equities
Timothy Sennatt Head of Eastern Division Wealth Management US Alexander

(to retire as of 1 January 2006) Wilmot-Sitwell Joint Head Investment Banking Department
Robert H.Silver Managing Director (to retire as of 1 January 2006)
Anton Stadelmann Chief Financial Officer
Gabriel Herrera Head of Europe, Middle East & Africa
Michael A. Weisberg Head of Investment Solutions / Products and Services
Thomas Madsen Global Head of Equities
Stephan Zimmermann Chief Operations Officer
Joe Scoby Head of Alternative and Quantitative Investments
David Zoll Head of Marketing Strategy and Development,
Wealth Management US Brian Singer Global Head of Global Investment Solutions
Kai Sotorp Head of Americas
Mark Wallace Chief Operating Officer
Paul Yates Global Head of Strategic Client Development
135
Senior leadership
Global Asset Management (continued) Business Group Vice Chairmen
New members as of 1 March 2006:

Business Group Vice Chairmen are appointed to support the
Mario Cueni Global Head of Legal, Compliance & Risk Control
businesses in their relationships with key clients. They strongly
Christof Kutscher Head of Asia Pacific
contribute to the success of UBS and work closely together
John A. Penicook Jr. Global Head of Fixed Income
with the members of the Group Managing Board.
Corporate Center
Scott G. Abbey Chief Technology Officer Members as of 31 December 2005 and announced changes
Mark Branson Chief Communication Officer
(as of 1 January 2006 Chief Executive Officer and Global Wealth Management & Business Banking
President of UBS Securities Japan Limited) Thomas K. Escher Wealth Management
Rolf Enderli Group Treasurer (to retire as of 1 July 2006) Carlo Grigioni Wealth Management
Thomas Hammer Group Head of Human Resources Eugen Haltiner Business Banking
Philip J. Lofts Group Chief Credit Officer
Investment Bank
Robert W. Mann Head of Leadership Institute
Ken Costa
Hugo Schaub Group Controller (retiring as of 1 July 2006)
Lord Brittan of Spennithorne, QC
Neil R. Stocks Head of Group Compliance
Senator Phil Gramm
New members as of 1 March 2006: Blair Effron (as of 1 March 2006)
Charles Nicholas Bolton Group Head Operational Risk
Peter Thurneysen Head Group Controlling & Accounting
William Widdowson Head of Group Accounting Policy
Chairmans Office
Luzius Cameron Company Secretary
Markus Ronner Head of Group Internal Audit
136
Responsible behavior is an important part of our culture,
identity and business practice.
We make responsible behavior an important part of our cul- donations and by giving our employees the opportunity to
ture, identity and business practice. As a leading global finan- engage in volunteer work.
cial services firm, we want to provide our clients with value-
added products and services, promote a corporate culture Since 2000, UBS has been a participating member of the
that adheres to the highest ethical standards, and generate UN Global Compact, a United Nations platform that encour-
superior but sustainable returns for our shareholders. We are ages and promotes good corporate practice in the areas of
committed to being an equal opportunity employer, protect- human rights, labor, and the environment. By adhering to its
ing the environment, adhering to high social standards, and principles, we contribute to the betterment of the communi-
contributing to the communities that we are a part of. ties and societies we work and live in while also creating sus-
Behaving responsibly can sometimes mean moving be- tainable value for our shareholders.
yond solely profit-oriented considerations and legal require- We were also one of the first parties to sign the United Na-
ments when doing business. For us, that translates into four tions Environment Programs Bank Declaration (UNEP bank
broad fields of action: declaration) in 1992, which committed us to integrating ap-
we aim to provide a working environment that is based on propriate environmental measures in our activities. Beyond
the values of equal opportunity, diversity and meritocracy that, our internal professional environmental management
we uphold high ethical standards when dealing with our system is regularly certified to the ISO 14001 standard.
clients and suppliers Our efforts are widely recognized. We have been a com-
we have a global environmental management process in ponent of the Dow Jones Sustainability Indexes since their in-
place to make sure that in all our business dealings we act ception in 1999. The indexes track the financial performance
in an environmentally responsible manner of the leading sustainability-driven companies worldwide.
we support the communities we are a part of both through We are also included in the FTSE4Good Index, which meas-
Corporate responsibility in UBS guidelines and policies

The importance we attach to responsi- employees of UBS to follow. It outlines Conflicts of interest
ble corporate behavior is reflected in the required standards of fairness, hon- UBS is committed to ensuring fair
the various documents and policies esty, and integrity in a general manner. treatment of all its stakeholders,
defining the rules and principles that It is the basis for all UBS policies. whilst recognizing that conflicts
we apply to UBS employees globally. of interest cannot always be avoided.
Employment of staff We have therefore established
Our Vision and Values state that we UBS provides equal employment and guiding principles that outline our
are a member of the global commu- advancement opportunities for all approach in properly identifying
nity and should behave as a responsi- our employees, regardless of gender, and managing conflicts of interest.
ble corporate citizen. Our firm and its ethnicity, race, nationality, age, disabil- In addition, various other policies
employees should conduct themselves ity, sexual orientation, or religion. address situations in which a
in a manner that is above reproach, as conflict of interest might potentially
preserving our integrity is vital to our Whistleblowing protection arise, such as personal account
most valuable asset our reputation. We have a whistleblowing policy to dealing, or the providing and
encourage employees to report any receiving of gifts. UBSs Investment
The Code of Business Conduct and breach of law, regulations or codes of Bank also has specific conflict of
Ethics of UBS sets forth the policies ethics to the appropriate senior man- interest policies for its research
and practices which we expect all ager without fear of retaliation. activities.
138
ures the performance of global companies in the areas of en- rather they ensure that UBS aligns business practices with
vironmental sustainability, stakeholder relations and support changing societal expectations.
for human rights.
Our corporate responsibility processes Contributing to society preventing money

laundering
In 2001, we created a Corporate Responsibility Committee
(CRC). It assesses how to meet the evolving expectations of Extensive and constant efforts to prevent money laundering
our stakeholders related to our corporate conduct. If the and terrorist financing are important contributions to soci-
committee concludes that there is a gap between what stake- ety. The integrity of the financial system is the responsibility
holders expect and what we practice and that this gap rep- of all those involved in it. We take our duties extremely
resents either a risk or an opportunity to the firm the CRC seriously in protecting both the system at large and our
suggests appropriate measures to management. own operations. Our stakeholders expect us to be at the
The committee is chaired by Marco Suter, Executive Vice- forefront of developing strategies and implementing meas-
Chairman of UBS and Group Environmental Representative, ures necessary to achieve these objectives. The threats
and includes one other member of the Board of Directors and posed by money laundering and terrorism are real, and we
eight senior UBS executives representing our businesses, as all have a role in contributing to the fight against them as
well as a number of corporate functions, including legal and effectively as possible.
communication. The Group Money Laundering Prevention Unit leads our
The committees work is supported by a working group efforts to fight money laundering, corruption, and the financ-
that comprises representatives from all our Business Groups, ing of terrorism. Its key task is to help employees to recog-
as well as functional experts. It evaluates any new issues po- nize, and then manage and report suspicious activities in a
tentially related to corporate conduct, and ensures that all are way that neither treats all clients as criminals nor unduly hin-
brought to the attention of the committee. ders our normal banking business. While doing so, we remain
Neither the committee nor the working group runs ongo- completely committed to the respect and protection of our
ing operational processes related to corporate responsibility; clients privacy, a cornerstone of our firms philosophy, which
Anti money laundering and bribery made to organizations whose activities information security, satisfying the
of public officials serve (among others) non-profit, obligations it has to customers,
We have committed ourselves to charitable, cultural and educational employees, and shareholders.
fighting money laundering, corruption purposes.
and terrorist finance. To do that, we Environmental management
have a number of policies in place, an New business initiatives UBS is committed to integrating
effective risk management framework, We have a control and governance environmental considerations into all
and an anti-money laundering unit. We structure across UBS and its businesses its business activities. Our environmen-
aim to prevent bribery of public officials defining a process to ensure that new tal policy has put the practices pre-
by requiring the pre-approval of any business initiatives and, where rele- scribed by UNEP into operation in the
transfer of assets to a public official. vant, individual transactions are in line areas of banking and in-house opera-
with our environmental, social and tions.
Memberships and donations ethical standards.
We have a policy governing the han-
dling and uniform treatment of mem- Information security
berships and donations by UBS and its UBS adheres to the highest standards
employees globally. It specifies that of information security. It meets legal

donations are goodwill payments and regulatory requirements related to
139
we integrate into our money laundering prevention structure to the training programs accomplished within the context of
to the best of our abilities. the Wolfsberg Group, UBS frequently conducts, at the re-
The best way to achieve our goals is through a real spirit quest of the Swiss Ministry of Foreign Affairs, training semi-
of partnership across the firm between those who manage nars for countries still developing anti money laundering or
client relationships and the risk managers and controllers contra terrorist financing legislation. In 2005, we held train-
who support them. Our employees should be focused on re- ing seminars in Morocco, Tunisia, Algeria, Uzbekistan, Tajik-
ally getting to know clients, understanding their needs and istan, Azerbaijan, and China.
then questioning things that do not make sense. In order to
assist our employees in staying ahead of the curve in respect Investing in our communities
of their know your customer (KYC) skills and the identifi-
cation of new trends in suspicious behavior, we ensure that The raison dtre behind our well-established program of
they undertake regular training courses, both in the form of community investment is the recognition that our success de-
on-line training and seminars. In fact, we believe that one rea- pends not only on the skills and resources of our people and
son clients choose UBS is because they are confident of our the relationships we foster with clients, but also on the health
first-class reputation for integrity. and prosperity of the communities we work in. UBS supports
To prevent money laundering, we take a risk-oriented ap- communities in various ways: we make direct cash donations
proach that is tailored to our different business lines and their to selected organizations, match donations from our employ-
specific risks and exposures. This includes establishing, where ees to most charities, and promote employee volunteering.
applicable, consistent criteria by which a business relationship Dedicated teams worldwide work closely with staff at all lev-
should be judged higher-risk. We utilize advanced technol- els to build partnerships with organizations in the communi-
ogy to assist us in the identification of transaction patterns or ties where we operate, focusing on education, regeneration
unusual dealings. and environmental projects.
We are also strongly committed to promoting stringent anti- Overall, in 2005, UBS donated more than CHF 46 million
money laundering standards for the financial industry as a to support charitable causes and immediate disaster relief.
whole. As a prime example of this, UBS was one of the driving Our employees, through their donations and volunteer ef-
forces behind the launch of the Wolfsberg Group and its is- forts, make further significant contributions to the communi-
suance of global anti-money laundering principles in 2000. In ties they live in, and, depending on location, UBS supports
subsequent years, we also strongly supported its efforts to sup- their commitment by offering up to two days per year for vol-
press terrorism finance, its monitoring, screening, and search- unteering.
ing guidelines, and its correspondent banking principles. UBS has expanded its community affairs program around
As part of the group, and at the request of Russian and the globe. In 2005, a new community affairs coordination
Chinese banking authorities, we have held seminars in both function for Switzerland was established. This recently created
countries on how to prevent money laundering. In addition function coordinates all charitable activities by UBS and its staff
Disaster relief support

In the past year, we have witnessed to over CHF 4 million the fund com- the partnerships will be managed
a number of major natural catastro- prises employee donations and closely throughout their duration.
phes the tsunami that hit Southeast matched givings by UBS. With these Detailed information on the UBS
Asia at the end of 2004, Hurricane contributions UBS supports 14 projects Tsunami Relief Fund is available on the
Katrina in the US, and the Pakistani in the disaster-struck regions. web at www.ubs.com/tsunamirelief
earthquake all of which called for We are confident that the projects
immediate disaster relief. In these we have chosen are both legitimate In addition, we donated CHF 1
cases, as well as others, UBS and its and genuinely in need of funds, and million for Hurricane Katrina relief
employees stepped in and supported we have conducted extensive due work, CHF 1 million for re-
the communities affected in several diligence to ensure that our employ- construction in areas damaged or
ways. ees donations reach the communities destroyed by last summers floods
UBS responded to the tsunami with most in need. By focusing on in Switzerland. We also supported
a USD 3 million donation for immedi- medium to long-term relief, we have relief efforts following the Pakistani
ate relief. It also established the ensured that selected projects com- earthquake by matching the
UBS Tsunami Relief Fund to provide plement our ongoing programs in donations made by employees in
long-term assistance. Amounting the region and that, consequently, the UK and APAC.
140
across all Business Groups in Switzerland and is also responsi- pertise of all employees of the UBS Securities Philippines of-
ble for the newly introduced employee volunteering program fice, AMFPA organized an exhibition where artists could dis-
as well as the matched giving program in Switzerland. play and promote their work. Through this event, the organ-
Besides the engagement of the firm and its employees, we ization was able to sell paintings, hundreds of Christmas
also give our clients the opportunity to contribute to charita- cards, childrens books and puzzles.
ble causes. The UBS Optimus Foundation invests donations With the launch of a community affairs program in
from our clients into a number of programs and organizations Switzerland last year, UBS intensified its charitable activities.
that focus on children and medical and biological research. The In Zurich, UBS employees joined mentally handicapped per-
projects involve close collaboration with respected partner or- sons in baking and selling Christmas cookies. Proceeds ben-
ganizations and are selected by a team of specialists within the efited the organization Insieme, which organizes among
foundation, who also closely monitor their implementation. other things, recreational activities for disabled people. In
The costs of managing and administering the UBS Optimus Basel, we started a mentoring program for young adults to-
Foundation are borne in full by UBS, so that the full contribu- gether with public teachers. UBS employees helped students
tion from our clients reaches the projects. In December 2005, find a workplace or a position as an apprentice.
we started issuing a new credit card, the UBS Optimus Foun- Moreover, besides direct donations from our business, UBS
dation Charity Card, to give clients the benefits of a normal has established a number of independent foundations and as-
credit card while allowing them to make charitable contribu- sociations that donate money to worthy causes in Switzer-
tions in a simple and effective way. Every year, UBS will donate land. One, called A Helping Hand from UBS Employees, as-
0.5 % of the combined turnover and a portion of the annual sists disabled and disadvantaged people to lead active, inde-
fees received from all Charity Cards to the UBS Optimus Foun- pendent lives. We encourage employee involvement by
dation. matching some of the funds raised. We also have endowed
two independent charities with our money. The first, called
A glimpse of what we do the UBS Cultural Foundation, fosters creativity, appreciation
Despite the significant donations to disaster relief efforts in of different cultural expression, and contact between artists
2005, we also continued to support our ongoing, well-estab- and society. The foundation financially supports fine arts,
lished community affairs programs around the world. The fol- film, literature, music, preservation of historic buildings, ar-
lowing provides a brief glance at some of our activities: chaological projects and studies in history and philosophy in
In the UK, we are the first financial firm to sponsor a new Switzerland.
secondary school under the UK governments Academy pro- In similar fashion, the purpose of the second, the UBS
gram in Hackney, London. We are making a financial contri- Foundation for Social Issues and Education, is to support de-
bution of GBP 2 million to the project half of which is being prived communities in Switzerland in various forms. Non-
provided by a private client but expect to make an even profit, charitable organizations, projects and initiatives aim-
more valuable long-term investment through the skills and ing at improving social welfare receive monetary assistance
commitment of our employee school volunteers. The school from these funds.
will educate 1,150 students when completed and specialize
in maths and music. Socially Responsible Investments
In the Americas, the Junior Achievement program explains
the role of business and economics in society from elemen- UBS has strong expertise in incorporating environmental and
tary school level through to high school. To complement the social aspects into its research and advisory activities. In addi-
financial contributions we make, employees engage in tion to financial considerations, socially responsible invest-
unique volunteer initiatives and offer real-world experience ments (SRI) put special focus on environmental, social, or eth-
to the subjects that are taught. Examples include so-called ical criteria.
Job Shadow days, teaching classes, and the Company Our Global Asset Management business offers a wide
Program, a three-month evening program for high school range of SRI products to both private and institutional in-
students in which employees work with a team of students vestors. In Switzerland and Japan, we use an approach that
to start a business, and develop and market a product. In actively selects the best performers in each industry on envi-
2005, nine employees served on the boards of JA Chapters ronmental and social criteria. A new SRI Responsibility Fund
in the US. umbrella was created last year composed of a global SRI fund,
In Asia Pacific, UBS is continuously expanding its commu- a European SRI fund, and a Global Innovators fund. The lat-
nity affairs program. In the Philippines, UBS launched its com- ter mainly invests in small companies with products that have
munity affairs efforts in 2005 with a project coordinated with significant potential in the areas of renewable energy, water
the Association of Mouth and Foot Painting Artists (AMFPA), management, food, healthcare and mobility. The newly
an organization that supports severely disabled artists. With launched European SRI fund uses both our SRI and main-
the assistance of the sales, presentation and marketing ex- stream research platforms to construct a concentrated port-
141
SRI invested assets

For the year ended % change from Positive criteria: applies to the active selection
CHF billion, except where indicated GRI 1 31.12.05 31.12.04 31.12.03 31.12.04 of companies, focusing on how a companys
strategies, processes and products impact its
UBS 2,652 2,217 2,098 20
financial success, the environment and society.
Socially Responsible Investments
Engagement: investors enter into a dialogue
Positive criteria F9 1.05 0.78 0.71 34 with boards or management of companies with
Engagement 2 F9 38.90 31.60 23 the aim of influencing corporate behavior and
policies, if appropriate, in relation to environmen-
Exclusion criteria F9 10.73 7.32 8.95 47 tal, social or ethical issues.
Third-party 2 F9 0.61 0.29 109
Exclusion criteria: companies or sectors are
Total SRI assets F9 51.29 39.99 28 excluded based on environmental, social or ethical
Proportion of invested assets (%) 3 1.93 1.80 criteria, e.g. companies involved in weapons,
tobacco, gambling, or with high negative
Performance of UBSs SRI Funds (%) environmental impacts.
Absolute performance Eco Performance 4 21.79 4.66 15.90
Third-party: UBSs open product platform gives
Relative performance Eco Performance vs. MSCI 5 (5.72 ) (1.30 ) (3.74 ) clients access to SRI products from third-party
1 Global Reporting Initiative (see also www.globalreporting.org). F stands for the Environmental Performance Indicators defined in the providers.
GRI Financial Services Sector Supplement 2 Figures for 2003 not available due to revised definition. 3 Total socially responsible
investments / invested assets. 4 Eco Performance = UBS (Lux) Equity Fund-Eco Performance B. 5 Benchmark: MSCI World (r).
folio of leading SRI stocks. We are currently able to offer We remain committed to integrating environmental con-
global, European, and Japanese equity products; all bench- siderations into all our business activities. Our environmental
marked against MSCI or Topix indices. In the US, Global Asset policy is based on five principles:
Management manages various institutional accounts that ex-
clude certain companies or sectors using negative screen- we seek to consider environmental risks in all our busi-
ing criteria. In the UK, Global Asset Management seeks to in- nesses, especially in lending, investment banking, advisory
fluence corporate responsibility and corporate governance and research, and in our own investments.
performance of the companies it invests in. UBS also offers we seek to pursue opportunities in the financial market for
SRI products from third party providers. environmentally friendly products and services, such as
In the Investment Bank, UBS has established a Socially Re- Socially Responsible Investments.
sponsible Investment (SRI) research team to produce original we are committed to actively seeking ways to reduce our
research on areas of increasing or diminishing risk. It also direct environmental impact on air, soil and water from in-
monitors ratings provided by external SRI agencies, organizes house operations, with a primary focus on reducing green-
collaborative research by analysts about emerging SRI house gas emissions. We will also seek to assess the envi-
themes, and writes about and advises on quantifying the ef- ronmental impact of our suppliers products and services.
fects on share prices of companies with exposure to such is- we ensure efficient implementation of our policy through
sues. A Socially Responsible Investment page is now available a global environmental management system certified ac-
to UBSs institutional clients on UBSs Research Web. The cording to ISO 14001 the international environmental
Global Wealth Management & Business Banking Business management standard.
Group decided to increase the awareness of SRI initiatives we invest in know how and integrate environmental con-
and products internally following interviews with client siderations into internal communications and training.
advisors and detailed market research that showed increased
interest and sensitivity in applying social responsibility crite- The Group Executive Board is responsible for approving
ria when planning investment decisions. As a result, an UBSs environmental policy and for nominating a Group en-
awareness campaign was launched in Switzerland in 2005 vironmental representative to guide UBSs environmental
to sensitize client advisors to SRI and to support them in strategy and raise relevant environmental concerns with the
the analysis and understanding of the respective client needs. Corporate Responsibility Committee. The primary responsibil-
ity for implementing environmental policy as stipulated by ISO
Environmental management 14001 lies within the Business Groups.
Our commitment to the environment is underpinned by a Environmental performance indicators

global environmental management system certified under
the ISO 14001 standard. The system covers both banking ac- Every year, we provide a detailed description of our environ-
tivities and in-house operations and was successfully re-certi- mental performance using key performance indicators (KPIs),
fied in 2005 by our auditors SGS. which allow for annual comparisons. They are based on in-
142
Management indicators for environmental performance
For the year ended % change from
Full-time equivalent, except where indicated GRI 1 31.12.05 31.12.04 31.12.03 31.12.04
Personnel financial businesses 2 69,569 67,407 65,879 3
In specialized environmental units 3 25.3 22.0 16.4 15
Environmental awareness raising
Employees trained F5 2,251 1,664 1,377 35
Training time (hours) F5 1,214 2,124 1,857 (43 )
Specialized environmental training
Employees trained F5 1,010 602 1,106 68
Training time (hours) F5 2,066 1,932 2,548 7
External environmental audits 4
Employees audited F6 147 11 26 1,236
Auditing time (days) F6 17 2 3 750
Internal environmental audits 5
Employees audited F6 216 148 171 46
Auditing time (days) F6 39 29 37 34
1 Global Reporting Initiative (see also www.globalreporting.org). F stands for the environmental performance indicators defined in the GRI Financial Services Supplement 2 All employment figures
represent the state as of 31 December 2005. 3 2005: 21.8 UBS and 3.5 external employees (FTE) 4 Audits carried out by SGS Socit Gnrale de Surveillance SA. Surveillance audits took place in 2003
and 2004. The more comprehensive re-certification audit was done in 2005. 5 Audits/reviews carried out by specialized environmental units. The implementation of environmental risk policies is also
audited by Group Internal Audit.
dustry standards such as the Global Reporting Initiative (GRI) Global Wealth Management & Business Banking
and VfU (both include environmental performance indicators The environmental risk policy of Global Wealth Management
tailored to financial institutions). & Business Banking applies to all credit transactions of this
The management indicators above provide an overview of Business Group. The policy ensures, firstly, that portfolios with
our environmental management system at Group level. significant exposure to environmental risk are identified and
monitored. Secondly, the policy specifies a generic procedure
Managing environmental risks in our for managing environmental risk in the credit process. The ac-
business transactions tual environmental assessments are integrated into these
processes and tailored to client segments, transaction size and
For UBS, it is key to identify, manage, or control environmen- risk exposure. This generic environmental risk assessment in-
tal risks in our business transactions. An example of such risks volves a three-step procedure. The responsible client advisor
might be when a counterpartys cash flow or assets are im- carries out a first screening, covering financial risks linked to
paired by environmental factors such as inefficient production environmental aspects such as compliance with environmen-
processes, or polluted or contaminated property. Another is tal legislation, workplace safety, contaminated sites and nat-
liability risk, such as when a bank takes over collateral onto its ural hazards. If the risks cannot be fully ruled out during the
own books. first screening, a credit officer initiates a second screening and
decides whether the risks identified are transparent enough
Investment Bank for the credit decision to be taken. Transactions entailing sig-
Our Investment Bank has a global environmental risk policy nificant environmental risk undergo a third step, a detailed en-
which applies to all transactions, services and activities it per- vironmental assessment a service provided by the Business
forms. The depth of an environmental analysis is based in part Groups environmental risk unit. In 2005, 34 such detailed as-
on risk classification, on UBSs familiarity with the counter- sessments took place. If a transaction poses substantial envi-
party, and on comfort with the contents of any prospectus ronmental risks, the bank can take several courses of action.
provided by the client. In the initial due diligence phase, en- It can adapt the terms of the loan contract, it may engage the
vironmental factors are screened by Investment Bank staff. If client in a dialogue about possible remedial action, or it may
there are indications of significant environmental risk, an in- decline the transaction altogether.
ternal environmental competence center may be contacted to
provide a more detailed environmental assessment. In 2005, Global Asset Management
36 such detailed assessments were completed by the compe- In 2004, Global Asset Management introduced a formal
tence center. environmental risk matrix that assesses the reputation and
143
environmental risks that its investments might imply. In this Ratio Indicators per FTE
review, investments were reviewed according to business Unit 2005 Trend 2004 2003
areas and the results of the audit were presented to the ISO Total direct energy kWh / FTE 13,891 13,924 14,706
14001 re-certification auditors. This risk matrix now forms Total indirect energy kWh / FTE 27,907 25,970 29,723
part of the environmental management system employed Total business travel Pkm / FTE 11,704 10,563 7,831
within Global Asset Management. Total paper consumption kg / FTE 203 198 218
Total water consumption m 3 / FTE 25.8 28.9 28.3
Environmental and CO2 footprints Total waste kg / FTE 316 363 395
Total environmental footprint kWh / FTE 43,251 39,130 43,154
We directly impact the environment in a number of ways. Our Total CO2 1 t / FTE 3.84 3.77 4.78
businesses consume electricity, employees travel for business CO2 footprint 2 t / FTE 7.64 7.26 7.89
purposes, they use paper and generate waste in the course 1 Greenhouse gas scope 1 and 2. 2 Greenhouse gas scope 1, 2 and 3.
of their work, and offices require heating and cooling sys-
tems. Improving our use of these resources can boost our op-
erating margins and enhance environmental performance
and we have a series of measures that manage our environ- influence on our overall environmental and CO2 footprint. In
mental impact efficiently. 2005, 25% of the energy we consumed came from renew-
Therefore, every year, we analyze our environmental and able energy sources and district heating.
CO2 footprints. The graph below shows the relative environ- Overall, our energy consumption in 2005 increased by 3%
mental and CO2 footprints of our energy consumption, busi- from a year earlier, which is roughly in line with our 3.2% head-
ness travel, paper consumption and waste. It also breaks count increase over the same period. CO2 emissions directly and
down our energy consumption according to source, and dis- indirectly released by UBS (see CO2 footprints in the table on
plays their related environmental and CO2 footprints. This page 146) increased by 8.6%. There are several reasons for this
shows that the type of energy mix we purchase has a strong trend: UBSs strong growth in the Asia Pacific region and, to a
Addressing climate change

UBS acknowledges that climate change ing this direct impact. The Group Our On Floor Control System
represents one of the most significant Executive Board has decided in installed in London buildings detects
environmental challenges of our times. February 2006 to set a group-wide the presence of people with sensors,
It will have wide-ranging effects on carbon emission reduction target of eliminating wastage and delivering
ecosystems, on societies and on 40% below 2004 levels by 2012. We significant savings on the energy
economies worldwide. Business will will seek to achieve this target by required for lighting and cooling.
be shaping innovative strategies in increasing in-house energy efficiency In order to reduce carbon emissions
response to new regulations as well as whenever possible, by purchasing from air travel, UBS has imple-
emerging market risks and opportuni- more green energy, and by offsetting mented extensive video conference
ties. So, how are we responding? emissions, including those caused by facilities in all major buildings world-
our business-related air travel. wide. These range from boardroom
Reducing our direct impact videoconferences to desktop videos
Although our direct contribution to Our past efforts in this area have for individual interaction.
climate change as a financial institu- already been highly recognized. In London, UBS purchases CCL-Free
tion is rather small compared to other For instance, BusinessWeek, in cooper- Electricity (Climate Change Levy
industries, UBS considers the efficient ation with The Climate Group exempt electricity) which is guaran-
and sustainable management of ranked UBS third on their Single-Year teed to be generated from either
energy and the reduction of its carbon Percentage Leader list for reductions renewable energy or good-quality
emissions to be an important aspect of in carbon emissions in 2004. combined heat and power.
our corporate responsibility. UBS is Some examples of measures to that In Zurich, the renovation of a major
determined to be ambitious in reduc- effect were: building resulted in yearly savings of
144
Environmental and CO2 footprints
The size of the circles represents the scale of the

environmental impact for each factor the larger
the circle area, the greater the environmental
significance of the process.
Environmental footprint: shows the environmental

impact (i.e. through emissions, use of resources,
Energy Business Paper
consumption travel consumption Waste waste) of each corresponding process. This includes
all relevant upstream and downstream processes, such
as acquisition of raw materials, manufacturing,
transport and disposal. The environmental footprint
is approximated based on the amount of non-renew-
able energy consumed.
CO2 footprint: shows the global warming potential of

a process, including all relevant upstream and
Electricity from Electricity from Combustion Renewable energy downstream processes. The CO 2 footprint equals the
fossil resources nuclear power of fossil fuels and district heating quantity of CO2 and other greenhouse gases that
emerge through the corresponding energy
Energy type consumed (in % of UBSs total direct energy consumption) consumption process.
27% 29% 18% 25%
Environmental footprint CO2 footprint
lesser extent, in the US, where the electricity country mixes have creasing carbon emissions. UBS has recognized this trend,
higher carbon content than the cleaner energy mixes pur- which is closely tied to its growth strategy, and has decided to
chased in Switzerland and London. Our business growth in address its CO2 emissions in a systematic and comprehensive
2005 also led to more air travel, another major source of in- way. Our planned carbon strategy is detailed on page 144.
More detailed information on UBSs environmental

management system is available on the internet:
www.ubs.com/environment
3.5 GWh, which is 41% of its total it now applies across Switzerland. business, and 51% said they had imple-
annual energy consumption. The Firms involved in the Model voluntarily mented emission reduction programs.
buildings heating, cooling and commit to energy efficiency increases,
lighting systems were entirely and communicate innovative solutions UBSs dedicated SRI equity research
upgraded using state-of-the-art to the general public. team produces research that investi-
technology and operations. gates the effects of climate change on
Engaging investors and markets certain companies and sectors. In 2005,
UBS also supports climate change UBS is a founding member of the Carbon the team was instrumental in organiz-
initiatives promoted by governmental Disclosure Project, through which it col- ing a UBS Climate Change Conference
authorities: in Japan, UBS Tokyo laborates with other institutional inves- to discuss and assess climate change
became part of the Tokyo metropolitan tors to write to the 500 largest quoted related risks for investors, with Sir David
Government CO2 Emission Reduction companies in the world asking for King, Chief Scientific Advisor to the UK
Program based on targeting business information concerning their green- Government, as the keynote speaker.
sites consuming large volumes of house gas emissions. The project asks
energy. Tokyo carried out an audit of companies to identify the business UBS is also a member of the
their building and submitted a report. implications of their exposure to climate- Intercontinental Exchange (ICE), an
In Switzerland, UBS is a member of the related risks and explain what they are electronic marketplace for energy and
Zurich Energy Model, an initiative doing to address these risks. In 2005, emissions trading in conjunction with
launched in 1987 by twelve major over 90% of responding companies the European Climate Exchange (ECX).
energy consumers among them UBS. flagged climate change as posing com- UBS trades ECX carbon financial
Initially launched in the city of Zurich, mercial risks or opportunities to their instruments on behalf of clients.
145
Absolute Indicators
2005 2004 2003
Absolute Data Absolute Absolute
Environmental Performance Indicators 1 GRI 2 Normalized 3 Quality 4 Trend 5 Normalized 3 Normalized 3
Total direct energy 6
EN3 966 GWh ** 939 GWh 970 GWh
Direct intermediate energy purchased 7 EN3 790 GWh ** 751 GWh 771 GWh

electricity from gas-fired power stations 10% ** 13% 19%
electricity from oil-fired power stations 5.8% ** 5.5% 5.5%
electricity from coal-fired power stations 18% ** 16% 20%
electricity from nuclear power stations 36% ** 31% 30%

electricity from hydroelectric power stations 10% ** 16% 17%

electricity from biomass and waste power stations 2.3% ** 1.7% 1.3%
electricity from wind power stations 11.4% ** 7.6% 1.5%

electricity from other renewable resources 2.9% ** 4.6% 2.6%
district heating 3.8% ** 4.6% 3.3%
Direct primary energy consumption 8 177 GWh ** 188 GWh 199 GWh
natural gas EN3 81% ** 83% 81%
heating oil EN3 16% ** 14% 15%
fuels (petrol, diesel, gas) EN3 2.5% ** 2.6% 3.1%

renewable energy (solar power, bioorganic, etc.) 0.03% *** 0.04% 0.10%
Total indirect energy 9 EN4 1,941 GWh ** 1,751 GWh 1,960 GWh
Total business travel EN34 814 m Pkm ** 712 m Pkm 516 m Pkm
rail travel 3.4% * 4.6% 5.0%
road travel 0.7% * 1.0% 1.5%
air travel 96% *** 94% 94%
Number of flights (segments) 373,950 *** 342,458 267,530
Total paper consumption EN1 14,139 t ** 13,378 t 14,393 t
post-consumer recycled (EN2) 10 6.9% ** 8.3% 8.4%
new fibres ECF + TCF 11 92.6% ** 91.5% 91.5%
new fibres chlorine bleached 0.4% ** 0.2% 0.1%
Total water consumption EN5 1.80 m m3 * 1.95 m m 3 1.86 m m 3
drinking water 100% n.a. 100% 100%
Total waste EN11 21,999 t * 24,462 t 26,053 t
valuable materials separated and recycled 65% * 70% 59%

incinerated 13.4% * 9.8% 7.8%

landfilled 21% * 20% 33%
Total environmental footprint 12 3,009 GWh ** 2,638 GWh 2,845 GWh
Total CO2 (GHG scope 1 and 2) 13 EN8 267,159 t ** 254,273 t 315,188 t
Direct CO2 (GHG scope1) EN8 14% ** 16% 13%
Indirect CO2 (GHG scope 2) EN8 86% ** 84% 87%
CO2 footprint (GHG scope 1, 2 and 3) 14 531,462 t ** 489,500 t 520,405 t
Legend: GWh = giga watt hour; Pkm = person kilometers; t = tons; m3 = cubic meters; m = million.
1 All figures are based on the level of knowledge as of the end of February 2006. 2 Global Reporting Initiative (see also www.globalreporting.org). EN stands for the Environmental Performance
Indicators defined in the GRI. EN in brackets indicates a minor deviation from GRI that is commented. 3 Non-significant discrepancies from 100% are possible due to rounding errors. 4 Specifies the
estimated reliability of the aggregated data and corresponds approximately to the following uncertainty: up to 5% ***, up to 15% **, up to 30% *. Uncertainty is the likely difference between a
reported value and a real value. 5 Trend: at a *** / ** / * data quality, the respective trend is stable () if the variance equals 5 / 10 / 15%, low decreasing / increasing ( ) if it equals 10 / 20 / 30%

and decreasing / increasing if the variance is bigger than 10 / 20 / 30% ( ). 6 Refers to energy consumed within the operational boundaries of UBS. 7 Refers to energy purchased that is produced by
converting primary energy and consumed within the operational boundaries of UBS (electricity and district heating). 8 Refers to primary energy purchased which is consumed within the operational
boundaries of UBS (oil, gas, fuels). 9 Refers to primary energy, which is consumed to produce the electricity and district heating consumed by UBS. 10 Differing from the GRI Guidelines, pre-consumer
recycled paper is counted as paper coming from new fibers as a worst case approach. 11 Paper produced from new fiber, which is ECF (Elementary Chlorine Free) or TCF (Totally Chlorine Free) bleached.
12 Shows the environmental impact (through emissions, use of resources, waste) by a process including all relevant upstream and downstream processes. The environmental footprint is approximated
using the equivalent of nonrenewable energy consumed. 13 Refers to the GHG (greenhouse gas) protocol initiative (www.ghgprotocol.org), an international standard for CO2 reporting. Scope 1
accounts for direct greenhouse gas emissions by UBS. Scope 2 accounts for indirect greenhouse gas emissions associated with the generation of imported / purchased electricity, heat or steam.
14 Represents the total global warming potential from all linked relevant upstream and downstream processes. It equals total CO 2 emissions according to the GHG standard (scope 1, 2 and 3).
Validation by SGS Socit Gnrale de Surveillance SA

We have verified the correctness of the statements in the 2005 regard to environmental performance, that it describes the essential
Environmental Report of UBS AG and, where necessary, have requested aspects of the environmental management system at UBS AG and
that proof be presented. We hereby confirm that the report has been that it reflects the actual practices and procedures at UBS AG.
prepared with the necessary care, that its contents are correct with Elvira Bieri and Dr. Erhard Hug, Zurich, February 2006
146
Global Reporting Initiative Content Index
This content index refers to the 2002 Global Reporting Initiative
(GRI) Guidelines and the Financial Services Sector Supplements.
At UBS, we cover this information in this Handbook, the
Financial Report 2005 and on the web.
Global Reporting Initiative Content Index
GRI Content Index 1

Vision and strategy Performance indicators (continued)
1.1 Vision and strategy HB
Environmental indicators
Profile EN1 Total material use other than water HB

EN2 Recycling material HB
2.1 Name of organisation FR HB
EN3 Direct energy use HB
2.2 Products and/or services HB
EN4 Indirect energy use HB
2.3 Operational structure HB
EN5 Total water use HB
2.4 Description of Business Groups & Corporate Center HB
EN8 Greenhouse gas emission HB
2.6 Legal form FR HB
EN11 Total waste HB
2.8 General information / financial highlights FR HB
EN17 Initiatives to use renewable energy sources / efficiency HB
2.10 Contact persons for the report FR HB
EN34 Impact of transportation HB
2.11 Reporting period FR HB
2.12 Report 2004 FR HB Social indicators
2.14 Structural changes FR HB LA1 Workforce HB
2.15 Reporting structure FR LA2 Job creation HB
2.16 Re-statements FR LA9 Employee training HB
2.19 Changes in accounting FR LA10 Equal opportunity HB
2.21 Independent assurance FR HB LA11 Composition of senior management HB
2.22 Additional information FR HB LA12 Benefits beyond legally mandated HB
LA13 Employee representation HB
Governance structure and management systems LA17 Training and education programs HB
3.1 Governance structure HB HR4 Discrimination prevention HB
3.2 Independency of directors HB SO1 Impact on communities HB
3.3 Board members expertise HB SO2 Bribery & corruption HB
3.4 Board level processes HB SO4 Awards received HB
3.5 Executive compensation HB PR3 Respect for privacy HB
3.6 Corporate responsibility structure / environmental governance HB Social performance supplement
3.7 Principles and policies HB CSR1 CR statement HB
3.8 Shareholders participation rights HB CSR2 CR organisation HB
3.9 Major stakeholders HB CSR3 CR audits HB
3.13 Risk management HB CSR4 Management of sensitive issues HB
3.14 Externally developed voluntary charters HB INT1 Policy on employment HB
3.15 Principal memberships in industry and business associations HB INT2 Staff turnover HB
3.19 Environmental management system Web only INT3 Employee satisfaction HB
3.20 Certification (ISO 14001) HB INT4 Senior management remuneration HB
INT7 Employee profile HB
Performance indicators
SOC1 Charitable contributions HB
Economic indicators
EC1 Net operating income FR HB Environmental performance supplement
EC2 Key markets by region FR HB F1 Environmental policies HB
EC3 Procurement spending HB F2 Processes for assessing and screening environmental risks HB
EC5 Personnel expenses FR F3 Thresholds for environmental risk assessment procedures HB
EC6 Interests and dividends FR F5 Staff competency HB
EC7 Increase/reduction in retained earnings at the end of the period FR F6 Environmental audits HB
EC8 Taxes FR F7 Engagement HB
EC10 Donations to the community HB F9 Assets subject to environmental screening HB
1 UBS used the guidelines provided by the Global Reporting Initiative (www.globalreporting.org) for reference.
FR = UBS Financial Report 2005, HB = UBS Handbook 2005 / 2006
148
Cautionary statement regarding forward-looking statements | This communication contains statements that constitute
forward-looking statements, including, but not limited to, statements relating to the implementation of strategic initiatives, such
as the European wealth management business, and other statements relating to our future business development and economic
performance.While these forward-looking statements represent our judgments and future expectations concerning the development
of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ
materially from our expectations. These factors include, but are not limited to, (1) general market, macro-economic, governmental
and regulatory trends, (2) movements in local and international securities markets, currency exchange rates and interest rates, (3)
competitive pressures, (4) technological developments, (5) changes in the financial position or creditworthiness of our customers,
obligors and counterparties and developments in the markets in which they operate, (6) legislative developments, (7) management
changes and changes to our Business Group structure and (8) other key factors that we have indicated could adversely affect our
business and financial performance which are contained in other parts of this document and in our past and future filings and
reports, including those filed with the SEC. More detailed information about those factors is set forth elsewhere in this document
and in documents furnished by UBS and filings made by UBS with the SEC, including UBSs Annual Report on Form 20-F for the year
ended 31 December 2005. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its
On the cover forward-looking statements whether as a result of new information, future events, or otherwise.
Together the world's most powerful team.
What You & Us means to Gary Wai Bong Chan, who works for us in Tokyo. Imprint | Publisher / Copyright: UBS AG, Switzerland | Languages: English, German | SAP-No. 80532E-0601
ab
Handbook 2005/2006
ab
UBS Handbook 2005/2006
UBS AG
P.O. Box, CH-8098 Zurich
P.O. Box, CH-4002 Basel
www.ubs.com

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Corporate Responsibility 137

Global Reporting Initiative Content Index 147

UBS nancial highlights

UBS income statement For the year ended % change from

Performance indicators from continuing operations 3

Pre-goodwill earnings from continuing operations 3

Operating income 39,896 35,971 32,957 11

UBS balance sheet & capital management As at % change from

Sources of information about UBS

Publications SAP number and the language preference where applicable,

Quarterly reports Messaging service

Strategy and structure

Our strategy ready significant progress we had made towards a consistent

Our strategy in Asia Pacific

Our strategy in Asia Pacific (continued from page 9)

Integrated client-service model

UBSs business structure (as of 1 January 2006)

The making of UBS

The UBS workforce

39% of them employed in the Americas, 37% in Switzerland, 50

Recruitment and retention 0

Graduate and MBA hiring across UBS

training, and development. In 2005, for the first time, we in-

part of our annual performance management process. We 10,641 9,651

ternity leave in Switzerland, for example, was extended to at

Gender distribution by employee category 1

Measuring employee commitment

Our Values for Action

Being a responsible employer

Employee representation ments and collective redundancies. Employee representation in

Global Wealth Management&Business Banking

Business Group / Business Unit reporting

Business Wealth Management International & Switzerland, serving

Marcel Rohner | Chairman & CEO

Wealth Management International& Switzerland

Business We also provide financial intermediaries, both inside and

Organizational structure Clients

Invested assets by client domicile Invested assets by client wealth

France Italy United Kingdom1

Germany Spain Other countries

16 Munich Locations end-2000 30

17 Offenbach New locations since 2001

European wealth management: UBS Client Experience

advisor will recommend

Italy any changes that might

Germany need to be made.

Spain My client advisor helps My client advisor

me to select the most p proposes financing and

Invested assets by asset class Invested assets by currency

Business within UBSs Investment Bank. At the same time, Paine-

Geographical presence in key markets

CALIFORNIA TENNESSEE NORTH CAROLINA

Wealth Management US offices:

Invested assets by client wealth Invested assets by asset class

Business Banking Switzerland

Invested assets by asset class

Corporate clients Financial institutions

Loan portfolio by loan category Development of UBSs recovery portfolio, 19992005