Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

8.622% Noncumulative Trust Preferred Securities
8.622% Noncumulative Company Preferred Securities
7.247% Noncumulative Trust Preferred Securities
7.247% Noncumulative Company Preferred Securities
Subordinated Guarantee of UBS AG with respect to Company Preferred Securities
$100,000,000 Variable Rate Credit Linked Notes due September 5, 2002
$14,000,000 Equity Linked Notes due February 1, 2007
Guarantees with respect to certain securities of UBS Americas Inc.

Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities.

A reader-friendly PDF version of this report is available at www.ubs.com/investors, in the SEC filings section.

This annual report contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking information to encourage companies to provide prospective information about themselves without fear of litigation so long as the information is identified as forward looking and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the information. The words “anticipate”, “believe”, “expect”, “estimate”, “intend”, “plan”, “should”, “could”, “may” and other similar expressions are used in connection with forward-looking statements. In this annual report, forward-looking statements may, without limitation, relate to:

	•
•	The implementation of strategic initiatives, such as the implementation of the European wealth management strategy and ~~a new business model for the UBS Capital business unit~~our plans to continue to expand our corporate finance business;

	•	The development of revenues overall and within specific business areas, including the possibility of further losses in UBS Capital in 2002;

	•	The development of operating ~~expenses~~expenses;

	•	The anticipated level of capital expenditures and associated depreciation ~~expense~~expense;

	•	The expected impact of the risks that affect UBS’s business, including the risk of loss resulting from the default of an obligor or ~~counterparty~~counterparty;

	•	Expected credit losses based upon UBS’s credit ~~review~~review; and

	•	Other statements relating to UBS’s future business development and economic ~~performance~~performance.

There can be no assurance that forward-looking statements will approximate actual experience. Several important factors exist that could cause UBS’s actual results to differ materially from expected results as described in the forward-looking statements. Such factors include:

	•
•	General economic conditions, including prevailing interest rates and performance of financial markets, which may affect demand for products and services and the value of our ~~assets~~assets;

	•		Changes in UBS’s expenses associated with acquisitions and ~~dispositions~~dispositions;

	•	UBS’s and PaineWebber’s ability to achieve anticipated cost savings and efficiencies from their merger, to fully integrate their sales and distribution channels in a timely manner and to retain their key employees

•	General competitive factors, locally, nationally, regionally and ~~globally~~globally;

	•		Industry consolidation and ~~competition~~competition;

	•		Changes affecting the banking industry generally and UBS’s banking operations specifically, including asset ~~quality~~quality;

	•		Developments in ~~technology~~technology;

	•		Credit ratings and the financial position of obligors and ~~counterparties~~counterparties;

	•		UBS’s ability to control risk in its ~~businesses~~businesses;

	•		Changes in ~~federal~~ tax laws in the countries in which UBS operates, which could adversely affect the tax advantages of certain of UBS’s products ~~and~~or subject it to increased ~~taxation~~taxation;

	•		Changes in accounting standards applicable to UBS, as more fully described below;

	•		Changes in investor confidence in the future performance of financial markets, affecting the level of transactions they undertake, and hence the levels of transaction based fees UBS earns;

	•		Changes in the market value of securities held by UBS’s clients, affecting the level of asset based fees UBS can earn on the services it provides; and

	•		Changes in currency exchange rates, including the exchange rate for the Swiss franc into ~~U.S. dollars~~US dollars.

UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

Included in the Notes to the Financial Statements is a description of the expected effect of accounting standards that have been issued but have not yet been adopted, for both IAS and US GAAP.

Although we believe that description includes all significant matters that have been approved by the IASB and the FASB, those standard setting bodies have a large number of projects in process that could result in significant new accounting standards or significant changes to existing standards.

This increased level of activity includes normal ongoing development and efforts to improve the existing body of accounting standards, and also is in response to a number of perceived deficiencies in accounting standards exemplified by reported abuses by various companies.

We believe it is likely that several new accounting standards will be issued in the near future, and that those new standards could have a significant effect on our reported results of operations and financial position, but cannot predict the precise nature or amounts of any such changes.

~~UBS’s financial statements have been prepared in accordance with International Accounting Standards (“IAS”) and are denominated in Swiss francs, or “CHF”,~~ Please see pages 185 to 189 of the ~~legal tender of Switzerland. Certain financial information has also been presented in accordance with U.S. GAAP.~~attached Financial Report 2001.

The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars or “USD”, per one Swiss franc. The “noon buying rate” is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.


	~~(9)~~	~~Excludes a proposed distribution of CHF 1.60 per share (USD 0.976 per share at year end 2000 spot rate) in the form of a par value reduction.~~


~~(10)~~	~~See Item 5B on page 24 of this Form 20-F for information about the nature of these ratings.~~

~~(11)~~	Please see pages 4 to 5 of the attached Financial Report 2000 for a definition of significant financial events. UBS introduced the concept of significant financial events for the first time in its 1999 reporting and did not define significant financial events until 1999. Adjusted figures are therefore not shown for 1998 or 1997.

~~2. On 29 June 1998, Union Bank of Switzerland (founded 1860) and Swiss Bank Corporation (founded 1854) merged~~Exhibit 7 to ~~form UBS.~~

3. UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, which means that it is a corporation that has issued shares of common stock to investors. The address and telephone number of our principal places of business are Bahnhofstrasse 45, Zurich, Switzerland, telephone 011 41-1-234 11 11; and Aeschenvorstadt 1, Basel, Switzerland, telephone 011 41-61-288 20 20.

~~43% of the offices and branches in Switzerland were owned directly by UBS with the remainder, along with most of UBS’s offices outside Switzerland, being held under commercial leases.~~

~~These premises are subject to continuous maintenance and upgrading and are considered suitable and adequate for our current and anticipated operations.~~

The tables below set forth selected statistical information extracted from the financial statements regarding the Group’s banking operations. Unless otherwise indicated, average balances for the year ended 31 December 2000 and 1999 are calculated from monthly data, and averages for the year ended 31 December 1998 are calculated from quarterly data. Certain prior year balances and figures have been reclassified to conform to current year presentation. The distinction between domestic and foreign generally is based on the domicile of the booking location. For loans, this method is not significantly different from an analysis based on domicile of the borrower. Disclosures for the year ended 31 December 1996, where applicable, are presented for Union Bank of Switzerland and Swiss Bank Corporation individually. Combined data is not presented for this period because differences between accounting policies of the predecessor banks were significant or could not be quantified, or because significant inter-company balances could not be identified and eliminated. For purposes of this selected statistical information, “UBS” refers to Union Bank of Switzerland and “SBC” refers to Swiss Bank Corporation.

The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2000, 1999 and 1998.

31.12.00 31.12.99 31.12.98
Average Average Average Average Average
CHF million, except where indicated Balance Interest Rate (%) Balance Interest Rate (%) Balance
Assets

Money market paper
Domestic 1,175 46 3.9 2,798 27 1.0 4,002
Foreign 63,752 2,924 4.6 48,179 1,144 2.4 20,679
Due from banks
Domestic 13,366 1,273 9.5 19,451 1,757 9.0 22,703
Foreign 16,994 2,280 13.4 28,999 2,739 9.4 43,705
Securities borrowed and reverse repurchase agreements
Domestic 8,383 558 6.7 3,265 117 3.6 7,751
Foreign 348,395 18,530 5.3 223,962 11,305 5.0 275,549
Trading portfolio
Domestic 20,407 243 1.2 36,269 72 0.2 78,211
Foreign 208,076 8,829 4.2 124,564 4,439 3.6 119,629
Loans
Domestic 181,646 10,985 6.0 200,111 8,750 4.4 207,937
Foreign 67,528 3,813 5.6 58,634 3,485 5.9 72,445
Financial Investments
Domestic 2,658 60 2.3 2,066 74 3.6 2,363
Foreign 7,306 142 1.9 3,737 86 2.3 7,070
Net interest on swaps 2,062 1,609

Total interest-earning assets
939,686 51,745 5.5 752,035 35,604 4.7 862,044

Non-interest-earning assets
Positive replacement values 135,762 146,036 164,708
Fixed assets 9,660 8,824 11,316
Other 32,925 34,957 35,050

Total average assets
1,118,033 941,852 1,073,118

[Continued from above table, first column(s) repeated]

31.12.98
Average
CHF million, except where indicated Interest Rate (%)
Assets

Money market paper
Domestic 70 1.7
Foreign 741 3.6
Due from banks
Domestic 1,600 7.0
Foreign 4,724 10.8
Securities borrowed and reverse repurchase agreements
Domestic 89 1.1
Foreign 10,291 3.7
Trading portfolio
Domestic 78 0.1
Foreign 3,823 3.2
Loans
Domestic 8,839 4.3
Foreign 5,440 7.5
Financial Investments
Domestic 104 4.4
Foreign 268 3.8
Net interest on swaps 1,375

Total interest-earning assets
37,442 4.3

Non-interest-earning assets
Positive replacement values
Fixed assets
Other
Total average assets

31.12.00 31.12.99 31.12.98
Average Average Average Average Average
CHF million, except where indicated Balance Interest Rate (%) Balance Interest Rate (%) Balance
Liabilities and equity

Money market paper issued
Domestic 79 0 0 146 1 0.7 255
Foreign 78,075 4,338 5.6 57,956 2,246 3.9 51,435
Due to banks
Domestic 31,133 2,397 7.7 37,581 3,254 8.7 69,140
Foreign 57,258 3,758 6.6 41,583 2,261 5.4 51,209
Securities lent and repurchase agreements
Domestic 12,700 478 3.8 12,830 106 0.8 12,261
Foreign 284,220 14,437 5.1 144,837 8,340 5.8 186,819
Trading portfolio
Domestic 1,078 4 0.4
Foreign 66,597 5,305 8.0 48,560 2,070 4.3 65,677
Due to customers
Domestic 143,809 2,202 1.5 155,887 1,931 1.2 161,688
Foreign 143,432 7,303 5.1 122,411 6,399 5.2 132,338
Long-term debt
Domestic 15,490 778 5.0 16,241 951 5.9 21,267
Foreign 38,020 2,615 6.9 37,963 2,136 5.6 31,024

Total interest-bearing liabilities
871,891 43,615 5.0 675,995 29,695 4.4 783,113

Non-interest-bearing liabilities
Negative replacement values 157,668 171,800 187,934
Other 53,049 60,946 69,184

Total liabilities 1,082,608 908,741 1,040,231
Shareholders’ equity 35,425 33,111 32,887

Total average liabilities and shareholders’ equity 1,118,033 941,852 1,073,118

Net interest income
8,130 5,909

Net yield on interest-earning assets
0.9 0.8

[Continued from above table, first column(s) repeated]

31.12.98
Average
CHF million, except where indicated Interest Rate (%)
Liabilities and equity

Money market paper issued
Domestic 2 0.8
Foreign 2,557 5.0
Due to banks
Domestic 2,422 3.5
Foreign 5,783 11.3
Securities lent and repurchase agreements
Domestic 71 0.6
Foreign 7,472 4.0
Trading portfolio
Domestic
Foreign 1,741 2.7
Due to customers
Domestic 2,613 1.6
Foreign 7,277 5.5
Long-term debt
Domestic 1,138 5.4
Foreign 1,348 4.3

Total interest-bearing liabilities
32,424 4.1

Non-interest-bearing liabilities
Negative replacement values
Other
Total liabilities
Shareholders’ equity
Total average liabilities and shareholders’ equity
Net interest income
5,018

Net yield on interest-earning assets
0.6

~~All assets and liabilities are translated into Swiss francs at uniform month-end rates. Income and expenses are translated at monthly average rates.~~

Average rates earned and paid on assets and liabilities can change from period to period based on the changes in interest rates in general, but are also affected by changes in the currency mix included in the assets and liabilities. This is especially true for foreign assets and liabilities. Tax exempt income is not recorded on a tax-equivalent basis. For all three years presented, tax exempt income is considered to be insignificant and therefore the impact from such income is negligible.

The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 2000 compared to the year ended 31 December 1999, and for the year ended 31 December 1999 compared to the year ended 31 December 1998. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rate have been allocated proportionally.

The following table analyzes average deposits and the average rates on each deposit category listed below at and for the years ended 31 December 2000, 1999 and 1998. The geographic allocation is based on the location of the office or branch where the deposit is made.

~~As of 31 December 2000, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:~~

The following table presents period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rate and period-end rates at and for the years ended 31 December 2000, 1999 and 1998.

Money Market Paper Issued Due to Banks
CHF million, except where indicated 31.12.00 31.12.99 31.12.98 31.12.00 31.12.99 31.12.98
Period-end balance 74,780 64,655 51,527 51,245 40,580 10,361
Average balance 78,154 58,102 51,690 58,031 30,714 53,941
Maximum month-end balance 89,821 76,368 53,710 73,355 64,562 89,072
Average interest rate during the period (%) 5.6 3.9 5.0 7.0 9.7 5.1
Average interest rate at period-end (%) 6.0 4.6 4.6 4.1 4.8 4.4

[Continued from above table, first column(s) repeated]

Repurchase Agreements
CHF million, except where indicated 31.12.00 31.12.99 31.12.98
Period-end balance 330,857 217,736 137,617
Average balance 278,601 149,071 177,298
Maximum month-end balance 342,427 217,736 202,062
Average interest rate during the period (%) 4.8 4.8 3.6
Average interest rate at period-end (%) 4.8 3.9 4.9

Loans are widely dispersed over customer categories both within and outside of Switzerland. With the exceptions of private households (foreign and domestic) and banks and financial institutions outside Switzerland, there is no material concentration of loans. For further discussion of the loan portfolio, see “—Risk Analysis—Credit Risk” in the attached Handbook 2000-2001. The following table illustrates the diversification of the loan portfolio among customer categories at 31 December 2000, 1999, 1998, 1997 and 1996. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank.


~~(2)~~	~~Includes transportation, communication, health and social work, education and other social and personal service activities.~~

~~(3)~~	~~Includes mining and electricity, gas and water supply.~~

The following table analyzes the Group’s mortgage portfolio by geographic origin of customer and type of mortgage at 31 December 2000, 1999, 1998, 1997 and 1996. Mortgages are included in the aforementioned industry categories.

The following table discloses loans by maturities at 31 December 2000. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 32 to the Financial Statements.

The Group classifies a loan as impaired when it is determined that there is a high probability that it will suffer a partial or full loss. A provision is then made with respect to the probable loss to be incurred for the loan in question. Within the category are non-performing loans, for which the contractual payments of principal, interest or commission are in arrears for 90 days or more. After the 90-day period, interest income is no longer recognized on the loan and a charge is taken for the unpaid and accrued interest or commission receivable. Unrecognized interest related to non-performing loans amounted to CHF 182 million, CHF 409 million, CHF 423 million and CHF 450 million for the years ended 31 December 2000, 1999, 1998 and 1997, respectively.

The table below provides an analysis of the Group’s non-performing and restructured loans. For further discussion of impaired and non-performing loans, see “—Risk Analysis—Credit Risk” in the attached UBS Handbook 2000-2001.

In addition to the data above analyzing non-performing loans, the Group had CHF 8,042 million, CHF 9,383 million and CHF 10,333 million in “other impaired loans” for the years ended 31 December 2000, 1999 and 1998, respectively. These are loans that are current, or less than 90 days in arrears, with respect to payment of principal or interest; however, the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As of 31 December 2000 specific allowances of CHF 2,835 million have been established against these loans, which are primarily domestic.

Cross-border outstandings consist of general banking products such as loans and deposits with third parties, credit equivalents of over-the-counter derivatives and repurchase agreements, and the market value of the inventory of securities. The outstandings are monitored and reported on an ongoing basis by the credit risk management and control organization, with a dedicated country risk information system. With the exception of the 27 most developed economies, the exposures are rigorously limited.

Claims that are secured by third party guarantees are recorded against the guarantor’s country of domicile. Outstandings that are secured by collateral are recorded against the country where the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.

The following tables list those countries for which the cross-border outstandings exceeded 0.75% of total assets at 31 December 2000, 1999 and 1998. At 31 December 2000, there were no outstandings that exceeded 0.75% of total assets in any country currently facing liquidity problems that the Group expects would materially impact the country’s ability to service its obligations.

~~For more information on cross-border outstandings, see “—Risk Analysis—Credit Risk” in the attached UBS Handbook 2000-2001.~~

~~The following table provides an analysis of movements in allowances and provisions for credit losses.~~

As a result of the Swiss bankruptcy laws, banks will write off loans against allowances only upon final settlement of bankruptcy proceedings, the sale of the underlying asset and/or in case of the forgiveness of debt. Under Swiss law, a creditor can continue to collect from a debtor who has emerged from bankruptcy, unless the debt has been forgiven through a formal agreement.

The following tables provide an analysis of the allocation of the allowances and provisions for credit losses by customer categories and geographic location at 31 December 2000, 1999, 1998, 1997 and 1996. For a description of procedures with respect to allowances and provisions for credit losses, see “—Risk Analysis—Credit Risk” in the attached UBS Handbook 2000–2001.


~~(5)~~	~~Includes hotels and restaurants.~~

~~(6)~~	~~The 2000, 1999 and 1998 amounts include CHF 54 million, CHF 149 million and CHF 435 million of provisions and commitments for contingent liabilities, respectively.~~

~~(7)~~	The 1997 amount includes a provision for commitments and contingent liabilities of CHF 472 million. In addition, the 1996 SBC amount includes CHF 603 million of provisions for commitments and contingent liabilities.

~~(8)~~	~~For years prior to 2000, no detailed industry classifications are available.~~

The following table presents the percentage of loans in each category to total loans. This table can be read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by loan categories to evaluate the credit risks in each of the categories.

~~For comments on UBS Group’s balance sheet and consolidated cash flows, please see pages 18 to 19 of the attached Financial Report 2000.~~

UBS’s financial stability stems from the fact that it is one of the most well capitalized banks in the world. UBS believes that this financial strength is a key part of the value proposition offered to both clients and investors. For details of UBS Group’s long term credit ratings, please see the Selected Financial Data on page 4 above. These ratings are also shown in the Group Financial Highlights on page 7 of the attached Financial Report 2000 and on page 4 of the attached UBS Handbook 2000-2001.

Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any explanation of the significance of such rating may be obtained only from such rating agency. There is no assurance that any such credit rating will remain in effect for any given period of time or that such rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency, if in such rating agency’s judgment, circumstances so warrant. Moody’s announced on 28 April 2000 that it had changed its outlook for its long-term rating of UBS AG from stable to negative.

~~Please see Notes 35 and 36 to the UBS Group Financial Statements on pages 119 to 122 of the attached Financial Report 2000.~~

~~For 2000 and 1999, please see Note 36 to the UBS Group Financial Statements on page 122 of the attached Financial Report 2000.~~

Total remuneration of related parties during 1998 amounted to CHF 102.8 million. Total loans and advances receivable were CHF 27.1 million at 31 December 1998. The number of long-term stock options outstanding from equity plans was 127,500 at 31 December 1998.

~~The total number of shares held by members of the Board of Directors, Group Executive Board and Group Managing Board was 4,635,804 as of 31 December 1998.~~

~~4. Information regarding the stock exchange price history of UBS AG’s ordinary shares is shown in the table below.~~

~~UBS’s shares are traded on the SWX Swiss Exchange, the New York Stock Exchange and the Tokyo Stock Exchange. The symbols are shown on page 157~~ Not required because this Form 20-F is filed as an annual report.

~~The SWX Swiss Exchange was founded in 1993 as the successor to the local stock exchanges of Zurich, Basel~~A—History and Geneva. Trading in foreign equities and derivatives began in December 1995. In August 1996, the SWX Swiss Exchange introduced full electronic trading in Swiss equities, derivatives and bonds. The aggregate turnoverDevelopment of the ~~SWX Swiss Exchange, for both equity and debt instruments, was in excess of CHF 1.3 trillion in 2000. As of 31 December 2000, the equity securities of more than~~

~~450 corporations, including over 170 foreign corporations, were listed~~

PART I(continued)

C—Organizational Structure.

Please see Note 36 to the Financial Statements on pages 147 to 150 of the attached Financial Report 2001.

D—Property, Plant and ~~traded on the SWX Swiss Exchange.~~Equipment.

Please see pageProperty, plant and equipmenton page 189 of the attached Financial Report 2001.

Information Required by Industry Guide 3

Please see pages 190 to 205 of the attached Financial Report 2001.

Item 5. Operating and Financial Review and Prospects.

A—Operating Results.

Please see sectionsInformation for Readers,Group Financial Review andReview of Business Group Performanceon pages 8 to 73 of the attached Financial Report 2001.
Please also see Note 40 to the Financial StatementsReconciliation of International Accounting Standards (IAS) to United States Generally Accepted Accounting Principles (US GAAP) and Note 41 to the Financial StatementsAdditional Disclosures Required Under US GAAP and SEC Ruleson pages 154 to 168 of the attached Financial Report 2001 and theCurrency managementsubsection of the Group Treasury section, on page 83 of the attached Handbook 2001/2002.

B—Liquidity and Capital Resources.

We believe that our working capital is sufficient for the company’s present requirements.
Group liquidity and capital management is undertaken at UBS by Group Treasury as an integrated asset and liability management function. For a detailed discussion of Group Treasury’s functions and results, including our capital resources, please see pages 77 to 85 of the attached UBS Handbook 2001/2002, and Note 19Debt Issued on pages 108 to 113 of the attached Financial Report 2001.
For comments on UBS Group’s balance sheet and cash flows, please see pages 25 to 26 of the attached Financial Report 2001.
For comment on UBS’s long term credit ratings, please see theCapital strengthsubsection on page 11 of the attached UBS Handbook 2001/2002.

C—Research and Development, Patents and Licenses, etc.

Not applicable.

D—Trend Information.

Please see the subsectionOutlook 2002 on page 26 of the attached Financial Report 2001, and pages 13-14, 37, 44, and 50 of the attached Handbook 2001/2002, which contain trend information.

(UBS LOGO)

PART I(continued)

Item 6. Directors, Senior Management and Employees.

A—Directors and Senior Management.


	1, 2, 3	Please see pages 94 to 98 of the attached UBS Handbook 2001/2002.

The Board of Directors has nominated Ernesto Bertarelli to become a member of the Board of Directors, subject to the approval of the Annual General Meeting on 18 April 2002. His biographical details are provided below:
Ernesto Bertarelli (born 1965), a Swiss citizen, has been the Chief Executive Officer and Chairman of the Executive Committee of Serono International SA since 1996. He started his career with Serono in 1985 and held several positions in sales and marketing. Prior to his appointment as CEO, he served for five years as Deputy CEO and Vice Chairman of the Board of Directors. Mr. Bertarelli received his Bachelor of Science degree from Babson College in Boston, Massachusetts, and his MBA from Harvard Business School. Mr. Bertarelli’s business address is Serono International SA, Chemin des Mines 15 bis, 1202 Genève.


	4. and 5.	None.

B—Compensation.

Please see Notes 33 and 34 to the Financial Statements on pages 141 to 146 of the attached Financial Report 2001.

C—Board Practices.

Please see pages 88 to 98 of the attached UBS Handbook 2001/2002 and Note 34 to the Financial Statements on page 146 of the attached Financial Report 2001.

D—Employees.

Please see page 24 of the attached Financial Report 2001 and the charts on page 13 of the attached UBS Handbook 2001/2002.

E—Share Ownership.

Please see Notes 33 and 34 to the Financial Statements on pages 141 to 146 of the attached Financial Report 2001.

Item 7. Major Shareholders and Related Party Transactions.

A—Major Shareholders.

Please see pages 127 to 128 of the attached UBS Handbook 2001/2002.

(UBS LOGO)

PART I(continued)

B—Related Party Transactions.

For 2001 and 2000, please see Note 34 to the Financial Statements on page 146 of the attached Financial Report 2001.
The number of long-term stock options outstanding to related parties from equity plans was 823,848 at 31 December 1999.
The total loans and advances receivable were CHF 28 million at 31 December 1999.
The total amounts of shares and warrants held by members of the Board of Directors, Group Executive Board and Group Managing Board were 7,368,276 and 11,424,514 as of 31 December 1999. (These figures have been restated to reflect the effect of the 3 for 1 share split which took place on 16 July 2001).

C—Interests of Experts and Counsel.

Not applicable because this Form 20-F is filed as an annual report.

Item 8. Financial Information.

A—Consolidated Statements and Other Financial Information.

Please see Item 18 of this Form 20-F.

B—Significant Changes.

UBS is not aware of any significant change that has occurred since the date of the annual financial statements included in this Form 20-F.

Item 9. The Offer and Listing.

A—Offer and Listing Details.


	1, 2, 3, 5, 6, 7 Not required because this Form 20-F is filed as an annual report.

	4.	Please see page 126 of the attached UBS Handbook 2001/2002.

B—Plan of Distribution

Not required because this Form 20-F is filed as an annual report.

C—Markets.

UBS’s shares are traded on the virt-x, the New York Stock Exchange and the Tokyo Stock Exchange. The symbols are shown on page 123 of the attached UBS Handbook 2001/2002.

Trading on the SWX Swiss Exchange occurs through a fully integrated trading system covering the entire process from trade order through settlement. Trading begins each business day at 9:00 a.m. and continues until 5:00 p.m. After close of exchange trading, new orders can be entered or deleted until 10:00 p.m., the system is not available between 10:00 p.m. and 6:00 a.m. From 6:00 a.m., new entries and inquires can be made until 9:00 a.m. For the opening phase, starting at 9:00 a.m., the system closes the order book and starts opening procedures; it establishes the opening prices and determines orders to be executed according to established rules that match bid and asked prices.virt-x

Transactions take place through the automatic matching of orders. Each valid order is entered and listed according to the price limit. In general, market orders (orders placed at best price), are executed first, followed by limit orders (orders placed at a price limit), provided that if several orders are listed at the same price, they are executed according to the time of entry. Transactions in shares elected by or through members of the SWX Swiss Exchange are subject to a stock exchange levy of up to 0.02%, calculated on the settlement price.
Since July 2001, Swiss blue chip stocks have no longer been traded on the SWX Swiss Exchange. All trading in the shares of members of the Swiss Market Index (SMI) now takes place on virt-x, although these stocks remain listed on the SWX Swiss Exchange.
virt-x, the new name for Tradepoint, is a collaboration between the TP Group LDC and the SWX Swiss Exchange to provide the first platform on which all European blue chips can be traded electronically and which offers integrated clearing and settlement. virt-x is a Recognized Investment Exchange supervised by the Financial Services Authority in the United Kingdom. It is delivered on the modern, scalable SWX trading platform.

Banks and broker-dealers doing business in Switzerland are required to report all transactions in listed securities traded on the SWX Swiss Exchange. For transactions effected via the exchange system, reporting occurs automatically. Off-exchange transactions must be reported to the SWX Swiss Exchange within 30 minutes. Transaction information is collected, processed and immediately distributed by the SWX Swiss Exchange. Transactions outside trading hours must be reported no later than the next opening. The SWX Swiss Exchange distributes a comprehensive range of information through various publications, including in particular the Swiss Market Feed (“SMF”). The SMF supplies SWX Swiss Exchange data in real time to all subscribers, as well as to other information providers such as Reuters. (UBS LOGO)

Exchange transactions are usually settled on a “T+3” basis, meaning that delivery and payment of exchange transactions occur three days after the trade date. The SWX Swiss Exchange promotes efficient processing by automatically transmitting transactions to SIS SEGAINTERSETTLE AG via the SE OM electronic settlement system.9

A listed security may be suspended by the SWX Swiss Exchange if large price fluctuations are observed, if important, price-sensitive information is about to be disclosed, or in other situations that might endanger fair and orderly trading. Surveillance and monitoring is the responsibility of the SWX Swiss Exchange, as the organizer of the market. The aim of supervision is to ensure fair trading and an orderly market.

PART I(continued)

All the constituents of the SMI are traded on virt-x. Altogether, approximately 600 blue chips representing around 80% of European market capitalization are traded on virt-x, in the currency of their home market.
virt-x is available for trading on all TARGET days, as specified by the European Central Bank. The opening hours are 06:00 to 22:00 CET and the trading hours are 09:00 to 17:30 CET. During the pre-opening phase from 17:30 to 22:00 CET on the previous business day and from 06:00 to 09:00 CET on the current business day, orders can be entered or deleted. From 09:00 CET, once the opening price is set, trading begins. Orders are executed automatically according to established rules that match bid and asked prices. Regardless of their size or origin, incoming orders are executed on a price/time priority, i.e., in the order of price (first priority) and time received (second priority). Depending on the type of transaction, the order and trade details are also transmitted to data vendors (Reuters, Bloomberg, Telekurs, etc.).
In most cases, each trade triggers an automatic settlement instruction which is routed through to the Swiss national central securities depository SIS SEGAINTERSETTLE AG, the UK national central securities depository CRESTCo or Euroclear.
All trades executed through the order book settle on a uniform “T+3” basis, meaning that delivery and payment of exchange transactions occur three days after the trade date. The buyer is able to ask virt-x to enforce settlement if the seller has not delivered within two days of the intended settlement date.
Any transaction executed under the rules of virt-x must be reported to virt-x. Order book executions are automatically reported by the trading system. There are separate provisions for the delayed reporting of certain qualifying trades. Individual elements of Portfolio trades must be reported within one hour while block trades and enlarged risk trades must be reported when the business is substantially (80%) complete, or by the end of order book trading that day, unless the trade is agreed one hour or less before the market close, when the Trade must be reported by the end of order book trading on the following market day. Block trades and enlarged risk trades are subject to minimum trade size criteria. During normal trading hours all other transactions must be reported within three minutes. The enlarged risk trades provisions enable a member to protect a client’s interest while the member works a large trade on behalf of the client. The block trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.
In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, virt-x may take whatever measures it deems necessary to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.

Trading on the New York Stock Exchange

~~UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.~~

~~As of 31 December 2000, the equity securities of more than 2,800 corporations were listed on the NYSE. The NYSE is open Monday through Friday, 9:30 A.M. – 4:~~
UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.
As of 31 December 2001, the equity securities of more than 2,797 corporations were listed on the NYSE.
The NYSE is open Monday through Friday, 9:30 A.M.-4:00 P.M., eastern time.
The NYSE is an agency auction market. Trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the US over-the-counter market, the price is determined by a dealer who buys and sells out of inventory.
At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or through a floor broker. As a result, the flow of buy and sell orders for each stock is funneled to a single location.

The NYSE is an agency auction market. The essential point is that trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the over-the-counter market, the price is determined by a dealer who buys and sells out of inventory. (UBS LOGO)

At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or by a floor broker. As a result, the flow of buy and sell orders for each stock is funneled to a single location.

PART I(continued)

This heavy stream of diverse orders is one of the great strengths of the Exchange. It provides liquidity—the ease with which securities can be bought and sold without wide price fluctuations.
When an investor’s transaction is completed, the best price will have been exposed to a wide range of potential buyers and sellers.
Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts NYSE regulatory personnel to possible insider trading abuses or other prohibited trading practices. The Exchange’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on broker’s sales practices, and the continuous monitoring of specialist operations.

Trading on the ~~great strengths of the Exchange. It provides liquidity—the ease with which securities can be bought and sold without wide price fluctuations.~~Tokyo Stock Exchange

~~When an investor’s transaction is completed, the best price will have been exposed to a wide range of would-be buyers and sellers.~~
Volumes of UBS shares traded on the Tokyo Stock Exchange are negligible in comparison to the volumes on virt-x or on the NYSE.

Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts NYSE regulatory personnel to possible insider trading abuses or other prohibited trading practices. The Exchange’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on broker’s sales practices, and the continuous monitoring of specialist operations.

D—Selling Shareholders.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

E—Dilution.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

F—Expenses of the Issue.

Not required because this Form 20-F is filed as an annual report.

Item 10. Additional Information.

A—Share Capital.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

B—Memorandum and Articles of Association.

~~Please see Item 14 of our registration statement on Form 20-F filed 9 May 2000.~~

Please see:

a) Item 14 of our registration statement on Form 20-F filed 9 May 2000
b) The “Global Registered Share” chapter on pages 122 to 123 of the attached Handbook 2001/2002 which provides details of recent changes relating to the par value of the UBS share.
c) Pages 7 and 122 of the attached Handbook 2001/2002 which provide details of our new transfer agent in the US, Mellon Investor Services.

C—Material Contracts.

~~None.~~

None.

D—Exchange Controls.

~~Exchange Controls and Other Limitations Affecting Holders of UBS Shares~~

There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident or foreign owners to hold UBS’s securities freely or to vote UBS’s securities freely in matters put to a vote of UBS security holders generally. There are currently no Swiss foreign exchange controls or laws restricting the import or export of capital. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.

There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident or foreign owners to hold UBS’s securities freely or to vote UBS’s securities freely in matters put to a vote of UBS security holders generally. There are currently no Swiss foreign exchange controls or other Swiss laws restricting the import or export of capital by UBS or its subsidiaries. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.

~~E—Taxation.~~

This section outlines the material United States federal income tax and Swiss tax consequences of the ownership of UBS ordinary shares by a U.S. holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and US taxation for US persons who hold UBS shares.

The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or holders whose functional currency for US tax purposes is not the U.S. dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares pursuant to the

~~exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.~~

The discussion is based on the tax laws of Switzerland and the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the convention between the United States of America and Switzerland, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.PART I(continued)

~~For purposes of this discussion, a “U.S. holder” is any beneficial owner of UBS ordinary shares that is~~E—Taxation.

This section outlines the material Swiss tax and United States federal income tax consequences of the ownership of UBS ordinary shares by a US holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and US taxation for US persons who hold UBS shares.
The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, insurance companies, broker-dealers, traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or holders whose functional currency for US tax purposes is not the US dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or through a tax-qualified retirement plan.
The discussion is based on the tax laws of Switzerland and the United States, including the US Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the convention between the United States of America and Switzerland, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.
For purposes of this discussion, a “US holder” is any beneficial owner of UBS ordinary shares that is:

• a citizen or resident of the United States,

• a corporation or other entity taxable as a corporation organized under the laws of the United States or any political subdivision of the United States,

• an estate the income of which is subject to United States federal income tax without regard to its source, or

• a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

The discussion does not generally address ~~any aspects of United States taxation other than federal income taxation or~~ any aspects of Swiss taxation other than income and capital taxation or of United States taxation other than federal income taxation. Holders of UBS shares are urged to consult their tax advisors regarding the United States federal, state and local and the Swiss and other tax consequences of owning and disposing of these shares.

Ownership of UBS Ordinary Shares—Swiss Taxation

Dividends and Distributions

Dividends paid and similar cash or in-kind distributions made by UBS to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax at a rate of 35%. The withholding tax must be withheld from the gross distribution, and be paid to the Swiss Federal Tax Administration.

A U.S. holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, 3003 Berne, Switzerland. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I for individuals), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.
Dividends paid by UBS to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock dividends) are subject to a Swiss federal withholding tax at a rate of 35%. The withholding tax must be withheld from the gross distribution, and be paid to the Swiss Federal Tax Administration.

~~Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.~~ (UBS LOGO)

PART I(continued)

A US holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I for individuals), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.
Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.

Transfers of UBS Ordinary Shares

The sale of UBS ordinary shares, whether by Swiss resident or non-resident holders (including U.S. holders), may be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a Swiss bank or other Swiss securities dealer as defined in the Swiss Federal Stamp Tax Act. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of the SWX Swiss Exchange may be subject to a stock exchange levy. Capital gains realized by a U.S. holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes, unless such U.S. holder holds such shares as business assets of a Swiss business operation qualifying as a permanent establishment for the purposes of the Treaty. In the latter case, gains are

The sale of UBS ordinary shares, whether by Swiss resident or non-resident holders (including US holders), may be subject to a Swiss securities transfer stamp duty of up to 0.15% calculated on the sale proceeds if it occurs through or with a bank or other securities dealer in Switzerland as defined in the Swiss Federal Stamp Tax Act. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of a recognized stock exchange may be subject to a stock exchange levy. Capital gains realized by a US holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes, unless such US holder holds such shares as business assets of a Swiss business operation qualifying as a permanent establishment for the purposes of the Treaty. In the latter case, gains are taxed at ordinary Swiss individual or corporate income tax rates, as the case may be, and losses are deductible for purposes of Swiss income taxes.

~~taxed at ordinary Swiss individual or corporate income tax rates, as the case may be, and losses are deductible for purposes of Swiss income taxes.~~

Ownership of UBS Ordinary Shares—United States Federal Income Taxation

Dividends and Distribution

Subject to the passive foreign investment company rules discussed below, U.S. holders will include in gross income the gross amount of any dividend paid, before reduction for Swiss withholding taxes, by UBS out of its current or accumulated earnings and profits, as determined for United States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the U.S. holder.

Dividends will be income from sources outside the United States for foreign tax credit limitation purposes, but generally will be “passive income” or “financial services income,” which are treated separately from other types of income for foreign tax credit limitation purposes. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution included in income of a U.S. holder will be the U.S. dollar value of the Swiss franc payments made, determined at the spot Swiss franc/ U.S. dollar rate on the date such dividend distribution is included in the income of the U.S. holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into U.S. dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the U.S.
Subject to the passive foreign investment company rules discussed below, US holders will include in gross income the gross amount of any dividend paid, before reduction for Swiss withholding taxes, by UBS out of its current or accumulated earnings and profits, as determined for United States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the US holder.
For United States federal income tax purposes, a dividend will include a distribution characterized as a repayment of capital in the form of a par value reduction, if the distribution is made out of current or accumulated earnings and profits, as described above.
Dividends will be income from sources outside the United States for foreign tax credit limitation purposes, but generally will be “passive income” or “financial services income,” which are treated separately from other types of income for foreign tax credit limitation purposes. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution included in income of a US holder will be the US dollar value of the Swiss franc payments made, determined at the spot Swiss franc/US dollar rate on the date such dividend distribution is included in the income of the US holder, regardless of whether the payment is in fact converted into US dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into US dollars will be treated as ordinary income or loss. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the US holder’s basis in its UBS ordinary shares and thereafter as capital gain.

Subject to certain limitations, the Swiss tax withheld in accordance with the Treaty and paid over to Switzerland will be creditable against the U.S. holder’s United States federal income tax liability. To the extent a refund of the tax withheld is available to a U.S. holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holder’s United States federal income tax liability, whether or not the refund is actually obtained. (UBS LOGO)

Stock dividends to U.S. holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to United States federal income tax. U.S. holders that received a stock dividend that is subject to Swiss tax but not U.S. tax, may not have enough foreign income for U.S. tax purposes to receive the benefit of the foreign tax credit associated with such tax, unless the holder has foreign income from other sources.13

PART I(continued)

Subject to certain limitations, the Swiss tax withheld in accordance with the Treaty and paid over to Switzerland will be creditable against the US holder’s United States federal income tax liability. To the extent a refund of the tax withheld is available to a US holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the US holder’s United States federal income tax liability, whether or not the refund is actually obtained.
Stock dividends to US holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to United States federal income tax. US holders that received a stock dividend that is subject to Swiss tax but not US tax, may not have enough foreign income for US tax purposes to receive the benefit of the foreign tax credit associated with that tax, unless the holder has foreign income from other sources.

Transfers of UBS Ordinary Shares

Subject to the passive foreign investment company rules discussed below, a U.S. holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the U.S. dollar value of the amount realized and the tax basis, determined in U.S. dollars, in the UBS ordinary shares. Capital gain of a non-corporate U.S. holder is generally taxed at a maximum rate of 20% if the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Subject to the passive foreign investment company rules discussed below, a US holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the US dollar value of the amount realized and the tax basis, determined in US dollars, in the UBS ordinary shares. Capital gain of a non-corporate US holder is generally taxed at a maximum rate of 20% if the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Passive Foreign Investment Company Rules

UBS believes that UBS ordinary shares should not be treated as stock of a passive foreign investment company for United States federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. In general, UBS will be a passive foreign investment company with respect to a US holder if, for any taxable year in which the US holder held UBS ordinary shares, either at least 75% of the gross income of UBS for the taxable year is passive income or at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets that produce or are held for the production of passive income. If UBS were to be treated as a passive foreign investment company, then unless a US holder makes a mark-to-market election, gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead, a US holder would be treated as if the holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.

company with respect to a U.S. holder if, for any taxable year in which the U.S. holder held UBS ordinary shares, either at least 75% of the gross income of UBS for the taxable year is passive income or at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets that produce or are held for the production of passive income. If UBS were to be treated as a passive foreign investment company, then unless a U.S. holder makes a mark-to-market election, gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead, a U.S. holder would be treated as if the holder had realized such gain and certain “excess distributions” ratably over the holder’s holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year.

F—Dividends and Paying Agents.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

G—Statement by Experts.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

H—Documents on Display.

UBS files periodic reports and other information with the Securities and Exchange Commission. You may read and copy any document that UBS files with the SEC at the SEC’s public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference room. You may also inspect UBS’s SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006. Some of this information may also be found on the UBS website at www.ubs.com/investor-relations.

PART I(continued)

I—Subsidiary Information.

Not applicable.

Item 11. Quantitative and Qualitative Disclosures About Market Risk.

A—Quantitative Information About Market Risk.

~~Please see pages 48 to 75 of the attached UBS Handbook 2000-2001.~~

Please see theMarket Risksection on pages 72 to 76 of the attached UBS Handbook 2001/2002.

B—Qualitative Information About Market Risk.

~~Please see pages 48 to 75 of the attached UBS Handbook 2000-2001.~~

Please see theMarket Risksection on pages 72 to 76 of the attached UBS Handbook 2001/2002.

C—Interim Periods.

~~Not applicable.~~

Not applicable.

D—Safe Harbor.

The safe harbor provided in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (“statutory safe harbors”) applies to information provided pursuant to paragraphs (a), (b) and (c) of this Item 11.

E—Small Business Issuers.

~~Not applicable.~~

Not applicable.

Item 12. Description of Securities Other than Equity Securities.

~~Not required because this Form 20-F is filed as an annual report.~~

Not required because this Form 20-F is filed as an annual report.

~~Part~~PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

There has been no material default in respect of any indebtedness of UBS AG or any of its significant subsidiaries or any arrearages of dividends or any other material delinquency not cured within 30 days relating to any preferred stock of UBS AG or any of its significant subsidiaries.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

~~Not applicable.~~

~~Item 15. [Reserved].~~

~~Item 16. [Reserved].~~

~~Part II~~

~~Part III~~

~~Item 17. Financial Statements.~~

~~Not applicable.~~

~~Item 18. Financial Statements.~~

The UBS Group financial statements included on pages 58 to 142 in the attached Financial Report 2000 are incorporated by reference herein. Notes 43 and 44 presented below include additional information required by U.S. GAAP or SEC rules and are a part of the UBS Group Financial Statements for purposes of this Item 18 and the Report of Independent Auditors that appears on page 37 of this Form 20-F.

~~Note 43 Acquisition of Paine Webber Group, Inc.—Pro Forma Results~~

~~The following table presents pro forma consolidated financial information about the combined company as if the acquisition had occurred on 1 January 2000 and 1999, respectively:~~

CHF million, except per share data
For the year ended 31.12.00 31.12.99
Operating income 43,373 35,020
Net profit 7,045 5,286
Earnings per share (EPS) 16.82 12.50

For purposes of calculating earnings per share, the effects of a share repurchase program associated with the acquisition funding have been reflected in the determination of weighted average outstanding shares as if the program had been executed at the pro forma acquisition dates. In addition, CHF 290 million of non-recurring charges recognized by the Group in 2000 which resulted directly from the acquisition and CHF 68 million of direct charges relating to the acquisition, incurred and expensed by Paine Webber Group, Inc. (“PaineWebber”) prior to 3 November 2000, have been excluded from the pro forma Net Profit.

~~Note 44 Supplemental Guarantor Information~~

~~Guarantee of PaineWebber securities~~

Following the acquisition of PaineWebber, UBS AG made a full and unconditional guarantee of the publicly traded debt and trust preferred securities of PaineWebber. Prior to the acquisition, PaineWebber was an SEC registrant. Upon the acquisition, PaineWebber was merged into UBS Americas Inc., a wholly owned subsidiary of UBS AG. The following is summarized consolidating financial information segregating UBS AG Parent Bank, UBS Americas Inc. and UBS AG’s other non-guarantor subsidiaries.

~~The UBS AG Parent Bank financial statements use the cost method for investments in associates. In this note, investments in associates are presented on the equity method.~~

The information presented in this note is prepared in accordance with International Accounting Standards and should be read in conjunction with the consolidated financial statements of the Group of which this information is a part. Below each column, Net profit and Shareholders’ equity has been reconciled to U.S. GAAP. See Note 41 for a more detailed reconciliation of the IAS financial statements to U.S. GAAP for the Group on a consolidated basis.

~~Consolidating Income Statement~~

UBS AG UBS UBS Group
CHF million Parent Americas Other Consolidating Income
For the year ended 31 December 2000 Bank(1) Inc. Subsidiaries Entries Statement
Operating income

Interest income 40,362 1,268 22,701 (12,586 ) 51,745
Interest expense 32,161 1,282 22,758 (12,586 ) 43,615

Net interest income 8,201 (14 ) (57 ) 8,130
Credit loss recovery 119 2 9 130

Net interest income after credit loss recovery 8,320 (12 ) (48 ) 8,260
Net fee and commission income 9,145 949 6,609 16,703
Net trading income 7,344 195 2,414 9,953
Net gains from disposal of associates and subsidiaries 6 77 83
Income from subsidiaries 1,804 (1,804 )
Other income 276 1,127 1,403

Total operating income 26,895 1,132 10,179 (1,804 ) 36,402
Operating expenses

Personnel 10,501 1,141 5,521 17,163
General and administrative 5,296 350 1,119 6,765
Depreciation and amortization 1,410 183 682 2,275

Total operating expenses 17,207 1,674 7,322 26,203

Operating profit/(loss) before tax and minority interests
9,688 (542 ) 2,857 (1,804 ) 10,199
Tax expense/(benefit) 1,896 (128 ) 552 2,320

Net profit/(loss) before minority interests
7,792 (414 ) 2,305 (1,804 ) 7,879
Minority interests (87 ) (87 )

Net profit/(loss)
7,792 (414 ) 2,218 (1,804 ) 7,792

Net profit/(loss) — U.S. GAAP(2)
4,342 (414 ) 2,313 (1,804 ) 4,437


~~(1)~~	UBS AG prepares its financial statements in accordance with Swiss Banking Law requirements as presented on pages 146 to 156 of the attached Financial Statements. For the purpose of this disclosure the accounts have been adjusted to IAS.

~~(2)~~	~~See Note 41.1 and 41.4 to the Financial Statements for a description of the differences between IAS and U.S. GAAP. U.S. GAAP adjustments are principally related to UBS AG Parent Bank.~~

~~Consolidating Balance Sheet~~

UBS AG
CHF million Parent UBS Americas Other Consolidating UBS Group
As of 31 December 2000 Bank(1) Inc. Subsidiaries Entries Balance Sheet
Assets

Cash and balances with central banks 2 242 0 737 0 2 979
Money market paper 61 153 3 348 1 953 0 66 454
Due from banks 75 473 13 007 86 125 (145 458 ) 29 147
Cash collateral on securities borrowed 40 791 33 992 144 778 (41 704 ) 177 857
Reverse repurchase agreements 157 417 32 589 102 209 (98 414 ) 193 801
Trading portfolio assets 151 326 7 425 94 545 0 253 296
Positive replacement values 59 246 232 6 029 (7 632 ) 57 875
Loans, net of allowance for credit losses 261 946 18 283 15 153 (50 540 ) 244 842
Financial investments 7 751 2 289 6 365 0 16 405
Accrued income and prepaid expenses 3 239 1 771 3 702 (1 650 ) 7 062
Investments in associates 14 010 0 4 800 (17 930 ) 880
Property and equipment 6 348 975 1 587 0 8 910
Goodwill and other intangible assets 262 16 163 3 112 0 19 537
Other assets 5 556 1 488 3 533 (2 070 ) 8 507

Total assets
846 760 131 562 474 628 (365 398 ) 1 087 552

Liabilities

Money market paper issued 36 341 123 38 316 0 74 780
Due to banks 105 074 31 040 91 584 (145 458 ) 82 240
Cash collateral on securities lent 22 792 6 151 36 179 (41 704 ) 23 418
Repurchase agreements 127 433 49 940 216 554 (98 414 ) 295 513
Trading portfolio liabilities 62 242 1 360 19 030 0 82 632
Negative replacement values 74 675 231 8 649 (7 632 ) 75 923
Due to customers 304 389 21 760 35 070 (50 540 ) 310 679
Accrued expenses and deferred income 11 057 5 224 6 407 (1 650 ) 21 038
Long term debt 44 334 8 790 1 731 0 54 855
Other liabilities 13 590 1 482 5 754 (2 070 ) 18 756

Total liabilities
801 927 126 101 459 274 (347 468 ) 1 039 834

Minority interests
0 0 2 885 0 2 885
Shareholders’ equity

Share capital 4 444 0 3 808 (3 808 ) 4 444
Share premium account 20 885 5 868 2 813 (8 681 ) 20 885
Foreign currency translation (687 ) 7 (40 ) 33 (687 )
Retained earnings 24 191 (414 ) 5 888 (5 474 ) 24 191
Treasury shares (4 000 ) 0 0 0 (4 000 )

Total shareholders’ equity
44 833 5 461 12 469 (17 930 ) 44 833

Total liabilities, minority interests and shareholders’ equity
846 760 131 562 474 628 (365 398 ) 1 087 552

Total shareholders’ equity — U.S. GAAP(2)
62 868 5 389 12 633 (17 930 ) 62 960


~~(1)~~	UBS AG prepares its financial statements in accordance with Swiss Banking Law requirements as presented on pages 146 to 156 of the attached Financial Statements. For the purpose of this disclosure the accounts have been adjusted to IAS.

~~(2)~~	See Note 41.1 and 41.4 to the Financial Statements for a description of the differences between IAS and U.S. GAAP. U.S. GAAP adjustments are principally related to UBS AG Parent Bank. Total assets under U.S. GAAP do not differ materially from total assets presented on an IAS basis.

~~Consolidating Cash Flow Statement~~

UBS UBS Group
CHF million UBS AG Americas Other Balance
For the year ended 31 December 2000 Parent Bank(1) Inc. Subsidiaries Sheet
Net cash flow from operating activities
38,788 6,358 (33,449 ) 11,697
Cash flow from investing activities

Investments in subsidiaries and associates, net (379 ) (9,350 ) (9,729 )
Disposal of subsidiaries and associates 669 669
Purchase of property and equipment (937 ) (139 ) (564 ) (1,640 )
Disposal of property and equipment 269 66 335
Net (investment)/divestment in financial investments (5,656 ) (2,340 ) (774 ) (8,770 )

Net cash flow from investing activities
(6,034 ) (11,829 ) (1,272 ) (19,135 )

Cash flow from financing activities

Money market paper issued (11,589 ) 123 21,591 10,125
Net movements in treasury shares and treasury share contract activity (647 ) (647 )
Capital issuance 15 15
Dividends paid (3,928 ) (3,928 )
Issuance of long term debt 14,391 144 349 14,884
Repayment of long term debt (19,089 ) (782 ) (4,769 ) (24,640 )
Issuances of minority interests 2,683 2,683
Repayment of minority interests (73 ) (73 )
Net activity in investments in subsidiaries (10,039 ) 10,609 (570 )

Net cash flow from financing activities
(30,886 ) 10,094 19,211 (1,581 )

Effects of exchange rate differences (538 ) 782 (132 ) 112

Net increase/(decrease) in cash equivalents
1,330 5,405 (15,642 ) (8,907 )
Cash and cash equivalents, beginning of period 76,918 25,359 102,277

Cash and cash equivalents, end of period 78,248 5,405 9,717 93,370

Cash and cash equivalents comprise:

Cash and balances with central banks 2,242 737 2,979
Money market papers 61,153 3,348 1,953 66,454
Due from banks maturing in less than three months 14,853 2,057 7,027 23,937

Total 78,248 5,405 9,717 93,370


~~(1)~~	UBS AG prepares its financial statements in accordance with Swiss Banking Law requirements as presented on pages 146 to 156 of the Financial Report. For the purpose of this disclosure the accounts have been adjusted to IAS.

~~Guarantee of other securities.~~

On 10 October 2000, UBS AG, acting through a wholly-owned subsidiary, issued USD 1.5 billion (CHF 2.6 billion at issuance) 8.622% UBS Trust Preferred securities. UBS AG has fully and unconditionally guaranteed these securities.

~~Report of Independent Auditors~~

~~The Board of Directors and Group Executive Board UBS AG:~~

We have audited the accompanying consolidated balance sheets of UBS AG and subsidiaries as of 31 December 2000 and 1999, and the related consolidated statements of income, cash flows and changes in shareholders’ equity for each of the three years in the period ended 31 December 2000 referred to in Item 18 of Form 20-F. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of UBS AG as of 31 December 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended 31 December 2000, in conformity with International Accounting Standards (“IAS”) and comply with Swiss Law.

IAS vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of America would have affected shareholders’ equity as of 31 December 2000, 1999 and 1998 and the results of operations for the three years then ended to the extent summarized in Note 41 of the Notes to the Financial Statements.

~~Basel, 5 March 2001 Ernst & Young Ltd~~


~~/s/ ROGER K. PERKIN~~ ~~Roger K. Perkin~~ ~~Chartered Accountant~~ ~~in charge of the audit~~		~~/s/ PETER HECKENDORN~~ ~~Peter Heckendorn~~ ~~lic. oec.~~ ~~in charge of the audit~~Not applicable.

Item 15. [Reserved].

37Item 16. [Reserved].

(UBS LOGO)

PART III

Item 17. Financial Statements.

Not applicable.

Item 18. Financial Statements.

The Financial Statements included on pages 75 to 169 in the attached Financial Report 2001 are incorporated by reference herein.

Item 19. Exhibits.


	Exhibit
~~Exhibit~~
Number		Description

	1.1.			Articles of Association of UBS AGAG.

	1.2.			~~Bylaws~~Organization Regulations of UBS ~~AG(1)~~AG.

	2(b)		Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries.

			We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt.

	7.			Statement regarding ratio of earnings to fixed charges.

	8.			Significant Subsidiaries of UBS AGAG.

			Please see Note 36 on pages 147 to 150 of the attached Financial Report 2001.

	10.			Consent of Ernst & Young Ltd.


~~(1)~~	~~Incorporated by reference to Exhibit 3.2 to the registration statement (File No. 333-52832) filed on Form F-1 on 27 December 2000.~~

~~SIGNATURES~~Signatures

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

UBS AG

/s/ ~~LUQMAN ARNOLD~~Peter Wuffli

Name: ~~Luqman Arnold~~
Peter Wuffli
Title: ~~Group Chief Financial Officer and Member~~President of the Group Executive Board

/s/ ~~HUGO SCHAUB~~Hugo Schaub

Name: Hugo Schaub
Title: Group Controller and
Member of the Group Managing Board

Date: March ~~15, 2001~~

14, 2002

LOGO

HANDBOOK 2001/2002

~~Our Information Portfolio~~

~~This Handbook is available in English and German (SAP-80532-0101) and is supplemented by the following documents:~~

~~Annual Review 2000~~

~~Our Annual Review provides brief descriptions of our business groups and a summary review of the year 2000. It is available in English, German, French, Italian and Spanish (SAP-80530-0101).~~

~~Financial Report 2000~~

~~Our Financial Report contains our audited financial statements for the year 2000 and accompanying detailed analysis. It is available in English and German (SAP-80531-0101).~~

~~Quarterly Reports~~

~~UBS provides detailed quarterly financial reporting and analysis, including comment on the progress of its businesses and key strategic initiatives.~~

~~Our Commitment 1999/2000~~

The Report “Our Commitment 1999/2000” illustrates how we create value for our clients, employees, shareholders and the community and how we meet our responsibility to all our stakeholder groups. It is available in English, German and French (SAP-81011-0001).

~~Each of these reports is available on the internet at: www.ubs.com/ investor-relations.~~

~~Alternatively, printed copies of these reports can be ordered, quoting the SAP number and language preference, from: UBS AG, Information Center, CA50-XMB, P.O. Box, CH-8098 Zurich, Switzerland.~~

~~TABLE OF CONTENTS~~


~~The UBS Group~~
	~~UBS Group Financial Highlights~~
	~~Strategy, Structure and History~~
~~The Business Groups~~
	~~UBS Switzerland~~
	~~UBS Asset Management~~
	~~UBS Warburg~~
	~~Corporate Center~~
	~~Risk Management and Control~~
	~~Asset and Liability Management~~
~~Corporate Governance~~
~~Corporate Organization~~
	~~Directors and Officers of UBS~~
	~~Relations with Regulators~~
	~~Financial Disclosure Principles~~
	~~The Global Registered Share~~
~~UBS Shares 2000~~
	~~UBS share price performance in 2000~~
~~Introduction~~
~~Information for Readers~~
~~UBS Group Financial Highlights~~
	~~Principles~~
	~~UBS Switzerland~~
~~UBS Asset Management~~
	~~UBS Warburg~~
~~Financial Statements~~
	~~Table of Contents~~
	~~Financial Statements~~
~~UBS AG (Parent Bank)~~
	~~UBS AG (Parent Bank) Table of Contents~~
	~~Parent Bank Review~~
	~~Financial Statements~~
	~~Information for Shareholders~~
~~EX-1.1 ARTICLES OF ASSOCIATION OF UBS AG~~
~~EX-7 STATEMENT REGARDING RATIO OF EARNINGS~~
~~EX-8 SUBSIDIARIES OF UBS AG~~
~~EX-10 CONSENT OF ERNST & YOUNG LTD~~

~~Table of Contents~~


Contents

Profile
Introduction		21
~~The~~ UBS Group Financial Highlights		2
UBS Group		3
Our Business Groups		4
Sources of Information about UBS		5

	The UBS Group ~~Financial Highlights~~		49
	Strategy, Structure and History		510

~~The Business Groups~~
The Business Groups		17
UBS Switzerland		1218
	UBS Asset Management		2234
	UBS Warburg		2638
	Corporate Center		3652

~~Risk~~
Capital and Risk Management		55
Risk Management and Control		4856
	Risk Analysis		5361
Group Treasury		77
	~~Asset and Liability Management~~		66

~~Corporate Governance~~
Corporate Governance		87
Corporate Organization		7888
	Directors and Officers of UBS		8194
	~~Relations with Regulators~~		86
	Financial Disclosure Principles		9199
Value-based Management		102
Regulation and Supervision		106
Corporate Responsibility		111

~~UBS Share Information~~
UBS Share Information		121
The Global Registered Share		94122
	UBS Shares ~~2000~~2001		96124

Introduction

This is the second annual edition of the UBS Group Handbook.

~~The UBS Handbook, published here for the first time, brings together in one place a complete range of in-depth non-financial information about UBS.~~

~~Introduction~~

The Handbook describes the UBS Group: its strategy and organization, and the businesses it operates. It outlines the principles by which the Group manages risk, and reports on developments during ~~2000~~2001 in the areas of ~~Credit Risk, Market Risk,~~credit risk, market risk, and ~~Asset and Liability Management.~~treasury management. It also contains a description of the Group’s environmental ~~performance.~~

policies.

The Handbook ~~introduces~~describes the value-based management processes that are being implemented at ~~UBS, and describes the new brand management strategy that was put in place during 2000.~~UBS. It contains an extensive discussion of the Group’s corporate governance arrangements and its relationships with regulators and shareholders, ~~and provides~~along with detailed facts about the UBS ordinary share.

The ~~UBS~~ Handbook should be read in conjunction with the other information published by UBS, in particular the Financial Report 2000, which provides full statutory reporting and discussion of the Group’s financial results for 2000. In addition, UBS publishes detailed Quarterly Financial Reports, analyzing its performance during each quarter of the year, and an Annual Review, which provides a brief summary of the Group and its financial performance in 2000.

described on page 5.

We hope that you will find the information in ~~these~~our reporting documents useful and informative. We believe that UBS is among the leaders in corporate disclosure, but we would be very interested to hear your views on how we might improve the content and presentation of our information portfolio.

~~Please contact UBS Investor Relations:~~

Mark Branson
Head of Group Communications
UBS AG

~~Investor Relations G41B~~

~~P.O. Box, CH-8098 Zurich~~

~~Phone +41-1-234 41 00~~

~~Fax +41-1-234 34 15~~

~~E-mail SH-investorrelations@ubs.com~~

~~www.ubs.com/investor-relations~~

~~The UBS Group~~

Profile

~~The UBS Group~~

UBS Group Financial Highlights


¹		Operating expenses / operating income before credit loss expense.
²		Excludes the amortization of goodwill and other intangible assets.
³		For EPS calculation, see Note 9 to the Financial Statements.
⁴		Net profit / average shareholders’ equity excluding dividends.
⁵		Includes hybrid tier 1 capital, please refer to Note 30e in the Notes to the Financial Statements.
⁶		Calculated using the former definition of assets under management.
⁷		The Group headcount does not include the Klinik Hirslanden AG headcount of 2,450, 1,839 and 1,853 for 31 December 2001, 31 December 2000 and 31 December 1999, respectively.
⁸		See the Capital strength section on pages 10-11.
⁹		Details of significant financial events can be found in the Financial Report 2001.

~~UBS Group~~

~~Financial Highlights~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99 ¹ 31.12.98 ¹ 31.12.99
Income statement key figures
Operating income 36,402 28,425 22,247 28
Operating expenses 26,203 20,532 18,376 28
Operating profit before tax 10,199 7,893 3,871 29
Net profit 7,792 6,153 2,972 27
Cost/income ratio(%) ²
72.2 69.9 79.2
Cost/income ratio before goodwill(%) ^{2, 3}
70.4 68.7 77.7
Per share data (CHF)

Basic earnings per share ^{4, 7}
19.33 15.20 7.33 27
Basic earnings per share before goodwill ^{3, 4, 7}
20.99 16.04 8.18 31
Diluted earnings per share ^{4, 7}
19.04 15.07 7.20 26
Diluted earnings per share before goodwill ^{3, 4, 7}
20.67 15.90 8.03 30
Return on shareholders’ equity(%)

Return on shareholders’ equity ⁵
21.5 22.4 10.7
Return on shareholders’ equity before goodwill ^{3, 5}
23.4 23.6 12.0

CHF million, except where indicated % change from
As of 31.12.00 31.12.99 ¹ 31.12.98 ¹ 31.12.99
Balance sheet key figures
Total assets 1,087,552 896,556 861,282 21
Shareholders’ equity 44,833 30,608 28,794 46
Market capitalization 112,666 92,642 90,720 22
BIS capital ratios

Tier 1(%) 11.7 10.6 9.3
Total BIS(%) 15.7 14.5 13.2
Risk-weighted assets 273,290 273,107 303,719 0
Total assets under management (CHF billion)
2,469 1,744 1,573 42
Headcount (full time equivalents) ⁶
71,076 49,058 48,011 45
Long-term ratings

Fitch, London AAA AAA AAA
Moody’s, New York Aa1 Aa1 Aa1
Standard & Poor’s, New York AA+ AA+ AA+

~~Earnings adjusted for significant financial events~~ ⁸

% change
CHF million, except where indicated from
For the year ended 31.12.00 31.12.99 ¹ 31.12.99
Operating income 36,402 26,587 37
Operating expenses 25,763 20,534 25
Operating profit before tax 10,639 6,053 76
Net profit 8,132 4,665 74
Cost/income ratio before goodwill(%) ^{2, 3}
69.2 73.3
Basic earnings per share before goodwill (CHF) ^{3, 4, 7}
21.83 12.37 76
Diluted earnings per share before goodwill (CHF) ^{3, 4, 7}
21.50 12.26 75
Return on shareholders’ equity before goodwill(%) ^{3, 5}
24.3 18.2

¹ ~~The 1999 and 1998~~All earnings per share figures have been restated ~~to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see UBS Financial Report 2000).~~ ² ~~Operating expenses/operating income before credit loss recovery/(expense).~~ ³ ~~The amortization of goodwill and other intangible assets is excluded from the calculation.~~ ⁴ ~~For EPS calculation, see UBS Financial Report 2000.~~ ⁵ ~~Net profit/average shareholders’ equity excluding dividends.~~ ⁶ ~~The Group headcount does not include the Klinik Hirslanden AG headcount of 1,839 and 1,853 for 31 December 2000 and 31 December 1999, respectively.~~ ⁷ ~~1999 and 1998 share figures are restated~~ for the ~~two-for-one~~3 for 1 share split ~~effective 8 May 2000.~~ ⁸ ~~Details of Significant Financial Events can be found in the UBS Financial Report 2000.~~

which took place on 16 July 2001. Except where otherwise stated, all 31 December 2001 and 31 December 2000 figures throughout this ~~handbook~~report include the impact of the acquisition of PaineWebber, which occurred on 3 November 2000.

All invested assets figures for 31 December 2000 have been restated to reflect the new definition.


CHF million, except where indicated					% change from
For the year ended	31.12.01	31.12.00	31.12.99			31.12.00

Income statement key figures
Operating income	37,114	36,402	28,425			2
Operating expenses	30,396	26,203	20,532			16
Operating profit before tax	6,718	10,199	7,893			(34	)
Net profit	4,973	7,792	6,153			(36	)
Cost / income ratio (%)¹	80.8	72.2	69.9
Cost / income ratio before goodwill (%)^{1, 2}	77.3	70.4	68.7

Per share data (CHF)
Basic earnings per share³	3.93	6.44	5.07			(39	)
Basic earnings per share before goodwill^{2, 3}	4.97	7.00	5.35			(29	)
Diluted earnings per share³	3.78	6.35	5.02			(40	)
Diluted earnings per share before goodwill^{2, 3}	4.81	6.89	5.30			(30	)

Return on shareholders’ equity (%)
Return on shareholders’ equity⁴	11.7	21.5	22.4
Return on shareholders’ equity before goodwill^{2, 4}	14.8	23.4	23.6


CHF million, except where indicated					% change from
As at	31.12.01	31.12.00	31.12.99			31.12.00

Balance sheet key figures
Total assets	1,253,297	1,087,552	896,556			15
Shareholders’ equity	43,530	44,833	30,608			(3	)

Market capitalization	105,475	112,666	92,642			(6	)

BIS capital ratios
Tier 1 (%)⁵	11.6	11.7	10.6			(1	)
Total BIS (%)	14.8	15.7	14.5			(6	)
Risk-weighted assets	253,735	273,290	273,107			(7	)

Invested assets (CHF billion)	2,457	2,452	1,744	⁶		0

Headcount (full time equivalents)⁷	69,985	71,076	49,058			(2	)

Long-term ratings⁸	AAA	AAA	AAA
Fitch, London	Aa2	Aa1	Aa1
Moody’s, New York	AA+	AA+	AA+
Standard & Poor’s, New York

Earnings adjusted for significant financial events and pre-goodwill^{2, 9}


CHF million, except where indicated				% change from
For the year ended	31.12.01	31.12.00	31.12.99	31.12.00

Operating income	37,114	36,402	26,587	2
Operating expenses	29,073	25,096	20,194	16
Operating profit before tax	8,041	11,306	6,393	(29	)
Net profit	6,296	8,799	5,005	(28	)

Cost / income ratio (%)¹	77.3	69.2	73.3
Basic earnings per share (CHF)³	4.97	7.28	4.12	(32	)
Diluted earnings per share (CHF)³	4.81	7.17	4.09	(33	)

Return on shareholders’ equity (%)⁴	14.8	24.3	18.2

~~The~~ UBS Group

~~Strategy, Structure~~

UBS is one of the world’s leading financial firms, serving a discerning global client base. As an organization, we combine financial strength with a reputation for innovation and ~~History~~

a global culture which embraces change. Our vision is to be the ~~preeminent~~pre-eminent global integrated investment services firm and the leading bank in Switzerland. We are the world’s leading provider of private banking services and one of the largest asset managers globally. In the investment banking and securities businesses we are among the select bracket of major global houses. In Switzerland, we are the clear market leader in ~~retail~~corporate and ~~corporate~~retail banking. As an integrated ~~Group,~~group, not merely a holding company, we create ~~added-value~~added value for our clients by drawing on the combined resources and expertise of all our businesses.

Our client philosophy puts advice at the heart of relationships. Our priority is to provide premium-quality services to our clients, giving them the best possible choice by supplementing best-in-class products we develop ourselves with a quality-screened selection of products from others.

With head offices in Zurich and Basel, we operate in over 50 countries and from all major international financial centers. Our global physical presence is complemented by leading edge on-line services. All our clients can benefit from our technology — it complements our advisory services and allows us to deliver our services faster, more widely and more cost-effectively than ever before.

~~Strategy, Structure~~Profile

Our Business Groups
All our Business Groups are in the top echelons of their sectors globally and ~~History~~are committed to vigorously growing their franchises.

UBS Switzerland

UBS Switzerland includes the world’s leading private banking business, with CHF 682 billion of invested assets at 31 December 2001. UBS Private Banking provides a comprehensive range of products and services individually tailored for wealthy clients, through offices around the world. UBS Switzerland also provides a complete set of banking and securities services for some four million individual and corporate clients in Switzerland. Its CHF 182 billion of outstanding loans at 31 December 2001 give it around a quarter of the Swiss lending market.

UBS Asset Management

UBS Asset Management is a leading institutional asset manager and mutual fund provider, with invested assets of CHF 672 billion at 31 December 2001, offering a broad range of asset management services and products for institutional and individual clients across the world.

UBS Warburg

UBS Warburg operates globally as a client-driven securities, investment banking and wealth management firm. UBS Warburg provides innovative products, top-quality research and advice, and comprehensive access to the world’s capital markets, for both its own corporate and institutional clients and for the other parts of the UBS Group. UBS PaineWebber, one of the top US wealth managers, became part of UBS Warburg in November 2000. Its distribution network of 8,870 financial advisors manages over CHF 782 billion of invested assets at 31 December 2001. On 1 January 2002, UBS PaineWebber was separated from UBS Warburg to form a new Business Group within UBS.

Corporate Center

Our portfolio of businesses is planned and managed for the long-term maximization of shareholder value. The role of the Corporate Center is to ensure that the Business Groups operate as a coherent and effective whole, in alignment with UBS’s overall corporate goals.

Sources of information about UBS

This Handbook contains a detailed description of UBS, its strategy, its organization and the businesses that make it up. You can find out more about UBS from the sources shown below.

Publications

This Handbook is available in English and German. (SAP-R/3 80532-0201)

Annual Review 2001

Our Annual Review contains a short description of UBS, and a summary review of our performance in the year 2001. It is available in English, German, French, Italian and Spanish. (SAP-R/3 80530-0201).

Financial Report 2001

Our Financial Report contains our audited Financial Statements for the year 2001 and accompanying detailed analysis. It is available in English and German. (SAP-R/3 80531-0201).

Quarterly reports

We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These are available in English.

How to order reports

Each of these reports is available on the internet at: www.ubs.com/investors, in the “Financials” section. Alternatively, printed copies can be ordered, quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, CA50-XMB, P.O. Box, CH-8098 Zurich, Switzerland.

E-information tools for investors

Website

Our Investors and Analysts website at www.ubs.com/investors offers a wide range of information about UBS, including our financial reporting, media releases, UBS share price graphs and data, corporate calendar and dividend information and copies of recent presentations given by members of senior management to investors at external conferences.

Our internet-based information is available in English and German, with some sections also in French and Italian.

Messenger service

On the Investors and Analysts website, you can register to receive news alerts about UBS via SMS or e-mail. Messages are sent in either English or German and users are able to state their preferences for the theme of the alerts received, e.g. SEC filings or webcast broadcasts.

Results presentations

Senior management presents UBS’s quarterly results every quarter on publication date. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent results webcasts can also be found in the “Financials” section of our Investors and Analysts website.

UBS and the Environment

This Handbook contains a summary of UBS environmental policies as part of the Corporate Responsibility section. More detailed information is available at www.ubs.com/environment.

Form 20-F and other submissions to the US Securities and Exchange Commission

We file periodic reports and other information about UBS with the US Securities and Exchange Commission (SEC). Principal among these filings is the Form 20-F, our Annual Report filed pursuant to the US Securities Exchange Act of 1934.

Profile

Our Form 20-F filing is structured as a “wrap-around” document. Most sections of the filing are satisfied by referring to part of this Handbook or to part of the Financial Report 2001. However, there is a small amount of additional information in the Form 20-F which is not presented elsewhere, and is particularly targeted at readers from the US. You are encouraged to refer to this additional disclosure.

You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 (in the US) for further information on the operation of its public reference room. You may also inspect our SEC reports and other information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown on the next page.

Corporate information

The legal and commercial name of the company is UBS AG. The company was formed on 29 June 1998, when Union Bank of Switzerland (founded 1862) and Swiss Bank Corporation (founded 1872) merged to form UBS.

UBS AG is incorporated and domiciled in Switzerland and operates under Swiss Company Law and Swiss Federal Banking Law as an Aktiengesellschaft, a corporation that has issued shares of common stock to investors.

The address and telephone number of our two registered offices and principal places of business are:

Bahnhofstrasse 45, CH-8098 Zurich, Switzerland, telephone +41-1-234 11 11;

and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, telephone +41-61-288 20 20.

UBS AG shares are listed on the SWX Swiss Exchange and traded through virt-x (a joint venture between Tradepoint and the SWX Swiss Exchange). They are also listed on the New York Stock Exchange and on the Tokyo Stock Exchange.

UBS Investor Relations
Our Investor Relations team supports institutional, professional and retail investors from offices in Zurich and New York.

E-mail: sh-investorrelations@ubs.com

Web: www.ubs.com/investors

Zurich

New York

Hotline Zurich:

+41 1 234 4100

Hotline New York:

+1 212 713 3641

Christian Gruetter

+41 1 234 4360

Richard Feder

+1 212 713 6142

Mark Hengel

+41 1 234 8439

Christopher McNamee

+1 212 713 3091

Charles Gorman

+41 1 234 2733

Catherine Lybrook

+41 1 234 2281

Fax

+41 1 234 3415

Fax

+1 212 713 1381

UBS AG

UBS Americas Inc.

Investor Relations G41B

Investor Relations

P.O. Box

1285 Avenue of the Americas, 14th Floor

CH-8098 Zurich, Switzerland

New York, NY 10019, USA

UBS Group Media Relations

Telephone

Fax

E-mail

Zurich

+41 1 234 8500

+41 1234 8561

sh-gpr@ubs.com

London

+44 20 7567 4714

+44 20 7568 0955

sh-mr-london@ubsw.com

New York

+1 212 713 83 91

+1 212 713 98 18

mediarelations-ny@ubsw.com

Tokyo

+81 3 52 08 62 75

+81 3 52 08 69 51

sh-comms-mktg-tokyo@ubs.com

Other useful contacts

Switchboards

Telephone

For all general queries.

Zurich

+41 1 234 1111

London

+44 20 7568 0000

New York

+1 212 821 3000

Tokyo

+81 3 5293 3000

UBS Shareholder Services
UBS Shareholder Services, a unit of the Company Secretary, is responsible for the registration of the Global Registered Shares. It is split into two parts — a Swiss register, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by Mellon Investor Service as
US transfer agent (see below).

Telephone

Fax

E-mail

Zurich

+41 1 235 6202

+41 1 235 3154

sh-shareholder-service@ubs.com

UBS AG

Shareholder Services

P.O. Box

CH-8098 Zurich, Switzerland

US Transfer Agent
For all Global Registered Share related queries in the USA.

Mellon Investor Services

Telephone: +1 866 541 9689

Overpeck Center

Fax: +1 201 296 4801

85 Challenger Road

Web: http:// www.melloninvestor.com

Ridgefield Park, NJ 07660, USA

UBS listed its Global Registered Shares on the New York Stock Exchange on 16 May 2000. Prior to
that date UBS operated an ADR program. See the Frequently Asked Questions (FAQs) section at www.ubs.com/investors for further details about the UBS share.

The UBS Group
Strategy, Structure and History

Strategy, Structure and History

Our vision is to be the pre-eminent global integrated investment services firm and the leading bank in Switzerland. We are the world’s leading provider of private banking services and one of the largest asset managers globally. In the investment banking and securities businesses, we are among the select bracket of major global houses. In Switzerland, we are the clear market leader in corporate and retail banking. As an integrated group, not merely a holding company, we create added value for our clients by drawing on the combined resources and expertise of all our businesses.

Being dedicated to total value management means creating value for all stakeholders.

We will only succeed by providing ourclientswith innovative and high-quality service coupled with long-term personal relationships. Client focus is the main driver of all our activities.

We seek to create value for ourshareholdersthrough sustainable growth of our business within appropriate risk parameters. ~~Being dedicated to total value management means creating value for all stakeholders.~~

We are committed to succeed in the fierce competition for talent. The expertise and integrity of ourstaffcreate value for our clients and for the Group as a whole. We seek to be a highly attractive firm for our employees.

UBS’s reputationis one of our most valuable assets. We aim to adhere to the highest ethical standards, and to manage our risks with the greatest care. We are committed to thecommunitieswe are part of and to complying fully with the letter and spirit of the laws, rules and practices that govern UBS and its staff.

Strategy

UBS’s strategy is to deliver top-quality investment products and advice to a premier client base across all client segments: individual, institutional and corporate. UBS aims to bring its content excellence to an ever wider client base, adding distribution organically, through acquisition orand through strategic partnership.

Choice is central to enhancing UBS’s client offerings. ~~The Group aims~~We aim to increase product choice by ~~supporting the~~augmenting our in-house range with a quality-screened selection of third-party products.

~~UBS believes~~

We believe that in the future, ~~its~~our clients will be global in outlook: either with global presence or global investments. All our businesses must compete on a global scale.

~~UBS is~~

We are committed to attaining scale and scope in all ~~its~~our key businesses: this is both desirable and necessary to enable us to deliver the full spectrum of services at maximum efficiency, though ~~price~~we will rarely beuse price as a first-line competitive weapon.

~~UBS’s~~

Our client philosophy is advice-led, with intimacy stemming from the quality of ~~its~~our relationship managers. UBS’s businesses offer convenient access through multiple conventional and online channels, but put advice at the heart of relationships.

~~UBS is~~

We are committed to being part of the technological elite, but ~~sees~~we see e-commerce not as a business per se, nor as a discipline in its own right, but as integral to all ~~its~~our businesses. ~~The Group aims~~We aim to use technology to extend ~~its~~our reach to clients and markets itwe could not previously have accessed, to perfect clients’ experience of UBS, to increase the number of products and services they buy, and to minimize the production cost of ~~its~~our services.

~~The UBS Group~~

~~Strategy, Structure~~

~~and History~~

The first GOALs deal marketed to PaineWebber clients, in November 2000, demonstrates the strength of this model. GOALs are equity-linked securities created by UBS Warburg that combine a bond with a short put option on a specific stock. This deal provided access to an entirely new investment product for PaineWebber clients, using UBS Warburg’s expertise in packaging structured products for private clients. The credit element of the product relied on UBS Group’s rating and capital strength. Combined with the equity derivative features, this was a product that PaineWebber could not have originated before joining the UBS Group, and UBS Warburg could not have distributed in the US.

~~Capital strength~~

UBS has a strong and well-managed capital structure. ~~Our financial stability stems from the fact that we~~We are ~~one of the best capitalized banks in the world. UBS believes that this financial strength is a key part of the value proposition it offers to both clients and investors.~~

~~UBS is~~ committed to rigorous balance sheet management and the optimization of ~~its~~UBS’s capital structure. ~~It uses~~We use the full range of capital management tools to apply any excess capital generated in the best interests of ~~its~~UBS’s shareholders, or to return it to them.

Financial targets

We focus on four key performance targets, designed to ensure that UBS delivers continually improving returns to its shareholders. The Group’s performance against these targets is reported each quarter.

– We seek to increase the value of UBS by achieving a sustainable, after-tax return on equity of 15-20%, across periods of varying market conditions.
– We aim to increase shareholder value through double-digit average annual percentage growth of basic earnings per share (EPS), across periods of varying market conditions.
– Through cost reduction and earnings enhancement initiatives we aim to reduce UBS’s cost / income ratio to a level that compares positively with best-in-class competitors.
– We aim to achieve a clear growth trend in net new money in the private client businesses.

The first three targets are all reported pre-goodwill amortization, and adjusted for significant financial events (for an explanation of significant financial events see Financial Disclosure Principles on pages 99 to 101).
We seek to achieve an appropriate market price for UBS’s shares by communicating transparently, openly and consistently with investors and the financial markets.
10

Capital strength

UBS’s financial stability stems from the fact that it is one of the most well capitalized banks in the world. We believe that this financial strength is a key part of the value proposition offered to both clients and investors.

In May 2001, Moody’s downgraded UBS’s long-term credit rating from Aa1 to Aa2, attributing the change to concerns about “the ongoing challenges UBS faces in gradually shifting the center of its global private banking activities to onshore client segments”.

At the same time, Moody’s commented that the new long-term ratings continue to reflect UBS’s position as one of the world’s stronger and financially sounder banking groups and pointed to UBS’s “good profitability, low and balanced risk profile, and its ample economic capitalization”, adding that it expects UBS to preserve these healthy fundamentals.

In early August 2001, Standard & Poor’s reaffirmed its AA+ rating for UBS’s long-term debt, citing UBS’s strong market positions and franchises across a wide range of private banking and international securities activities, which provide a high degree of business and geographic diversification. Standard & Poor’s commented

that “the ratings also reflect solid profitability and strong capitalization, the combination of which still sets a standard for international banks generally”.

In December 2001, Fitch reaffirmed its AAA long-term rating of UBS, but changed the outlook for the rating to negative, reflecting “the weaker operating environment for investment banking”.

UBS’s ratings remain among the best of any major globally active financial institution. Well-capitalized, with strong and balanced cash-flow generation, and a cautious risk profile, UBS is one of the soundest financial institutions worldwide.

UBS’s long-term credit ratings are shown in the table below. Each of these ratings reflects only the view of the applicable rating agency at the time the rating was issued, and any explanation of the significance of a rating may be obtained only from the rating agency. There is no assurance that any credit rating will remain in effect for any given period of time or that a rating will not be lowered, suspended or withdrawn entirely by the rating agency, if in the rating agency’s judgment, circumstances so warrant.

Long-term credit ratings

As at

31.12.01

31.12.00

31.12.99

Fitch, London

AAA

AAA

Moody’s, New York

Aa2

Aa1

Standard & Poor’s, New York

AA+

AA+

The UBS Group
Strategy, Structure and History

Business and management structure

UBS pursues its strategies through ~~three~~four Business Groups, all of which are in the top echelon of their businesses globally, and aims to further enhance the competitive position of each one. However, UBS is not merely a holding company –— it operates an integrated client service model.

UBS’s Business Groups are managed together to ~~optimise~~optimize shareholder value –— to make the whole worth more than the sum of the parts.

In practice this means that products from the wholesale-focused ~~units, Corporate and Institutional Clients,~~Business Groups, UBS ~~Capital~~Warburg and UBS Asset Management, are distributed to their own corporate and institutional clients and through the ~~units~~Business Groups focused on individual clients, ~~International Private Clients, US Private Clients~~UBS Switzerland and UBS ~~Switzerland.~~PaineWebber. This exchange benefits both sides –— UBS’s individual clients get access to sophisticated products and services; UBS’s wholesale ~~units~~Business Groups have access to premier distribution; and the Group captures the whole of the value chain.

Each Business Group is led by a member of the Group Executive Board or Group Managing

Board who is individually responsible for the performance of the Business Group.

UBS’s Corporate Center complements the Business Groups, aiming to ensure that the Business Groups operate as a coherent and effective whole, in alignment with UBS’s overall corporate goals.

~~The UBS Group~~

~~Strategy, Structure~~

~~and History~~

UBS Switzerland –— Stephan Haeringer

UBS ~~Switzerland’s~~Switzerland is made up of two business units. Its Private Banking business unit offers comprehensive wealth management services for private clients from across the world, who bank in Switzerland and other financial centers ~~world-wide.~~worldwide.

Private Banking is the world’s biggest private bank. Its strategy is centered on the client advisor, combining strong personal relationships with a full range of products and services specifically designed for the wealthy client, complemented by leading-edge technology.

Within Switzerland, the Private and Corporate Clients business unit provides a complete set of banking and securities services for individual and corporate clients, focused foremost on customer service excellence, profitability and growth via multi-channel distribution.

UBS Asset Management ~~– Peter Wuffli~~— John Fraser

UBS Asset Management provides asset management services and products to a broad range of institutional, individual and mutual fund clients across the world. It offers a diverse range of investment management capabilities from the traditional to the alternative, with a core focus on ~~price/ value management.~~identifying and exploiting the discrepancies

between asset prices and their fundamental worth. UBS Asset Management also provides investment fund products for the UBS Group and intends to increasingly widen its reach through third parties to individual clients outside the UBS Group.

UBS Asset Management is ~~one of~~ the ~~top five~~twelfth largest institutional asset managers in the world, the second largest investment fund manager in Europe and the leading fund manager in Switzerland.

UBS Warburg –— John Costas and Markus Granziol

UBS Warburg operates globally as a client-driven securities and investment banking ~~and wealth management~~ firm. For both its own corporate and institutional clients and for other parts of the UBS Group, UBS Warburg provides product innovation, top-quality research and advice, and complete access to the world’s capital markets.

In 2001, UBS PaineWebber was part of UBS Warburg, and was reported as a business unit called Private Clients. This is the structure reflected in the UBS Financial Report 2001 and in this Handbook. On 1 January 2002, UBS PaineWebber was separated from UBS Warburg to form a new Business Group within UBS, and will be reported separately with effect from our First Quarter 2002 Report.

UBS PaineWebber — Joseph J. Grano, Jr.

~~Through~~ UBS PaineWebber, the fourth largest private client firm in the US, ~~we provide~~provides advisory services and best-in-class products to a uniquely affluent US client base.

Corporate Center ~~– Luqman Arnold~~— Peter Wuffli

The UBS Group’s portfolio of businesses is planned and managed ~~exclusively~~ for the long-term maximization of shareholder value. ~~Risk/~~Risk and reward profiles are carefully monitored and controlled. Strong capitalization and ratings will remain key distinguishing characteristics of UBS. The Corporate Center ~~ensures~~aims to ensure that the Business Groups operate as a coherent and effective whole with a common set of values and principles.

Corporate Center is led by ~~Luqman Arnold,~~Peter Wuffli, President of the Group Executive ~~Board from April 2001.~~

Board.

Board structure

In order to further the highest standards of corporate governance, UBS has a dual board structure. UBS’s Board of Directors, a majority of whom are independent non-executive directors, has ~~the ultimate~~ responsibility for the ~~strategic~~ultimate direction of the ~~Group’s business~~Group and the supervision and control of executive management. The Group Executive Board, which is UBS’s most senior executive body, assumes overall responsibility for the ~~development~~day-to-day management of the ~~Group’s strategies,~~Group, for the implementation of strategy and for the results of the business.

~~UBS’s financial targets~~

~~UBS focuses on four key performance targets, designed to ensure that it delivers continually improving returns to its shareholders. UBS’s performance against these targets is reported each quarter.~~
– ~~UBS seeks to increase the value of the Group by achieving a sustainable, after-tax~~

~~The UBS Group~~

~~Strategy, Structure~~

~~and History~~


	~~return on equity of 15–20%, across periods of varying market conditions.~~


–	~~UBS aims to increase shareholder value through double-digit average annual earnings per share (EPS) growth, across periods of varying market conditions.~~
–	~~Through cost reduction and earnings enhancement initiatives UBS aims to reduce the Group’s cost/ income ratio to a level that compares positively with best-in-class competitors.~~
–	~~UBS aims to achieve a clear growth trend in net new money in the private client businesses.~~

~~The first three targets are all reported pre-good-will amortization, and adjusted for significant financial events (see Financial Disclosure Principles on pages 91 to 92).~~

~~UBS seeks to achieve a fair market value by always communicating transparently, openly and consistently with investors and the financial markets.~~

~~PaineWebber~~

~~On 14 December 1999, UBS announced its plans to apply for registration~~ Together with the ~~US Securities and Exchange Commission and~~Chairman’s Office it develops the Group’s strategies for submission to ~~list its shares on~~ the New York Stock Exchange. It achieved this goal on 16 May 2000, when its shares started trading in New York. On 12 July 2000, it announced an agreement to merge with PaineWebber Group, Inc. The merger and associated capital issuance by UBS were approved by PaineWebber and UBS shareholders, and the merger was completed on 3 November 2000.

The progress of the integration of Paine Webber into UBS has been very successful with all businesses operationally integrated by the end of 2000, and no significant client advisor turnover. The merger has received an excellent reception from PaineWebber staff, with 98% ofBoard.

~~The UBS Group~~

~~Strategy, Structure~~

~~and History~~

~~those offered jobs in the new Group accepting them.~~

The merger with PaineWebber brings UBS a leading wealth management franchise in the US, with a focus on the higher end of the wealth management market. PaineWebber has a significantly higher average account size than its biggest rivals.

~~PaineWebber provides a new route for product distribution in the US, and transforms the size and geographic spread of UBS’s client base, making it unique in extent and global coverage.~~

The impact of the merger extends beyond UBS’s private client businesses. It expands UBS Warburg’s US capabilities in asset-backed securities, real estate, corporate finance and fixed income sales, and transforms its US equities franchise, with UBS analysts now covering 90% of S&P 500 and NASDAQ 100 companies.

As well as this direct impact, the integration with PaineWebber has also positioned UBS Warburg much more strongly as an employer of choice in the US investment banking market, providing a platform on which to take advantage of the ongoing industry consolidation and build capabilities by hiring new staff across a wide range of products.

Industry trends

UBS believes that it is particularly well positioned to gain from the developing trends in global financial markets.

The UBS Group
Strategy, Structure and History

The increasing reliance of individuals on equity investment, for their personal savings and for their pension provision, will benefit firms that manage assets or trade in capital market products.

Commoditization of wholesale products, with increased competition and shrinking margins, is a fact of life, but one that is least harmful to institutions like UBS with the scale, global reach and technology infrastructure to support the volumes required to maintain profitability.

UBS believes markets will further deregulate and globalize, driving sharp increases in ~~crossborder~~cross-border investment, both corporate and institutional. These changes present enormous opportunities for a firm like UBS with a global presence and the expertise to capitalize on cross-border flows.

The biggest trend that will drive UBS’s business in the coming years is the anticipated expansion and concentration of private wealth. In the US, wealthy households (those with USD 500,000 or more in net investable assets), represented 65% of assets in ~~1999.~~2001, according to UBS proprietary research data. By ~~2003~~2005 they are expected to represent ~~78%~~68% of total household assets. ~~In Europe, the effect~~The compound annual growth rate of this segment from 2001 to 2005 amounts to 6.6%, compared to 5.9% for total US household assets. While wealth is less ~~pronounced, but still,~~concentrated in Europe, wealthy ~~individuals~~households (in this case with more than EUR 500,000 of investable assets), are still expected to ~~represent 43%~~own 42% of total household assets by 2005, up from ~~35%~~38% in ~~2000.~~2001, with annual growth of 9.6% compared to 8.0% for total household assets.

The combination of this growth in wealth with the increasing shift towards equity investments, will provide huge opportunities for the best, most global, asset managers. Those securities firms with large institutional franchises will experience significant growth servicing the expanding asset management industry. And of course, the concentration and growth of wealth will bring

~~The UBS Group~~

~~Strategy, Structure~~

~~and History~~

with it a huge demand for private banking services, providing a further opportunity for the current market leaders to grow their market share.

All of UBS’s businesses are positioned to benefit from this increase in private wealth. UBS Asset Management is among the top five global asset managers, with an increasingly diversified range of investment styles. UBS Warburg has an extremely strong institutional client ~~franchise – only 20% of its revenues derive from corporate clients.~~franchise. And the combination of Private Banking and UBS PaineWebber ~~already~~ gives UBS the largest and most balanced share of the global wealth market.

Strategic developments in 2001

UBS Warburg continues to develop its corporate finance business, aiming to bring its origination strength in line with its strength in research and distribution. The addition of UBS PaineWebber has brought a step change to our profile in the US, demonstrating our commitment to the US market and strengthening our hiring platform. We have capitalized on this to make significant new hires during the year, appointing a new head of US corporate finance for UBS Warburg, and other senior bankers across different sectors in the US and worldwide. Despite a very difficult year for corporate finance globally, with significantly lower volumes, UBS has begun to see the results of this initiative, with increased market share in both Europe and the US, according to a leading industry survey.

The merger with PaineWebber has been a transforming partnership for UBS, not just in the US, but across our private client businesses, through the strengths that UBS PaineWebber can bring to our developing European wealth management business. Applying the combined skills and expertise of Private Banking and UBS PaineWebber, we have started to build a successful business in the growing domestic wealth management markets of Europe. Since the start of 2001, we have added almost 250 new client advisors in our key European markets of Germany, France, Italy, Spain and the UK, and projects to upgrade products, training, marketing and technology are all on target.

History and development of UBS

UBS was formed on 29 June 1998, by the merger of two of Switzerland’s leading banking groups, Union Bank of Switzerland and Swiss Bank Corporation.

Union Bank of Switzerland’s history as a powerful force in banking began in the 1860s with the founding of the Bank in Winterthur and the Toggenburger Bank. In 1912, the merger of these two financial institutions resulted in the creation of the Union Bank of Switzerland. Subsequently, Union Bank of Switzerland developed primarily through internal growth, although it also made certain significant acquisitions, such as the asset management firm Phillips & Drew in 1985.

Swiss Bank Corporation celebrated its 125th anniversary in 1997. It was incorporated in Basel in 1872 and its history can be traced back to the creation of “Bankverein” from six private banking houses in 1854. Swiss Bank Corporation’s expansion involved significant acquisitions, including:

–
~~UBS was formed on 29 June 1998, by the merger of two of Switzerland’s leading banking Groups, Union Bank of Switzerland and Swiss Bank Corporation.~~
Union Bank of Switzerland’s history as a powerful force in banking began in the 1860s with the founding of the Bank in Winterthur and the Toggenburger Bank. In 1912, the merger of these two financial institutions resulted in the creation of the Union Bank of Switzerland. Subsequently, Union Bank of Switzerland developed primarily through internal growth, although it also made certain significant acquisitions such as the asset management firm Phillips & Drew in 1985.
Swiss Bank Corporation celebrated its 125th anniversary in 1997. It was incorporated in Basel in 1872 and its history can be traced back to the creation of “Bankverein” from six private banking houses in 1854. Swiss Bank Corporation’s expansion involved significant acquisitions, including:
– O’Connor & Associates, a group of affiliated firms specializing in the trading of options and other derivative instruments, in ~~1992;~~1992.

– – Brinson Partners, a leading institutional investment management firm, in ~~1995;~~1995.

– – the investment banking and securities operations of S.G. Warburg Group, in ~~1995, and~~1995.

– – Dillon Read & Co. Inc., a United States-based investment bank, in 1997.

  All the entities that have joined UBS have, regardless of their size, had a significant impact on its culture and ethos. O’Connor & Associates was a much smaller firm than Swiss Bank Corporation, but brought an affinity for technology, which has remained with UBS ever since, and a trading approach and risk management sophistication which still remains core to UBS today. The most significant benefit was the reverse cultural revolution O’Connor brought to SBC. This was quite deliberate; it transformed SBC and helped it move into the modern age in a dramatic way. Later mergers reinforced this pattern of cultural change, with S.G. Warburg bringing a deep and passionate client focus, and Brinson Partners redefining the asset management process.
  This history of acquisition and openness to cultural diversity continues to be a key strength of the UBS Group. UBS is conscious of the importance of cultural change as a response to the growing challenges of the competitive global environment. The diversity of knowledge and experience offered by new acquisitions means UBS can import better corporate cultures, better ways of doing business and better insights.
  ~~In May 2000, UBS listed its Global Registered Share on the New York Stock Exchange (NYSE).~~     All the entities that have joined UBS have, regardless of their size, had a significant impact on our culture and ethos. O’Connor & Associates was a much smaller firm, but brought an affinity for technology, which has remained with UBS ever since, and a trading approach and risk management sophistication which still remains core to our operations today. The most significant benefit was the reverse cultural revolution O’Connor brought. This was quite deliberate; it transformed the company and helped it move into the modern age in a dramatic way. Later mergers reinforced this pattern of cultural change, with S.G. Warburg bringing a deep and passionate client focus, and Brinson Partners redefining the asset management process.
Merger with PaineWebber
On 3 November 2000, UBS transformed the scope and scale of its private client business in the US, through the merger with PaineWebber, one of the leading US wealth management firms. Like previous merger partners, we expect that PaineWebber will transform UBS; not just through increased US presence, but through the proven strengths in marketing, technology, product development and training that PaineWebber can now bring to all our private client businesses, leveraging PaineWebber’s skills to drive UBS’s European private banking strategy.

The operational integration of PaineWebber’s businesses was completed swiftly and smoothly in early 2001, and capped by the introduction of the new brand, UBS PaineWebber. We had not planned to change the PaineWebber brand so soon after the merger, but it was made possible by the extremely positive reception for the merger from PaineWebber staff and the smooth progress of integration. The decision to implement the new brand was supported by requests from UBS PaineWebber financial advisors, who wanted a way to emphasize to their clients the advantages in scope, scale and access to global resources brought by this business’s new place in the UBS Group.

At the same time, like previous merger partners, UBS PaineWebber is already transforming UBS; not just through increased US presence and distribution capacity, but through the proven strengths in marketing, technology, product development and training that it is bringing to all our private client businesses, leveraging its skills to help drive UBS’s European wealth management initiative.

This history of acquisition and openness to cultural diversity continues to be a key strength of the UBS Group. We are conscious of the importance of cultural change as a response to the growing challenges of the competitive global environment. The ~~Business Groups~~

diversity of knowledge and experience offered by new acquisitions means that we can import into UBS better corporate cultures, better ways of doing business and better insights.

~~The Business Groups~~16

~~UBS Switzerland~~

The Business Groups

The Business Groups
UBS Switzerland

UBS Switzerland

UBS Switzerland is the world’s largest private banking business and the leading bank in Switzerland.

Business Group Reporting adjusted for significant financial events


	Private and
	Corporate Clients					Private Banking					UBS Switzerland
CHF million
For the year ended		31.12.01		31.12.00			31.12.01		31.12.00			31.12.01		31.12.00

Income		7,161		7,443			6,314		6,928			13,475		14,371
Credit loss expense		(576	)	(759	)		(28	)	(26	)		(604	)	(785	)

Total operating income		6,585		6,684			6,286		6,902			12,871		13,586

Personnel expenses		2,988		3,187			1,776		1,956			4,764		5,143
General and administrative expenses		991		1,058			1,609		1,561			2,600		2,619
Depreciation		459		419			157		142			616		561
Amortization of goodwill and other intangible assets		0		27			41		43			41		70

Total operating expenses		4,438		4,691			3,583		3,702			8,021		8,393

Business Group performance before tax		2,147		1,993			2,703		3,200			4,850		5,193


Cost / income ratio before goodwill (%)		62		63			56		53			59		58
Net new money (CHF billion)		8.5		0.4			22.5		2.8
Invested assets (CHF billion)		320		345			682		691
Heacount (Full time equivalents)		19,938		21,100			9,266		8,925			29,204		30,025

Organization structure

UBS Switzerland ~~offers~~Business Group is made up of two business units:

–		Private Banking, the world’s leading provider of wealth management services;
–		Private and Corporate Clients, Switzerland’s premier retail and commercial bank.

Shared expertise

Since the bringing together of Private Banking and Private and Corporate Clients into UBS Switzerland in February 2000, we have continued to examine opportunities for synergies between the two business units. We aim to concentrate resources in centers of excellence, sharing common products, infrastructure and services.

Some of these areas, such as Risk and Financial Control, are managed centrally by UBS Switzerland, while for others, such as the products and services unit in Private Banking or the wide range of operations, IT and middle office services provided in Private and Corporate Clients, a business unit takes the lead. The aim is always to ensure that functions are provided by those areas with the best expertise, so that UBS Switzerland’s domestic and international clients benefit from state-of-the-art products and services, while we gain the benefits of scale effects and avoid duplication.

Product development

In late 2001, we established a centralized Products and Services unit, based within Private Banking. The new unit will take responsibility for design and delivery of the whole investment product portfolio for UBS Switzerland. The aim of the new group is to promote a client driven sales process which puts clients’ requirements clearly at the center of all new product development, and to deliver excellent support and training to our client advisors.

Services UBS Switzerland

At the end of 2001, we merged Private Banking and Private and Corporate Clients’ middle office services. The combined group employs over 1,200 people and is responsible for all documentation management, retained mail, loan processing and client information management. It will process over 230,000 loan events, 4.8 million documents and 7.5 million changes in customer information per year. The merger of these two units is intended to enhance our ability to ensure swift and comprehensive ~~wealth management services for~~compliance with developments in “know your customer” rules and to improve efficiency.

e-commerce

Over recent years the needs of our private clients have changed: while the physical branch network used to be the central distribution platform, nowadays banking clients ~~from across~~require the ~~world, banking in Switzerland and in other financial centers. Our strategy is centered on~~flexibility to access their accounts using the ~~client advisor, combining strong personal relationships with a~~ full range of modern communication technology; they want to contact their bank when it is convenient for them, without restrictions imposed by opening hours.

In response, we thoroughly revised our distribution strategy after the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation, leading to the establishment of a centralized “e-Channel and Products” business area.

While simultaneously enhancing our ATM network and introducing a new branch concept which focuses resources on financial advice rather than transactions, we concentrated on realizing our e-commerce vision and strategy. Our success in designing and implementing a wide range of client centered e-banking solutions has been recognized by top ranks in both European and Swiss surveys.

The result is that all clients can benefit from a wide choice of ways to interact with UBS, while UBS Switzerland is able to further increase its efficiency.

e-commerce strategy

Our internet and other e-banking platforms are part of an integrated multi-channel strategy in which technology is employed wherever it creates additional value for our clients and the bank.

We use technology to complement, not replace the traditional physical branch network. Standard transactions can be conveniently executed using one of the alternative electronic channels, leaving client advisors able to focus on providing personalized added value advice, developing financial solutions to match each client’s individual requirements. Technology is therefore critical to supporting our goal of building strong client relationships, with advice at the center.

As well as being a transaction tool, e-banking is an important method for distributing information about UBS’s products and services. UBS’s website provides a wide spectrum of information on specific UBS products. If questions arise, call centers are available to support the client or to arrange in depth advice from specialists.

Our integrated distribution strategy, combining advice with a comprehensive e-banking offering, helps to strengthen our relationship with our existing clients, but is also pivotal in acquisition of new clients.

e-commerce highlights 2001

The internet provides a wealth of financial information which was previously not easily available, bringing challenges in deciding which information is genuinely useful and accessing it conveniently.myUBS, launched in June 2001, provides a free, tailor-made solution to this need for UBS e-banking clients.

In an easy configuration process, clients can create their own personalized internet page, showing their own selection of news, research and market price charts, and giving convenient links to UBS Quotes, UBS’s free on-line financial information service, and e-banking.

myUBS continues to be enhanced, with a number of additional services ~~specifically designed~~introduced since its launch:

–		Secure Messagingis a secure mechanism for transferring messages from a client to and from their advisor. It operates in a safeguarded environment, avoiding the need to send e-mail messages over the open internet. The system automatically routes client messages to the appropriate client advisor, who can respond via the same secure link.
–		my Opportunitiesallows e-banking clients to create an investor profile and call up corresponding investment proposals. Additional tools help a client to plan the financing of lifecycle events, such as buying a first house, or paying for a child’s education.

The Business Groups
UBS Switzerland

– myIPO is a calendar containing details of current and expected initial public offerings that will be available through UBS.

Despite the growth in internet penetration in recent years, many of our clients do not have access to the internet, so providing access to e-banking services via the telephone is still a key part of our e-commerce strategy. Clients calling UBS e-banking phone can talk to an e-banking advisor, or request information about their accounts through an automated system.

UBS Voicenow provides voice-activated access to this information service. Launched in its German version at the beginning of June, this technology allows navigation through e-banking services by the spoken word. It provides access to information on current account balances or account transactions and can process transfers between accounts. It can tell a user information about exchange rates and the contents of their securities portfolio and can accept stock exchange orders. During 2002 we plan to extend the offering to other languages and allow users to receive details of their account balances or portfolio using the SMS text messaging system to a standard mobile telephone. UBS is the first Swiss bank to provide voice activated access of this sort.

UBS Quotes, our comprehensive free on-line financial information service, has evolved into a powerful financial analysis platform and has recently been integrated with the e-banking portal.

UBS Quotes covers the world’s financial centers, the entire range of UBS funds as well as IPO’s and provides access to UBS research and up to the minute market news sourced directly from the UBS Warburg trading floor. The system can provide detailed portfolio analysis, tracking a portfolio’s value, unrealized gains or losses, and breaking it down by currency, sector, domicile, and instrument type. It can hold sub-positions with individual prices and allows drill-downs to see the status of individual positions. A limit minder service monitors security-specific price limits set by the client and automatically sends an e-mail or a text message to a mobile phone if the limit is reached.

UBS Quotes is now fully integrated into the rest of our e-banking offering, allowing a user who has looked up details of a security to proceed directly to entering a stock exchange order.

UBS Quotes can also be accessed anywhere via personal digital assistants or WAP phones. Layouts adapt to the display size and format of the user’s particular device. UBS Quotes for mobile users includes a wide selection of services available on the ~~wealthy client, supplemented by leading-edge technology. Within Switzerland, we~~Internet version, including personal lists, portfolio analysis functions, the prices of several hundred thousands securities, and a currency converter.

Extensive e-banking services are also ~~provide~~available to corporate clients and financial intermediaries. For example, UBS Connect, our professional, multi-client banking system, gives financial intermediaries full access to data on their client’s assets. Direct links to the leading exchanges enable the intermediary to place and process orders during normal trading hours directly and instantly, with information on allocation and settlement available without delay. In addition, the user can access asset statements, detailed asset statistics and performance figures. UBS Connect has been a great success with our clients: at 31 December 2001, 84% of our intermediary accounts were administered through this channel.

Our customers make extensive use of our e-banking channels. At the end of December 2001, 295,000 clients had active e-banking contracts. Approximately 29.2% of payment orders are initiated via e-banking, and 11.5% of securities transactions.

Private and Corporate Clients

Private and Corporate Clients, UBS Switzerland’s retail and commercial banking unit, provides a complete set of banking and securities services for individual and corporate clients, focused foremost on customer service excellence, profitability and growth via multi-channel distribution. ~~We are the leading bank in Switzerland.~~

~~UBS Switzerland~~

~~Reporting by Business Units~~

Private and
Corporate Clients Private Banking UBS Switzerland
CHF million
For the year ended 31.12.00 31.12.99 ¹ 31.12.00 31.12.99¹ 31.12.00 31.12.99 ¹
Income 7,443 7,193 6,739 5,568 14,182 12,761
Credit loss expense (759 ) (1,050 ) (25 ) (21 ) (784 ) (1,071 )
Total operating income 6,684 6,143 6,714 5,547 13,398 11,690
Personnel expenses 3,187 3,363 1,572 1,328 4,759 4,691
General and administrative expenses 1,058 1,123 1,336 1,185 2,394 2,308
Depreciation 419 384 89 76 508 460
Goodwill amortization 27 2 35 21 62 23
Total operating expenses 4,691 4,872 3,032 2,610 7,723 7,482
Business Group performance before tax 1,993 1,271 3,682 2,937 5,675 4,208
Cost/ income ratio (%) 63 68 45 47 54 59
Assets under management (CHF billion) 440 439 681 671 1,121 1,110
Headcount (full time equivalents) 21,100 24,098 7,685 7,256 28,785 31,354

¹ The 1999 figures have been restated to reflect retroactive changes in accounting policy and changes in presentation. The Business Group reporting for 1999 has been rearranged to reflect the new business structure for the Group.

~~Organization structure~~

~~The UBS Switzerland Business Group is made up of two business units:~~
– ~~Private Banking; wealth management services~~
– ~~Private and Corporate Clients; banking for private individuals and commercial clients in Switzerland.~~

These two business units were brought together under a single management in February 2000, to benefit from the synergies available from the utilization of a common infrastructure in the domestic market and the potential for shared distribution and servicing of clients located outside of Switzerland. In addition, the centralization of core functions such as investment research and financial planning and wealth management, allows us to serve all UBS Switzerland’s client groups consistently, efficiently, to the highest standard, and without duplication.

~~e-Channels and Products~~

~~UBS Switzerland created a single “e-Channels and Products” business area in April 2000 to lead its e-banking activities and drive forward its e-commerce vision and strategy.~~

This new business area is responsible for all electronic channels and products, as well as associated services and customer support centers. All revenues earned from e-banking activities are reflected in the results of the UBS Switzerland business units concerned and not within the “e-Channels and Products” business area which is run as a cost center. Its costs are shared between Private Banking and Private and Corporate Clients.

~~e-commerce strategy~~

e-commerce brings direct cost benefits to UBS Switzerland. Processing transactions which are entered online is less expensive and more efficient, and this is reflected in the new personal account charging structure introduced in Private and Corporate Clients in January 2001, which rewards clients for the use of electronic services.

Cost savings are not our key focus however. UBS Switzerland aims to use e-banking to help perfect the client experience – offering the information and services that clients want in the most convenient way, and increasing the personalization of their interface with the bank. Through this, UBS increases client retention, and increases the proportion of their savings and investments that clients hold with UBS rather than elsewhere. As internet usage increases, and the public becomes more used to transacting online, a top-class e-banking service can also encourage client acquisition.

There is obviously a risk of conflict between UBS’s e-banking offerings and its traditional channels. However, despite the growth of online banking, UBS Switzerland has not experienced a significant level of cannibalization

~~The Business Groups~~

~~UBS Switzerland~~

of its revenues. Based on continuous monitoring of customer behavior online, UBS estimates that 80% of revenue-generating e-banking transactions during 2000 represented additional revenue, as the ease of transacting online leads clients to do more.

~~e-commerce highlights~~

UBS Switzerland’s internet offering continues to grow at a significant rate, as new functions and services are added and client acceptance of this convenient and easy to use distribution channel increases. The number of customers with e-banking contracts has risen during 2000 from 454,000 to 555,000. In December 2000, 22% of all payment orders processed by UBS Switzerland were initiated through e-banking, as were 14% of stock exchange transactions, up from 6% in December 1999.

UBS Switzerland’s comprehensive free on-line financial information service, UBS Quotes, is an integral part of UBS’s e-commerce offering, acting both as a service for existing clients and a tool to attract new clients to the bank. UBS Quotes now has the broadest coverage of any free-access financial information system, with prices for more than 500,000 different financial instruments. It received an average of 22 million page views per month during 2000, up 60% from December 1999.

UBS Switzerland’s e-banking solution is particularly noted for its integrated approach and seamless navigation, permitting rapid access to all e-banking offerings through a consistent user interface. Forrester Research’s “Best of Europe’s Net Banking” report, published in November 2000, ranked UBS e-banking as the number two internet bank in Europe, and in January 2001, BlueSky Rating, an independent provider of on-line broker ratings, named UBS e-banking as the best online broker in Switzerland.

UBS aims to remain at the forefront of technical developments in e-commerce, where clear client benefits are obvious. During 2000 we became one of the first banks in the world to offer stock market transactions via mobile phones, with the launch in August of a WAP-based mobile-telephone banking service. In September 2000, we were the first bank in Switzerland to introduce a fully integrated business to business electronic bill presentment and payment system.

UBS Switzerland has invested heavily in its e-commerce offering, and expects to continue to invest approximately CHF 100 million per year, to remain a market leader. UBS Switzerland will build on these strengths, and intends to further enhance its leading position by developing increased personalization of its websites and a broadened content offering.

~~The Business Groups~~

~~UBS Switzerland~~

Private and Corporate Clients mission is to further develop its position as the most profitable bank serving private and corporate clients in Switzerland. To achieve its objectives, Private and Corporate Clients has established a clear business strategy focused on creating additional value for its clients, and centered on providing integrated solutions incorporating world-class products and services.

~~Private and Corporate Clients~~

Business description and organization

~~The~~ Private and Corporate Clients ~~business unit of UBS Switzerland~~ is the leading bank in Switzerland. ~~It aims~~At year end 2001, Private and Corporate Clients had in excess of 4 million individual client accounts and relationships with some 170 top-tier companies, approximately 8,000 large corporations and 170,000 small and medium sized enterprises across Switzerland. Clients have invested assets of CHF 320 billion with us. With a total loan book of CHF 152 billion at December 31 2001, we have a share of over 25% in the Swiss lending market and the retail mortgage market.

We aim to provide our clients with optimal levels of convenience and service by continuously expanding our comprehensive range of alternative distribution ~~channels, built around a~~channels. Together with our successful e-banking offering ~~full-service ATM’s,~~and customer service centers, our 1,177 ATM’s and ~~more physical locations~~327 branches across Switzerland provide a network broader than any of our domestic competitors.

At the ~~same time, we follow a program~~end of ~~business excellence to ensure that our operating infrastructure is efficient, cost effective and capable of supporting our overall objectives.~~

2001, the Private and Corporate Clients ~~is committed to providing its clients with innovative, personalized products, which consistently meet the highest standards, and to optimizing customer related processes.~~

~~At 31 December 2000, this~~ business unit ~~had CHF 440 billion~~employed 19,938 people throughout Switzerland. This represents a reduction of more than 5,700 since the merger in ~~assets under management~~1998 between Union Bank of Switzerland and ~~a loan~~Swiss Bank Corporation, as we have continued to realize the cost control effects of the systematic implementation of our strategic projects portfolio and the synergy benefits of ~~approximately CHF 155 billion. Private and Corporate Clients employs over 21,000 people.~~the merger.

Private and Corporate Clients’ objective is to further develop the most profitable large bank serving private, business and corporate clients in Switzerland. While continuously realizing further efficiency gains and exploiting cost saving potential, Private and Corporate Clients ~~consists~~strives to create additional value by providing integrated financial solutions for clients’ individual requirements. We will maintain and develop our state-of-the-art infrastructure by optimizing efficiency, quality of services and security to the benefit of our clients and the rest of the UBS Group.

The Private and Corporate Clients business unit is composed of six business areas, four of which have income generating activities (Individual Clients, Corporate Clients, Operations and Risk Transformation and Capital Management) and two of which provide essential support services (Resources and Information Technology). Almost one quarter of our staff, primarily in the business areas Operations, Resources and Information Technology, provide services to other UBS units.

Our business areas

Individual ~~clients~~Clients

~~This~~The Individual Clients business area ~~provides a comprehensive range of~~offers financial ~~products and services~~solutions for private clients, from residential mortgages to current accounts, savings products, wealth management and life insurance, combining UBS Group’s own products with best-in-class third-party products, through an open product architecture.

clients. At ~~year~~the end ~~Private and Corporate Clients~~of 2001, we had ~~in excess of 4~~over four million individual client accounts, of which more than one-quarter related to affluent clients, with ~~an account balance of~~assets between approximately CHF 50,000 and CHF 1 ~~million. The trend towards growth in wealth is expected to benefit this~~million, a key ~~client group, and represents a significant opportunity – providing the financial~~focus of our efforts.

Our range of products and services ~~necessary~~provides comprehensive coverage of clients’ financial life cycle needs, from current accounts and savings products, residential mortgages, to ~~support~~wealth management services, pensions and ~~attract this key segment is a clear focus. An example of this effort~~life insurance.

UBS is the ~~recent introduction~~leading lender to private clients in Switzerland, offering a comprehensive range of ~~UBS Fund Solutions, which provides~~mortgage products, and has the biggest Swiss credit card portfolio, with a market share of 31%. We offer both the most widely accepted cards, VISA and Eurocard (Mastercard), giving our clients financial independence worldwide.

Our clients benefit from access to a ~~quality-screened selection~~wide range of ~~third party~~services and UBS investment funds. UBS Switzerland’s Investment Center selects a recommended list of funds on the basis of their asset allocation, past performance and the quality of their management. Individual clients and their client advisors then select the appropriate combination of these funds to meet the client’s investment philosophy and risk profile.

expertise, be it from specialists within Private and Corporate Clients, ~~also continues to promote its electronic~~from the newly established UBS Switzerland products and services ~~both to~~unit, or from the capabili-

~~Assets under Management~~21

For the year ended
CHF billion 31.12.00 31.12.99 31.12.98
Individual clients 218 223 229
Corporate clients 217 212 178
Banks 5 4 27
Total 440 439 434

~~Assets under Management by Asset Class~~

For the year ended
CHF billion 31.12.00 31.12.99 31.12.98
Deposit and current accounts 128 129 153
Securities accounts 312 310 281
Total 440 439 434

The Business Groups

UBS Switzerland

ties of UBS Warburg or UBS Asset Management. Examples include the recently launched UBS classic mortgage, where the interest rate is linked to the ten-year Swiss federal bond rate, the newly established Alternative Investments unit, which provides screened access to high quality alternative investments, or innovative investment products such as UBS’s Fresco Index shares, which bring the benefits of exchange traded funds to the European market.

In addition to UBS Group’s own products, our offering is also supplemented by an open product architecture approach, which provides access to carefully screened “best in class” third-party products. For example, UBS recently introduced third party management of funds deposited in its Fiscainvest retirement savings account, and UBS Life, which provides its own unit-linked life insurance products to UBS clients, also offers more traditional life insurance products sourced from a third party supplier.

Private and Corporate Clients, Invested assets by asset class Bar Chart

~~increase convenience~~ As a leader in a relatively slow growing market, we are dedicated to increasing operational efficiency through the intelligent application of technology. Centered on UBS Switzerland’s integrated multi-channel strategy, with its extensive e-banking offering, our infrastructure is designed to give our clients convenient and efficient access to banking services. For basic products and services technology is used, both to ensure round the clock availability and low cost provision. Our customer service centers provide convenient contact, and basic information or advice 24 hours a day, while for ~~clients~~in depth advice and to ~~reduce costs. A new charging structure was introduced~~work out specific individual investment solutions all our clients have our expert client advisors and Switzerland’s largest banking network at their disposal. In 26 of our branches we have implemented a “two-zone concept”: standard transactions can be undertaken via ATMs, while client advisors focus on value-adding advice.

Technological support for our client advisors is also critical to our success. During 2001 we became the ~~beginning of 2001,~~first bank in ~~which charges reflect more closely the type~~Switzerland to introduce a fully integrated and ~~cost of services used, rewarding customers who use low cost electronic alternatives such as e-banking~~standardized automated lending business process. Our client advisors receive completeend-to-endsupportinallactivitiesrelating to granting and administrating loans. Functionalities range from client relationship management to obtaining a rating and a credit decision, risk-adjusted pricing and the ~~extensive UBS ATM network. It is expected to further reduce the amount of routine transactional business carried out face to face or by phone to branches, giving client advisors more capacity,~~automatic execution and ~~allowing them to intensify sales efforts and enhance the quality~~documentation of the ~~advice they can offer.~~transaction. Our clients benefit from fast response times, clear and comprehensive documentation and price transparency, while we gain from high data quality to support risk management tasks and, of course, increased efficiency with minimal manual intervention.

Private and Corporate Clients, Invested assets by client type Bar Chart

Corporate Clients

Corporate Clients provides integrated financial solutions for corporate clients including institutional investors, public entities and foundations based in Switzerland.

~~During 2000, we further expanded our~~Our range of ~~alternative distribution channels~~products and ~~closed another 36 branches, bringing~~services is tailored to the ~~total number~~needs and sophistication of ~~post-merger closures to 209. We believe that we are fast approaching the optimal number of physical locations required to adequately serve~~ our ~~clients, but will continue to develop the profitability of all our sites.~~

~~Corporate clients~~

~~Private and Corporate Clients’ corporate client list consists of some 160~~clients. The 170 top-tier companies, many of ~~which are multinationals~~them with operations that span a multitude of markets, require advanced financing and ~~whose needs include frequent use of~~risk management skills and comprehensive access to the capital ~~markets; approximately 7,500~~

markets for their funding needs. Approximately 8,000 large companies ~~who require~~utilize our expertise in handling complex financial ~~transactions, and some 180,000~~transactions; focused on the domestic market, around 170,000 small and medium ~~size~~ enterprises ~~with specific needs related~~(SMEs) primarily require local market know-how and access to ~~business financing.~~

~~UBS Private and Corporate Clients provides its corporate clients with~~ a full range of ~~banking~~products and services. We are also the leading bank in Switzerland for public sector bodies.

Lending is naturally a core part of our business. Since 1998 we have introduced a completely new lending business process, using portfolio theory and detailed knowledge of our loans and our borrowers to introduce a comprehensive risk adjusted pricing model. This was designed to alter the focus from the volume of lending to the quality of lending, with an emphasis on transactions which create economic value, through an adequate risk/return relationship. As a result of this process the risk profile of our loan portfolio has gradually improved, with a higher proportion of higher quality counterparties, reflected in a reduction in our adjusted expected credit loss charge. At the same time risk adjusted pricing can bring benefits to our clients, promoting transparent and open discussions between client and advisor. The advisor communicates clearly the basis for credit decisions and can provide an external perspective to the client, as a basis for suggesting products and services that address identified issues and add value. Possible areas of improvement can be identified, which, if successfully implemented, can be reflected in lower loan pricing.

Our client advisors can also provide a wide range of financial advice, from investment products to complex mergers and acquisitions or structured financing advisory services, often working in close cooperation with specialists from UBS Warburg and UBS Asset Management. As well as lending and finance, Corporate Clients provides substantial business processes support to its clients, ranging from transactional payments and securities services to facilitating cross-border transactions with trade finance products.

To support a close relationship and ensure personalized advice, detailed knowledge of each client and their situation is key. During 2001, we introduced a web-based client relationship management system which consolidates data from a number of different systems, allowing each client advisor to view client data in a structured and systematic way. Each client’s particular situation and preferences can be analyzed in detail with the objective to propagate an even more client-tailored advisory process and actively address client needs.

Risk Transformation and
Capital Management

The Risk Transformation and Capital Management (RTC) area was created in 1999 in order to separate the management of UBS Switzerland’s balance sheet, and the risks associated with it, from loan origination, as part of our redesign of the entire lending process. Although other business areas are responsible for managing client relationships and granting loans, RTC is in charge of managing the risk profile of the loan portfolio as a whole.

This responsibility covers both strategy for new credits, including ~~traditional credit products, transaction services, structured finance~~the management of risk adjusted pricing, and ~~investment advisory services.~~the management of the recovery portfolio, which principally contains impaired and non-performing loans. In addition RTC is responsible for identifying opportunities for securitization, sale or syndication of loans or risk exposures, in order to best manage the risk profile of the whole portfolio.

RTC has begun to use its extensive product and process expertise in ~~conjunction~~this field to develop new products and services for third party distribution channels. Through its Credit Asset Transfer (CAT) initiative RTC works with third party financial institutions to give them the opportunity to sell on all or a portion of their residential mortgages. UBS ~~Warburg, it is~~then takes on the risk directly and refinances the transactions in the market, while the seller remains responsible for servicing the loan and maintains the customer relationship. A major new CAT relationship was announced on 15 February 2002, between UBS and Postfinance, the financial services arm of the Swiss Post Office. With outlets in every town in Switzerland, Postfinance will be able to assist its clients in accessing the world’s capital markets. The Corporate Clients business area also supports promising Swiss-based enterprises by providing start-up financing, primarily in the form of equity participations, through its UBS Startcapital unitoffer mortgages and ~~the Aventic AG subsidiary.~~

~~The Corporate Clients business area has also taken an equity stake in plenaxx.com, the first comprehensive B2B internet portal for~~loans to individuals and small and medium sized enterprises ~~(SME)~~without being licensed to operate as a bank.

Based on our expertise in ~~Switzerland serving as~~this field, this innovative service gives our partners access to top quality risk management and funding, while UBS is able to leverage the ~~hub~~robustness and scaleability of its processes to generate additional revenues for the ~~daily internet activities of SME’s and their employees, and intends to further take advantage of the rapidly growing B2B marketplace during 2001 and beyond.~~bank.

The Business Groups
UBS Switzerland

Operations

The Operations business area provides the transaction processing ~~support~~infrastructure to UBS Switzerland and to ~~Swiss-based offices of~~ other UBS units. For example, in the Primary Booking Name initiative, which was implemented over the last two years, FX interbank and FX options transactions from key UBS Warburg locations such as London, Stamford, Singapore, Hong Kong, and Tokyo are now centrally processed in Switzerland. This ~~combined~~centralized approach ~~reduces duplication~~exploits economies of ~~efforts~~scale, and ensures that synergies between the ~~different~~various units ~~in Switzerland~~ are fully realized.

~~The Operations business area also provides payment and custodial services to approximately 1,800 banking institutions throughout~~ Since the ~~industrialized world and some 700 in emerging markets.~~

~~Following the~~1998 merger between UBS and SBC in 1998, and the tremendous efforts required to integrate the transaction processes of the combined bank, this unit is now focused on generating additional operating efficiencies and on realizing further economies of scale from the combined volumes of Private and Corporate Clients and Private Banking.

~~Risk Transformation and Capital~~

~~Management~~

This business area was formed in 1999 and has responsibility for clients with impaired or non-performing loans and for managing the risk in the Private and Corporate Clients’ loan portfolio. It is also responsible for optimizing capital utilization in UBS Switzerland, including equity participations, and works closely with Group Treasury and UBS Warburg on funding and other asset and liability management matters.

During 2000, Risk Transformation and Capital Management began implementation of its portfolio management strategy, which focuses on providing advice to the client servicing business areas within Private and Corporate Clients. It also achieved a number of “firsts” in the Swiss market by working closely with UBS Warburg on key secondary market initiatives.

At the end of the second quarter 2000, a special purpose vehicle, Helvetic Asset Trust AG (HAT), was created by UBS in order to securitize parts of the credit risk attached to a CHF 2.5 billion reference portfolio consisting primarily of loans to Swiss small and medium sized enterprises. This was the first domestic Swiss franc capital market transaction of its kind, in which the credit default risk, but not

~~The Business Groups~~

~~UBS Switzerland~~

the loan itself, was transferred to the capital market in the form of a fixed-rate bond. The bond, which offered a higher yield than was previously available on debt of a similar quality, was well received by the markets and was named as the “Swiss Franc Bond of the Year” by the International Financial Review. HAT is another indication of the way in which UBS seeks to implement innovative solutions by providing investors, both institutional and private, with attractive portfolio diversification opportunities while, at the same time, optimizing the risk/return profile of its credit portfolio.

Risk Transformation and Capital Management also helped to reduce Private and Corporate Clients large exposure to the Swiss real estate sector by the creation and sale of two real estate companies, Impris AG and Nurestra SA.

~~Support areas~~

UBS businesses in Switzerland are provided with real estate, marketing, personnel and administrative services by the Resources business area and information technology by the Information Technology business area.

During 2000, the Information Technology business area embarked on a program to replace aging and multifaceted IT platforms with a new architecture utilizing components which can be used across all business units in Switzerland. This standardization will help to provide efficient support for our multichannel distribution strategy, enhanced flexibility and the ability to more rapidly deploy new applications.

During fourth quarter 2000, UBS Warburg’s mainframe computer system in Stamford, used for processing worldwide foreign exchange trading, was closed-down and the processing moved onto systems operated by the Operations business area in Switzerland. The integration of these systems not only allows for significant cost savings but also demonstrates the ability of UBS to work on a truly global scale, creating synergies through the utilization of common technical resources across its different business groups. Further consolidation is planned later this year, with the move of UBS Warburg’s London-based securities transaction processing system onto mainframes in Zurich.

~~Loan Portfolio by Loan Category~~

For the year ended
CHF billion 31.12.00 31.12.99 31.12.98
Commercial credits 38 44 44
Mortgages 117 121 121
Total 155 165 165
of which recovery 15 21 26

~~Development in UBS’s Recovery Portfolio~~


~~CHF billion~~


~~Balance, 1 January 1998~~	29

~~Changes in 1998:~~
~~New recovery loans added~~	7
~~Settlement of outstanding recovery loans~~	~~(10~~	)

~~Balance, 31 December 1998~~	26

~~Changes in 1999:~~
~~New recovery loans added~~	5
~~Settlement of outstanding recovery loans~~	~~(10~~	)

~~Balance, 31 December 1999~~	21

~~Changes in 2000:~~
~~New recovery loans added~~	3
~~Settlement of outstanding recovery loans~~	(9	)

~~Balance, 31 December 2000~~	~~15.0~~

~~The Business Groups~~

~~UBS Switzerland~~

~~Loan portfolio~~

At 31 December 2000, about CHF 117 billion (or 75%) of the CHF 155 billion loan portfolio in Private and Corporate Clients related to mortgages, of which approximately 84% were secured by residential real estate.

~~Recovery portfolio~~

Private and Corporate Clients’ impaired loans, which include non-performing loans, are transferred to the Risk Transformation and Capital Management business area to be managed by the Recovery Group, which specializes in working-out or otherwise recovering the value of those loans. At 31 December 2000, Private and Corporate Clients’ loan portfolio included approximately CHF 15 billion in this recovery portfolio. CHF 13.7 billion of Private and Corporate Clients’ year-end recovery portfolio was impaired and related to provisioned positions and positions which resulted from the weakness in Swiss commercial real estate markets during the 1990s. Total provisions of CHF 7.3 billion have been established against the portion of impaired loans not secured by collateral or otherwise deemed uncollectable. Approximately CHF 1.4 billion of UBS’s recovery portfolio was performing and unimpaired at 31 December 2000. The unimpaired loans included in UBS’s recovery portfolio are outstanding with counterparties for whom other loans have become impaired. No provisions have been established against these loans. UBS’s lending officers actively manage the recovery portfolio, seeking to transform the lending relationship with a goal of removing the loan from the recovery portfolio.

~~Approximately two-thirds of the loans that were originally included in UBS’s recovery portfolio in 1997 have been worked-out and removed.~~

~~Credit quality~~

Private and Corporate Clients concentrates its lending activities on seeking out quality counterparties, rather than simply chasing increased market share. This, together with the continued implementation of risk-adjusted pricing, which differentiates loan pricing based on risk profiles, has led to improved credit quality and higher margins on UBS Switzerland’s lending portfolio, resulting in a more effective use of UBS’s capital.

~~Further information on the credit portfolio can be found in the Credit Risk section of the Review of Risk Management and Control on pages 53 to 61.~~

~~Strategic initiatives~~

~~Strategic Projects Portfolio~~

~~One of the key aims of UBS when it was formed in 1998 from the merger of~~ Union Bank of Switzerland and Swiss Bank Corporation we have streamlined overlapping infrastructure and re-engineered processes, so that UBS now has a stable and reliable infrastructure at its disposal, able to provide state-of-art services with high efficiency.

Operations also offers payments, securities, and custodial services to more than 3,000 financial institutions world-wide, and plays a leading role with UBS Warburg in the group-wide “Bank for Banks” initiative which offers state-of-the-art wholesale banking services to third party banks. This allows the bank to optimize the utilization of its existing infrastructure and increase efficiency, while third parties who lack our scale can outsource activities and benefit from wideranging UBS’s expertise.

UBS Global Custody & Investment Services offers institutional investors the opportunity to consolidate multiple bank relationships into a single cost-efficient global custodian. This simplifies their processing and administration and allows them to take advantage of our value added services, such as flexible consolidated performance reporting, investment controlling and accounting, and powerful portfolio management tools.

Loan Portfolio

At 31 December 2001, the Private and Corporate Clients loan portfolio amounted to CHF 152 billion. Mortgages represented CHF 114 billion, of which 82% were residential mortgages.

Continued discipline in implementing our credit portfolio strategy has resulted in a strong focus of our origination efforts on higher quality exposure with an attractive risk return relationship. The risk profile of the portfolio further improved over the past year.

Private and Corporate Clients, Loan portfolio by loan category Bar Chart

For details on the credit portfolio, please refer to the Risk Analysis section on pages 61 to 76.

Recovery portfolio

Risk-adjusted pricing takes account of the fact that, based on historic loss experience and considering our economic scenario for the future, a certain percentage of clients will be unable to meet their financial obligations. Once a particular client is in actual default, dedicated teams of recovery specialists advise the client to achieve the best financial result either by pursuing a possible economic recovery through restructuring, or alternatively, by achieving the best possible value through liquidation of available collateral in order to limit our financial loss.

The recovery portfolio amounted to CHF 12 billion at 31 December 2001, of which CHF 11 billion were impaired and carried provisions of CHF 5 billion. The recovery portfolio has reduced by 54% over the last three years from

UBS Switzerland, Development of UBS's recovery portfolio, 1999-2001 Bar Chart

CHF 26 billion at 31 December 1998, soon after it was set up, thanks to ~~generate~~the improved economic situation in Switzerland and our successful recovery efforts. Over the same period, non-performing loans with payments outstanding for ninety days or longer decreased from CHF 14.0 billion at 31 December 1998 to CHF 7.0 billion at 31 December 2001, leading to a non-performing loans to gross loans ratio of 4.6%.

Strategic initiatives

The Strategic Projects Portfolio

Private and Corporate Clients has enjoyed considerable success since the formation of UBS following the 1998 merger. Net profit before tax grew at an average annual rate of more than 33% from 1998 to 2001, despite the difficult environment of the last year. Much of this success has resulted from our dedicated efforts to realize the opportunities presented by the merger, including both cost synergies and ~~increased~~improved revenue ~~opportunities from the integration of the two Groups’ Swiss based retail and corporate banking businesses. This has been a major and successful effort, which is still continuing.~~generation.

~~A number~~In order to make the most of these opportunities, we set up a Strategic Projects Portfolio, which groups together our most important initiatives ~~covering both revenue generation~~— those with the highest potential to contribute towards achieving our strategic goals – giving them regular senior management attention and ~~cost saving, intended~~priority in terms of IT and other resources, and subjecting them to ~~enhance profitability~~a systematic control process.

Structured along five value drivers: “distribution”, “pricing”, “products”, “processes”, and ~~exploit merger synergies, are included within our Strategic Project Portfolio and continue to show good progress. UBS believes that in the two and half years~~“cost control”, its achievements since the merger ~~these~~have included rationalizing and extending our product portfolio, streamlining our distribution network, combining payments and securities operations centers and integrating logistics functions, resulting in substantial efficiency gains.

The biggest positive effect on income has come through the implementation of risk-adjusted pricing in the lending business and our continued efforts to increase the efficiency and customer focus of the different steps in the lending process. At the same time we have filled out our product portfolio, for example by introducing the UBS Classic mortgage which has an interest rate linked to the ten-year federal bond rate. This addition to our product range ensures that we can offer our clients an optimized product for any phase of the interest rate cycle. We are also using technology to help us increase revenues, using data mining to better understand our clients needs and identify cross-selling opportunities, while at the same time increasing process efficiency so that client advisors can spend more time on providing advice.

Cost control initiatives within the strategic projects ~~have contributed significant earnings enhancement, some of which has been reinvested in growth initiatives such as e-banking.~~

~~Our revenue enhancement initiatives~~portfolio are now increasingly focused towards exploiting synergies for the entire UBS Switzerland Business Group — providing services centrally for both Private and Corporate Clients and Private Banking. Examples include ~~offering personalized client relationship management, based on~~ the utilization of sophisticated data mining technologies in order to optimize advisory processes and maximize cross-selling opportunities. In addition, we continue to optimize our credit portfolio by implementing risk adjusted pricing, securitizing parts of the portfolio and realigning the balance of our exposures towards preferred risk classes. In order to meet the changing needs of our clients, we have also successfully launched a number of newcentralized products and services ~~such as~~unit, the ~~Money Line flexible mortgage~~centralization of document management and ~~UBS Fund Solutions.~~

~~The Strategic Projects Portfolio also has a strong focus on costs, primarily through process reengineering in logistics~~loan processing and ~~IT areas, the automation~~shared development of ~~credit processes, and the rationalization of infrastructure, including branch closures and alternative distribution channels.~~e-banking initiatives.

~~Our multichannel distribution strategy is aimed at reducing counter traffic and provid-~~

The Business Groups
UBS Switzerland

Private Banking

UBS ~~Switzerland~~Private Banking is committed to becoming the wealth management provider of choice for private investors, world-wide.

ing our customers with convenient alternative points of service, including our e-banking services. During 2000, we started implementing a two-zone concept in our branches, creating a cash services zone and a flexible advisory zone. We also continue to replace increasing numbers of traditional automated teller machines with sophisticated multifunctional BancomatPlus and Multimat machines which allow clients to perform core banking transactions 24-hours a day at strategic sites throughout Switzerland.

UBS has also continued to close branches, reducing the duplication and redundancy in the network it inherited from its predecessor banks. 209 branches, or 38% of the pre-merger network had been closed by the end of 2000. The pace of branch closures is expected to slow-down this year as the number of branches approaches the optimal level necessary to service UBS’s clients effectively. However, UBS will not compromise the return requirements for its branch locations and will continue to evaluate each branch’s profitability in light of changing client demands and willingness to utilize alternative distribution channels.

~~The~~ Business ~~Groups~~description

~~UBS Switzerland~~

UBS Private ~~Banking’s mission is to provide customized solutions through~~Banking provides a comprehensive range of ~~financial~~ products and services toindividually tailored for wealthy clients from Switzerland and abroad, through offices around the world.

With 140 years of private ~~individuals. Caring for our clients~~banking experience, 85 offices world wide and CHF 682 billion of client invested assets, Private Banking is ~~central. To achieve our objectives, we~~the world’s largest private bank.

Private Banking, Revenue composition Bar Chart

Private Banking, Gross margin Bar Chart

Private Banking’s 2,346 highly trained client advisors, combine strong personal relationships with ~~state-of-the-art technology and are committed to accessibility, quality and confidentiality.~~

~~Private Banking~~

~~Business description and organization~~

~~The Private Banking business unit of UBS Switzerland is the leading provider of private banking services in Switzerland and in other financial centers internationally. Its client advisors cater~~access to the ~~needs~~resources of ~~wealthy individuals worldwide.~~

~~As of 31 December 2000,~~ the Private Banking business unit had CHF 681 billion in assets under management with slightly more than 21% of these managed on a discretionary basis. Private Banking employs over 7,000 people and conducts business in more than 60 locations throughout the world, with products and services tailored to the specific needs of different markets and client segments. Key banking centers outside Switzerland include London, Luxembourg, Monaco, Jersey, New York, Singapore and Toronto.

Private Banking tailors its advice and products to the specific needs of its clients. Client advisors are organized by client market, which allows them to make best use of their extensive local market knowledge and to provide a high level of dedicated client focus. We also meet the needs of specialized client segments across regions, and have formed dedicated client advisor teams to serve entrepreneurs, executives, and sports and entertainment professionals.

~~The Private Banking business unit consists of four business areas which maintain direct client relationships:~~


–	~~Europe, Middle East and Africa;~~
–	~~Overseas – including the Americas and Asia;~~
–	~~Swiss Clients – responsible for the domestic market;~~
–	~~Private Banks: six independently branded, but wholly-owned Private Banks: Cantrade, Banco di Lugano, Ferrier Lullin, Ehinger, Armand von Ernst and Hyposwiss,~~

~~and other areas which provide services to the rest of Private Banking:~~


–	~~Investment Center,~~
–	~~Investment Products and Services (IP&S),~~
–	~~Logistics.~~

As part of UBS Switzerland, Private Banking uses support services from the Private and Corporate Clients business unit, including its information technology platforms, securities and payment processing services and multichannel distribution platform. Private Banking also benefits from close cooperation with other parts of thewhole UBS Group to ~~help it~~ provide ~~its clients with a unique offering of global financial products.~~

~~Investment Center~~

The Investment Center, which started operations on 1 October 2000, is responsible for developing coherent and high quality investment strategies for the core investment products and services offered by UBS Switzerland. The strategies developed by the Investment Center guide the investment process through which the two business units manage private wealth and advise their clients on their global investment decisions. The strategies and advice developed by the Investment Center are primarily “buy-side” oriented. The Center filters and further analyzes research, sourced both from inside UBS and from complementary external providers, and transforms this into investment strategies and advice specifically suited to private clients. The Investment Center also controls the tactical asset allocation for active advisory products, the UBS Strategy Funds and for discretionary managed portfolios. It is central to UBS Switzerland’s new open architecture strategy, taking responsibility for the “screening” of third party investment funds for the new UBS Fund Solutions products.

~~Investment Products and Services~~

The Investment Products and Services business area includes the teams focusing on Active Advisory, Portfolio Management, Financial Planning and Wealth Management, and Credit Origination & Structuring. These units support the client-facing areas in delivering new, high quality products and providing active advisory services.

~~Logistics~~

~~This area manages Private Banking’s relations with other service providers within the UBS~~

~~The Business Groups~~

~~UBS Switzerland~~

~~Group, and provides additional IT and facilities management services where required.~~

~~Marketing, distribution, products and services~~

Private Banking’s client advisors are central to the delivery of services to Private Banking’s clients and retain primary responsibility for introducing new products and services to existing and prospective clients.

Each business area is responsible for its own marketing activities, supported by a centralized UBS Switzerland marketing function, which is responsible for co-ordinating brand management activities, advertizing, market research, and for sponsoring and the preparation of standardized marketing materials.

Private Banking is committed to leveraging UBS Switzerland’s e-solutions and rolling out these services globally, adapting them to meet local requirements. Private Banking’s e-strategy clearly places the client advisor at the center of the client relationship, with electronic channels providing complementary support and information. As well as offering UBS Switzerland’s e-banking solutions to its clients, Private Banking is actively involved in the development of a personalized interface between the client and UBS. In addition to access to the full range of UBS’s e-banking and information services, in a format designed by the client with his or her advisor, this will provide a direct channel between them for communication of advice and recommendations.

~~Private Banking provides~~ a full range of ~~financial products and~~wealth management services, ~~including:~~


–	financial planning and wealth management consulting, covering proprietary trusts and foundations, the execution of wills, corporate and personal tax structuring, art banking and numismatics, and tax efficient investments;
–	~~asset-based services such as portfolio management, custody, deposit accounts, loans and fiduciary products;~~
–	~~transaction-based services, such as trading, brokerage, and investment funds;~~
–	from asset management to estate planning, corporate finance advice to art banking. Private Banking ~~also provides loan facilities to some of its clients. At 31 December 2000, outstanding loans amounted to CHF 28.6 billion, or 16% of UBS Switzerland’s gross loan book.~~

~~Strategic initiatives~~

~~Product initiatives~~

~~UBS~~ is committed to developing an open product platform, widening the choices available to its clients by complementing ~~its~~UBS’s own ~~range of~~ products with ~~the sale of~~ top quality third party products, through a screened open-architecture. ~~During 2000,~~
Private Banking ~~has made significant progress towards~~is currently expanding its domestic business in five key European markets – France, Germany, Italy, Spain and the UK – opening new offices and aiming to hire a total of up to 250 new client advisors each year.

Organization

Private Banking’s global product offering is carefully tailored to meet country-specific tax and legal regulations and the different aspirations of clients in different markets. Our client advisors are organized in line with this ~~goal.~~geographical focus, into five regional business areas:

–		Europe
–		Asia
–		Middle East and Africa
–		Americas International, and
–		Swiss Clients

Where local regulations allow, client advisors who serve clients domestically or internationally report through to a single manager, helping to avoid channel conflict and ensuring that our clients receive a consistent high quality service whether they bank at home or abroad.

In ~~September 2000, Private Banking began offering GAM funds~~addition, we have established expert global teams which concentrate on the requirements of particular client groups or provide specialized services. Examples include the Family Office for wealthy families, the sports and entertainment group focusing on the special life-cycle related needs of artists or sports professionals, the Islamic banking team which provides products designed to ~~its clients~~be Shari’a com- pliant, and our numismatic and art banking groups.

Private Banking, Invested assets by currency Bar Chart

The Intermediaries business area is the market leading provider of products and services to financial intermediaries in Switzerland. ~~GAM was acquired by~~Leveraging the scale and scope of our private banking expertise, we provide financial intermediaries in Switzerland, Germany and elsewhere with solutions, products and services that add substantial value to their client relationships, and allow efficient and convenient management of their clients’ assets through UBS Connect, our sophisticated e-platform.

Finally, we operate five independently branded, but wholly-owned private banks: Armand von Ernst, Banco di Lugano, Cantrade, Ehinger, and Ferrier Lullin, each based in ~~December 1999~~a different one of Switzerland’s key regional private banking markets.

Clients and ~~is part of~~ marketing

Target clients

UBS ~~Asset Management. Its business model is~~has moved away from rigid client segmentation. We prefer clients to “self-segment” themselves, based on the ~~belief~~different levels of service we provide at different costs.

In Europe, our products and services are designed for “core affluent clients”, i.e. those with in excess of EUR 500,000/CHF 750,000 of investable assets, a market which represents a tremendous opportunity. A Datamonitor study in April 2001 predicted that there will be over four million individuals in this target segment in Europe by 2004, with over EUR 4 trillion in investable assets. In addition, the wealth of the most affluent segment (those with EUR 3 million or more in investable assets) is expected to grow fastest, providing great potential for UBS, which has the focus, resources and expertise to meet these clients’ needs.

Marketing

Brand strength and brand recognition are a key success factor in the private banking industry, helping to create a situation in which clients ~~always deserve access~~trust us to provide them with high quality advice, products and services.

UBS is one of the best ~~investment talent,~~known brand names among high net worth individuals globally. This position is bolstered by the UBS Group’s brand marketing campaigns, which aim to increase awareness of UBS amongst high net worth individuals and ~~recognizes that this may not always be found in-house. GAM therefore operates a screened multi-manager program, giving access to the highest quality expertise in specialized areas.~~business leaders, and by Private Banking’s own brand campaigns, specifically targeted at potential private banking clients.

UBS Private Banking is associated with values such as “security and stability”, “inspires trust”, “takes clients ~~now also~~seriously” and “excellent products and services”, all factors which are among the most important for high net worth individuals. Our brand advertising campaigns aim to sustain and strengthen our image and brand awareness. For the last two years, these campaigns have ~~access~~been based around images of the UBS Verbier Youth Orchestra, which gives around 100 talented young musicians aged between 17 and 29 the opportunity to ~~this investment talent.~~gain experience working with top international conductors.

In addition to brand based activities, each business area is responsible for its own regional marketing activities, supported by a centralized UBS Switzerland marketing function, which is responsible for coordinating brand management activities, advertising, market research, and for sponsoring and the preparation of standardized marketing materials.

~~Type~~Structured advisory process

The consistent delivery of ~~Engagement~~a truly consultative advisory process combined with a comprehensive product positioning framework is essential to putting Private Banking’s value proposition into action. Highly skilled client advisors take time to understand clients’ needs in order to provide comprehensive, best-in-class solutions through a carefully structured process, supported by leading technology.

The client advisor’s role is to ensure a clear focus on the needs of each individual client.

Assets under management
CHF billion 31.12.00 31.12.99 31.12.98
Advisory 535 517 437
Discretionary 146 154 142
Total 681 671 579
Asset class

Deposit and current accounts 63 59 50
Equities 187 196 148
Bonds 189 187 187
UBS Investment funds 104 119 93
Other 138 110 101
Total 681 671 579

The Business Groups

UBS Switzerland

UBS Private Banking, The structure advisory process Flow Chart

~~In December 2000, UBS Switzerland extended this idea~~Together with the ~~launch~~client, the client advisor invests significant time and energy to understand and analyze the client’s situation, taking into account all the different factors which affect the client’s investment goals and risk appetite. The client advisor then acts as a consultant, helping to build a personalized financial strategy to meet these requirements.

The client advisor acts as a gateway for the client to the resources and expertise of ~~UBS Fund Solutions. This new product offers access to a pre-screened selection of “best in class” investment funds from a range~~the whole of UBS and ~~third party fund managers, helping~~third-party providers, building on a robust product management framework and the resources of our specialists to bring together the products and services required to implement the client’s strategy. Our commitment to open architecture forms a key part of the value proposition for our clients ~~obtain~~in this process, allowing the ~~best funds from a “confusing universe”.~~

~~The entire population of funds available for sale in Switzerland is screened by the Investment Center using their expertise~~client advisor to select the best ~~balance~~product to meet the client’s needs from a much wider range.

The process is completed through comprehensive monitoring and reporting of investment performance, with regular feedback to adjust goals and strategies as required.

Products and Services

UBS Private Banking’s offering spans the entire range of financial solutions, allowing us to tailor our offerings to each client’s specific needs. The bank’s own range includes products from all our Business Groups and is supplemented by carefully screened third party products which have been through a comprehensive due diligence process.

Open architecture

In order to be credible to our clients we have to offer them product-neutral advice, selecting the best possible products for each client’s specific situation. But the only way to do this meaningfully is to give our clients access to best in class products in every field, suited to their needs and risk appetite. To do this successfully means opening our product architecture to include products and services from third-party suppliers. But rather than becoming a financial supermarket, we have chosen to carefully screen third-party offerings, only selecting those that meet the high quality our clients require. The combination of this careful product selection with our structured, consultative advisory process aims to ensure that the solutions we propose best fits our clients’ needs and goals.

In order to have the greatest possible impact, our open architecture framework is focused on products or services which differ substantially in both quality and content between ~~performance~~different providers, such as mutual funds and ~~risk. Each~~alternative investment products.

At the same time, a successful open architecture framework requires efficient product management capabilities, with clear ownership of each product category across all phases of the product lifecycle, including responsibility for selecting and screening potential product offerings. During 2001, we have rationalized our product management structures and processes, introducing end to end responsibility for product selection, development, and support.

Product positioning framework

Depending on their financial situation and individual preferences, clients have varying requirements regarding the level of service they expect from their advisor. This is where a logical and intuitive positioning of our wide range of products and services can add value for the client as well as the client advisor.

At the first level,UBS Investment Products include advisory services which are primarily focused upon effective management of a stan- dard suite of transaction-oriented products.UBS Investment Solutions, the second level, adds systematic advisory services including asset allocation, investment selection and portfolio management. Clients choose investments based on a consultative advisory service or delegate all decision making to their client advisor. The third level, UBS Financial Planning, goes beyond pure investment decisions and offers comprehensive advice reflecting the client’s lifecycle needs and their entire asset base, including for example real estate and art. At the top end of the range,UBS Ultra High Net Worth Wealth Managementpro-

Private Banking Product positioning framework

vides the whole range of financial services in an exclusive and very individualized format for ultra high net worth individuals.

The framework is fully dedicated to open architecture and provides access to carefully screened best-in-class products. By applying a consultative advisory process the services are centered around the individual client ~~then receives a tailored sub-set~~with the goal of creating and reinforcing the UBS brand experience.

The four levels of the ~~screened~~product positioning framework provide the foundation for external and internal communication of our product offering. The framework also acts as the basis for the organizational and structural set-up of our product functions as we implement a systematic product development process.

To promote the proposition and ensure consistency in communication, a comprehensive client advisor training program is being carried out, and client literature and other promotional material are being updated. The overall message is also taken up in the latest UBS Private Banking advertisement campaign “AAA”: “Access” representing the open architecture; “Analysis” representing the screening process; and “Advice” representing the systematic advisory process.

Research and investment products

UBS Private Banking clients benefit from the same service standards enjoyed by institutional investors, with direct access to market specialists and execution on major financial markets world-wide, across the full range of products from equities to FX, structured products to precious metals.

Alternative investments. Our clients can access a wide range of alternative investments, from in-house hedge funds ~~selected by~~(like the GAM or O’Connor range of funds) to third party private equity funds and fund of funds products. In particular, we offer discretionary portfolio management clients the option to include alternative investments in their asset allocation.

Research. UBS Private Banking clients have access to a broad range of research on the development of economies and financial markets, on industries and on individual companies. Research and analysis is provided through the investment center within UBS Private Banking. Private Banking clients can have direct access to exclusive research information via the internet.

Investment solutions

Discretionary portfolio management. Clients delegate the management of their assets to a team of professional UBS portfolio managers, according to an investment strategy agreed with their client advisor ~~to suit their investment objectives~~ and reflecting the client’s risk appetite and ~~pays~~investment goals.

Private Banking, Invested assets by mandate type Bar Chart

The Business Groups
UBS Switzerland

Private Banking, Invested assets by asset class Bar Chart

Clients can elect either to invest in the full range of securities directly, or to limit their investments to investment funds, through our Managed Fund Portfolio product. In each case, our portfolio management service offers clients an ~~all-in “wrap” fee,~~active, but risk-controlled investment approach, based on ~~the level~~consistent analysis of macroeconomics, markets and individual companies with regular monitoring of credit quality and liquidity of assets. Investments are managed with an emphasis on diversification across asset categories and markets, and an increasing focus on a regional and sector orientation. We can also take into consideration tax aspects in our investment process, if requested.

Through discretionary portfolio management our clients can benefit directly from the investment policy of a leading financial institution with international resources and access to a large fund of knowledge and experience, secure in the knowledge that portfolios and risks are continually monitored. UBS’s portfolio management services do not simply provide an “off-the-peg” product: there are over 650 different investment plans within the six basic strategies, depending on criteria such as currency, home market bias, and the inclusion or exclusion of alternative investments.

Advisory management of assets. Clients increasingly wish to be involved in the management of their own assets, with the support from UBS’s investment professionals. For them, Private Banking ~~is also focused on generating increased asset-based revenues, which currently represent about 65%~~provides analysis and supervision of ~~total revenues,~~portfolios and ~~further reducing its reliance on more volatile transaction fees. Two new products provided by the Active Advisory Team are designed~~their risk profiles, together with tailor-made proposals to ~~achieve this goal:~~


–	~~Active Portfolio Supervision (APS) in which a client receives investment recommendations whenever their portfolio breaches specified parameters; and~~
–	~~Active Portfolio Advisory (APA) which, in addition, provides direct access to a dedicated investment specialist and tailor-made strategies.~~

~~Both are~~support investment decisions. We offer different levels of structured ~~advisory~~adviory services, all based on an all-inclusive fee. Examples of our different offerings include: Active Portfolio Supervision (APS) in which a client receives investment recommendations whenever their portfolio breaches specified parameters; Active Fund Supervision, which is essentially the same, but the client’s portfolio is limited to investment funds; and Active Portfolio Advisory (APA) which, in addition, provides direct access to a dedicated investment specialist and tailor-made strategies. UBS Choice and UBS Fund Choice provides more limited supervision and advice for smaller portfolios, including access to a screened selection of third party funds and a comprehensive banking package, all for a flat fee.

Financial planning

We provide professional financial planning to help our clients achieve their personal and financial objectives and cope with important lifecycle events (e.g. inheritance, proceeds from business sale, change in tax regulations). We develop and execute customized solutions using our own inhouse experts and top external consultants, to deliver value-adding and personalized wealth enhancement strategies.

The financial planning advice we provide to our clients and their families covers every stage of life, from education funding and gifts to children through business start-up to succession planning and inheritance. Specific advisory services we can provide include strategic wealth management and lifestyle planning, retirement planning, tax planning, inheritance and succession planning, real estate advice, asset protection, art banking, insurance advice and the establishment of trusts, foundations and other corporate structures.

Corporate finance advice

UBS Private Banking provides independent corporate finance advice and services to business owners, drawing on the resources of UBS Warburg. This advice can cover the whole range of business situations, from venture capital search for start-up companies to succession planning, or the development of derivative structures to help diversify single stock holdings. The corporate finance advice we give to clients is carefully coordinated with financial planning and tax advice, helping to optimize the proceeds from corporate finance transactions.

Private Banking, Product Portal: The Private Banking House

Family office team

During 2001, Private Banking formed a specialist team to spearhead its work with the top segment of its clientele. The aim of the team is to help wealthy families to preserve and optimize their investments across generations, taking into account all economic, political, legal, and personal aspects.

The services provided by the family office team will vary from client to client. In some cases, where a professional family office already exists, UBS can provide additional specialist advice. This might cover institutional-style strategic asset allocation and portfolio risk analysis, or investment banking services, perhaps advising on the sale or restructuring of a family business. In other situations, where a family office does not exist, the expert team can help the client to build it up. In each case, the specialist team’s role is to identify and analyze clients’ unique needs and then to tailor UBS’s services to meet those needs in the most efficient and effective manner. The family office team ensures that their clients receive the very best quality products and services, sourced from across UBS’s Business Groups and from best-in-class third-party providers.

The family office market in Europe is estimated at around CHF 220 billion in investable assets, with forecast growth of 11% a year over the next three years. The launch of this dedicated team underlines our ambition to further expand our position as the provider of choice for the top segment of private banking clients.

Banking products

We provide a full range of global custody and investment services, including securities lending and reporting and risk control. We also offer real-estate financing, Lombard credit and structured credit products. At 31 December 2001, Private Banking’s outstanding loan book amounted to CHF 29 billion, or 16% of UBS Switzerland’s gross loan book.

e-business

Our philosophy is to put the client advisor at the center of all our client relationships, supported by the most advanced technology. Our e-banking activities aim to enhance this relationship. Independent from time and venue, state-of-the art applications provide clients with convenient access to their assets and comprehensive personalized services, designed to reflect local characteristics and requirements. All services are protected by our proprietary SAFE security infrastructure, which safeguards client access and data transmission over the internet.

Originally developed and implemented in our Asia operations, SAFE has recently been rolled out in our locations in Monaco and Luxembourg and successfully integrated with their banking systems. This process is a good

The Business Groups
UBS Switzerland

illustration of our strategy for delivering successful global e-commerce projects: solutions and applications arefirst developed for a particular local market and then, after successful implementation, adapted to reflect local characteristics and requirements and rolled out in other locations.

Other prominent examples also include solutions initially developed for e-banking in Asia and launched in July 2001: e-Portfoliowhich gives an online-view of client’s assets and liabilities,Wealth Optimizerwhich supports clients in analysing their financial situation, andAdvisory Messengerwhich provides a secure online communication link for our clients routing messages automatically to the dedicated advisor. These three e-advisory applications are now being rolled out in other markets. After country-specific customization to meet local client requirements, the e-portfolio application has been launched for clients of UBS Luxembourg. In November, a version of the Wealth Optimizer was implemented for clients of UBS Switzerland, as the myOpportunities tool within myUBS. All three tools are also now available to clients of some of our private banking subsidiaries (Bank Ehinger, Cantrade and Banco di Lugano).

European wealth management

~~Through its merger with PaineWebber,~~ UBS ~~now~~ has scale and excellence in two different ~~traditions~~types of ~~serving~~ private ~~clients: the banking model, through Private Banking; and~~client business: the brokerage model, through UBS ~~PaineWebber. UBS is therefore uniquely positioned~~PaineWebber, and the private banking model, through Private Banking. In Europe in 2001 we have been putting the combined strengths of these two traditions together to ~~combine these capabilities, giving its clients access to~~help build our domestic presence in five key target countries, Germany, France, Italy, Spain

European market for wealthy clients by country

and the UK, which together represent about 80% of the European market. By deploying staff and expertise, we have taken the best of ~~both traditions,~~UBS PaineWebber’s top-class abilities in marketing, product management and innovation, technology, and training and applied them as a key catalyst in building our European business.

Our strategy is based on three building blocks: ‘People’, ‘Products’ and ‘Platform’. Private Banking strives to provide all our clients with excellent service and financial solutions tailored to their needs, based on in depth analysis and a strong relationship between each advisor and his or her clients. Only by deploying the best people, with the best products and superior technology to support them will we deliver this experience to clients in our target countries.

People

Acquiring high quality client advisors with profound knowledge of their domestic markets is a cornerstone of the European Wealth Management initiative. Our ambition is to hire and train up to 250 new client advisors a year, representing an entirely new level of recruitment activity for Private Banking. Our success so far has been bolstered by the acquisition of new skills learned from UBS PaineWebber, which hired almost 2,000 new advisors between 1998 and the start of 2001. An unprecedented training initiative, developed with UBS PaineWebber’s assistance, helps every private banker to master state-of-the-art know how in wealth management, complemented with product specific training for the new generation of open architecture advisory services.

Products

While all our clients have access to the full range of ~~its combined expertise, wherever they hold their accounts, whether~~Private Banking’s product offering, we have also launched two new innovative open architecture services in ~~their home countries or internationally.~~2001, specifically targeted at the European market.

~~As an important step towards this vision,~~ UBS Managed Fund Portfoliois ~~bringing together its domestic and international private~~a client ~~businesses in Europe, and infusing the new combination~~investment account constructed primarily with ~~the spirit and expertise~~third-party mutual funds. In contrast to other “fund of funds” structures, UBS ~~PaineWebber – the key catalyst to build~~Managed Fund Portfolio offers funds from a ~~successful future.~~

UBS’s strategy is to build on its successful domestic private client businesses in the key target markets of Germany, the UK, France, Italy and Spain, by adding the skills and experience of the UBS PaineWebber team – in marketing, product innovation, training and technology – and by transferring knowledge and resources from UBS Switzerland’s International Private Banking business. Client advisors will be central to the success of our plans, and we see potential for increasing the number of advisors in this business at an average rate of 250 per annum over the next five years, obviously carefully tailoring that growth to the evolving market opportunities.

The private banking industry will increasingly reflect the changing profile of high-net-worth individuals, emerging technologies and increased competition. Clients are taking a more active role in managing their wealth and are demanding more sophisticated products and a broader geographicaltruly global range of ~~services. They are focused on asset performance~~managers and ~~allocation, quality of information~~further distinguishes itself by a quantitative and ~~advice~~qualitative screening, analysis and ~~extended availability of services, such~~selection process.

Clients benefit from a state-of-the-art process that ensures top due diligence standards as 24-hour, remote and internet access. More wealth now resides in the domestic markets where clients are domiciled, particularly in the form of equity and equity-linked investments, as capital markets become more developed. UBS believes that its unique mix of businesses positions it excellently to meet these trends.well

Private Banking, Global presence: Key locations

as identifying offerings with a superior performance track-record. Around 30 providers have been selected for the initial launch from a screened universe of over 1,000, including AXA Investment Management, DWS, Fidelity, JP Morgan Fleming Asset Management and Swissca.

As its name implies,UBS Money Manager Accessopens the door to exceptional investment talent. The product provides UBS clients with access to a wide range of independent third-party investment managers to create tailor-made investment solutions. In addition to the mutual funds available through UBS Managed Fund Portfolio, UBS Money Manager Access will provide direct access to the management skills of institutional managers such as Lazard Frères, JP Morgan and Alliance Capital.

As well as taking on the work of manager selection on behalf of the client, UBS will provide access to third-party managers at much lower minimum investment levels than would be possible direct. UBS Money Manager Access currently has no equivalent in Europe. Both UBS Managed Fund Portfolio and UBS Money Manager Access have been developed in close co-operation with UBS PaineWebber. These new products represent further progress in Private Banking’s commitment to open architecture, and will be rolled out progressively in other Private Banking locations outside of Europe.

Platform

As we hire new client advisors, we are expanding our European branch network, extending our reach to new locations and increasing convenience for our clients. Potential locations within the five target countries, are systematically screened according to a number of criteria such as market potential, market share to break even, and potential availability of professional client advisors. Three different types of branches are being implemented, tailored to local market requirements and taking account of potential invested assets: “main country offices” are located in a country’s most important financial center and comprise extensive infrastructure, while branch offices and satellites are operated using a leaner set up. Through this process, our network has expanded to 21 offices, from 15 offices at the start of 2001, with new offices opened in Seville, Lyon, Marseille, Bordeaux, and Bielefeld, and a small representation established in Edinburgh.

In order to ensure that we can operate in the most cost effective and efficient manner, while at the same time maintaining the flexibility to swiftly introduce innovative new products, we are building a new IT infrastructure to support the European wealth management initiative. The new platform passed its first essential test in December 2001 with its successful implementation in France. Locations in other target countries are scheduled to be migrated to the new platform over the course of the next five quarters. It also forms the basis for the implementation of new advisor tools which support analysis of a client’s profile and situation and the selection of the appropriate asset allocation through a systematic approach.

After a year of intense effort, the European Wealth Management initiative is well on track, producing promising results despite adverse market conditions, with clients entrusting CHF 5.6 billion in net new money to us in our target countries in 2001.

According to market analysis, the top client segment targeted by the initiative is expected to grow significantly over the coming years, representing major potential for the future. We believe that with our unique expertise, business model, and technology, UBS is excellently placed to enhance our position in Europe, establishing ourselves as the wealth manager of choice in our five target countries.

The Business Groups
UBS Asset Management

UBS Asset Management

UBS Asset Management ~~provides asset management services~~delivers superior results for its clients through a globally integrated investment organization.

Business Group Reporting


CHF million	UBS Asset Management

For the year ended		31.12.01	31.12.00





Institutional fees		1,007	1,119




Mutual funds fees		1,103	834





Total operating income		2,110	1,953





Personnel expenses		1,003	880




General and administrative expenses		564	439




Depreciation		46	49




Amortization of goodwill and other intangible assets		266	263





Total operating expenses		1,879	1,631





Business Group performance before tax		231	322










Cost / income ratio before goodwill (%)		76	70




Net new money — Institutional (CHF billion)		6.2	(70.8	)




Invested assets — Institutional (CHF billion)		328	323




Net new money — Mutual Funds (CHF billion)		28.7	2.9




Invested assets — Mutual Funds (CHF billion)		344	319




Headcount (full time equivalents)		3,281	2,860

Business

Our business is investment management: delivering value-added investment performance and ~~products~~excellence in client service to a ~~retail and institutional~~diverse international client base, ~~across the world. We have a diverse range~~ranging from major institutions to

Bar Graph

individual mutual fund clients. The breadth, depth and global scope of UBS Asset Management’s investment capabilities, research and risk management ~~capabilities~~distinguishes it from ~~the traditional to the alternative, with a core focus on price/value management.~~its peers.

UBS Asset Management ~~also provides investment~~has a total of CHF 672 billion of invested assets making it the twelfth largest global institutional asset manager, the second largest mutual fund ~~products for~~manager in Europe, and by far the ~~UBS Group and will increasingly widen its reach through third parties to individual clients outside the UBS Group.~~

largest mutual fund manager in Switzerland.

~~UBS Asset Management~~

~~Reporting by Business Units~~
Institutional Investment Funds /
Asset Management GAM
CHF million
For the year ended 31.12.00 31.12.99 ¹ 31.12.00 31.12.99 ¹
Income 1,301 1,099 652 270
Credit loss expense 0 0 0 0
Total operating income 1,301 1,099 652 270
Personnel expenses 631 458 249 58
General and administrative expenses 243 178 196 93
Depreciation 27 25 22 7
Goodwill amortization 173 113 90 0
Total operating expenses 1,074 774 557 158
Business Group performance before tax 227 325 95 112
Cost/income ratio (%) 83 70 85 59
Assets under management (CHF billion) 496 574 219 225
Headcount (full time equivalents) 1,728 1,653 1,132 923

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

UBS
Asset Management
CHF million
For the year ended 31.12.00 31.12.99 ¹
Income 1,953 1,369
Credit loss expense 0 0

Total operating income 1,953 1,369

Personnel expenses 880 516
General and administrative expenses 439 271
Depreciation 49 32
Goodwill amortization 263 113

Total operating expenses 1,631 932

Business Group performance before tax 322 437

Cost/income ratio (%) 84 68
Assets under management (CHF billion) 522 598
Headcount (full time equivalents) 2,860 2,576

~~Business description and organization~~

UBS Asset Management brings together ~~all~~the key elements of ~~UBS’s asset management businesses. Formed in February 2000, it was organized in two business units during the year:~~investment solutions for its clients:

– A global perspective on markets and economies.
– ~~Institutional Asset Management – one~~ A top quality investment management platform, dedicated to valuing markets, currencies and securities around the world, based on a range of ~~the largest institutional asset managers~~investment styles, with a particular expertise in ~~the world.~~identifying price/value discrepancies derived from fundamental research.

– Innovative thought leadership and investment ideas.
– ~~Investment Funds / GAM – one of the two largest fund providers in Europe~~ Extensive financial, informational and, ~~the seventh largest in the world. GAM is a diversified asset management group focused on private~~most important, human capital.
– A dedication to providing personal client ~~portfolios.~~services and personalized business solutions.

~~In 2001,~~

UBS Asset Management’s main offices are in Chicago, London and Zurich. With 3,000 employees in over 15 countries, UBS Asset Management offers a truly global perspective on investment management.

Organization

UBS Asset Management’s investment expertise is based on a single global investment platform, with over 450 investment specialists located in the world’s major financial centers. The resources and expertise of all these ~~business units have been combined and will no longer be reported separately.~~

~~In February 2001, UBS PaineWebber’s asset management unit, Mitchell Hutchins, also became a part~~specialists are available to support all of UBS Asset ~~Management.~~Management’s clients, wherever they are located.

Bar Graph

UBS Asset Management’s investment expertise is delivered through specialized local client franchises around the world, which combine access to UBS Asset Management’s global investment management platform with detailed knowledge of local clients, markets and regulations. Our best known client brands are Brinson Partners, Brinson Advisors and Brinson Canada in the Americas, Phillips and Drew in the UK, and UBS Asset Management ~~is headquartered~~and UBS Investment Funds in ~~Chicago, with offices across~~Europe, the ~~world.~~

Middle East, Africa and Asia.

~~Institutional~~ In addition, specialized investment capabilities are offered through specific brands including: O’Connor, which offers hedge funds and other alternative investments; GAM (Global Asset ~~Management~~Management) a multi-manager specialist; Fresco exchange traded funds; UBS Realty and UBS Timber.

~~Based on assets under management, Institutional~~ In April 2002, we will launch a new brand, UBS Global Asset Management, ~~is one of~~to replace the ~~largest institutional asset managers in~~different brands that have been used around the world for our core institutional and ~~particularly prominent in~~wholesale businesses. This strategic move reflects the ~~United States,~~global integration and scope of our investment approach and offerings and underlines our consistency of approach and commitment to shared principles throughout the ~~United Kingdom~~world. Specialty businesses with separate identities such as GAM, Fresco and Switzerland. At 31 December 2000, Institutional Asset Management had CHF 496 billion in assets under management, including CHF 300 billion of institutional assets and CHF 196 billion of non-institutional assets, including the UBS O’Connor will retain their current names.

Investment ~~Funds.~~capabilities

~~Institutional Asset Management markets its services under the~~

UBS Asset Management ~~umbrella,~~has historically been closely associated with ~~two major sub-brands: Brinson Partners~~a price/intrinsic value investment style. Although this remains true, we have broadened our capabilities and developed our investment platform in recent years to the US, and Phillips & Drew in the UK. Institutional Asset Management will pursue growth opportunities in Continental Europe and Asia-Pacific and maintain its strong positions in the mature markets it serves in the United States, the United Kingdom and Switzerland.

~~Institutional Asset Management operates~~point where we believe that we are now better described as a ~~client-centric business model with strong local presence through regional business~~multi-paradigm investment firm. This paradigm is supported by one global, totally integrated investment platform, employing resources from all areas ~~in the UK, Americas, Asia and Europe. A new specialized unit branded O’Connor, was formed in June 2000. Reviving the name~~ of the ~~derivatives business which became part of the Group in 1992, O’Connor focuses on alternative~~globe.

Our investment ~~strategies designed to provide attractive risk-adjusted returns with a low correlation to traditional investments.~~

capabilities include:

~~Clients~~

~~Institutional Asset Management has a diverse institutional client base located throughout the world. Its clients consist of~~

–		Equities
–	~~corporate and public pension plans;~~	Balanced
–	~~endowments and private foundations;~~	Fixed Income
–	~~insurance companies;~~	Alternative — Private equity, real estate, timber, farmland, hedge funds
–	~~central banks~~	Multi-manager and ~~supranationals; and~~
–	~~financial advisors.~~fund of funds

~~The Business Groups~~

~~UBS Asset Management~~

~~Assets under Management by Client Type~~

31.12.00 31.12.99 31.12.98
CHF billion
Institutional 300 376 360
Non-institutional 196 198 171

~~Institutional Assets under Management by Client Location~~

31.12.00 31.12.99 31.12.98
CHF billion
Europe, Middle East & Africa 160 185 202
The Americas 100 140 122
Asia-Pacific 40 51 36
Total 300 376 360

~~Institutional Assets under Management by Client Mandate~~

31.12.00 31.12.99 31.12.98
CHF billion
Equity 89 125 115
Asset allocation 94 130 148
Fixed income 77 90 83
Private markets 40 31 14
Total 300 376 360

~~Marketing and distribution~~

Institutional Asset Management uses its longterm track record and strong client franchise to increase the penetration of its services with both new and existing clients. It is a full service institutional asset management firm, offering its clients a comprehensive range of research and investment analysis as part of its overall service and capability package.

In consultant-driven markets, such as the United States and the United Kingdom, Institutional Asset Management relies on its strong relationships with the major consultants that advise corporate and public pension plans, endowments, foundations, and other institutions. It also dedicates resources to generating new business directly with large clients.

Brinson Advisors, the former PaineWebber Mitchell Hutchins business, provides products and services to the wholesale intermediary market in the US, focusing on three core areas: quantitatively driven investments, short-term fixed income products and municipal securities.

~~Investment process and research~~

~~Institutional Asset Management’s~~ Our client mandates reflect the very broad range of ~~its~~these capabilities, from fully discretionary global asset allocation portfolios to equity or fixed income portfolios with a single country emphasis, including alternative asset classes such as real estate, timber, hedge funds and private equity. These portfolios are available through separately managed portfolios as well as through a comprehensive range of pooled investment funds.

~~Within this wide range~~ We pride ourselves on our ability to create customized investment portfolios to meet the specific needs of ~~capabilities, Institutional~~any prospective client.

Our underlying investment philosophy remains: the ultimate value of a security is based on fundamentals, specifically, the present worth of future discounted cash flows. We are constantly looking for discrepancies between asset prices and their fundamental worth, but further-

The Business Groups
UBS Asset ~~Management’s core~~Management

more, we look to understand these differences. We realize that these differences and the risks associated with them, if not fully understood, can lead to periods of under-performance. Therefore it is important to both understand the market pricing and actively manage the risk.

Our investment process is ~~based~~driven by essential fundamentals, which are necessary for us to be successful value added providers. These include recruiting and maintaining the highest quality investment talent, a focus on ~~its efforts~~excellent and innovative research and disciplined portfolio construction and risk management. In addition, we pride ourselves in providing thought leadership, which extends our influence to ~~determine~~assets beyond the realm of UBS.

Clients and ~~quantify investment value. Its method is~~marketing

Institutional

We have a diverse institutional client base located throughout the world. Our clients include:

– corporate and public pension plans
– endowments and private foundations
– insurance companies
– central banks and supranationals
– financial advisors

Bar Graph

We use our long-term track record and strong client franchise to ~~identify periodic discrepancies between market price~~increase the penetration of our services with both new and existing clients. As a full service institutional asset management firm, offering our clients a comprehensive global range of research and investment ~~value~~analysis is a key part of our overall service and ~~turn them~~capability package.

In consultant-driven markets, such as the United States and the United Kingdom, we rely on developing and maintaining strong relationships with the major consultants that advise corporate and public pension plans, endowments, foundations, and other institutions. We also dedicate resources to ~~its clients’ advantage.~~

~~Institutional~~generating new business directly with large clients.

In the US, our Brinson Advisors business provides products and services to the wholesale intermediary market, focusing on three core areas: quantitatively driven investments, short-term fixed income products and municipal securities. We are committed to developing and extending this wholesale business over the next two years.

Mutual funds

UBS Asset Management ~~operates a global~~offers almost 500 mutual funds, exchange traded funds and other investment ~~platform. Research~~vehicles, across all asset types in diverse country, regional, and ~~strategies are coordinated across regions, giving clients access to the whole of Institutional Asset Management’s expertise, wherever they are located.~~

~~Investment Funds~~industry sectors.

Investment Funds is the leading investment fund provider in Switzerland in terms of assets under management, and seventh largest in the world. As of 31 December 2000, Investment Funds had CHF 199 billion in assets under
Bar Graph

~~The Business Groups~~

~~UBS Asset Management~~

~~Fund Category~~

31.12.00 31.12.99 31.12.98
CHF billion
Asset allocation 48 44 35
Money market 44 46 45
Bond 36 40 43
Equity 60 53 36
Capital preservation 6 12 12
Real estate 5 6 5
Total 199 201 176

~~management, including CHF 9.3 billion in assets under management distributed~~ In general, we do not maintain direct relationships with individual customers, but distribute our funds through ~~third-party partners. In addition, Investment Funds has a~~intermediaries. Our most significant ~~third-party fund administration business.~~

~~Investment Funds has an extensive product range of approximately 159 funds.~~

The continuing trend toward equity investments helped increase equity funds by 13% since the end of 1999, making it Investment Funds’ largest asset category, accounting for 30% of total volume. UBS Switzerland’s Investment Fund Accounts, which make it easy for clients to make regular savings in UBS Investment Funds, have grown in number by 57% to over 140,000 during 2000, with assets invested through them increasing by 20% to a total of CHF 3.1 billion at 31 December 2000.

~~Marketing and~~ distribution

~~Investment Funds~~ channels are ~~distributed primarily through~~ UBS Switzerland and UBS ~~Warburg,~~PaineWebber, with a minority of assets distributed through third-party providers.

~~Investment Fund’s~~ The penetration of our mutual fund products within the UBS Group’s existing client base is already very high, ~~and~~especially within Switzerland. The trend in the ~~implementation of screened open architecture in UBS Switzerland will make sales within the group increasingly competitive. Investment Funds is therefore evolving~~industry towards an open, ~~multichannel~~multi-channel distribution architecture will

provide increased competition for sales within UBS, but also increased opportunities outside the Group. Our business is on the leading edge of this trend, in which an increasing proportion of ~~its~~ funds will be sold bythrough third ~~parties, outside~~party channels. Within the UBS ~~Group.~~

~~UBS’s intermediary strategy, funds@ubs, was launched~~Group, we have an opportunity to offer our products through UBS PaineWebber, and to build on their successful experience of open architecture products in November 2000. It is designed to boost third-party distribution of our funds by providing a turn-key solution for distribution partners, including technical, administrative and operational support. The first implementation, in partnership with Lufthansa, provides Lufthansa Miles and More clients with access tothe US. Outside the UBS Investment Funds. A new web-site dedicated to Lufthansa clients provides investment education, advice on investment strategies and online decision support tools, and will provide automated online fund purchases. Over the coming months, UBS expects to announce similar joint ventures with other non-traditional intermediaries, using the same strategy and technical platform.

Other distribution initiatives include establishing additional partnerships with financial intermediaries, developing direct electronic sale channels and leveraging Institutional Asset Management’s distribution efforts to better capture defined contribution opportunities for Investment Funds.

UBS is also expanding its distribution in Asia, with the creation of a joint venture investment advisory firm to manage Real Estate Investment Trusts in Japan and the acquisition of a majority holding of Taiwan-based mutual fund provider, Fortune Securities Investment & Trust Company.

~~Investment process and research~~

The Institutional Asset Management business unit is responsible for managing almost all the investment funds offered by Investment Funds, other than some real estate funds. However, Investment Funds is responsible for managing its product range, which is tailored to meet the needs of individual investors, and for the development and marketing of individual funds.

~~Global Asset Management~~

Acquired in late 1999, Global Asset Management, or GAM, is a diversified asset management group with CHF 20 billion of assets under management, slightly over 600 employees and operations in Europe, North America, Asia and the Middle East. Its mandates include private client portfolios, over 230 mutual funds, and institutional mandates. GAM

~~The Business Groups~~

~~UBS Asset Management~~

~~operates under its established brand name within~~Group, UBS Asset Management will focus on distribution through third party financial institutions as demand increases for outsourcing of asset management and ~~continues to employ its own distinctive investment style.~~

mutual fund services.

UBS Asset Management will increasingly leverage GAM’s range of mutual funds and its external manager selection process, in which it selects the best from over 4,000 third-party fund providers, to enhance the range of its investment styles and products. GAM products are now actively distributed by UBS Switzerland.

~~Marketing and distribution~~Strategic opportunities

~~GAM operates a client-centric business model with regional client acquisition and servicing responsibilities.~~

~~Investment process and research~~

GAM was founded in 1983 to give private clients “access to great investment talent”. As a result, its investment process is based on selecting the world’s leading investment talent, whether the manager selected for a particular fund or mandate is employed by GAM or an external manager. GAM has pioneered a unique and highly disciplined approach to identifying, selecting and managing external fund managers.

An in-house team of investment professionals is responsible for managing the various internally managed mandates or funds, and also for creating external and multimanager mandates. Approximately 1,000 external managers are selected, using a quantitative database of 50,000 funds, and a qualitative database of over 4,000 investment managers. These are then subjected to detailed qualitative scrutiny to identify less than a hundred of the world’s most talented investment managers, whose talents are then used to create single and multimanager funds for use by GAM clients.

~~The range of funds and mandates extends from traditional equity and bond funds to a comprehensive range of alternative investment funds.~~

~~Strategy~~

Industry trends and competitive positioning

UBS Asset Management operates in a business which is growing across all market segments and geographic locations, with Europe and Japan leading the way. The US remains the largest market on an absolute basis, but shows slower growth rates and a much more competitive environment than other regions.

~~Externally managed~~

The trend to open architecture is fully entrenched within the US but is in its early stages in Europe and other regions of the globe. This clearly changes the landscape of the mutual fund business, presenting both opportunities and challenges. The biggest opportunity is the chance to increasingly offer our investment management services through other distribution channels. Undoubtedly, the challenge will be to retain our very high market share among UBS clients as competitors begin to offer their own investment management services.

The asset mix of investors throughout the world is expected to shift towards alternative investments, driven largely by regulatory activity and the continued pursuit of consistent risk-adjusted returns. Alternative investments can provide returns with a low correlation to traditional markets and therefore offer an investor’s portfolio potential for better risk-adjusted return. Management of alternative investments offers us the potential for higher margins, as well as a closer alignment of fees with relative performance.

Global pension ~~assets constitute the majority of worldwide available institutional assets.~~reform is expected to continue as regulatory constraints ease. The pension market is undergoing a shift ~~from traditional defined benefit plans~~towards increased private funding which is expected to defined contribution schemes. This is especially true in the US, while in other major markets defined contribution business is still in a relatively embryonic state. However, the need for pension reform is widely recognized.

provide significant opportunities to asset managers.

UBS Asset Management believes that it is strongly positioned to take advantage of this growing and changing market:

–
– ~~It has~~We have the reach to succeed in an increasingly global industry.
– ~~It has~~ We have a ~~multispecialist~~multi-specialist offering of diverse investment capabilities matched by very few companies.
– ~~It is~~ We are one of very few large investment management firms ~~of its size~~ with an equally strong institutional and mutual fund capability.

Investment performance

UBS Asset Management’s biggest challenge in recent years has been the relative under-performance of its core value-based investment style compared to growth investment styles. 2000 saw a reversal of this trend, with a retreat in technology stock valuations and generally difficult market conditions, and consequently significant improvements in UBS Asset Management’s performance relative to benchmarks and peers.

UBS Asset Management ~~has also invested~~continued its strong relative investment performance from 2000 into and through 2001. 2001 brought us one of the best years of relative performance in ~~diversification~~the history of ~~its investment approach, with~~ the ~~expansion of its growth capabilities and the very successful launch of O’Connor, its alternative investment business area.~~organization, exceeded only by 2000.

UBS Asset Management ~~intends~~was well positioned for the economic down-turn that occurred in the US. and spread throughout the world. Overall performance was helped by relative overweights to ~~further leverage~~high yield and emerging market debt, real estate and a general underweight to equities. Within each asset type, individual security selection contributed significantly to our strong relative performance. We feel this is a direct result of the ~~strengths~~integration of ~~O’Connor~~our investment platform, with the opportunities this has brought to share knowledge and ~~GAM to expand its range of investment capabilities and styles.~~

research across the world.

We believe that UBS Asset Management is well positioned to continue its recent strength of the past two years’ investment performance. We will continue to develop the integrated global investment platform it created in 2000, ~~increasing~~increase the coverage of ~~its~~our research in all major asset classes ~~broadening its~~and continue to leverage the strengths of O’Connor and GAM. Additionally, we will continue to broaden our search for future investment opportunities in alternative asset classes and ~~committing~~continue to commit significant resources to product ~~innovation.~~

innovation, research and thought leadership.

The Business Groups
UBS Warburg

UBS Warburg

UBS Warburg is a leading investment banking and securities firm, providing a full spectrum of products to institutional and corporate clients, governments and intermediaries globally.

Business Group Reporting adjusted for significant financial events


	Corporate and
CHF million, except where indicated	Institutional Clients					UBS Capital				Private Clients					UBS Warburg

For the year ended		31.12.01		31.12.00			31.12.01		31.12.00		31.12.01		31.12.00			31.12.01		31.12.00





Income		16,011		18,033			(868	)	368		6,969		1,321			21,349		19,590




Credit loss expense		(112	)	(243	)						(18	)	(3	)		(130	)	(246	)





Total operating income		15,899		17,790			(868	)	368		6,951		1,318			21,219		19,344





Personnel expenses		8,339		9,284			96		142		5,080		1,106			13,515		10,532




General and administrative expenses		2,705		2,779			66		49		1,489		355			4,260		3,183




Depreciation		454		555			2		2		124		42			580		599




Goodwill amortization		145		149			0		2		0		1			991		290





Total operating expenses		11,643		12,767			164		195		6,693		1,504			19,346		14,604





Business Group performance before tax		4,256		5,023			(1,032	)	173		258		(186	)		1,873		4,740





Cost/income ratio before goodwill(%)		72		70							90	¹	105	¹		86		73




Net new money (CHF billion)											36.0		15.2




Invested assets (CHF billion)							1		1		782		773




Headcount (full time equivalents)		15,562		15,262			128		129		20,678		21,814			36,368		37,205

⁽¹⁾

Excluding retention payments.

Business

UBS Warburg operates globally as a client-driven securities and investment banking ~~and wealth management~~ firm. For both its own corporate and institutional clients and ~~for~~the individual clients of other parts of the UBS Group, UBS Warburg provides product innovation, top-quality research and advice, and ~~complete~~comprehensive access to the world’s capital markets. ~~Through UBS PaineWebber, the fourth largest private client firm in the US,~~

Organization

Since 1 January 2002, UBS Warburg ~~provides advisory services and best-in-class products to a uniquely affluent US client base.~~

~~UBS Warburg~~

~~Reporting by Business Units adjusted for Significant Financial Events~~

Corporate and
Institutional Clients UBS Capital US Private Clients
CHF million
For the year ended 31.12.00 31.12.99 ¹ 31.12.00 31.12.99 ¹ 31.12.00 31.12.99
Income 18,033 12,529 368 315 1,225
Credit loss expense (243 ) (330 ) 0 0 0
Total operating income 17,790 12,199 368 315 1,225
Personnel expenses 9,284 6,861 142 105 955
General and administrative expenses 2,779 2,429 49 46 258
Depreciation 555 629 2 2 30
Goodwill amortization 149 134 2 5 1
Total operating expenses 12,767 10,053 195 158 1,244
Business Group performance before tax
5,023 2,146 173 157 (19 )
Cost / income ratio (%) 71 80 53 50 102
Assets under management (CHF billion) 794
Headcount (full time equivalents) 15,262 12,694 129 116 21,490

¹ ~~The 1999 figures have been restated to reflect retroactive changes in accounting policy and changes in presentation. The Business Group reporting for 1999~~ has been ~~rearranged to reflect the new~~organized into two business ~~structure for the Group.~~

International
Private Clients e-services UBS Warburg
CHF million
For the year ended 31.12.00 31.12.99 ¹ 31.12.00 31.12.99 ¹ 31.12.00 31.12.99 ¹
Income 286 197 (1 ) 0 19,779 13,041
Credit loss expense (4 ) (3 ) 0 0 (247 ) (333 )
Total operating income 282 194 (1 ) 0 19,532 12,708
Personnel expenses 385 294 150 18 10,916 7,278
General and administrative expenses 188 187 134 18 3,408 2,680
Depreciation 30 25 35 3 652 659
Goodwill amortization 7 15 1 0 298 154
Total operating expenses 610 521 320 39 15,274 10,771
Business Group performance before tax
(328 ) (327 ) (321 ) (39 ) 4,258 1,937
Cost / income ratio (%) 213 264 77 83
Assets under management (CHF billion) 33 36 827 36
Headcount (full time equivalents) 1,154 1,386 410 70 38,445 14,266

units:

~~Business description and organization~~

~~During 2000, UBS Warburg, was organized along the following lines:~~
–
– The Corporate and Institutional Clients business unit is one of the leading global investment banking and securities firms, providing products and advice to institutional and corporate clients. ~~The former capital markets business of Paine Webber Group Inc. is integrated into this business unit.~~

– UBS Capital is responsible for the private equity investment of UBS and third-party funds in a diverse global range of private companies.
– ~~US Private Clients is the fourth largest private client broker in the US, operating under the brand of UBS PaineWebber.~~
– International Private Clients provides private banking products and services for high net worth individuals outside the US and Switzerland who bank in their country of residence. During 2001, the European part of this business is becoming part of UBS Switzerland’s Private Banking business unit.
– ~~e-services.~~

During 2001, the private clients business centered on UBS PaineWebber was also reported as a business unit of UBS Warburg, and this is the financial presentation shown here and in the Financial Report 2001. With effect from 1 January 2002, UBS PaineWebber became a separate Business Group within UBS, and this will be the structure used for future financial reporting.

~~The Business Groups~~

~~UBS Warburg~~

The global reach, breadth and diversification of Corporate and Institutional Clients direct access to investors is unique, and its relationship-enhancing technology is among the best in the world. Corporate and Institutional Clients aims to maintain its position as one of the leading global financial services firms, rivaling the top competitors both in terms of client franchise and profitability.

Corporate and Institutional Clients

~~Business description and organization~~

The ~~Corporate~~global reach, breadth and ~~Institutional Clients business unit~~diversification of our direct access to investors is unique, and our relationship-enhancing technology is among the best in the world.

Business

UBS Warburg is one of the leading global investment banking and securities firms. Its diverse heritage has shaped a business with a truly global client base and culture.

Our Corporate and Institutional Clients business unit provides wholesale products and advisory services ~~globally~~ to a diversified client base ~~which includes institutional investors, corporations, sovereign governments and supranational organizations.~~worldwide. It has a significant corporate client financing and advisory business, with particular strengths in advising on cross-border mergers and isacquisitions and the capital raising requirements of our global corporate and government client base. Historically, among the leaders in corporate finance in Europe, we have expanded our US capabilities considerably over the last 18 months, leading to increased market share and visibility. We are one of the top-ranked ~~providers~~firms in the world for institutional clients, with particular strengths in global equities research and distribution and in originating, structuring and distributing fixed income cash and derivatives products.

UBS Warburg has a strong history of risk management skills across all product areas, with integrated trading and risk management across cash and derivative products, and a consolidated global view of risk across different world regions. We leverage these skills to provide a broad array of risk management products for our institutional and corporate clients.

Corporate and Institutional Clients also manages cash and collateral trading and interest rate risks on behalf of the UBS Group and executes the vast majority of securities, derivatives and foreign exchange transactions for UBS’s retail clients.

Corporate and Institutional Clients’ headquarters are in London and it employs ~~15,000~~15,562 people in over 4030 countries throughout the world.

~~Following the merger with PaineWebber in November 2000, the capital markets~~

Bar Graph

Organization

We organize our business ~~of PaineWebber was integrated~~ into the Corporate and Institutional Clients business unit, expanding its capabilities in asset-backed securities, real estate, equity research, corporate finance and equity and fixed income sales. As well as this direct and immediate impact, the integration of PaineWebber also positioned UBS Warburg much more strongly as an employer of choice in the critical US investment banking market.

~~Business areas~~

~~At 31 December 2000, Corporate and Institutional Clients operated four~~three main business areas, ~~organized~~distinguished by the type of products and services offered and the nature of business risks: Equities, Fixed Income and Foreign Exchange, and Corporate ~~Finance~~Finance. All businesses are run on a global basis, with co-heads in place across each of the business areas to provide leadership across our regions and ~~Treasury Products.~~

product sectors.

Legal structure

UBS Warburg operates through branches and subsidiaries of UBS AG. Securities activities in the US are conducted through UBS Warburg LLC, a registered broker-dealer.

Clients

Our client base is truly global and broad based, and our salespeople, research analysts and investment bankers provide products and services to institutional investors, intermediaries, banks, insurance companies, corporations, sovereign governments and supranational organizations.

The Business Groups
UBS Warburg

Corporate and Institutional Clients Operating income by client type


	For the year ended

% of total		31.12.01	31.12.00	31.12.99





Investment Banking		23	23	23




Securities revenue from corporate clients		5	5	5




Institutional clients and markets		72	72	72





Total		100	100	100

Products and services

Equities

~~The~~

Our Equities business area is a leading player in the secondary equity markets and in equity, equity-linked and equity derivative products for the primary markets. ~~Primary areas~~In 2001, we were a leading player in the primary markets as measured by league tables, ranked 2^nd in International Equities and in International Equity Linked and were one of ~~responsibility include~~

the top two distributors of equities globally and the top ranked player in Europe. During the year we have rapidly expanded our client penetration in the US, as measured by a leading private industry survey. Key products and services within Equities include:

–
– ~~researching~~providing research about companies, industry sectors, geographic markets and macro-economic ~~trends;~~trends to our corporate and institutional clients.
– sales and trading of cash ~~and derivative~~equities, equity-linked products, equity ~~securities~~derivatives and equity structured ~~products; and~~products.
– structuring, originating, distributing and trading newly issued equity, equity-linked and equity derivative products.

We operate a multi-local model, with membership on over 2887 different stock exchanges in 31 countries and a local presence in 40 offices globally, ~~gives unparalleled~~giving us enviable market access. ~~UBS~~We also ~~participates in~~have memberships of a ~~number~~wide range of electronic exchange ~~ventures.~~

ventures, and UBS Warburg owns equity stakes in some of these, including FXAll and Volbroker.

Our commitment to giving our clients the best possible access to the world’s equity markets is delivered through a team of 900 sales people and sales traders, in 40 locations globally. They are supported by a focused account management structure, in which continuous review and feedback from our institutional clients covers all aspects of our performance including research, sales, trading, execution and settlement.

Our equity research team supplies independent assessments of the prospects of approximately 3,400 companies across diverse sectors worldwide, representing about 90% of world market capitalization. With 600 professionals worldwide, we now have the largest team of equity analysts at any firm, according to Nelson Information’s Investment Research Survey 2001.

Direct client contact is complemented by our leading edge technology and e-commerce tools. We aim to use e-commerce to help enhance our clients’ experience of UBS Warburg, using the internet and other technologies to empower our clients, and offering direct access to our products and services via their medium of choice. Technology allows us to intensify our relationship with our clients, providing individualized content and automating routine tasks, allowing our staff to concentrate on providing value added advice.

~~Fixed Income~~

The ~~Fixed Income business structures, originates, trades and distributes~~merger with PaineWebber in November 2000 has transformed our US equity franchise. The addition of a ~~variety~~significant number of ~~fixed income, banking and structured products. It is also responsible for loan syndication and~~highly rated equity research analysts, combined with access to the ~~core loan portfolio.~~

~~The Fixed Income business serves a broad~~wealthy US private client base of ~~investors~~UBS PaineWebber have helped us to become one of the top five firms, by volume, in trading equities on the New York Stock Exchange, as well as having one of the fastest growing market shares in equity underwriting, up to 4.7% (ranked 7^th) in 2001 from 1.0% (ranked 12^th) in 2000. Our US equity research team now numbers over 100 analysts making it the fifth largest in the US.

In Europe, we have regained a leadership position in primary issuance in 2001, combining our extensive knowledge of the international markets with strong research and ~~borrowers and offers a range~~trading capabilities. Our strengths lie not only in the issuance of ~~fixed income products and services, including~~


–	~~interest rate-based credit products, including loans and government bonds;~~
–	~~a variety of banking products, including structured finance and leveraged finance products;~~

ordinary shares, but, through our

~~Operating Income by Client Type~~

For the year ended
% of total 31.12.00 31.12.99
Investment banking 21 23
Other income from corporate clients 4 5
Institutional clients and markets 75 72
Total 100 100

top-tier capabilities in equity-linked products including convertibles and exchangeables, in our ability to lead manage the issuance of the most appropriate products to meet our clients’ equity financing needs. We more than doubled our market share internationally in 2001 and were the only firm to increase market share in all regions. We improved our position in all products and regions, converted the secondary franchise into primary solutions, and generated a positive momentum that is the envy of our peer group.

~~The Business Groups~~

During 2001, UBS Warburg

~~Operating Income by Business Area~~¹

For the year ended
CHF million 31.12.00 31.12.99 31.12.98
Equities 10,429 5,724 3,253
Fixed income 2,969 2,464 (267 )
Corporate finance 2,701 2,054 1,665
Treasury products 1,653 1,805 2,351
Non-core business 281 482 (96 )
Total 18,033 12,529 6,906

¹ ~~Before credit loss expense~~

was widely recognized in industry awards, receiving the following accolades from industry publications and peers:

– Best Equity House of the Year according to The Banker Magazine in September 2001.
– ~~principal finance, which involves~~ First for equity research in the ~~purchase, origination and securitization of credit products;~~Thomson Extel Pan-European Research Survey, capturing 22 first places among 71 different industry-sector awards.
– ~~sales of investment-grade, high-yield~~ Institutional Investor Research rankings 1^st for Global Sector Teams, 4^th in Europe, 2^nd in All Asia ex-Japan (with the largest increase in rankings) and ~~emerging market bonds;~~8^th in the All American Research Team 2001 (improved from 17^th in 2000).
– ~~credit derivatives, including credit-linked notes and total return swaps;~~ Best Broker for Execution in the Reuters UK Larger Company Survey, for the fifth year running.
– ~~derivative products; and~~ Most Improved Broker Award in the Reuters US Larger Companies Survey.
– ~~products structured to meet clients’ individual risk management needs.~~ First for Independent European Equity Research in Global Investor Magazine.
– International Financial Review’s European Equity House of the Year (and Australian Equity House of the Year for the fifth consecutive year).

IFR praised UBS Warburg for “consistently pushing back the boundaries of what was considered feasible and for moving the Equity Capital Markets industry forward in tough conditions. Time and again in 2001, UBS Warburg showed how an equity house could draw on all its resources in atrocious market conditions in order to win and execute mandates.”

Corporate ~~Finance~~finance

The Corporate Finance business ~~manages UBS’s relationships with large~~area provides a variety of advisory services including mergers and acquisitions, strategic advisory and restructuring to supranational, corporate and sovereign clients. It ~~provides a variety of advisory services in areas such as mergers and acquisitions, strategic advisory and restructuring. The Corporate Finance business~~ also provides primary capital markets and ~~leveraged~~global syndicated finance services, in ~~co-operation~~cooperation with the ~~Equity~~Equities and Fixed ~~Income~~income and foreign exchange businesses. ~~Responsibilities include~~

Products and services include:

–
– mergers and ~~acquisitions;~~acquisitions.
– equity and equity-linked capital offerings, initial public offerings and other public and private equity offerings in conjunction with the Equities business ~~area;~~area.
– investment grade and high-yield debt offerings in conjunction with the Fixed Income and Foreign Exchange business ~~area;~~area.
– leveraged debt offerings in conjunction with the Fixed Income and Foreign Exchange business ~~area; and~~area.
– structured finance.

~~Treasury Products~~

~~Treasury Products serves institutional investors, banks, sovereigns,~~ We were very active in all sectors in 2001, across all regions, providing our expertise, knowledge and ~~corporate~~execution capabilities to help our key clients ~~as well as retail and wholesale clients~~in their ongoing strategic development. Just a few examples of ~~UBS’s other businesses. Treasury Products’ primary areas of responsibility include~~

the deals included:

– Vodafone, the leading global mobile phone operator used UBS Warburg for all five transactions required for the USD 11.5 billion takeover of J-Tel. This further strengthens an already deep relationship where we have been advising Vodafone on acquisitions for several years.
– ~~sales~~ De Beers of South Africa, a USD 19.3 billion public to private transaction, where we proved our familiarity with the highest levels of complexity, and ~~trading of foreign exchange (spot and derivatives), precious metals, short-term interest rate products and exchange-traded derivatives;~~provided a USD 3 billion underwritten loan commitment to assist the financing.
– ~~collateral trading, securities lending and repurchase agreements;~~
Allianz AG, one of the worlds leading insurance companies, used us as their advisors on their EUR 24.2 billion acquisition of Dresdner Bank AG – ~~bank note sales and distribution; and~~
– ~~foreign currency research.~~a testament to our creativity when it comes to problem solving.

~~With effect from~~

We have more than 2,600 corporate finance professionals worldwide, providing top-quality strategic advice and capital markets execution to our key clients globally.

Expansion of UBS Warburg’s global corporate client franchise is one of our key strategic goals. Over the ~~beginning of 2001, the Treasury Products and Fixed Income business areas~~last eighteen months, we have been ~~reorganized into two~~actively recruiting, gathering together some of the best professionals in the industry to extend both our client reach and our execution capabilities. We have appointed senior bankers and research professionals in Media, Telecoms, Technology, General Industrials and Mergers and acquisitions, both in the US and elsewhere, including

The Business Groups
UBS Warburg

Ken Moelis, now head of our Corporate Finance business in the US. As a result of these successes our Corporate Finance team in the US has almost doubled in size since 1999.

Despite these investments, we do not expect immediate results. Gaining new ~~areas,~~corporate finance business can involve very long lead times, but we are very pleased at the ~~Credit Fixed Income business area (the former Fixed Income business less interest rate derivatives~~progress that we have made during 2001, both in terms of league table position and ~~government bonds)~~market share. The combination of our expanded corporate finance and equities footprint in the US, giving us greater access to key corporate executives, combined with our global reach and scale, has allowed us to become involved in some of the largest and most complex deals in 2001, helping us to achieve the highest fee pool market share growth of any leading investment bank this year.

We have established a longer term goal of achieving market share, on a global basis, in excess of 5%, which effectively means a target of maintaining a leading fee pool market share in Europe and Asia-Pacific and a top 5 position in the Americas. We believe that the market share gains we have achieved this year represent a solid foundation on our path to this goal, particularly against a background of very challenging conditions this year for corporate finance, with the combined effects of volatile markets and uncertain economic conditions significantly reducing the overall levels of market activity and the ~~Interest Rates~~total fee pool.

Fixed income and foreign exchange

Our Fixed Income and Foreign Exchange business area ~~(the former Treasury Products business area,~~operates across a broad spectrum of products and markets, including government

Bar Graph

and corporate bonds, fixed income derivatives, mortgage backed securities, foreign exchange, cash and collateral trading, principal finance and credit derivatives. For institutional investor clients, we can provide access to the widest range of cash and derivative products covering bonds, foreign exchange and other fixed income products. Our global structuring capability combined with our distribution to investor clients allows us to provide unique financing and hedging products to issuing clients.

Our approach to specific products and markets varies. Where potential for sufficient risk adjusted returns exist, we will seek market share leadership in high-volume, liquid markets, using our client flow, capital and economies of scale to generate returns. However there are certain high profile fixed income markets where scale can only be gained at the expense of returns. In these cases, we focus on earning higher margins in specialized products where we can develop a position as a dominant global intermediary, leveraging our top quality research, and our premier structuring, trading, distribution and execution capabilities.

The prime example of this approach is in the most visible segments of the global fixed income markets: the primary international and eurobond sectors. We have always made a conscious decision to operate our businesses and allocate resources based on profitability and not on pure league table positions. So, while our league table positions have slipped in 2001 as compared to 2000, we have recorded a record year in terms of revenues, with full year revenues across all products increasing by 41%.

While there are no definitive surveys or measures of market share in the highly fragmented fixed income and foreign exchange markets, we continue to win awards for the depth of our client coverage and technical expertise with products:

– 1^st in Fixed Income Strategy Research – Institutional Investor Global Survey.
– 2^nd Best overall bank in FX Week Awards 2001, with 1^st place rankings in FX forwards, currency options and internet trading. We also received the 1^st place ranking overall with corporate clients.
– Best website in the euromoney.com 2001 internet awards for: FX Research and Analytics, FX Options and Execution, Swaps, Medium Term Notes, Euro-Commercial Paper and Fixed Income Analytics.

Loan portfolio

UBS took a strategic decision during 1998 to reduce the size of its international loan portfolio, limiting exposures unless they directly supported core client relationships. UBS continues to avoid engaging in substantial balance-sheet-led earnings growth, with the ~~addition~~result that the size of ~~interest rate derivatives and government bonds).~~

its international loan portfolio has reduced considerably from the level recorded in 1998. Despite this, we continue to support our core clients in their financing needs. Risk/return considerations will be the paramount consideration in determining balance sheet usage.

~~e-commerce initiatives~~

~~The institutional client business worldwide is rapidly moving to an electronic basis.~~ Corporate and Institutional ~~Clients~~Clients’ loan portfolio was CHF 61.2 billion at 31 December 2001. The Risk Analysis section on pages 61 to 76 contains an in-depth review of UBS’s credit portfolio and business, including a discussion of its impaired and non-performing loans.

e-commerce capabilities

UBS Warburg is ~~well positioned~~among the leaders in the provision of innovative e-commerce and technology solutions to ~~capitalize~~institutional clients, using these to strengthen the link between advisors and our clients. We will continue to expand and enhance our web-based technology solutions, in order to simplify distribution of information and execution, and provide individualized services, analytic tools and transparency to our clients.

Our e-commerce capabilities are based around our Client Portal, formerly known as Investment Banking On-Line (IBOL). Through this single home page, our clients have direct access to prices, research, trade ideas and analytical tools through leading edge applications such as ResearchWeb – our equity research site, DealKey, an internet facility for managing equity and equity-linked new issues, and CreditDelta, our credit portfolio management product.

The quality of our e-commerce sites has again been recognized by industry awards in 2001. In the euromoney.com 2001 internet awards, UBS Warburg won more awards than any other bank, including Best Site awards to: FX Research and Analytics –FX Web, FX Options and Execution –FX Option Trader, Swap –LIBOR Derivatives Online, Medium Term Notes –MTNWeb, Euro-commercial paper –ECPWeb and Fixed Income Analytics –CreditDelta. The Extel European Research Survey also ranked ResearchWeb as the number one Equity Research Website, as voted by institutional clients.

UBS Warburg sees technology as an enabling tool, allowing clients to benefit from the expertise and skills of its advisors. While the pace of technology development has not changed in 2001, we have focused on ~~this trend. Recent~~developing e-commerce ~~initiatives include~~
– Investment Banking On-Line (IBOL). IBOL provides extensive functionality from a single home page with direct access to prices, research, trade ideas and analytical tools for UBS Warburg’s clients. Corporate and Institutional Clients delivers electronic research to over 5,000 clients and has signed up over 21,000 individual users. UBS intends to expand IBOL to include wireless and video links.
– ~~Electronic Transactions for Securities (ETS) and Electronic Transactions for OTC Products (ETOP). ETS and ETOP provide a further rollout~~capabilities as core components of our products and services, rather than as stand alone initiatives. Each business is continually seeking to enhance products and distribution methods with one goal – delivering the whole of ~~online order routing and trading capabilities for all securities, foreign exchange and derivatives products. 30% of all institutional orders are sent via the internet.~~

~~The Business Groups~~

UBS Warburg

effortlessly and seamlessly to our clients.

– Corporate Finance On-Line (CFOL). The CFOL initiative is intended to establish a secure connection for the exchange of transactional and pricing information with corporate clients to support the execution and origination of advisory mandates.
– ~~Debtweb. Using Debtweb, about USD 80 billion of primary market bond issuance was distributed online in 2000.~~
– DealKey. Designed for primary equity investors, DealKey uses the web as an additional channel for the distribution of value-added information relating to current equity and equity-linked offerings and provides investors with the ability to communicate feedback and enter orders for all UBS Warburg’s current primary equity issues.

Providing superior advice will be key to the Corporate and Institutional Clients business unit’s future success. UBS believes its e-commerce initiatives enhance its ability to add value to clients, as well as allowing it to extract value from the scale of its core business processes. ~~Corporate~~

Energy trading

Early in 2002, UBS Warburg established an energy trading unit, based on Enron’s wholesale electricity and ~~Institutional Clients already processes 100,000 domestic~~natural gas trading operations, through a licensing agreement that will give Enron an interest in the future income of our new business. UBS Warburg has not agreed to assume any of Enron’s past, current or future liabilities, and ~~cross-border securities trades per day automatically, and has~~started with an empty trading book.

Under the ~~capacity to increase this amount five-fold within the existing infrastructure.~~

~~Loan portfolio~~

deal, UBS ~~took a strategic decision during 1998 to reduce the size~~Warburg will use Enron’s proprietary software (including EnronOnline), some of its ~~international loan portfolio, limiting exposures unless they directly supported core client relationships.~~trading floors and its back office equipment. We hare hired 650 former Enron employees, including 150 trading professionals. The key members of Enron’s electricity and natural gas trading management team will join UBS, ~~continues to avoid engaging~~including Greg Whalley, who became President and Chief Operating Officer of Enron in ~~balance-sheet-led earnings growth,~~August 2001. The Enron team will be supplemented by management and other staff transferred from existing UBS businesses.

Despite the recent interruption of Enron’s trading businesses, we expect that the combination of Enron’s existing technology and personnel together with the ~~result~~risk management skills and financial strength of UBS Warburg will prove attractive to Enron’s former clients and trading partners. Prior to its collapse, Enron was the undisputed leader in this market, with a reputation for trading innovation and the excellence of its technology. We believe that the ~~size~~talent and expertise of the team will continue to be per-

The Business Groups
UBS Warburg

ceived as the market’s best, recovering past relationships and attracting new clients.

We see this as a great opportunity for UBS Warburg to leverage its ~~international loan portfolio has reduced considerably from~~risk management skills and trusted capital strength in an area in which market risk is largely uncorrelated to market risk in our other trading operations. It will take time to establish ourselves in this business, but we are confident that the ~~level recorded in 1998.~~

~~See~~combination of UBS Warburg with the ~~Credit Risk section on page 53 to 61 for a more in-depth review~~technology and staff of ~~UBS’s credit portfolio and business, including a discussion of its impaired and non-performing loans.~~

the Enron trading operations will prove highly successful.

Strategic ~~initiatives~~opportunities

UBS Warburg is one of the few truly global content and advice providers for institutional clients, with a full range of products. The ~~global~~international reach, breadth and diversification of its direct access to investors is best-in-class. ~~UBS Warburg will seek to extend these advantages, fully exploiting the added distribution potential and expanded capital~~We believe that markets ~~capabilities brought to it by PaineWebber.~~

~~UBS Warburg is among the leaders in the provision of innovative e-commerce and technology solutions to institutional clients, using these to strengthen the link between advisors and their clients. It~~ will continue to ~~expand~~be difficult until the second half of 2002 at the earliest, which will have a short term negative impact, particularly on our equity and ~~enhance its web-based technology solutions,~~corporate finance businesses. Nonetheless, we are confident that as recent new hires build their productivity, and as the momentum we have built in ~~order to simplify distribution of information~~European and execution, and provide individualized services, analytic tools and transparency to its clients. UBS Warburg sees technology as an enabling tool, allowing clients to benefit from the expertise and skills of its advisors.

~~UBS Warburg intends to~~US markets pays dividends, we will continue to ~~expand its Equities business organically, investing~~gain market share across all businesses, products and regions in 2002.

Industry trends and competitive positioning

We continue to show a significantly improved competitive position in both the corporate client segment and with institutional clients. Our market share in virtually all markets has improved and although we have not yet broken in to the top ~~quality staff~~5 in the corporate finance fee markets, we are a solid top 3 institutional player and have demonstrated strong momentum this year.

Our profits and cost/income ratio were hurt by the weaker revenue opportunities as 2001 progressed, but our overall costs are down and are tightly controlled. We are increasingly competitive and well positioned to broaden its geographical and sector coverage, particularly in US cash equities, and building presence in key Asian markets. It will closely monitor the moves to consolidate European stock exchanges and clearing houses, to ensure that it retains current levelstake full advantage of any market ~~access.~~

improvements.

Expansion of Corporate finance

The merger with PaineWebber ~~which positions~~has positioned UBS Warburg ~~more strongly~~ as an employer of choice in the key US market ~~provides~~by further demonstrating UBS Group’s commitment to the worlds largest market and establishing a solid platform from which to build.

During the latter part of 2000 and continuing throughout 2001, we took advantage of our enhanced credibility as an ~~excellent opportunity~~employer, and the dislocation in labor markets through various mergers within our industry, to hire key experienced and talented individuals and small teams in corporate finance.

We have focused on specific sectors where there is a substantial current fee pool, as well as sectors where we believe there are significant opportunities in the future. Our hiring efforts have been mainly centered on the development of industry-leading franchises in several key sectors, including Consumer Products, Energy and Power, Healthcare, Wireless, Media and Industrials. We also intend to build on our existing franchise in the Financial Institutions sector.

Building our franchise in this way will not result in overnight success. We expect it to take

Structure of the Enron deal

Under the agreement, UBS Warburg receives an exclusive license for ten years for the North American natural gas and electricity trading systems and a non-exclusive license for its systems in the rest of the world and for trading any other commodity or financial instrument globally. There will be no initial cash payment – all payments will take the form of royalties, based on future pre-tax income. Through the exercise of call options, UBS Warburg has the possibility to acquire all rights to the business (each call option would allow UBS Warburg to ~~grow its investment banking capabilities, through strategic hires~~buy a third of Enron’s retained interest). If we exercise no calls after ten years and three months, our exclusive license for the North American gas and power trading operations will convert into a non-exclusive license and Enron will have the right to offer the intellectual property for trading gas and power in key sectors and regions. This approach has already generated some success, with recruitment of several senior investment bankers in the US in the second half of 2000 and early part of 2001. UBS intendsNorth America on a non-exclusive basis to ~~continue to grow its corporate franchise.~~

other parties.

~~The Business Groups~~

~~UBS Warburg~~

~~Actively adding value, UBS Capital is~~two or three years for the new hires we have made and the new teams we are building to reach full productivity and generate substantial returns. Despite this, we have already achieved significant results, dramatically improving our corporate finance rankings compared to 2000. Using Freeman & Co data as a reasonable proxy for improvement in competitive positioning, we have clearly started building positive momentum with corporate clients in the Americas and are one of the few ~~private~~among our competitors to have increased absolute fee revenues in the Americas in 2001. However, we recognize the need to continue to build our franchise, hiring bankers and research analysts with significant expertise and client relationships.

Expansion in secondary markets in the US

We aim to build a secondary markets franchise in the US that is similar in depth and breadth to our leading European and Asia Pacific businesses. As a result of the boost to our franchise from the integration of UBS PaineWebber, we now rank strongly in equity ~~operations with a truly global presence.~~

research and have more than doubled our US secondary equity market share, although we remain some way behind the market share we enjoy in Europe.

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UBS Warburg

UBS Capital

~~Business description and organization~~

~~The~~ UBS Capital ~~business unit~~will focus on managing its existing portfolio and selectively investing in core sectors and industries where we can leverage our capabilities and experience.

Business

In July 2001, we announced the postponement of plans to spin off UBS ~~Warburg is~~Capital to an affiliated status given the difficult market conditions for the private equity ~~business of UBS.~~

asset class. Since then, results at UBS Capital have continued to disappoint, as further deterioration of the economic climate has ~~increased~~forced the ~~amount~~postponement of planned divestments and led to continued degradation of value in parts of the portfolio.

During this period, we carefully considered the strategic future of UBS Capital in the light of the market environment, shifts in the structure of the private equity industry and our current assessment of the long-term opportunities for UBS Group. Although we are still undergoing a detailed review of the prospects for continued investments in some limited sectors, we expect that, consistent with our overall focus on advisory services, UBS will now concentrate on the management of its existing portfolio of investments, ~~substantially~~on enhancing our capabilities in ~~recent years~~private equity asset management, and restricting the level of our direct investments as principal.

New investments by UBS and its clients in UBS Capital funds will be limited to those sectors and regions with the ~~book value~~strongest performance track record, and where UBS has the greatest competitive strengths, management depth and industry knowledge.

UBS Capital’s portfolio outside these strongest performing sectors and regions will be managed down by a team of ~~its investments increasing from about~~proven and experienced investment managers over a period of several years to reduce UBS’s exposure without unnecessary sacrifice of fair value.

In the short-term, divestment opportunities remain highly restricted, and the future development of the portfolio will depend on the performance of the portfolio companies, the resumption of more normal levels of capital market activity, as well as the general outlook for company valuations.

Investment portfolio

UBS Capital had a total investment portfolio of CHF ~~400 million at 31 December 1994, to about CHF 5.5~~5.0 billion at 31 December ~~2000.~~

~~UBS Capital has offices in London, Zurich, New York, São Paulo, Buenos Aires, Paris,~~2001, defined as historic cost of investments made, less divestments and permanent impairments. The ~~Hague, Munich, Milan, Singapore, Hong Kong, Seoul, Sydney and Tokyo and employs about 130 people.~~

~~As a private equity group, UBS Capital invests primarily in unlisted companies, managing these investments over the medium-term to increase their~~fair value and “exiting” the investments in a manner that will maximize capital gain. UBS Capital seeks to make both majority and minority equity investments in established and emerging unlisted companies, either with UBS’s own capital or through sponsored investment funds. Although the main focus of UBS’s investments is late-stage financing, such as management buyouts, expansion or replacement capital, a minority of the portfolio ~~targets early stage investments in~~at the ~~technology and telecommunications sectors. UBS Capital generally targets medium-sized businesses with enterprise values in the range of~~same date was CHF ~~75 million to CHF 1.5~~5.6 billion.

In addition to its international breadth, UBS Capital endeavors to differentiate itself from its competitors by working together with the management of companies it invests in over a three to six-year period to optimize performance.

~~Organizational structure~~

UBS Capital is structured on a country and sector basis and has fourteen individual teams covering over 30 countries. UBS Capital’s established local presence and expertise, coupled with the global reach of its operations, leads to the early identification of opportunities and their timely and effective development.

UBS Capital’s teams are divided geographically between Western Europe, Asia-Pacific and the Americas. UBS Capital’s presence in the Asia-Pacific region started in Singapore and now includes Australia and new offices in South Korea and Hong Kong.

In 1999, UBS Capital established two private equity investment funds in the Americas. One of these investment funds makes private equity investments primarily in North America, while the other investment fund makes private equity investments in Latin America. UBS is the largest investor in both funds.

~~Cooperation with the rest of UBS~~

UBS Capital collaborates with the Corporate and Institutional Clients business unit on deal execution and IPOs. It has incentive schemes in place to encourage referrals of potential business leads from the investment banking business and from private banking, for example where a private banking client who is an owner-manager of a business faces management succession problems.

~~UBS Capital also provides fund products for sale to UBS’s private clients.~~

~~Investment portfolio~~

~~UBS Capital’s investment portfolio had a book value of approximately CHF 5.5 billion and a fair-market value of approximately CHF 6.9 billion at 31 December 2000.~~

~~UBS Capital has designed its portfolio to reduce risk exposure by~~

~~Investment Portfolio by Investment Stage~~

CHF million; all amounts are book values 31.12.00 31.12.99 31.12.98
Early stage 917 488 49
Late stage 4,632 2,505 1,735
Total 5,549 2,993 1,784

~~The Business Groups~~

~~UBS Warburg~~

~~Aging (based on date of initial investment)~~

CHF million; all amounts are book values 31.12.00 31.12.99 31.12.98
Pre-1994 65 89 112
1994 253 199 195
1995 272 308 282
1996 166 204 183
1997 520 496 450
1998 842 718 562
1999 1,490 979 –
2000 1,941 – –
Total 5,549 2,993 1,784

~~Geographic Region (by headquarters of investee)~~

CHF million; all amounts are book values 31.12.00 31.12.99 31.12.98
North America 2,406 1,389 939
Europe 2,284 1,153 689
Latin America 381 217 123
Asia-Pacific 478 234 33
Total 5,549 2,993 1,784

~~Industry Sector (based on industry classification codes)~~

CHF million; all amounts are book values 31.12.00 31.12.99 31.12.98
Consumer related 1,023 610 400
Transportation 640 605 186
Communications 380 326 208
Computer related 819 282 109
Energy 190 167 153
Other electronics related 247 38 32
Other manufacturing 106 45 53
Chemicals and materials 106 23 52
Industrial products and services 1,361 635 436
Others 677 262 155
Total 5,549 2,993 1,784


–	~~geographically diversifying its portfolio and minimizing concentration of investment in specific locations;~~
–	~~diversifying by industry sector to obtain a good mix between manufacturing and services sectors;~~
–	~~investing a minority of the portfolio in early stage growth opportunities, such as technology and telecommunications; and~~
–	~~focusing on later-stage investments, such as management buy-outs of existing businesses.~~

At 31 December ~~2000,~~2001, approximately ~~77%~~68% of the investment portfolio was three years old or less. Generally, investments are sold, and operating income recognized, between the third and the sixth year after the initial investment.

Organization

UBS Capital is structured on both a regional and sector basis. Given our revised approach, we now focus our efforts on ongoing management of our portfolio, and evaluating opportunities to exit investments which are appropriate to market conditions, the strategic positioning of the operating company and a satisfactory return for UBS and other investors. In considering any new

UBS Capital investment portfolio
Aging (based on date of initial investment)


	As at

CHF million¹	31.12.01		31.12.00		31.12.99

pre-1994		85		65		89




1994		190		253		200




1995		214		272		308




1996		202		166		204




1997		207		520		496




1998		722		842		718




1999		1,123		1,490		978




2000		1,781		1,941




2001		487





Total		5,011		5,549		2,993

¹All amounts are Investment, defined as cost less disposals and permanent impairments.

UBS Capital investment portfolio
Geographic region (by headquarters of investee)


	As at

CHF million¹	31.12.01		31.12.00		31.12.99

North America		2,134		2,356		1,389




Europe		339		382		217




Latin-America		2,018		2,333		1,153




Asia-Pacific		520		478		234





Total		5,011		5,549		2,993

¹All amounts are Investment, defined as cost less disposals and permanent impairments.

UBS Capital investment portfolio
Industry sector (based on industry classification codes)


	As at

			% of				% of				% of
CHF million¹	31.12.01		Portfolio		31.12.00		Portfolio		31.12.99		Portfolio

Consumer related		773		15		1,023		18		610		20




Transportation		522		10		640		12		605		20




Communications		414		8		380		7		326		11




Computer related		833		17		819		15		282		9




Energy		152		3		190		3		167		6




Other electronics related		247		5		247		4		38		1




Other Manufacturing		94		2		106		2		45		2




Chemicals and materials		54		2		106		2		23		1




Industrial products and services		1,360		27		1,361		25		635		21




Others		562		11		677		12		262		9






Total		5,011		100		5,549		100		2,993		100

¹All amounts are Investment, defined as cost less disposals and permanent impairments.

^{investments we will aim to exploit the specific skills of our most successful teams, and draw on the resources and strengths of the Group.}

Investment process

UBS Capital concentrates on late-stage investments, believing that these have a better chance of producing superior risk-adjusted returns. At 31 December ~~2000, 83%~~2001, 86% of the book value of UBS Capital’s investments was late-stage at the time of investment.

Investment opportunities ~~originate~~have originated from a variety of sources, including referrals from UBS Switzerland and UBS Warburg. UBS Capital’s investment policy concentrates on five aims:

–
– negotiate an attractive entry ~~price;~~price.
– increase the company’s ~~efficiency;~~efficiency.
– implement a sales growth ~~strategy;~~strategy.
– repay company debt and reduce ~~leverage; and~~leverage.
– achieve an exit at a higher multiple of earnings than the entry price.

The Business Groups
UBS Warburg

Where appropriate, UBS Capital ~~tries~~aims to ~~participate actively with~~provide a broader depth of resources and experience to the management teams of these companies ~~it invests in, developing~~to allow them to develop their businesses over the medium term (three to six years) in order to optimize their performance. UBS

~~The Business Groups~~

~~UBS Warburg~~

Capital’s exit strategies for the businesses include direct sales to strategic buyers, initial public offerings, leveraged recapitalizations and sales to other financial sponsors.

Strategic ~~initiatives~~opportunities

Private equity funds

An established strategic goal of UBS Capital has ~~committed~~been to ~~form~~develop best-of-breed alternative investments for the private clients of UBS Group. We will therefore leverage our knowledge of the industry, its dynamics and its key players to provide a screen selection of best-of-breed providers and advise institutional clients on third party private equity investment funds concentrating on each of four regions – Europe, North America, Latin America and Asia – which will provide opportunities for third-party investors to participate in investments made by UBS Capital and provide a larger pool of capital for its investments.

In late 1999, UBS Capital launched a USD 1 billion investment fund targeting North America to which it has committed up to USD 500 million, and a USD 500 million fund targeting Latin America, which UBS has committed to fund fully with the option to permit third-party investors to commit up to 25%. Two new funds were also launched in Europe during 1999. Phildrew Ventures V, a GBP 330 million United Kingdom private equity fund, and CapVis Equity Partners, which, at CHF 300 million, is Switzerland’s largest private equity fund. Further funds are expected to be launched during 2001.

~~To support its fund products, the private equity business is launching a marketing campaign during 2001 to build its public profile.~~

~~Industry trends~~

Superior returns and the widespread recognition of private equity as an alternative asset class has led to a substantial growth in private equity funds raised in recent years. The number and amount of private equity funds raised has exceeded the number and amount of attractive and available private equity investments. This has led to increased competition among investment banks, investment funds and insurance companies and decreased returns for private equity investors.

In spite of the changing environment, UBS believes that opportunities for profitable investment will continue to arise in the private equity business. UBS believes this potential will be enhanced by a number of factors working in combination to produce a favorable business environment for astute market participants. These include the introduction of the euro and the resulting changes in the structure of business ownership in Europe, the worldwide trend of industrial consolidation, a growing awareness of the importance of shareholder value and the increasing need to solve succession issues in family-owned businesses.

~~New structure~~

During 2001, UBS will implement a unique new business model for its private equity business, designed to best capture the opportunities available from the growth of the international private equity market, and the strength of demand for the asset class.

UBS Capital will increase the level of funding sourced from third parties, reducing its dependence on direct funding from the UBS balance sheet. To support this move towards wider participation, the new business model will center on the formation of an autonomous investment management firm known as a fund advisor. The fund advisor will be 80% owned by UBS Capital’s current management and 20% by UBS, and will adopt a new corporate identity towards the end of 2001.

The explicit autonomy of this structure is particularly attractive to third-party investors, and fully in line with best market practice in the private equity industry. Combined with UBS Capital’s consistently impressive track record, it will provide a compelling investment proposition.

The formation of the fund advisor will have a neutral effect on the earnings stream of UBS. UBS will remain a cornerstone investor in new funds, continuing to benefit from a strong commitment to this product. The new fund advisor will remain strongly affiliated with UBS. UBS’s private client and investment banking businesses will retain their close links to the private equity business. Individual clients will be supplied with a full range of proprietary private equity products, while maintaining complete freedom of choice to select private equity investments from other providers. UBS Warburg will continue to benefit from IPO and M&A referrals.

~~In tandem with supporting this new business model, UBS has raised its target overall commitment to private equity investment from CHF 5 billion to CHF 7.5 billion.~~

Private Clients (UBS Paine Webber)

~~The Business Groups~~

UBS ~~Warburg~~PaineWebber — providing sophisticated wealth management services to affluent clients in the US.

~~The newest member~~During 2001, Private Clients was a business unit of UBS USWarburg, which is how it is presented in this Handbook and how its results are reported in the Financial Report 2001. On 1 January 2002, the Private Clients ~~operating under the~~business unit was renamed UBS PaineWebber ~~brand, is~~and became a ~~growth firm in a growth industry.~~

~~US Private Clients~~

separate Business ~~description and organization~~Group within UBS. Future financial reporting will follow this new structure.

Business

Operating under the brand name UBS ~~Paine Webber, US~~PaineWebber, Private Clients is the fourth largest private client business in the US, with one of the most affluent client bases in the industry. Its ~~9,000~~8,870 financial advisors provide a full range of wealth management services to some ~~2.1~~2.5 million ~~affluent~~wealthy households in America. Its focus is on households with investable assets in excess of USD 500,000, the segment with the largest, fastest growing pool of assets in the US.

US Private Clients ~~was formed from the combination~~also has operations in Japan and Australia, although these represent a small percentage of its overall business.

Organization

The primary business area within UBS PaineWebber is the Private ~~Client, Insurance~~Clients Group, serving wealthy clients in the US. In addition, specialist products areas include Corporate Employee Financial Services, which provides stock option and stock purchase programs to corporations and employees in the US, and Transaction Services, ~~groups of PaineWebber, with~~which provides prime brokerage and securities lending to major US and international investment firms, and execution and clearing services to correspondent broker-dealers across the US, ~~business~~leveraging UBS PaineWebber’s infrastructure and skills.

Legal Structure

UBS PaineWebber operates through branches and subsidiaries of UBS AG. Securities activities in the ~~former~~US are conducted through UBS ~~Warburg Private Clients business unit. From the date of the merger with~~ PaineWebber ~~until the start of 2001, it also included Mitchell Hutchins, Paine Webber’s asset management arm, which has since been transferred to UBS Asset Management.~~

~~Marketing, products and services~~Inc., a registered broker-dealer.

Clients and marketing

UBS PaineWebber financial advisors are key to its client relationships, supported, but never replaced, by its top class online services. Financial advisors build and maintain strong relationships with their clients, taking the time to understand their financial objectives and risk appetite, in order to help them select the specific products and services they need. They also form the ~~frontline~~front-line in client acquisition, responsible for developing relationships with prospective investors and converting them into UBS PaineWebber clients. UBS PaineWebber’s financial advisors are based in ~~383~~385 offices across the US, with representation in every major region.

Each year, UBS PaineWebber recruits on average 1,800 financial advisors, both experienced professionals and new entrants to the industry. All new brokers undergo a rigorous training program which is designed to provide them with the necessary financial planning, analysis, client management, legal and compliance training for dealing with our clients. The training program is a continuous process and does not end when the broker enters a branch office. In fact it is key to the development of our relationships with our clients and to retaining our brokers: broker turnover has been maintained at 8% over the last five years, and the average length of service is nine years.

Financial advisors’ individual efforts are backed up by sophisticated and long-running marketing and advertising campaigns, featuring the long famous tag-line “Thank you, ~~Paine Webber”~~PaineWebber”, and now its revised version “UBS ~~Paine Webber,~~PaineWebber, Thank you”.

~~This new tag-line reflects~~, reflecting the introduction in March 2001 of the new brand, UBS PaineWebber. The ~~decision to introduce the new brand so soon was taken in the light of the smooth progress of the PaineWebber integration and the benefits of interlocking UBS and PaineWebber. The~~ new name is designed to underscore UBS and PaineWebber’s ~~complementary~~complemen-

The Business Groups
UBS Warburg

tary strengths and to reinforce the benefits of the merger to clients, financial advisors and other employees.

Products and Services

UBS PaineWebber ~~reflects~~provides a full range of wealth management services, including:

– financial planning and wealth management consulting.
– asset-based and advisory services such as discretionary and non-discretionary portfolio management, money market accounts, loans and fiduciary products.
– transaction-based services, such as securities brokerage.

It covers the full range of products available to private clients, including purchase and sale of securities, option contracts, commodity and financial futures contracts, fixed income instruments, mutual funds, trusts, wrap-fee products, alternative investments and selected insurance products.

UBS PaineWebber’s ~~place as a core influence on UBS’s future.~~

~~US Private Clients’~~ financial advisors are backed up by comprehensive online capabilities, centered on UBS PaineWebber Online Services. Launched in 1997, this now reaches ~~352,000~~525,000 client households, representing more than USD ~~223~~254 billion in invested assets at year-end ~~2000.~~2001. The system provides a wealth of information and analysis to each client, about their accounts, and the markets and stocks they might want to invest in, and gives them a convenient means to keep in touch with ~~their~~his or her financial advisor. It also provides a range of trading, bill payment and other transactional tools. Each client and their client advisor has the opportunity to customize these services, extending the advisory relationship online, and empowering the client to make more confident decisions.

Strategic opportunities

UBS PaineWebber ~~provides a full range of wealth management services, including:~~


–	~~financial planning and wealth management consulting;~~
–	~~asset-based and advisory services such as discretionary and non-discretionary portfolio management, money market accounts, loans and fiduciary products; and~~
–	~~transaction-based services, such as securities brokerage.~~

~~In addition the Transaction Services group provides prime brokerage and securities lending to major US and international investment~~

~~The Business Groups~~

~~UBS Warburg~~

~~firms, and execution and clearing services to correspondent broker-dealers across the US.~~

~~Strategic initiatives since the merger~~

~~UBS Private Clients~~ remains clearly focused on increasing its market share of US household financial assets, taking advantage of the additional capabilities and balance sheet strength that the merger with UBS has brought, by leveraging ~~its~~Private Clients broad domestic distribution capabilities, and building the strength of the new UBS PaineWebber brand.

~~Emerging wealth~~Industry trends and competitive positioning

~~Employee stock~~UBS PaineWebber faces increasing pressures from a diverse set of competitive categories. All of our key competitors are aggressively battling for share of the affluent investor market and are deploying new marketing strategies to acquire new customers and develop their existing client relationships.

We believe we understand the goals and needs of core affluent investors and believe those needs are best met within the framework of the financial advisor relationship. UBS PaineWebber is distinguished by its personal approach to client relationships, placing the financial advisor at the forefront of all interactions with the client. Among core affluent investors, we have developed the following key capabilities:

– National network of core affluent-focused financial advisors allowing us to develop and maintain local, personalized client relationships.
– A strong US brand name, which builds trust with our clients, is now backed up by the international resources and capital strength of UBS.
– A long commitment to, and understanding of, the benefits for our clients of a truly open product architecture providing screened selections of the best products available in the market.
– Innovative investment products giving us comprehensive financial solutions.
– A unique approach and process for the affluent providing unbiased investment advice.
– Leveraging technology to develop an interactive client/advisor relationship.

PACE and ACCESS

UBS PaineWebber continues to meet the core affluent clients’ needs for a broad palette of advisory and discretionary account services. Two leading “wrap fee” products developed by UBS PaineWebber are PACE and ACCESS. Under both of these accounts, which are distributed by the UBS PaineWebber financial advisor network, the client is charged a fee based on the amount of assets managed as opposed to any commission or transaction charges.

– ACCESS combines the money management expertise of third-party professional investment managers with personal guidance by the UBS financial advisor. The managers selected to participate in the ACCESS program are some of the most prestigious in the industry and count among their clients many large

pension funds, foundations, endowments and wealthy individuals. UBS PaineWebber clients may invest in ACCESS with a minimum investment of USD 100,000.
– PACE (Personalized Asset Consulting and Evaluation) incorporates the consulting process into a single, comprehensive service that includes access to hundreds of no-load, load-waived and low-load mutual funds managed by some of the world’s leading investment management companies. The client is guided through a personal evaluation of investment needs to determine the correct risk profile and investment mix.

While these products meet client needs for fee-based products, wrap products also help UBS PaineWebber to enhance its revenue stream, by expanding recurring fees which are not-related to the volume of transactions carried out, and so are less sensitive to changes in market sentiment.

Products from UBS Group

UBS PaineWebber continues to benefit from UBS’s strong balance sheet and product expertise, making new structured products available to its clients.

One example of these is GOALS, equity-linked securities created by UBS Warburg that combine a bond with a short put option ~~plans are~~on a ~~major source~~specific stock. An entirely new kind of investment product for UBS PaineWebber, GOALS were developed using UBS Warburg’s expertise in packaging structured products for private clients, and rely on the UBS Group’s rating and capital strength for the credit element of the product. Combined with its equity derivative features, this was a product that PaineWebber could not have originated before joining the UBS Group, and UBS Warburg could not have distributed in the US.

UBS PaineWebber distributed 12 different GOALs and GOALs+ issues to its clients during 2001, together with several other issues of other structured securities such as BULS and FORENS.

During early 2002, we plan to roll-out a series of new ~~wealth creation in the US. To help address this large potential market,~~secured lending products. Our financial advisors will be able to offer UBS PaineWebber ~~launched a major initiative at~~branded liquidity solutions such as fixed and variable rate non-purpose loans as well as residential mortgages to their individual clients, increasing our ability to meet the ~~end~~wider financial needs of ~~2000, to significantly expand its already successful stock option finance business through the formation of~~ our clients.

Corporate Employee Financial ~~Services.~~

Services

Over the last few years, UBS PaineWebber’s Corporate Employee Financial Services ~~features dedicated distribution, technology and~~(CEFS) business has established a strong franchise in the delivery of Stock Option Processing services for S&P 500 companies with broad based plan participation. UBS PaineWebber provides services to over 500,000 active employee share plan participants with “in the money value” of unexercised options of over USD 40 billion. As well as a good business in its own right, CEFS acts as an important asset-gathering tool. By providing a high service ~~groups whose goal is~~relationship with the employees prior to ~~capture a larger share~~the execution of the ~~management~~options, we aim to encourage them to invest their option proceeds through UBS PaineWebber. We operate a dedicated network of specially selected and ~~administration~~trained financial advisors who offer a suite of ~~the USD 1 trillion of stock options awarded to corporate executives in the US. UBS PaineWebber already provides these~~advisory and educational services to ~~well known companies such~~our clients’ employees. Through this network we can maintain our market position as ~~Cisco, Enron, General Electric and Texas Instruments, whose 300,000 option holders together own more than USD 70 billion~~the best full service provider for corporations, while building a book of ~~in-the-money stock options managed by UBS PaineWebber.~~

The opportunity for UBS PaineWebber is twofold: to administer employee stock option services for additional Fortune 1000 and major international corporations, and simultaneously to offer the highest levels of online and personalized service through its financial advisors to the employees of those companies.

When properly co-ordinated, the combination of these services will allow UBS PaineWebber not only to execute option exercises, but also to capture clients as long-term investors, managing the wealth they have generated.

~~The Business Groups~~

~~UBS Warburg~~

~~The PaineWebber merger is a transforming partnership for UBS, not just in the US, but through the strengths that UBS PaineWebber can bring across the private client businesses.~~

~~International Private Clients and e-services~~

~~International Private Clients~~

~~During 2000, our International Private Clients business unit provided private banking products and services for~~prequalified high net worth clients outside the US and Switzerland, banking in their country of residence. The business has offices in Germany, France, Italy, Spain, the United Kingdom, Japan and Australia. It provides wealth management products and services tailored to the specific cultural, legal and regulatory environment of each country.clients.

~~e-services~~

~~The e-services initiative made good progress during 2000, successfully creating the technology backbone for our renewed efforts in European domestic private banking.~~

However, as a result of the merger with PaineWebber, UBS now has a unique opportunity to target the market for wealthy clients in Europe with an enhanced, advisor-centered wealth management service, taking advantage of the transforming potential of UBS PaineWebber’s expertise and award winning online services. As part of this strategy, the e-services proposition has been integrated with our other wealth management businesses. UBS no longer plans to target the “mass affluent” segment separately.

~~European Wealth Management~~

Following the PaineWebber merger, UBS now has scale and excellence in two different types of private client business: the brokerage model, through UBS PaineWebber, and the banking model, through Private Banking. It is therefore uniquely positioned to combine these capabilities to provide a complete range of wealth management services to its clients. With this combination UBS can meet all the needs of a sophisticated clientele, whether banking in their home country or internationally.

As an important step towards this vision, UBS is bringing together its domestic and international private client businesses in Europe. The International Private Clients business unit will therefore cease to exist, with its European businesses being transferred to UBS Switzerland’s Private Banking business unit.

UBS’s European strategy will focus on wealthy clients, with client self-segmentation based on content and pricing, and services designed primarily for those with more than EUR 500,000 of investable assets.

Our domestic banking efforts will be centered on Germany, the UK, France, Italy and Spain, a scope that covers about 80% of Europe’s investable assets, while our international offering will continue to be pan-European. We intend to extend the single brand, UBS Private Banking, from the top international private banking brand, to become the top wealth management brand within each of our targeted countries.

UBS is clearly committed to open architecture and the provision of a full range of best-in-class investment products to all our clients. Client advisors will help to structure the appropriate range of products for each client, building portfolios to reflect their investment objectives and risk criteria. This advice-centered approach will be supported by online systems which combine the best of UBS PaineWebber’s client interface technology with the core banking system developed by the e-services initiative.

UBS PaineWebber’s top-class abilities in marketing, product management and innovation, technology, and training will be deployed as the key catalyst for our European businesses. UBS will accelerate the positive momentum of the existing domestic business, transferring knowledge and resources from the Private Banking business unit to add to the 170 existing advisors in 17 local offices in Europe, and supplementing them with a program of new hires.

The Business Groups
Corporate Center

Corporate Center

Our Business Groups are managed together to optimize shareholder value – making the whole worth more than the sum of the parts.


Business Group Reporting adjusted for significant financial events

	Corporate Center
CHF million
For the year ended		31.12.01		31.12.00





Income		678		358




Credit loss recovery		236		1,161





Total operating income		914		1,519





Personnel expenses		546		490




General and administrative expenses		207		281




Depreciation		372		320




Amortization of goodwill and other intangible assets		25		44





Total operating expenses		1,150		1,135





Business Group performance before tax		(236	)	384





Headcount (full time equivalents)		1,132		986

~~Corporate Center~~

~~Reporting by Business Units adjusted for Significant Financial Events~~

Corporate Center
CHF million
For the year ended 31.12.00 31.12.99¹
Income 358 372
Credit loss recovery 1,161 448
Total operating income 1,519 820
Personnel expenses 490 548
General and administrative expenses 281 385
Depreciation 320 366
Goodwill amortization 44 50
Total operating expenses 1,135 1,349
Business Group performance before tax
384 (529)
Headcount (full time equivalents) 986 862

Aims and objectives

UBS’s commitment to an integrated business model remains as strong as ever. UBS is not merely a holding company. It is a portfolio of complementary businesses, managed together for optimal shareholder value, where the whole is worth more than the sum of its parts.

UBS’s Business Groups are accountable for their results and enjoy considerable autonomy in pursuing their business objectives – hence the need for a strong Corporate Center, with the mission to maximize sustainable shareholder value by ~~co-ordinating~~coordinating the activities of the Business Groups. It ~~ensures~~aims to ensure that they operate as a coherent and effective Group with a common set of values and principles. To perform its role, Corporate Center avoids ~~process~~ ownership of processes wherever possible, but instead establishes standards and principles, thereby minimizing its own staffing levels.

~~Functions~~Key functions

Finance and Risk management and control

Corporate Center includes the Group’s accounting, tax, treasury and risk management and control functions. These teams are responsible for safeguarding UBS’s long-term financial stability by maintaining an appropriate balance between risk and rewards, so that the Group is competitively positioned in growing market places with an optimal business model and adequate resources.

Further details of risk management and control policies and Treasury activities can be found in the Risk Management and Control, Regulators and ~~Asset~~Supervision and ~~Liability Management~~Group Treasury sections of this Handbook.

Group Controlling

Group Controlling is responsible for devising and implementing integrated and consistent ~~controlling~~

financial control and accounting processes throughout the Group, in order to produce the Group’s regulatory, financial and management accounts.

Group Communications and Marketing

The Group Communications and Marketing function is responsible for the effective communication of our strategy, values and results to employees, clients, investors, media and the public, and for building the UBS brand worldwide.

Group Human Resources

Group Human ~~Resources~~Resources’ mission is to make UBS a global employer of choice, able to attract, develop, motivate and retain top ~~talents~~talent by establishing standards, principles and procedures for performance evaluation, compensation and ~~benefits,~~ben- efits, graduate and professional recruitment, training and development.

Legal ~~and Compliance~~

Legal ~~and Compliance~~ protects UBS’s reputation by managing its legal ~~compliance~~affairs and ~~regulatory affairs.~~

coordinating the activities of Business Group legal departments.

~~The Business Groups~~

~~Corporate Center~~

UBS’s performance measurement framework considers the creation of value for shareholders and other stakeholders in a more explicit way than traditional profit-based measures. UBS believes that the measurement of value creation can only be effective in the context of a comprehensive value-based management (VBM) process which is truly embedded in its management decisions, and consistently applied across the organization.

~~Value-Based Management~~

UBS’s value-based management (VBM) framework supports value-based decisions, performance assessment and external communication. The heart of the framework is a process for monitoring the development of the value of the Group and its constituent businesses, based on the identification of the fundamental drivers of value creation.

~~Overview of objectives and process~~

The aim of VBM is to create an understanding of the sources and drivers of value within all of UBS’s businesses, and to integrate this understanding into its management processes and principles, translating the value creation mindset into action. The diagram below summarizes the VBM processes.

~~Value-based business decisions:~~ To ensure that UBS’s actions are value-enhancing, the Group evaluates strategic initiatives, acquisitions and investments on the basis of the impact of their earnings potential and the inherent risk on shareholder value. Funding and capital resources are only allocated to business plans and projects that are expected to create value on a sustainable basis.

UBS benchmarks the internal assessment of a project’s potential against analysts’ and investors’ expectations. The Group also assesses and manages the risk of current and planned business strategies by analyzing the impact of long-term industry and macro-economic trends on value.

~~Performance assessment:~~ Performance measures are designed to communicate the extent to which value has been created: both the value derived from actual performance during the current reporting period and the value of future growth prospects resulting from tactical and strategic positioning.

~~External communication:~~ Value creation is the focal point of our communication to investors and analysts. The analysis and interpretation of sources of valuation gaps provides valuable evidence of the external evaluation of our internal plans.

~~The Business Groups~~

~~Corporate Center~~

~~Measuring value creation~~

~~Measuring value creation at the Group level~~

The fundamental assumption underlying the VBM framework is that the creation of sustainable value is the primary objective of business activity. By emphasizing sustainable value creation, UBS considers the interests of both its shareholders and other important stakeholders such as employees, clients and regulators. The framework views the management as fiduciaries of shareholder wealth. They are responsible for generating adequate returns on a risk-adjusted basis through strategic decisions and their effective implementation.

To ensure long-term success, a company must provide its owners with a total return greater than its risk-adjusted cost of capital. For the shareholders, the total return on their investment is a combination of dividends, capital repayments and share price appreciation over a specific period. Share price development is therefore a very important indicator of value creation at the corporate level, since it reflects the assessment by investors of current performance, of the ability of management to define, communicate and implement innovative and compelling strategies for the future and of the level of strategic risk those plans involve.

~~Measuring value creation at the business unit level~~

The share price is a useful indicator of the value creation performance of the Group, but it cannot be used to evaluate the performance of business units. As business units are not listed on any stock exchange, UBS needs a measure that corresponds to the total return on shares but is applicable to business units. For this, UBS has chosen~~fair value~~ ~~and~~~~total return on fair value~~ ~~as the most suitable measures of value creation.~~

~~The starting point in assessing value creation for a business unit is thus to assess its~~~~fair value~~~~, i.e., the theoretical value of the current franchise and associated earnings potential as well as the resources the business unit management has been entrusted with.~~

~~By relating realized cash earnings and the incremental value of strategic plans and investments to the initial fair value, we then calculate the~~~~total return on fair value~~ ~~of the business unit. Actual total return is compared to the business unit hurdle rate, which represents the minimum required return for a given level of business risk.~~

Technically, fair value is calculated as the sum of all future discounted free cash flows, which correspond to earnings adjusted for investments and depreciation. The discount rate reflects the financial and business risks of the unit and is also the targeted total return on fair value (the business unit hurdle rate). Discount rates are derived from historical market data using the capital asset pricing model (CAPM), which yields discount rates that account for the undiversifiable (systematic) risk of the business. Since our business units are not listed on any stock market, their cost of equity is inferred from stock market data of listed competitors and peers.

~~Generated free equity~~

An important difference between a financial institution and industrial firms is that borrowing and lending form part of everyday business activities and are not used merely for financing and placement of excess liquidity. This makes the traditional definition of cash flow, as used in industrial firms, difficult to apply to a bank. In addition, banks face regulatory constraints in the form of capital adequacy regulation, which reduce their discretion to determine and implement an optimal capital structure.

In view of these differences, free cash flow for banks is generally defined as residual cash, after investments and after all claims from debt holders (interests and amortization) have been serviced. UBS has dubbed this measure “Generated Free Equity” (GFE) as it is the amount that can be either reinvested or returned to shareholders via dividends and share repurchases. UBS uses GFE in the calculation of its fair value and the total return on fair value.

~~GFE is the sum of adjusted net profit after tax adjusted for significant financial events and change in regulatory equity requirements.~~

~~The VBM process~~

~~The implementation of a comprehensive VBM framework in a large organization like UBS is a complex task and the full benefit of it will only materialize over time. To be truly effec-~~

~~The Business Groups~~

~~Corporate Center~~

tive the VBM framework must become an integrated part of key management processes, such as the formulation and evaluation of strategic plans and investments, the measurement and evaluation of performance, and the definition of criteria for performance related compensation.

~~Value drivers~~

In order to have an operational tool for analyzing the extent to which current and projected performance contribute to sustainable value creation, UBS has identified value drivers for each business unit, relating to revenue, cost and investment. Net new money growth and average margins on assets are examples of typical revenue drivers for the private banking and asset management businesses.

The analysis of the future development of value drivers extends beyond the standard business plan horizon of three years to consider the potential impact on value of long-term industry and macroeconomic trends, and constitutes an important input in the evaluation of strategic options.

Internal value driver projections and valuations are benchmarked against external assessments and the expectations of the stock market and leading analysts and against performance of key competitors. They are also subjected to a sensitivity analysis, both to understand the sensitivity of the valuation to assumptions, and to test the impact on value of failing to meet plans. Together these measures help to avoid the risk that over-optimistic planning might distort the VBM process.

~~Value-based decisions in strategic planning~~

During 2000, the business units of UBS have begun to complement their standard business plans and budgets with explicit targets for key value drivers. Equity expenditures (investments and incremental working capital), which are required to increase or sustain current operating levels, are explicitly considered via their effect on generated free equity.

The impact of business plans on valuation is analyzed on the basis of the internal value driver targets and long-term forecasts on the development of value drivers beyond the planning horizon. The valuation analysis considers the views on sector and macro-economic development of neutral internal and external experts and the impact of worst case scenarios.

~~Value-based decisions and strategic risk~~

UBS considers strategic risk, such as the failure to recognize changing customer priorities, the failure to recognize opportunities and threats from emerging technologies and business models or the failure to define and implement innovative, compelling value propositions for customers and investors, as the major challenge in today’s competitive environment.

In order to meet this challenge, companies need to implement systematic and rigorous tools and processes (as has already been done in the case of market, credit and operational risk control) to identify and manage strategic risk. Valuebased analysis constitutes a key input for assessing and addressing strategic risk.

In parallel with the changes in planning and investment appraisals, UBS has introduced a new value report. This quarterly report to management tracks actual generated free equity and the development of value drivers and also measures total return on fair value, which includes the incremental impact of new business initiatives. In addition, the value report contains a section which analyses the source of gaps between internal valuation and market capitalization and between internal valuation and leading external analysts’ valuations of business units.

~~Compensation~~

A key aspect of a comprehensive VBM framework is compensation. The objective of value based compensation is to reward sustainable shareholder value creation. Managers and employees should receive an appropriate share of the value created in order to align their interests to the interests of shareholders. As with all other professional services organizations, human resources costs in banking are the single largest operating expense. As a result compensation is a highly sensitive area, where market practice and cultural considerations need to be taken into account.

Total return on fair value and the development of value drivers are very powerful measures for compensation and UBS currently is in the process of developing methods to include the VBM measures in its compensation scheme. However, UBS believes that compensation should never be formula driven, so,

~~The Business Groups~~

~~Corporate Center~~

~~while these measures will become important inputs, they will not replace managerial judgement in determining compensation levels.~~

~~External communication~~

Although VBM is essentially an internal management tool, it can also provide useful information for investors and analysts. Future public disclosure will therefore contain further quantitative information on the development of key value drivers.

~~Conclusion~~

UBS believes that the focus on value drivers in planning and performance tracking is the most effective and efficient way to direct the organization towards building value. It also allows the linking of compensation to the key drivers of sustainable profitability in a pragmatic way. Value based management combines the analysis of current performance with the analysis of future earnings potential. This increases management’s focus on strategic risk and further improves UBS’s ability to create sustainable value.

~~The Business Groups~~

~~Corporate Center~~

Brands are becoming formal assets that provide tangible benefit. In free and fiercely contested markets, they are a vital communication tool for attracting target clients. Nowhere is this more so than in the competitive market of financial services providers. UBS is responding to this challenge with integrated brand management and a clear brand strategy, with responsibility for brand equity taken at the highest level.

~~Brand Strategy at UBS~~

~~Brands are increasingly important in the financial services industry~~

Until recently, banks seldom went far beyond national borders. Clients did not shop around for a financial advisor, but were directed towards prestigious companies through word-of-mouth and often remained loyal to these institutions throughout their whole lives. As a result of this privileged market position, financial services providers deliberately cultivated an image of discretion and exclusivity.

The easing of regulatory restrictions, increased transparency of services and a shift to more consumer “activism”, has led to a dramatic increase in competition, making it much easier for new players to enter the financial markets, significantly expanding choice and turning the previously restricted world of privileged providers into a buyer’s market. Today, customer loyalty has weakened, and clients can change products and providers more easily than before. A new generation of wealthy clients is increasingly comfortable using the media to collect information on financial matters, often in the form of advertising and marketing messages. Clients increasingly select companies and products based on image and perception. Strong brands with a well-articulated and attractive message are becoming a crucial competitive factor in this type of environment. In a survey of American banking clients, at least 80 percent of those questioned said that the influence of brand was “fairly important” to “extremely important” in their choice of financial products.

~~A brand strategy for highly competitive financial markets~~

A strong and familiar brand with a clear profile offers the client focus and security, giving the company sustained competitive advantage. A firm such as UBS formed through merger and with a portfolio of legacy brands, faces particular challenges. UBS has therefore refined its brand strategy and, in July 2000, launched a brand campaign concentrating on the UBS brand as the focus for the entire UBS Group.

~~UBS’s brand identity~~

The only brands that make an impression amid the current flood of information and frenzied pace of communication are ones that are strong and communicate a clear message. Defining the brand message is therefore crucial to the success of brand communication.

The Group’s global reach, technology excellence, sophisticated products and services, integrated business platform and strong focus on advice are ideal brand attributes. “Partnership for success”, the core message of the UBS corporate brand, reflects these strengths. UBS’s brand stands for success through partnership: partnership with the outside world, partnership with our clients, partnership with shareholders, partnership with investors, but also partnership within UBS, thanks to the close co-operation that exists between the individual business areas.

Supporting this core message are a number of subsidiary associations. The UBS brand also stands for “value added solutions” and transparency of benefits and price. Furthermore, it symbolizes the committed and motivated employee and embodies the collective power of the UBS Group which comes from the combination of services provided by a wide range of business units. And finally, the brand conveys the trust which is associated with characteristics such as quality, reliability, security, stability and sense of responsibility.

~~Worldwide brand campaign~~

The UBS brand with its powerful message was positioned in the major markets through a worldwide campaign during 2000. The core message, “The Power of Partnership”, is based on a concept which can be applied across the board for all Business Groups, service and product categories. The pictures from the campaign symbolize the way to success through partnership.

~~UBS’s systematic approach to branding~~

~~UBS’s systematic approach to branding is based on a corporate brand and a limited number of subsidiary business brands.~~

~~The Business Groups~~

~~Corporate Center~~

The corporate brand identifies the Group as a whole and reflects its values. It is aimed at steering clients towards the company when they make market decisions. Its visual appearance is determined by design guidelines which are binding, company-wide.

As a general rule the business brands (such as UBS Warburg) are strongly linked to the corporate brand. They represent the individual business units and subsidiaries with their range of products and services, with the linkage reflecting the benefits offered by UBS as an integrated financial services group.

For jurisdictional or strategic reasons, such as identification of an asset management style, other business units may have a “some link” or a “no link” status, though the medium-term plan for brand development clearly focuses on a smooth transition from the current brand portfolio to a single brand. Finally there are also simple word brands for products and services, like KeyClub or Fund Solutions.

~~The Business Groups~~

~~Corporate Center~~

~~UBS aims to maintain best-in-class environmental standards in all that it does.~~

~~UBS and the Environment~~

~~Introduction~~

UBS strives to be among the leaders in all its businesses, but will only succeed if it anticipates longterm opportunities and risks. UBS is convinced that it is not only financial market trends and political developments that will shape its business, but to an increasing extent environmental conditions and social expectations as well. This section describes briefly how environmental aspects affect UBS’s shareholder value in the Group’s different areas of activity. Further details are available in UBS’s Environmental Report 2000, which is available at www.ubs.com/ environment.

UBS takes its responsibility towards its clients, shareholders and employees seriously. It believes that its international prominence confers “role model” status, and that its long-term success will only be guaranteed if the long-term consequences of all its actions are seen to be beneficial. For UBS it is self-evident that the Group should take as much care of natural resources as it does with the assets its clients entrust to it. A precondition for this is a forward-looking assessment of the environmental impact of the Group’s actions.

This is why UBS aims to observe international environmental standards in all that it does – not only with respect to its own conduct but also in terms of the transactions it finances. UBS’s commitment to the environment is underpinned with a professional environmental management system.

UBS views the ISO 14001 certification awarded to its environmental management system as the first important step towards comprehensive independent assessment of the corporate responsibility which it embodies in its corporate culture. During 2001, UBS will create a Corporate Responsibility Committee composed of Board, GEB and GMB members which will be responsible for corporate social responsibility issues, for supervision of the Group’s adherence to relevant international standards, and for developing appropriate reporting in this area.

~~UBS – committed to sustainability~~

~~UBS’s environmental policy~~

~~UBS’s environmental policy has been approved by the Group Executive Board. The following extracts outline the key points of the policy.~~

Environmental protection is one of the most pressing issues facing our world today. Consequently environmental issues are a challenge for all companies in all sectors. UBS regards sustainable development as a fundamental aspect of sound business management.

~~UBS is committed to continuing the integration of environmental aspects into business activities.~~

We seek to build shareholder value by taking advantage of environmental market opportunities. At the same time, we will incorporate due consideration of environmental risks into our risk management processes, especially in lending and investment banking.

~~We will actively seek ways of reducing the environmental impact to air, soil and water from our in-house operations. The main focus is the reduction of greenhouse gas emissions.~~

~~We seek to ensure the efficient implementation of our environmental policy via an environmental management system which includes sound objectives, programs and monitoring.~~

~~The UN Global Compact and the UNEP~~

~~Bank Declaration – a global~~

~~commitment~~

UBS has undertaken to comply with the UN Global Compact principles proposed at the 1999 World Economic Forum in Davos. These principles set out the framework in which a company can help ensure sustainable development worldwide. In addition to protecting the environment, the nine principles deal with aspects such as respecting human rights and workplace rights.

~~UBS was one of the first signatories of the UNEP Bank Declaration and is helping to shape further developments through its role on the Steering Committee for financial institutions.~~

~~UBS does not just acknowledge these principles in theory, but takes concrete action to~~

~~The Business Groups~~

~~Corporate Center~~

turn them into reality. Internally, compliance with social standards is a day-to-day reality within human resources. UBS is aware, however, that in the financial services industry the main focus of corporate social responsibility must be on client relationships. Financing transactions and managing assets for clients whose activities are seen as socially irresponsible can lead to financial and regulatory risks for the Group, and damage its reputation. UBS seeks to avoid these risks through the application of the highest standards of probity, and through its involvement in initiatives such as the Wolfsberg Anti-Money Laundering Principles.

~~The UBS environmental management~~

~~system: the ISO 14001 certificate~~

In May 1999, UBS was the first bank to obtain ISO 14001 certification for its worldwide environmental management system in its banking business. ISO 14001 is an international standard for environmental management systems. UBS also received certification for its environmental management system for its corporate services in Switzerland. The certification was undertaken by an independent certification company, SGS International Certification Services AG.

~~Environmental ratings~~

UBS’s share price is part of the Dow Jones Sustainability Group Index (DJSGI). The DJSGI comprises around 230 companies from various sectors that rank as leaders in their field in terms of social and environmental performance.

~~In October 2000, UBS was ranked first in the financial sector by DJSGI.~~

In a survey published in January 2000, the Munich-based rating agency, Oekom Research, examined the environmental performance of larger European banks. The study, which looked at environmental management systems, products and services, and the quality of environmental data, ranked UBS first amongst the 26 banks examined.

~~The environmental factor in asset management~~

~~Highlights~~
– ~~The performance of the “UBS (Lux) Equity Fund – Eco Performance” was 1.7% in 2000, outperforming the MSCI World Index by 15.7%.~~
– ~~The size of the “UBS (Lux) Equity Fund – Eco Performance” and of the corresponding investment foundation for Swiss pension funds doubled in 2000 to 487 million Swiss francs.~~
– ~~The Japanese fund “UBS Nihon Kabushiki Eco Fundo” was successfully launched on the market at the end of October 1999. The size of fund assets at end 2000 was around JPY 7 billion.~~
– ~~UBS is currently reviewing the launch of a product which will allow clients to invest worldwide in projects aimed at reducing greenhouse gas emissions.~~

There are a number of factors involved in acquiring new client assets, including the financial performance of a company’s products, the level of service it offers and its reputation. In addition, some clients now demand that asset management decisions take into account environmental and social aspects as well as economic ones. UBS’s expertise in incorporating environmental and social aspects into its company research and portfolio management is becoming more and more important – particularly for institutional investors such as pension funds.

UBS’s environmental investment research looks at how companies’ strategies, processes and products impact both their financial success and the environment, and what contribution these elements make to each company and its employees. The stocks selected through this process are shares in companies which demonstrate long-term success and generate sustainable financial revenues. Specialist studies and stock indices show that there can be a positive link between environmental, social and economic performance.

Focusing on the concept of sustainability, UBS launched a new investment fund in 1997, the “UBS (Lux) Equity Fund – Eco Performance”. This fund invests worldwide in stocks of exemplary sector leaders and forward-looking small and medium-sized companies. The selection criteria include above average envi-

~~The Business Groups~~

~~Corporate Center~~

ronmental and social performance as well as a sound financial basis. This investment strategy and the fund’s broad diversification has resulted in an excellent financial performance for the fund and a positive contribution to the value of UBS’s asset management business.

~~The environmental factor in~~

~~investment banking~~

While no two investment banking transactions are the same, they all have a common element that is crucial to their success, namely the ability to identify opportunities and risks early on, and to assess them correctly. Although financial risks dominate this assessment, environmental aspects can also be an important part of risk analysis.

First, environmental risks could become credit risks – for example, if a client can no longer repay a loan as a result of environmental problems. Second, liability risks could be incurred if, for example, UBS were to become owner of a company or were to sit on the management board of a company which finds itself facing environmental liabilities. Lastly, environmental risks could damage the Group’s reputation if it were to be involved in a controversial transaction.

Based on its Global Environmental Risk Policy, UBS Warburg has introduced processes that allow early identification of environmental risk in relation to a transaction. In an initial phase, environmental factors are screened by investment banking staff. If there are indications of increased risk, environment specialists are called in to investigate the issues as part of the due diligence process.

~~The environmental factor in~~

~~credit business~~

~~Highlights~~
– ~~The assessment of environmental risks is integrated fully into the loan review process and the set of tools used.~~
– Almost all employees in recovery departments in Zurich, Bern and Lausanne were trained in environmental risk management in 2000. Professional management of environmental risks is particularly relevant in these departments, as they manage distressed debt.

A prerequisite for a healthy loan portfolio is professional risk analysis that takes account of all types of risk, including environmental risks. Alongside traditional rating factors such as key financial data and management quality, a careful review of financially relevant environmental aspects is an important part of UBS’s credit risk analysis. In assessing a loan application, the client advisor uses internal guidelines and up-to-date information to assess environmental risks, and includes environmental information in the data provided to the loan assessor.

UBS can take several courses of action if a client’s credit-worthiness is compromised by environmental risks. If the risks involved cannot be calculated or estimated, it can refuse the credit transaction; it can demand a higher risk premium or additional collateral; it can reduce the term of the loan or repayment period, or it can offer advisory services or act as an agent to help resolve the problem.

The benefits of incorporating the “environmental factor” in lending business are threefold: UBS has a healthy loan portfolio, the client is aware of the environmental risks and opportunities for its company, and the environment itself benefits from the resulting improvements.

~~The environmental factor in-house~~

~~Highlights~~
– Environmental aspects are incorporated as a core part of our procurement and design processes for services such as cleaning or waste disposal services and for products such as paper or office materials.

The more efficiently and sparingly UBS uses its resources and hence reduces emission levels, the less it will have to pay in terms of costs. Energy management and in-house environmental initiatives enhance operating margins.

UBS impacts the environment primarily through its energy consumption, the running of its heating systems, its paper consumption and business travel. Professional know-how and an efficient environmental management

~~The Business Groups~~

~~Corporate Center~~

~~system allow the Group to use resources better and bring down costs.~~

Costs can be optimized in three different ways. Firstly, the necessary level of environmental performance to comply with regulatory requirements must be achieved in as effective and cost-efficient a manner as possible. Secondly, costs can be reduced by improving internal processes or implementing technical measures, such as adjusting the heating or air conditioning of a building. Lastly, UBS and the specialist companies it works with are continually working to reduce the im-pact on the environment using intelligent engineering, for example in the building services.

~~UBS’s environmental performance in figures~~

~~Full details of UBS’s environmental performance can be found in UBS’s Environmental Report 2000.~~

The environmental report shows how UBS’s environmental commitment affects its enterprise value, highlighting the effect of the “environmental factor” on some of the Group’s key value drivers. It includes data on UBS’s performance against key environmental metrics in banking and corporate services, based on the EPI-Finance 2000 standard which was jointly developed by eleven finance and insurance companies. It also provides further details about UBS’s ISO 14001 certification.

~~For further information please visit: www.ubs.com/environment, or contact: environment@ubs.com.~~

~~Risk~~

Capital and Risk

Management
Risk Management and Control

Risk Management and Control

Risk is an integral part of all our activities. Excellence in risk management and control is a key success factor and therefore requires ~~every one’s~~everyone’s commitment within our organization.

~~Risk Management~~

~~and Control~~

Risk management and control principles

UBS’s approach to risk management and control has evolved over a number of years, and ~~has been reviewed and refined~~is documented in ~~2000, resulting in a statement of~~ the Group’s Risk Management and Control Principles, which lay the foundations on which UBS builds its risk culture and risk process:

Business Management ~~Accountability:~~Accountability: The management of ~~UBS’s businesses owns~~each business throughout UBS is responsible for the risks assumed ~~throughout the Group~~in its business and ~~is responsible~~ for the continuous and active management of all risk exposures, so that risk and return are balanced.

Independent ~~Controls:~~Controls: An independent control process is implemented when required by the nature of the inherent risks and the fundamental incentive structure of the business processes. The control functions are responsible for providing an independent and objective check on risk taking activities to safeguard the integrity of the entire risk management and control process.

Risk ~~Disclosure:~~Disclosure: Comprehensive, transparent and objective risk reporting and disclosure to senior management and to shareholders is the cornerstone of the risk control ~~process, reflecting the fundamental values of intellectual honesty and transparency.~~process.

Earnings ~~Protection:~~Protection: Operating limits are set to quantify risk appetite and allocated among business lines to control normal periodic adverse results, in an attempt to limit such losses relative to the potential profit of each business. The Group’s risk capacity is expressed through stress loss limits with the aim of protecting ~~the Group~~UBS from unacceptable damage to ~~its~~our annual earnings capacity, ~~its~~our dividend paying ability and, ultimately, ~~its~~our reputation and ongoing business viability.

Reputation ~~Protection:~~Protection:Failure to manage and control any of the risks incurred in the course of ~~its~~our business could result in damage to UBS’s reputation. For this reason:


–	~~UBS continues~~We continue to develop potential stress loss measures for credit and market ~~risk;~~risk.

–	~~UBS will not take any~~We avoid taking extreme positions in tax, regulatory and accounting sensitive ~~transactions;~~transactions.

–	~~UBS aspires~~We aspire to the highest standards in protecting the confidentiality and integrity of ~~its~~our internal ~~information; and~~information.

–	~~UBS aims~~We aim to maintain the highest ethical standards in all ~~its~~our businesses.

Every employee, but in particular those involved in risk decisions, must make UBS’s reputation an overriding concern. Responsibility for the risk of reputation damage cannot be delegated or syndicated.

An integrated approach to risk
management and control

Risk management and control are an integral part of ~~UBS’s~~our commitment to providing consistent, high quality returns for ~~its~~our shareholders. ~~UBS believes~~We believe that delivery of superior shareholder returns depends on achieving the appropriate balance between risk and return, both in ~~day-to-day~~day-to- day business and in the strategic management of the balance sheet and capital. ~~UBS recognizes~~We recognize that risk is integral to ~~its~~UBS’s business, but ~~the~~our approach to risk management and control seeks to limit the scope for adverse variations in earnings and, in particular, to protect UBS from the risk of severe loss ~~in the event~~as a result of unlikely, but plausible, stress ~~scenarios~~events arising from any of the material risks ~~it faces.~~we face.

UBS has an integrated, Group-wide function at the Corporate Center ~~addressing all aspects of~~responsible for finance, strategic planning, risk control, and balance sheet and capital management. The independent risk control organization is mirrored in the Business Groups. Excellence in risk management is, however, most fundamentally based upon a business management team that makes risk identification, management and control critical components of their processes and plans.

Key responsibilities

TheBoard of Directorsis responsible for the Group’s fundamental approach to risk (the Risk Management and Control Principles), and for the ~~establishment~~determination of its risk capacity and risk appetite.

TheChairman’s Officeis responsible for the annual review of the Group’s principal risk ~~limits and for the determination of its risk capacity.~~limits.

TheGroup Executive Board (GEB)is responsible for implementing the Risk Management and Control Principles, for approving core risk policies, for allocating risk limits to the Business Groups, and for managing the risk profile of the Group as a whole.

TheChief Credit Officer (CCO) is responsible for formulating credit risk policies, for determining methodologies to measure credit risks, and for setting and monitoring credit, settlement and country risk limits.

~~Risk~~

~~Risk Management and Control~~

TheChief Risk Officer (CRO)is responsible for the policies, methodologies and limits for all other inherent risk categories (see the section: The risks we take on page 58), and for aggregating and assessing the total risk exposure of the Group.

~~Business Group Risk Management Committees~~ monitor all risks taken by the business units and are the primary risk management bodies. They are chaired by the Business Group Chief Executive Officers and include heads of business areas and delegates of the Group CRO and CCO.

TheBusiness Group CEOs are responsible for all risk exposures within their ~~business units~~Business Groups and must take corrective action where appropriate, given the aggregate risk profile of the portfolio or the risks of specific positions.

TheBusiness Group Risk Control Functions,, headed by Chief Risk and Chief Credit Officers (CROs and CCOs), are empowered to enforce the Risk Management and Control Principles and are responsible for the implementation of independent control processes within their Business Groups.

Business Group Risk Management Committeesmonitor all risks taken by the Business Groups and are the primary risk management bodies. They are chaired by the Business Group Chief Executive Officers and include heads of business ~~units.~~areas and delegates of the Group CRO and CCO.

TheGroup Risk Committeereviews and evaluates the key risk issues globally and in the Business Groups, and in particular the state of the current portfolio, risk and revenue trends, and concentrations and vulnerabilities. It is chaired by the Group CRO.

TheGroup Governance Committeeis responsible for coordination and oversight of the Group’s public policy interface with regulators, central banks and governments, and for minimizing the Group’s reputational risks. It is chaired by the Group General Counsel and its members include the President of the GEB, key risk officers from Corporate Center and representatives of the Business Groups.

Capital and Risk Management
Risk Management and Control

The risk control process

There are five critical elements in ~~the~~our independent risk control process:

–
– risk identification,particularly in new businesses and in complex or unusual transactions but also in response to external events and in the continuous monitoring of the ~~portfolio;~~portfolio.
–     risk measurement,using approved methodologies and models which have been independently ~~validated;~~validated.
–     risk policies,covering all inherent risk categories, both at Group level and in the Business Groups, consistent with evolving business requirements and international best ~~practice;~~practice.
–     comprehensiverisk reportingto management at all levels against anthe approved risk ~~limit~~limits and control framework, for all ~~primary and consequential~~inherent risk ~~categories; and~~categories.
–     risk control,to enforce compliance with the Risk Management and Control Principles, and with policies, limits and regulatory requirements.

There are ~~co-ordinated~~coordinated processes covering all inherent risk categories which are applied before commencement of any new business or significant change in business, and before the execution of any transaction which is complex or unusual in its structure or motivation, to ensure that all these critical elements are addressed, including the assurance that transactions can be booked in a way that will permit appropriate ongoing risk ~~measurement,~~monitoring, reporting and control.

The risk control process also extends beyond the independent risk control functions toFinancial Controland theLogistics Areas,, notably Operations, which are critical to establishing an effective control environment. Given their responsibility for the booking, settlement, and financial reporting processes, comprehensive

~~Risk~~

~~Risk Management and Control~~

control by these functions creates a powerful defense against ~~improper~~inappropriate activity.

Group Internal Auditprovides an independent view to the Board of Directors of the effectiveness of the Risk Management and Control Principles and their enforcement, and of the effectiveness of the independent control units.

~~Risk control developments~~

~~UBS has~~ During 2001, we have continued ~~in 2000,~~ to ~~strengthen, formalize~~develop and enhance ~~the~~UBS’s risk control process. Principles, policies and processes are reinforced through a “risk awareness” education program which ~~will be disseminated to all employees during 2001, including a series~~has been made available throughout the Group in the form of live and recorded presentations by UBS risk control professionals covering all aspects of risk control for all categories of risk. ~~The program will be extended and enhanced as the approach to risk management and control evolves.~~

UBS monitors regulatory developments and strives to maintain good relationships with its lead regulator, the Swiss Federal Banking Commission, and other major regulators. This as an important aspect of the risk control process and UBS will continue to work closely with them to ensure a mutual understanding of the Group’s control structure and the regulators’ requirements.

~~How UBS measures risk~~

~~Potential loss is measured at three levels – expected loss, statistical loss and stress loss.~~

~~Expected loss~~ is the loss that is expected to arise on average in connection with an activity. It is the inherent cost of such activity, and should be budgeted and deducted from revenues directly. An example of expected loss is the valuation adjustments for liquidity or position size made in mark-to-market books. UBS is extending its expected loss framework to encompass all measurable risk categories.

~~Statistical loss~~ (also known as “unexpected loss”) is the estimated loss in a typical adverse period, as statistically defined by a given confidence interval. UBS’s tolerance for such adverse results – the Group’s risk appetite, as determined by the Board of Directors – is the basis for the main operating limits. Formal statistical loss measures in the form of Value-at-Risk limits have been in place for market risk in UBS for a number of years, and are the basis of the market risk regulatory capital charge. Comparable portfolio measures are being developed for other risk categories, and the revision to the Basel Capital Accord, currently under discussion, is expected, ultimately, to extend the use of statistical loss measures for regulatory capital purposes.

~~Stress loss~~ ~~is the loss that could arise from an extreme, but plausible, stress or “tail” event (an event that falls in the tail of the probability distribution of potential events,~~

~~Risk~~

~~Risk Management and Control~~

beyond the level of confidence applied in the statistical loss measure). Risk capacity is defined as the maximum loss that the Board of Directors considers UBS could withstand in such stress events without unacceptable damage to earnings, dividend paying ability and, ultimately, reputation and ongoing business viability. It is formalized in stress loss limits. Stress loss measures are most extensively implemented for our trading activities and for country risk, but default stress loss measures have also been introduced for the UBS Warburg loan portfolio, with particular emphasis on lower rated borrowers. The stress loss framework will continue to be enhanced and progressively extended to all risk categories. The identification and quantification of potential tail risk, on a macro scale (affecting the Group in general or selected parts of the business or portfolio) and on a micro level (arising from individual transactions), is perhaps the most important function of the independent risk control units.

The risks ~~UBS takes~~we take

Business risks –are the risks associated with ~~the~~a chosen business strategy, including business cycles, industry cycles, and technological ~~change~~change. They are the sole responsibility of the relevant business, and are not subject to an independent control process. They are, however, factored into the Group planning and budgeting process.

Inherent risksare the risks inherent in our business activities which are subject to independent risk control. A distinction is made between primary and consequential risks.

Primary risksare the exposures deliberately entered into for business reasons and which are actively traded and managed:

–
– credit riskis the risk of loss resulting from client, counterparty or ~~counterparty~~issuer default and arises on credit exposure ~~to clients and counterparties~~ in all forms, including settlement ~~risk;~~risk.
–     market riskis ~~the~~ exposure to observable market variables such as interest rates, exchange rates and equity ~~markets;~~markets.
–     liquidity and funding riskis the risk that the Group is unable to fund assets or meet obligations at a reasonable price or, in extreme situations, at any price. These risks are managed at the Group level, rather than in the ~~business units,~~Business Groups, and are discussed in the ~~Asset and Liability Management~~Group Treasury section on pages 7077 to ~~71.~~85.

Consequential risks ~~(also~~(also known as operational risks) are exposures that are not actively taken, but which are incurred as a consequence of business undertaken:

–
– transaction processing riskarises from errors, failures or shortcomings at any point in the transaction process, from deal execution and capture to final ~~settlement;~~settlement.
– compliance riskis the risk of financial loss due to regulatory fines or penalties, restriction or suspension of business, or costs of mandatory corrective action. Such risks may be incurred by not adhering to applicable laws, rules, and regulations, local or international best practice (including ethical standards), and UBS’s own internal ~~standards;~~standards.
– legal riskis the risk of financial loss resulting from the unenforceability of rights under a contract or property due to inadequate or inappropriate contractual arrangements or other ~~causes;~~causes.
– liability riskis the risk of financial loss arising from a legal or equitable claim against the ~~Group;~~Group.
– security riskis the risk of loss of confidentiality, integrity, or availability of information or assets, through accident or crime, and includes both IT and physical ~~security; and~~security.
– tax riskis the risk of financial loss due to tax authorities opposing the Group’s position on tax matters. While the other consequential risk categories are managed at Business Group level, tax risk is managed at the Group level since tax is assessed on a legal entity basis and the parent bank and many subsidiary groupings carry out activities for more than one Business Group.

A failure adequately to ~~adequately~~ identify, manage or control any of these risks, including business risks, may result not only in financial loss but also in loss of ~~reputation.~~reputation, and repeated or widespread failure compounds the impact. Reputation risk is not directly quantifiable and cannot be managed and controlled independently of the other risks. ~~Each~~

How we measure risk

We measure potential loss at three levels - expected loss, statistical loss and stress loss.

Expected lossis the loss that is expected to arise on average in connection with an activity. It is the inherent cost of such activity, and should be budgeted and deducted from revenues directly. The use of the ~~inherent risks, if inadequately managed, has~~expected loss concept for credit risk is discussed in the ~~potential to damage UBS’s reputation, and repeated or widespread failure compounds~~Expected Loss section on page 62. In the ~~impact.~~

~~Credit and~~context of market risk, expected loss is reflected in valuation adjustments which are ~~well established risk categories~~routinely made in mark-to-market books to reflect market liquidity or model risk. We are continuing to develop the expected loss framework for ~~which management~~consequential risks and ~~control processes, although constantly evolving, are widely established and understood~~have made further progress in 2001, particularly for transaction processing risk.

Statistical loss(also known as “unexpected loss”) is the estimated loss in a typical adverse period, as statistically defined by a given confidence interval. A statistical loss measure in the ~~industry. These risks are~~form of Value at Risk has been used to measure market risk in UBS for a number of years, and is both the basis of ~~the Basel Capital Accord, which determines regulatory capital requirements for internationally active banks and which is currently under re-~~a key internal market risk limit

Capital and Risk

Management
Risk Management and Control

~~view. The shortcomings~~structure and the measure used to determine our market risk regulatory capital charge. We continue to work towards robust measures of statistical loss for other risk categories, although it can be complex to apply statistical techniques to risks for which the ~~current treatment of credit~~loss distribution is irregular and discontinuous.

Stress lossis the loss that could arise from extreme, but plausible, stress events. We define our risk ~~are recognized by both regulators and practitioners, and it is critical~~capacity as the maximum loss that the ~~present round~~Board of ~~revision~~Directors considers we could withstand in a stress event without unacceptable damage to ~~the Basel Capital Accord establishes a more flexible framework~~our earnings, our dividend paying ability and, ultimately, our reputation and ongoing business viability. The identification of stress events and scenarios to which ~~can adapt to changing markets~~we are vulnerable and ~~reduce the scope for regulatory capital arbitrage.~~

~~The Basel Capital Accord reform has also focused attention on consequential (or operational) risks. As the discussions have highlighted, risk categories are not insulated from each other (for example,~~ an ~~unenforceable contract or a transaction processing error can lead to unforeseen credit or market risk), nor~~assessment of their potential impact is ~~UBS’s current categorization definitive. UBS will~~ therefore ~~continue to review the way risks are categorized. Stability of definition and approach is, however,~~ critical to the ~~establishment~~risk control process. Formal stress loss measures and limits are most extensively implemented for our trading activities and for country risk, but we use a variety of scenarios and techniques, which we continue to refine, to identify other areas of risk concentration and potential vulnerability to stress events, particularly for credit and funding and liquidity risks.

Although the focus of this work is initially the primary risk categories, the events of 2001 have re-emphasized that stress situations can arise from many sources, and the essential complement to quantitative assessments is a ~~sound risk management~~tried and ~~control~~tested process ~~and to the creation of a loss database from~~ which ~~risks~~ can be ~~better understood~~invoked immediately in response to any crisis. While we were fortunate that our buildings were not physically affected by the events of 11 September 2001, our crisis management process proved robust and ~~quantified.~~effective, allowing us to overcome the market and public systems disruptions which followed and properly to control the ensuing risks, including funding and liquidity risk — see the Liquidity and funding management section on page 80.

Risk reporting

Senior management at both business unit and Group level are regularly provided with risk reports, both quantitative, where available, and qualitative. During 2001, the coverage of the reports has been extended to encompass more comprehensively all consequential risk categories, with particular focus on risks which pose a reputational as well as financial threat.

Capital and Risk

Management
Risk Analysis

Risk Analysis

Credit risk

Credit risk represents the loss which UBS would suffer if a client, counterparty or issuer failed to meet its contractual obligations. It is inherent in traditional banking products –- loans, commitments to lend and other contingent liabilities, such as letters of credit –- and in foreign exchange and derivatives contracts, such as swaps and options (“traded products”). Positions in tradable assets such as bonds and equities, including both direct holdings and synthetic positions through derivatives, also carry credit risk, but where they are held for trading and are marked to market they fall under the market risk limits and controls described in the Market Risk section below. They are, however, included in the credit risk exposures reported in the Composition of Credit Risk section below.

Credit risk management and control at UBS is governed by a Group Credit Policy Framework, and by detailed credit policies and procedures developed for the Group and within the Business Groups.

To ensure a consistent and unified approach, with appropriate checks and balances, all Business Groups where material credit risk is taken have independent credit risk control (CRC) functions headed by chief credit officers (CCOs) reporting to the Group CCO and Business Group CEOs. Disciplined processes are in place, within the Business Groups and centrally, to ~~promptly identify, accurately assess, properly approve~~ensure prompt identification, accurate assessment, proper approval and ~~consistently monitor~~consistent monitoring of credit risk. Senior business management, the ~~GEB~~Group Executive Board and the Chairman’s Office are provided with regular, standardized reports of aggregate Business Group credit risk exposure by the CRC ~~organization.~~organization as part of a comprehensive risk reporting framework.

The approval and monitoring of new counterparties, and of new transactions giving rise to credit risk, plays a central part in the risk control process. Credit approval authority is exercised within the independent CRC functions by authorized credit officers. The notional amount of their authority is dependent, on the one hand, on the quality of the counterparty, the size and tenor of the exposure and any security and, on the other hand, on the experience and seniority of the credit officer.

The CRC function continuously monitors the credit quality of counterparties and ~~UBS’s~~our exposure to them, and the credit risk profile of the Business Group portfolios. CRC has sole authority over counterparty rating, credit risk assessment and approval, and the establishment of allowances and provisions.

~~Risk~~Credit limits

We restrict our credit exposure to both individual counterparties and counterparty groups by credit limits. The size of limit depends on our assessment of their financial strength, particularly the sustainable free cash flow to service obligations, the economic environment, industry position and qualitative factors such as management.

Exposure against limits is measured for banking products as the face value amount of the loan or commitment. For most traded products we determine the future exposure profile by modeling the potential evolution of the value of the portfolio of trades with each counterparty over its life (potential credit exposure), taking into account legally enforceable close out netting agreements where applicable (see Note 30b to the UBS Group Financial Statements). Credit limits for individual counterparties are applied to the “maximum likely exposure” derived from this analysis, a 95% confidence statistical measure of the exposure in each counterparty portfolio. This approach is being enhanced and extended to all traded products, including collateralized portfolios.

Credit risk measurement

~~UBS determines~~We determine the amounts of credit loss expenses in ~~its financial accounts~~our Financial Statements and in ~~the~~ business unit reporting on a different ~~basis.~~bases. In the Group ~~financial accounts, UBS reports its~~

Capital and Risk Management
Risk Analysis

Financial Statements, we report results according to International Accounting Standards (IAS) definitions. Under these rules, losses are recognized and charged to the ~~financial accounts~~Financial Statements in the period when they arise (see the Provisioning Policies section on page ~~59)~~64 and Notes 1 and 10 to the Financial Statements). InBy contrast, in its segment and business unit reporting, UBS ~~applies a different approach~~aims to reflect the ~~measurement of~~fact that credit ~~risk, which reflects the average annual cost that UBS anticipates will arise from transactions that become impaired. The following discussion describes this approach.~~

~~UBS’s approach to the measurement of credit risk is based on the premise that this~~ risk exists in every credit engagement, and that credit loss expenses must be expected as an inherent cost of the business.

Expected loss

The occurrence of actual credit losses is erratic in both timing and amount and those that arise usually relate to transactions entered into in previous accounting periods. In order to manage credit risk effectively by earning, over time, sufficient income to compensate for intermittent losses caused by impairment, UBS uses the concept of“expected loss”to encourage appropriate pricing of transactions and income recognition.

~~Expected~~For UBS, expected loss ~~for UBS,~~ is a ~~statistical~~statistically based measure intended to reflect the ~~average~~ annual costs that ~~it anticipates~~ will arise, on average, over time, from transactions that become impaired. ~~The observed frequency of such events~~It is ~~expressed as counterparty default probability. The size of credit losses is determined~~derived from the probability that a given counterparty will default, our current and likely future exposure ~~at default~~to that counterparty and the likely severity of the ~~final~~ loss ~~taking into account~~should default occur. For further details of how we use expected loss in our segmental reporting, please see the ~~seniority~~Credit loss expense section on page 34 of the claim, collateral and other credit mitigation where available. Within UBS Switzerland, a model is used to project expected loss based on historical performance and an assessment of the economic outlook over the medium term. By contrast, the expected loss of the UBS Warburg portfolio is estimated primarily on the basis of market information including rating agencies, other default predicting models, and credit spreads. Once the expected loss has
Financial Report 2001.

~~Risk~~

~~Risk Analysis~~

~~UBS Rating Scale and Mapping to External Ratings~~


		~~Moody’s~~		~~Standard~~
		~~Investor~~		~~and~~
~~UBS~~		~~Services~~		~~Poor’s~~
~~Rating~~	~~Description~~	~~equivalent~~		~~equivalent~~


1			~~Aaa~~		~~AAA~~




2	~~Investment~~		~~Aa1 to Aa3~~		~~AA+ to AA-~~




3	~~grade~~		~~A1 to A3~~		~~A1 to A3~~




4			~~Baa1 to Baa2~~		~~BBB+ to BBB~~




5			~~Baa3~~		~~BBB-~~

6			~~Ba1~~		~~BB+~~




7			~~Ba2~~		BB




8	~~Sub-investment~~		~~Ba3~~		~~BB-~~




9	~~grade~~		B1		B+




10			B2		B




11			B3		B-




12			~~Caa to C~~		~~Ccc to C~~

13	~~Impaired and~~		D		D




14	~~defaulted~~		D		D

~~been estimated at business unit level, statistical methods are used to allocate the total to individual transactions in proportion to their stand-alone loss risk.~~

Thedefault probabilitiesof individual counterparties are assessed by means of rating tools ~~that are~~ tailored to the various categories of counterparty. For the major part of the business within UBS Switzerland, ~~UBS uses~~we use a statistical approach or “score card” to form groups of clients with similar propensity to default. UBS Warburg, with its less homogeneous client base, uses an approach under which credit officers review counterparties and assess their credit standing based on guidelines and an analytical format or “template”, designed to ensure consistency across the Group. In all cases, the analysis is founded on an assessment of both financial ratios and qualitative factors. The result of this counterparty specific analysis is expressed inas a rating. ~~UBS allocates a defined probability of default to each rating category, which allows the transaction specific expected loss to be calculated.~~

Clients are segmented into 14 rating classes, two being reserved for assets that are already

UBS internal rating scale and
mapping to external ratings


		Moody's	Standard
		Investor	and
UBS		Services	Poor's
rating	Description	equivalent	equivalent

1	Investment	Aaa	AAA




2	grade	Aa1 to Aa3	AA+ to AA-




3		A1 to A3	A+ to A-




4		Baa1 to Baa2	BBB+ to BBB
5		Baa3	BBB-

6	Sub-investment	Ba1	BB+
7	grade	Ba2	BB




8		Ba3	BB-




9		B1	B+




10		B2	B




11		B3	B-
12		Caa to C	CCC to C

13	Impaired and	D	D
14	defaulted	D	D

impaired or defaulted. The UBS rating scale, which is ~~based on probability of default, is~~ shown in the table ~~above. For information, comparable~~above, is not only an ordinal ranking of our counterparties. We have assigned to each rating class a fixed probability of default, and thus clients migrate between rating classes as our assessment of their probability of default changes. As shown in the table above, we map the ratings byof the major rating agencies ~~are also shown, although there~~ to our rating classes based on the long-term average default observations for each external grade. Observed defaults per rating category vary year on year, and especially over an economic cycle, and this mapping does not, therefore, imply that UBS expects this number of defaults in any given period.

We determineexposure at defaultbased on the expected outstanding at the time of default, for example for traded products the expected exposure profile, derived from the same model as for credit limit utilization (see Credit limits section on page 61).

Loss severity or loss given defaultis ~~not~~assessed based on a ~~direct match between UBS’s categories and those~~set of assumptions, taking into account the seniority of the ~~rating agencies. The mapping~~claim, collateral and other credit mitigation where available.

Expected loss, at both transaction and counterparty level, is ~~based on comparison~~the product of the probability of default, ~~attached to each UBS rating~~the exposure at default and the ~~default observations published by the agencies. These represent long-term averages and it should be noted that the mappings might not be borne out by experience in any~~loss given ~~period.~~

The reports in the following section, Composition of Credit Risk, that show the rating distribution of UBS’s counterparties refer to the probability of default only. Whether or not UBS benefits from collateral has no influence on these ratings.

Once an expected probability of default has been assigned to a counterparty, the resulting expected loss at the transaction and counterparty level is determined from the credit exposure and an estimate of loss severity based on a set of assumptions.default.

The concept of expected loss ~~is employed within UBS~~and its components form the basis for various business ~~applications:~~appli-

cations within UBS: individual credit policies refer to counterparty rating classes to determine, for example, the maximum tenor allowed for OTC derivative transactions; the rating concept is used to define credit authorities granted to individual credit officers across the Group and for some business processes within the Private and Corporate ~~Clients;~~Clients business unit; and expected loss is used as an approximation for valuing the OTC derivative books and, thereby, accounting for the credit risk assumed ~~on counterparties~~ in these trades. UBS’s internal measurement framework is consistent with the concepts ~~emerging~~likely to be incorporated in the ~~current review of the~~New Basel Capital Accord ~~which sets the rules~~ under which ~~banks determine~~future minimum regulatory capital ~~requirements.~~requirements for credit risk will be determined (see comment in the Financial disclosure principles section on page 99 and in the Regulation and supervision section on page 106).

Statistical and stress loss

The credit portfolio is heterogeneous, varying significantly in terms of client type, geographical diversity and the size of exposures. For the assessment of both statistical loss and stress loss, it is therefore broken down into sub-portfolios with more homogeneous characteristics.

~~UBS is developing~~We have continued to develop internal models for the ~~comprehensive~~ measurement ofstatistical loss ~~and~~ ~~stress loss~~for credit risk at the sub-portfolio level. This provides an indication of the level of risk in the portfolio ~~level. In~~and the ~~meantime,~~way it changes, and is used in pricing decisions.

Modeling extreme credit losses is complex because they are driven much less by systematic factors than is generally the case for market risk. We apply scenarios which allow us to assess the impact of variations in bankruptcy rates and asset values, taking into account risk concentrations in each portfolio. Where concentrations are high or the credit quality of a segment of the portfolio is low, specific limits and controls are ~~being~~ applied to ~~certain segments of~~contain the ~~portfolio, where credit quality is low or counterparty concentrations are high.~~risks within acceptable bounds.

~~Composition of credit risk~~

Credit risk is assumed, as an integral part of their businesses, by UBS Switzerland’s Private and Corporate Clients business unit and by UBS Warburg’s Corporate and Institutional Clients business unit and, to a lesser extent, by the private banking businesses of these Busi-

~~Risk~~

~~Risk Analysis~~

~~Status of Total Credit Risk Exposure~~

UBS Switzerland UBS Warburg Other¹
CHF million
For the year ending 31.12.00 31.12.99 31.12.00 31.12.99 31.12.00 31.12.99
Loans utilization (gross) 183,943 199,960 99,787 77,151 786 903
Contingent claims 10,613 9,465 11,440 15,136 0 0
Unutilized committed lines 3,574 3,444 47,402 60,412 0 0
Total banking products 198,130 212,869 158,629 152,699 786 903
Unsecured OTC products 883 2,415 61,340 107,898 0 11
Other derivatives (secured exchange-traded) 2,288 2,338 8,994 8,133 0 0
Securities lending 2,193 32 12,159 11,732 0 0
Repo 0 11 22,183 12,287 0 2
Total traded products²
5,364 4,796 104,676 140,050 0 13
Total tradable assets³
2,626 2,785 219,070 219,019 136 471
Total credit risk exposure, gross
206,120 220,450 482,375 511,768 922 1,387
Total credit risk exposure, net of allowances
198,839 210,003 479,134 508,972 917 1,381

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

UBS Group
CHF million
For the year ending 31.12.00 31.12.99 31.12.98
Loans utilization (gross) 284,516 278,014 330,964
Contingent claims 22,053 24,601 32,259
Unutilized committed lines 50,976 63,856 82,311

Total banking products 357,545 366,471 445,534

Unsecured OTC products 62,223 110,324 121,433
Other derivatives (secured exchange-traded) 11,282 10,471
Securities lending 14,352 11,764 12,195
Repo 22,183 12,300

Total traded products²
110,040 144,859 133,628

Total tradable assets³
221,832 222,275 86,288

Total credit risk exposure, gross
689,417 733,605 665,450

Total credit risk exposure, net of allowances
678,890 720,356 650,902

¹~~Includes Corporate Center and UBS Asset Management.~~ ²~~Traded products valuation: valued based on internal valuation methodology.~~ ³~~Tradable assets valuation: net long, maximum default exposure.~~

~~Risk~~

~~Risk Analysis~~

~~ness Groups. The table Status of Total Credit Risk Exposure provides an overview of the aggregate credit risk exposure of the UBS Group.~~

UBS Warburg’s total gross credit exposure of CHF 482 billion includes exposure not only in the Corporate and Institutional Clients business unit, but also CHF 25.5 billion in the International Private Clients and US Private Clients business units. In the following analysis, only the Corporate and Institutional Clients business is considered since almost all other lending within UBS Warburg is secured.

A substantial majority of UBS Warburg Corporate and Institutional Clients’ counterparties fall into the investment grade category (internal counterparty rating grades 1 to 5) for both banking products (82%) and the traded products portfolio (96%). These counterparties are primarily sovereigns, insurance companies, financial institutions, multinational corporate clients and investment funds. Exposure to lower rated counterparties is generally collateralized or otherwise structurally supported.

In order to allow pro-active management of counterparty credit risk, UBS Warburg launched Alpine Partners, L.P., the first ever synthetic securitization of counterparty credit exposure in a portfolio of OTC derivatives covered by ISDA master agreements. The issue, which met stringent rating agency and regulatory requirements, transferred USD 750 million of credit exposure on positive replacement values to the market, to the extent they exceed the subordinated layer retained by UBS.

UBS Warburg Corporate and Institutional Clients’ banking products portfolio is widely diversified across industry sectors. At 31 December 2000, the largest exposure (35%) was to the Finance sector. The 6% exposure to the Transport, storage and communication sector includes CHF 8 billion exposure to the telecommunication industry.

Of UBS Switzerland’s loans to customers of CHF 175 billion, 69% or CHF 121 billion are secured by mortgages. The graph shows that UBS’s exposure to the real estate sector is well diversified with 42% of its loans being secured on owner-occupied houses (single-family homes). The exposure on residential multi-family homes of 42% consists of owner occupied apartments and rented apartment buildings. In particular, the owner-occupied dwellings exhibit a low risk profile both in terms of individual assets and at portfolio level. Loans and other credit engagements with individual clients, excluding mortgages, are predominately extended against the pledge of marketable securities where UBS applies conservative standards to determine the advance value of the collateral.

The remainder of the Private and Corporate Clients’ portfolio, excluding mortgages, consists of exposures to corporate and individual clients. These clients are fairly widely spread across rating categories and industry sectors, which reflects UBS’s position as a major lender to this segment of predominantly small to medium sized enterprises in Switzerland. The continued improvement in the Swiss economy and property markets has aided the overall improvement in the quality of this portfolio.

~~At the end of the second quarter 2000, Helvetic Asset Trust AG, an independent special purpose vehicle, was used by UBS Switzerland~~

~~Risk~~

~~Risk Analysis~~

~~UBS Warburg Corporate and Institutional Clients Banking Products~~

CHF billion 31.12.00 31.12.99 31.12.98
Loans (gross) 74.3 72.7 134.7
Commitments 47.4 60.4 73.8
Contingent liabilities 11.4 15.0 24.7
Total banking products 133.1 148.1 233.2

to securitize credit risk attached to a CHF 2.5 billion reference portfolio consisting primarily of Swiss corporate loans, whereby part of the credit risk, but not the loans themselves, was transferred to the capital markets.

~~Loan portfolio~~

The UBS Group loan portfolio increased by CHF 6.5 billion to a total of CHF 284.5 billion at year end 2000. UBS Switzerland’s portfolio continued to shrink, partly due to the sale of Solothurner Bank, a Swiss retail subsidiary, and partly due to continuing work-out of impaired loans. UBS Warburg’s portfolio, by contrast, increased, predominantly as a result of the integration of UBS PaineWebber’s primarily secured loan portfolio of some CHF 20 billion. UBS Warburg’s Corporate and Institutional Clients business unit continued the strategy, begun immediately after the 1998 merger between Union Bank of Switzerland and Swiss Bank Corporation, of reducing international banking products exposure (loans, unfunded commitments and contingent liabilities), with the aim of improving the risk/reward profile of the international lending business. It included a shift in focus away from emerging markets and into high quality credit in the major OECD countries. The table above highlights this reduction.

~~Over-the-counter (OTC) derivative contracts~~

A significant proportion of UBS Warburg’s credit risk arises from its trading activities, including its trading of derivative products. The provision of risk management solutions involving the use of derivative products is a core service offered by UBS. Derivative products, by their nature, are sensitive to changes in market prices and UBS pays close attention to the management and control of these risks.

Counterparty exposure on most OTC derivatives is measured by modeling the potential evolution of the value of the portfolio of trades with each counterparty over its life (potential credit exposure), taking into account legally enforceable close out netting agreements where applicable. Credit limits for individual counterparties are applied to the

~~Total Loan Portfolio Exposure by Business Group~~
UBS Switzerland UBS Warburg Other¹
CHF million
For the year ended 31.12.00 31.12.99 31.12.00 31.12.99 31.12.00 31.12.99
Loans to banks (gross) 8,482 8,780 21,038 21,481 544 524
Loans to customers (gross) 175,461 191,180 78,749 55,670 242 379
Loans (gross) 183,943 199,960 99,787 77,151 786 903
Counterparty allowance 7,281 10,447 1,962 1,550 5 6
Country allowance 0 0 1,280 1,246 0 0
Allowances for loan losses²
7,281 10,447 3,242 2,796 5 6
Loans, net of allowances
176,662 189,513 96,545 74,355 781 897
Counterparty provision for contingent claims 22 0 19 19 0 0
Country provision for contingent claims 0 0 12 130 0 0
Total provisions³
22 0 31 149 0 0
Summary

Allowances and provisions for counterparty risk 7,303 10,447 1,981 1,569 5 6
Allowances and provisions for country risk 0 0 1,292 1,376 0 0
Total allowances and provisions
7,303 10,447 3,273 2,945 5 6

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

UBS Group
CHF million
For the year ended 31.12.00 31.12.99 31.12.98
Loans to banks (gross) 30,064 30,785 69,543
Loans to customers (gross) 254,452 247,229 261,421
Loans (gross) 284,516 278,014 330,964

Counterparty allowance 9,248 12,003 13,093
Country allowance 1,280 1,246 1,450

Allowances for loan losses²
10,528 13,249 14,543

Loans, net of allowances
273,988 264,765 316,421

Counterparty provision for contingent claims 41 19 435
Country provision for contingent claims 12 130 0

Total provisions³
53 149 435

Summary

Allowances and provisions for counterparty risk 9,289 12,022 13,528
Allowances and provisions for country risk 1,292 1,376 1,450

Total allowances and provisions
10,581 13,398 14,978

¹~~Includes Corporate Center and UBS Asset Management.~~ ²~~Deducted from assets.~~ ³~~Booked as liabilities.~~

~~Risk~~

~~Risk Analysis~~

“maximum likely exposure”, derived from this analysis, a 95% confidence statistical measure of the exposure in each counterparty portfolio. These measures will continue to be enhanced and their coverage is to be extended to include all market sensitive products and associated collateral.

UBS’s credit standards for entering into unsecured derivative contracts are high. Particular emphasis is placed on the maturity profile, and transactions with counterparties of lower quality are generally conducted only on a secured basis. In line with general market trends, UBS Warburg is increasingly entering into bilateral collateral agreements with other major banks to mitigate the potential concentrations of exposure arising from industry consolidation and the ongoing increase in volumes of OTC derivatives traded.

Settlement risk

UBS is exposed to settlement risk as a consequence of its international transactional businesses. Settlement risk arises in transactions involving the exchange of values ~~between counterparties~~ when ~~they~~we must honor ~~their~~our obligation to deliver cash or securities without first being able to determine that ~~they~~we have received the counter-value. This risk is particularly significant in ~~relation to~~ foreign exchange and precious metals transactions. ~~UBS limits~~We limit and ~~monitors the~~monitor this risk on a continuous basis against settlement ~~tolerances~~limits set for each of ~~its~~our counterparties based on our assessment of their credit ~~standing as determined by UBS.~~standing. Settlement risk reduction is a high priority for CRC, Operations and ~~business units.~~Business Groups. They work together to achieve shorter settlement cycles from payment release to reconciliation, and to reduce ~~the amount of~~ exposure by establishing risk reduction arrangements with counterparties, such as payment netting and covered settlements.

UBS participates in payment and securities clearing houses, and ~~continues~~we continue to play a major role in the Continuous Linked Settlement (CLS) project, an industry initiative to establish a global clearing house, CLS Bank, to settle foreign exchange transactions on a delivery versus payment basis. CLS is ~~currently~~now scheduled to go live ~~at the end of 2001~~in mid-2002 and will substantially reduce both settlement and systemic risks faced by UBS and other major foreign exchange trading banks.

Country risk

UBS’s definition of country risk covers all ~~crossborder~~cross-border exposures from banking products and traded products, including ~~its~~our own ~~intra-Group~~intraGroup cross-border positions, and exposure to issuers of tradable assets such as bonds and equities.

The CRC function at the Corporate Center assigns ratings to all ~~major~~ countries ~~based on internal analysis of size and economic fundamentals and on external information. Smaller economies~~ to which ~~UBS has little exposure are rated based on external information only.~~we have exposure. Like the counterparty ratings, the sovereign ratings express the probability of the occurrence of a country risk event that ~~leads~~would lead to an impairment of UBS’s exposures. The default probabilities and the mapping to the ratings of the major rating agencies are the same as for counterparty credit risks (see table on page ~~54)~~62). ~~Country ratings~~

Countries are classified as industrialized ~~(2 and better),~~or emerging ~~markets (3 to 11) and distressed (12 to 14).~~

At 31 December 2000, CHF 1,058 billion or 98.5% of UBS’s country risk exposure was to industrialized countries, where the risk of default is judged to be negligible and, of this, CHF 593 billion, or 56% were intra-Group cross-border money market positions.

The remaining 1.5%, or CHF 16.3 billion, of UBS��s country risk exposure is to emerging markets and distressed countries. This exposure has continued to decrease during 2000 in line with the strategy of limiting exposure to these sectors. Total exposure to emerging markets and distressed countries fell by CHF 8.3 billion between 31 December 1999 and 31 December 2000, a reduction of 34%.markets. In view of the higher risk associated with emerging ~~markets, UBS~~market countries, including those considered investment grade (rated 5 or better), we closely and continuously ~~monitors this~~monitor exposure to these countries, within ~~the~~ country ceilings approved by the Chairman’s Office.

The country risk ceiling is a primary limit for all transactions with counterparties in these

Capital and Risk Management
Risk Analysis

countries, and extension of credit may be denied on the basis of a country risk ceiling even if there are adequate counterparty limits available. ~~The table on the following page analyzes the emerging markets and distressed countries exposures by major geographical areas at 31 December 2000 compared to 31 December 1999.~~

Counterparty default resulting from multiple insolvencies (systemic risk) or general ~~pre-~~

~~Risk~~

~~Risk Analysis~~

~~Emerging Markets Exposures by Major Geographical Areas~~

Total Banking products
Region
CHF million 31.12.00 31.12.99 31.12.98 31.12.00 31.12.99
Emerging Europe 1,612 1,586 1,755 809 919
Emerging Asia 7,642 10,055 14,406 4,053 5,003
Latin America 4,268 9,647 11,528 2,352 8,169
Africa/ Middle East 2,736 3,314 4,740 1,564 2,539
Total 16,258 24,602 32,429 8,778 16,630

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Traded products¹ Tradable assets²
Region
CHF million 31.12.00 31.12.99 31.12.00 31.12.99
Emerging Europe 395 248 408 419
Emerging Asia 1,355 3,873 2,234 1,179
Latin America 1,025 665 891 813
Africa/ Middle East 669 659 503 116

Total 3,444 5,445 4,036 2,527

¹~~Traded products consist of derivative instruments and repurchase agreements.~~ ²~~Tradable assets consist of equity and fixed income financial instruments held for trading purposes, which are marked to market on a daily basis.~~

~~vention~~prevention of payments by authorities (transfer risk) is the most significant long-term effect of a country ~~crisis. In its~~crisis, but in our internal measurement and control of country risk ~~however, UBS seeks to~~we also consider the probable financial impact of market disruption arising prior to, during and following a country ~~crisis:~~crisis, in the form of severe falls in the country’s markets and ~~assets,~~asset prices, longer-term devaluation of the currency and potential immobilization of currency balances.

~~As an enhancement~~Under a framework introduced in 2000, we measure exposures to ~~this wider measurement concept, UBS has started measuring country risk internally~~emerging market countries not only in terms of nominal ~~terms,~~claims (loans outstanding, potential credit exposure from OTC derivatives and market value of tradable assets), but also in terms of risk equivalent (potential loss), reflecting the fact that the risk profiles of exposures can vary significantly, depending on the type of product, any collateral, and the degree to which they have been hedged against market shocks. Country ceilings based on risk are now the primary risk management and control tool for individual countries, although we continue also to limit and report nominal exposures in line with regulatory and financial reporting requirements.

In order to limit the potential financial impact of a severe emerging markets crisis, the overall portfolio is subject to a risk limit derived from stress scenario analysis - we identify countries that may be subject to a potential crisis event and determine potential loss under conservative assumptions of recovery rates for individual products. The potential loss under this stress loss ~~basis covering market and credit risk, both at~~measure is subject to a limit approved by the Board of Directors. The analysis is the responsibility of the country ~~level, where individual country ceilings are applied, and across~~economists under the portfolio, based on economic scenarios determined by country economists. Stress loss-based measures were first introduced at the country level in 2000 and will continue to be developed in the light of experience and changing market conditions.Group CCO.

Provisioning policies

UBS classifies a claim as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods - interest payments, scheduled principal repayments, or other payments due (for example on derivatives transactions), and including liquidation of collateral where available. Within this category, we further classify loans ~~are also classified~~ as non-performing where payment of interest, principal or fees is overdue by more than 90 days. Non-performance is not the determinant of impairment, although it may, in some circumstances, be the first evidence of impairment.

~~UBS has~~We have established policies to ~~determine~~ensure that the carrying values of impaired claims are determined on a consistent and fair basis, especially for those impaired loans for which no market estimate or benchmark for the likely recovery value is available. Future cash flows considered recoverable are discounted to present value on the basis of the principles of IAS 39. A provision is then made for the probable loss on the loan in question and charged to the income statement as credit loss expense.

Each case is assessed on its merits, and the work-out strategy and estimation of cash flows considered recoverable are independently approved by the CRC function. The recovery value of mortgage loans is determined by capitalizing an economically sustainable rental yield, adjusted for the discount generally observed in forced liquidations, and related costs if the strategy is based on a foreclosure. For commercial exposures, enterprise value is determined from an assessment of expected cash flows from future operations if recovery is likely to be successful, or of the liquidation value of the assets if bankruptcy proceedings are to be initiated against the borrower. All future cash flows considered recoverable are discounted to present value on the basis of the principles of International Accounting Standard 39. A provision is then made for the probable loss on the loan in question and charged to the income statement as credit loss expense.

Allowances and provisions for credit losses also include a component for country risk. ~~UBS’s approach to country risk provisioning follows the guidelines of the Swiss Bankers’ Association, which allow banks to~~We establish ~~provisions based on their own portfolio scenarios. UBS establishes~~ country-specific scenarios which are reviewed and used on an ongoing basis, to evaluate the current and future probability of default due to country risk incidents or country-specific systemic risks. The appropriate provisions are then determined by evaluating the type of credit exposure in the portfolio for each country and the loss severities that have been attributed to each exposure type. Furthermore, ~~UBS has~~we have specific allowances against exposures in countries that are subject to a moratorium or have been rescheduled. The amount of such allowances is determined ~~case-by-case~~case by case from an assessment of the amounts that ~~UBS deems~~we deem to be irrecoverable.

~~Risk~~

~~Risk Analysis~~

~~Summary of Banking Products Exposure and Credit Risk Results~~
UBS Switzerland UBS Warburg Other ¹
CHF million
For the year ended 31.12.00 31.12.99 31.12.00 31.12.99 31.12.00 31.12.99
Loans (gross) 183,943 199,960 99,787 77,151 786 903
Contingent claims 10,613 9,465 11,440 15,136 0 0
Unutilized committed lines 3,574 3,444 47,402 60,412 0 0
Total banking products exposure
198,130 212,869 158,629 152,699 786 903
Annual expected loss
784 1,071 247 333 0 0
Total credit loss (recovery)/expense
(695 ) 965 565 0 0 (9 )
Corporate Center balancing items

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

UBS Group
CHF million
For the year ended 31.12.00 31.12.99 31.12.98
Loans (gross) 284,516 278,014 330,964
Contingent claims 22,053 24,601 32,259
Unutilized committed lines 50,976 63,856 82,311

Total banking products exposure
357,545 366,471 445,534
Annual expected loss
1,031 1,404 1,696

Total credit loss (recovery)/expense
(130 ) 956 951

Corporate Center balancing items
(1,161 ) (448 ) (745 )

¹ ~~Includes Corporate Center and UBS Asset Management.~~

In general, Swiss practice is to write off loans ~~entirely~~ only on final settlement of bankruptcy proceedings, sale of the underlying assets, or formal debt forgiveness. By contrast, US practice is generally

to write off non-performing loans, in whole or in part, much sooner, thereby reducing the amount of such loans and corresponding provisions ~~recorded at any given date.~~recorded. A consequence of ~~this practice~~applying the Swiss approach is that, for UBS, recoveries of amounts written off in prior accounting periods tend to be ~~small.~~small, and the level of outstanding impaired loans and non-performing loans as a percentage of gross loans will tend to be higher than for our US peers.

Composition of credit risk

Credit ~~loss expense~~

risk is assumed as an integral part of their businesses by UBS ~~reports its results according~~Switzerland’s Private and Corporate Clients business unit and by UBS Warburg’s Corporate and Institutional Clients

Total credit risk exposure


	UBS Switzerland						UBS Warburg						Other¹						UBS Group
CHF million
As at	31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99

Loans utilization (gross)		181,854		185,271		199,960		79,475		98,459		77,151		655		786		903		261,984		284,516		278,014




Contingent claims		13,235		10,613		9,465		7,301		11,440		15,136		2		0		0		20,538		22,053		24,601




Unutilized committed lines		2,009		3,574		3,444		48,026		47,402		60,412		18		0		0		50,053		50,976		63,856

Total banking products		197,098		199,458		212,869		134,802		157,301		152,699		675		786		903		332,575		357,545		366,471

Unsecured OTC products		1,961		883		2,415		64,416		61,340		107,898		0		0		11		66,377		62,223		110,324




Other derivatives (secured exchange-traded)		2,317		1,638		2,338		12,150		8,994		8,133		0		0		0		14,467		10,632		10,471




Securities lending		45		2,193		32		14,575		12,159		11,732		0		0		0		14,620		14,352		11,764




Repo		67		650		11		18,948		22,183		12,287		0		0		2		19,015		22,833		12,300

Total traded products²		4,390		5,364		4,796		110,089		104,676		140,050		0		0		13		114,479		110,040		144,859

Total tradable assets³		2,908		2,626		2,785		241,357		219,070		219,019		121		136		471		244,386		221,832		222,275

Total credit risk exposure, gross		204,396		207,448		220,450		486,248		481,047		511,768		796		922		1,387		691,440		689,417		733,605

Total credit risk exposure, net of allowances		198,886		199,670		210,003		483,850		478,303		508,972		791		917		1,381		683,327		678,890		720,356

¹Includes Corporate Center and UBS Asset Management.²Traded products valuation based on internal methodology.³Tradable assets valuation: net long, maximum default exposure.

Total loan portfolio exposure by Business Group


	UBS Switzerland						UBS Warburg							Other¹						UBS Group
CHF million
As at	31.12.01		31.12.00		31.12.99		31.12.01			31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99

Loans to banks (gross)		7,938		9,150		8,780			19,853		20,370		21,481		470		544		524		28,261		30,064		30,785




Loans to customers (gross)		173,916		176,121		191,180			59,622		78,089		55,670		185		242		379		233,723		254,452		247,229

Loans (gross)		181,854		185,271		199,960			79,475		98,459		77,151		655		786		903		261,984		284,516		278,014

Counterparty allowance		5,016		7,280		10,447			1,899		1,962		1,550		5		5		6		6,920		9,247		12,003




Country allowance		494		498		0			499		782		1,246		0		0		0		993		1,280		1,246

Allowances for loan losses²		5,510		7,778		10,447			2,398		2,744		2,796		5		5		6		7,913		10,527		13,249

Loans, net of allowances		176,344		176,165		189,513			77,077		97,043		74,355		650		781		897		254,071		273,989		264,765

Counterparty provision for contingent claims		111		23		0			181		19		19		0		0		0		292		42		19




Country provision for contingent claims		13		0		0			0		12		130		0		0		0		13		12		130

Total provisions³		124		23		0			181		31		149		0		0		0		305		54		149

Summary								��




Allowances and provisions for counterparty risk		5,127		7,303		10,447			2,080		1,981		1,569		5		5		6		7,212		9,289		12,022




Allowances and provisions for country risk		507		498		0			499		794		1,376		0		0		0		1,006		1,292		1,376

Total allowances and provisions		5,634		7,801		10,447			2,579		2,775		2,945		5		5		6		8,218		10,581		13,398

¹ Includes Corporate Center and UBS Asset Management.² Deducted from assets.³ Booked as liabilities.

Capital and Risk Management
Risk Analysis

business unit and, to ~~IAS, under~~a lesser extent, by the private banking businesses of these Business Groups. The tables on page 65 provide an overview of the aggregate credit risk exposure of the UBS Group and, within that, of the loan portfolio.

Note that in the tables and charts which ~~credit loss expense charged~~follow, where we show the rating distribution of counterparties, we refer to the ~~financial accounts in~~credit exposure and the probability of default only, without reference to any ~~period are the sum of net allowances minus recoveries arising in that period, i.e. the~~potential loss mitigation from collateral.

UBS Warburg

UBS Warburg’s gross credit losses actually incurred. In 2000, provisions on new impaired loans were more than offset by the effect of re-evaluating provisions on existing impaired loans resulting in a net credit to the income statementexposure of CHF ~~130 million. This compares to a net credit loss expense charge in 1999~~486 billion includes CHF 20 billion of ~~CHF 956 million.~~

This positive result was due to the strong economy in Switzerland combined with successful recovery efforts. Previous provisions had been established against a background of several years of relatively low growthexposure in the ~~Swiss economy and relatively high credit losses. During the year 2000, the Swiss economy expanded at the fastest rate in a decade. The growth was broadly based, especially~~Private Clients business unit, which is not included in the ~~domestic sector,~~following discussion, since almost all lending within the Private Clients business unit is secured.

A substantial majority of UBS Warburg Corporate and ~~was markedly higher than could have been foreseen in 1999. This turnaround has positively affected real estate values~~Institutional Clients’ counterparties fall into the investment grade category (internal counterparty rating grades 1 to 5), both for banking products (66%) and for the ~~real estate construction market, which has led~~traded products portfolio (95%). These counterparties are primarily sovereigns, insurance companies, financial institutions, multinational corporate clients and investment funds. Exposure to ~~reductions in existing provisions against loans in these portfolios and a decreased level of new defaults and impairments.~~lower rated counterparties is generally collateralized or otherwise structurally supported.

In view of its significant exposure to the Swiss market, UBS’s overall credit quality is highly dependent on economic developments in Switzerland. As the graph shows, the better performance of the Swiss economy has translated into a sustained reduction in the bankruptcy rate since 1999.

By contrast, mounting signs of a trend of increasing defaults in the international credit markets and particularly the US, required additional loan loss provisions to be taken on UBS Warburg’s loan portfolio. Over the last few years, but more intensively in 2001, UBS Warburg has ~~pursued~~engaged in a substantial credit risk hedging program through which we have effectively reduced UBS Warburg’s banking products exposure by CHF 24.7 billion. This was achieved mainly by transferring the underlying risk to high grade market counterparties using credit default swaps. The table below provides a pro-forma view of the net banking products exposure in UBS Warburg Corporate and Institutional Clients business unit, reflecting the effect of these credit risk hedging activities.

During the course of 2001, we have seen a number of high profile investment grade defaults, and our relatively low level of new provisions and allowances this year (see table on page 71) has confirmed not only that the strategy of ~~active reduction of international and emerging markets credit exposures and has increasingly used credit derivatives to hedge credit exposures. Despite~~reducing risk concentrations, even for well rated counterparties, is sound, but also that the ~~increase~~hedges employed are in ~~provisions, this~~practice successful. This strategy, coupled with a reluctance to engage in balance sheet led earnings growth, ~~has positioned~~positions UBS relatively well for ~~the less positive outlook~~any continued turbulence in the international credit markets.

The Corporate and Institutional Clients business unit’s banking products portfolio continues to be widely diversified across industry sectors. At 31 December 2001, the largest exposure (21%) was to the Finance sector. The reported 10% exposure to the transport, storage and communication sector includes CHF 6.9 billion of exposure to the telecommunication industry, the vast majority of it relating to established investment grade operators.

We closely follow and continuously review the exposure development in industry sectors most affected by the terrorist attacks of last September, such as insurance, aviation, tourism, technology and telecomunications. 72% of the ~~total~~aggregate credit exposures to these sectors was rated in the investment grade category.

UBS WarburgCorporate and Institutional Clients
Credit hedging, banking products¹


	As at 31.12.01

CHF million	As reported		Amount hedged			Net³

Investment Grade		60,174		21,394			39,765




Sub-investment Grade		22,189		2,831			19,496




Impaired and Defaulted		3,431		2,017	²		1,787

Total exposure		85,794		26,242	²		61,048

¹Reported exposure excludes money market business. Net exposure does not take overhedging into account.²Includes CHF 1,473 million of counterparty specific allowances.³Net after hedges and allowances.

Capital and Risk Management
Risk Analysis

ucts, by their nature, are sensitive to changes in market prices and UBS therefore pays close attention to the management and control of these risks.

We place particular emphasis on the maturity profile, and transactions with counterparties of lower quality are generally conducted only on a secured basis or for short tenors. In line with general market trends, UBS Warburg has entered into bilateral collateral agreements with other major banks to mitigate the potential concentrations of exposure arising from industry consolidation and the continuing increase in volumes of OTC derivatives traded.

The graphs show UBS Group’s OTC derivative exposure by product type and maturity at 31 December 2001, while the table on page 66 shows details of all traded products exposure at 31 December 2001, by counterparty rating. See Note 24 to the UBS Group Financial Statements Derivative Instruments for further details.

UBS Switzerland

UBS Switzerland’s loans to customers at 31 December 2001 amounted to CHF 182 billion, 66% or CHF 120 billion of which were secured mortgages. The graphs below show that UBS’s exposure to the real estate sector is well diversified with 42% of loans being secured on owner- occupied property (single-family homes). The exposure on residential multi-family homes of 41% consists of owner occupied apartments and rented apartment buildings. In particular, the owner-occupied dwellings exhibit a low risk profile both in terms of individual assets and at a portfolio level. Loans and other credit engagements with individual clients, excluding mortgages, are predominantly extended against the

pledge of marketable securities where UBS applies conservative standards to determine the advance value of the collateral.

The remainder of UBS Switzerland’s portfolio, excluding mortgages, consists of exposures to corporate and individual clients. These

clients are fairly widely spread across rating categories and industry sectors, which reflects UBS’s position as a market leading lender to this segment of predominantly small to medium sized enterprises in Switzerland. During 2001, our high credit underwriting standards and the continued relative strength of the Swiss economy have contributed to improved credit quality within UBS Switzerland’s portfolio, with individual and sector concentrations having been further reduced.

Country risk

At 31 December 2001, CHF 1,127 billion or 98.6% of our country risk exposure was to industrialized countries, where the risk of default is judged to be negligible and, of this, CHF 562 billion, or 50% were intra-Group cross-border money market positions.

The remaining 1.4%, or CHF 15.4 billion, of UBS’s country risk exposure is to emerging markets countries. This exposure has continued to decrease during 2001 in line with our policy of limiting exposure to these risks, falling by CHF 823 million between 31 December 2000 and 31 December 2001, a reduction of 5%. As a result

Capital and Risk Management
Risk Analysis

Emerging markets exposures by major geographical area and product type


	Total						Banking products						Traded products¹						Tradable assets²
CHF million
As at	31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99

Emerging Europe		1,954		1,612		1,586		632		809		919		750		395		248		572		408		419




Emerging Asia		7,747		7,642		10,055		4,029		4,053		5,003		1,537		1,355		3,873		2,181		2,234		1,179




Latin America		2,876		4,268		9,647		1,122		2,352		8,169		863		1,025		665		891		891		813




Africa / Middle East		2,858		2,736		3,314		1,432		1,564		2,539		962		669		659		464		503		116

Total		15,435		16,258		24,602		7,215		8,778		16,630		4,112		3,444		5,445		4,108		4,036		2,527

¹		Traded products consist of derivative instruments, reverse repurchase agreements and other collateralized transactions.
²		Tradable assets consist of equity and fixed income financial instruments held for trading purposes, which are marked to market on a daily basis.

of this ongoing reduction, the Argentinedefault in late 2001 had almost no effect on us.

The table above analyzes the emerging market country exposures by major geographical area and product type at 31 December 2001 compared to 31 December 2000 and 31 December 1999.

Credit loss expense

UBS Group’s Financial Statements are prepared in accordance with IAS, under which credit loss expense charged to the Financial Statements in ~~1998~~any period is the sum of net allowances and ~~1999 included~~direct write-offs minus recoveries arising in that period, i.e. the ~~effect~~credit losses actually incurred. So that the risks and rewards of ~~allocations from~~credit decisions can be better reflected in their results over time, we present our Business Group results in terms of expected loss, rather than actual IAS loss, and provide a reconciliation between the ~~special reserve pools~~two — see pages 34 to 35 of our Financial Report 2001 for further details. The following discussion covers the actual credit loss expense recorded under IAS.

The global credit environment declined rapidly throughout 2001, with overall default rates as high as during the last major global recession in 1991. The phenomenon of investment grade companies falling into restructuring and default within a very short period of time became very prominent in the United States during 2001, and subsequently spread to Europe. In this difficult and challenging environment we have focused on ensuring that ~~had been established~~our counterparty ratings are rapidly adjusted to reflect the changing economic situation. At the same time, we have increased the frequency of sector and geographic rating reviews.

In UBS Warburg, the ongoing strategy of actively hedging credit exposure has kept new provisions to a relatively low level, resulting in ~~1996, by both Union~~
a credit loss expense of CHF 375 million in 2001, compared to CHF 565 million in 2000.

Corporate bankruptcies in Switzerland have now reached their lowest level since the early 1990s (see graph on page 71), and we have successfully improved the credit quality of our domestic portfolio over recent years. The level of recoveries of previously existing provisions has, however, declined compared to the somewhat exceptional levels of 2000, reflecting less robust

Credit loss expense


	UBS Switzerland							UBS Warburg						Other¹							UBS Group
CHF million, except where indicated
For the year ended	31.12.01		31.12.00			31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99			31.12.01		31.12.00			31.12.99

Total banking products exposure at year end		197,098		198,130			212,869		134,802		158,629		152,699		675		786		903			332,575		357,545			366,471

IAS actual credit loss expense/(recovery)		123		(695	)		965		375		565		0		0		0		(9	)		498		(130	)		956




- as a proportion of total banking products exposure (bps)		6		(35	)		45		28		36		0		0		0		(100	)		15		(4	)		26

Adjusted expected loss charged to Business Groups²		604		784			1,071		130		247		333		0		0		0			734		1,031			1,404




- as a proportion of total banking products exposure (bps)		31		40			50		10		16		22		0		0		0			22		29			38

¹		Includes Corporate Center and UBS Asset Management.
²		For an explanation of the credit loss charge used in our Business Group reporting please see the Expected loss section on page 62 and pages 34-35 of the Financial Report 2001.

~~Risk~~

~~Risk Analysis~~

~~Allowances and Provisions for Credit Risk~~
UBS Asset
UBS Switzerland Management UBS Warburg
CHF million
As of 31.12.00 31.12.99 31.12.00 31.12.99 31.12.00 31.12.99
Loans (gross) 183,943 199,960 561 213 99,787 77,151
Impaired loans¹
13,671 19,166 – – 4,797 3,226
Allowances for impaired loans 7,281 10,447 – – 2,399 2,018
of which:
Non-performing loans 7,872 11,416 – – 2,554 1,594
Allowances for non-performing loans 4,702 7,315 – – 2,143 1,341
Total allowances for impaired and non-performing loans
7,281 10,447 – – 2,399 2,018
Other allowances and provisions for credit and country risk 22 – – – 874 927
Total allowances and provisions
7,303 10,447 – – 3,273 2,945
of which country allowances and provisions – – – – 1,292 1,376

Ratios

Impaired loans as a % of gross loans¹
7.4 9.6 – – 4.8 4.2
Non-performing loans as a % of gross loans 4.3 5.7 – – 2.6 2.1
Allowances and provisions for credit loss as a % of gross loans 4.0 5.2 – – 3.3 3.8
Allocated allowances as a % of impaired loans¹ 53.3 54.5 – – 50.0 62.6
Allocated allowances as a % of non-performing loans 59.7 64.1 – – 83.9 84.1

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Corporate Center UBS Group
CHF million
As of 31.12.00 31.12.99 31.12.00 31.12.99

Loans (gross) 225 690 284,516 278,014

Impaired loans¹
26 64 18,494 22,456
Allowances for impaired loans 5 6 9,685 12,471

of which:
Non-performing loans 26 63 10,452 13,073
Allowances for non-performing loans 5 5 6,850 8,661

Total allowances for impaired and non-performing loans
5 6 9,685 12,471

Other allowances and provisions for credit and country risk – – 896 927

Total allowances and provisions
5 6 10,581 13,398

of which country allowances and provisions – – 1,292 1,376

Ratios

Impaired loans as a % of gross loans¹
11.6 9.3 6.5 8.1

Non-performing loans as a % of gross loans 11.6 9.1 3.7 4.7

Allowances and provisions for credit loss as a % of gross loans 2.2 0.9 3.7 4.8

Allocated allowances as a % of impaired loans¹ 19.2 9.4 52.4 55.5

Allocated allowances as a % of non-performing loans 19.2 7.9 65.5 66.3

¹ ~~Includes non-performing loans.~~

~~Bank of Switzerland and Swiss Bank Corporation totaling some CHF 5.5 billion. These reserves were established in recognition of the fact that there might be a further deterioration~~growth in the ~~quality~~Swiss economy towards the end of ~~their~~2001, following the global economic slowdown. As a result, the trend of net recoveries of loan ~~portfolios as~~loss provisions observed in the previous year was reversed and credit loss expenses increased accordingly during 2001, althought remaining below the long-term trend. Credit loss expense in UBS Switzerland in 2001 was CHF 123 million, compared to a net recovery of CHF 695 million in 2000.

Group credit loss expenses in 2001 amounted to CHF 498 million, compared to a net recovery of CHF 130 million in 2000 but down from an expense of CHF 956 million in 1999. The exceptional result in 2000 was a result of ~~adverse economic conditions, particularly in Switzerland. These reserves totaled CHF 3.6 billion at~~ the ~~beginning~~significant recovery of ~~1998. CHF 3.3 billion~~the Swiss economy and especially its effect on the real estate and construction markets, which meant that UBS Switzerland was ~~applied against specific loan exposures during 1998 and the remaining balance~~able to make a substantial write back of ~~CHF 300 million was applied or reversed in 1999. Following these allocations, the~~ credit loss ~~expense incurred in 1998 amounted to CHF 951 million and in 1999 to CHF 956 million.~~provisions, which was only partly offset by additional provisions for the UBS Warburg portfolio.

Impaired loans, allowances and provisions

As shown in the table above, the allowances and provisions for credit losses decreased by CHF 2,817 million, or 21%, from CHF 13,398 million at 31 December 1999 to CHF 10,581 million at 31 December 2000 (see also note 12b to the Financial Statements.) UBS believes that the ~~probable~~foreseeable losses in its portfolio are adequately covered by its allowances and provisions.

~~The component~~ As shown in the table below, allowances and provisions for credit losses decreased by 22.3%, from CHF 10,581 million at 31 December 2000 to CHF 8,218 million at 31 December 2001. Note 10b to the Financial Statements in our Financial Report 2001 provides further details of the changes in allowances and provisions during the year.

Allowances and provisions for credit risk


	UBS Switzerland						UBS Warburg						Other¹						UBS Group
CHF million
As at	31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99

Loans (gross)		181,854		185,271		200,479		79,475		98,459		76,632		655		786		903		261,984		284,516		278,014

Non-performing loans		7,004		8,342		11,847		1,626		2,084		1,163		9		26		63		8,639		10,452		13,073




Other impaired loans		4,306		5,978		8,038		1,684		2,064		1,344		0		0		1		5,990		8,042		9,383

Total impaired loans		11,310		14,320		19,885		3,310		4,148		2,507		9		26		64		14,629		18,494		22,456

Allowances for non-performing loans		4,248		5,141		7,738		1,121		1,183		918		5		5		5		5,374		6,329		8,661




Allowances for other impaired loans		1,143		2,579		3,182		777		777		627		0		0		1		1,920		3,356		3,810

Total allowances for impaired loans		5,391		7,720		10,920		1,898		1,960		1,545		5		5		6		7,294		9,685		12,471

Other allowances and provisions		243		83		33		681		813		894		0		0		0		924		896		927

Total allowances and provisions		5,634		7,803		10,953		2,579		2,773		2,439		5		5		6		8,218		10,581		13,398

of which country allowances and provisions		*507*		498		0		*499*		794		1,376		0		0		0		*1,006*		1,292		1,376

Ratios




Impaired loans as a % of gross loans		6.2		7.7		9.9		4.2		4.2		3.3		1.4		3.3		7.1		5.6		6.5		8.1

Non-performing loans as a % of gross loans		3.9		4.5		5.9		2.0		2.1		1.5		1.4		3.3		7.0		3.3		3.7		4.7

Allowances and provisions for credit loss as a % of gross loans		3.1		4.2		5.5		3.2		2.8		3.2		0.8		0.6		0.7		3.1		3.7		4.8

Allocated allowances as a % of impaired loans		47.7		53.9		54.9		57.3		47.3		61.6		55.6		19.2		9.4		49.9		52.4		55.5

Allocated allowances as a % of non-performing loans		60.7		61.6		65.3		68.9		56.8		78.9		55.6		19.2		7.9		62.2		60.6		66.3

Includes Corporate Center and UBS Asset Management. UBS Asset Management had no impaired or non-performing loans at 31 December 01, 31 December 00 and 31 December 99.

Capital and Risk Management
Risk Analysis

Provisions and allowances for emerging market-related exposures stood at CHF 1,006 million at 31 December 2001, compared to CHF 1,292 million at 31 December 2000 ~~compared with CHF~~and 1,376 million at 31 December ~~1999 and CHF 1,450 million at 31 December 1998.~~1999. The reduction is mainly a consequence of our policy of reducing the overall size of UBS’s emerging market exposures, and the improved outlook for the major emerging market economies since the crisis of 1998. The country risk scenarios used to assess portfolio provisions have changed over the three years with the focus shifting to some extent from Asia toespecially in Latin America.

Impaired loans have decreased to CHF 14,629 million at 31 December 2001 from CHF 18,494 million at 31 December 2000 ~~from~~and CHF 22,456 million at 31 December 1999. Over the same period, ~~the~~non-performing loans (a sub-set of ~~non-performing loans has~~impaired loans) have also decreased, to CHF ~~10,452~~8,639 million from CHF 10,452 million at 31 December 2000 and CHF 13,073 million ~~and~~at 31 December 1999.

The ratio of impaired loans to total loans has improved over the past three years from 8.1% at 31 December 1999 to 6.5% at 31 December 2000, reaching 5.6% at 31 December 2001, while the non-performing loans to total loans ratio improved to 3.3% at 31 December 2001 from 3.7% ~~from~~at 31 December 2000 and 4.7%~~. This~~ at 31 December 1999. These positive ~~result was~~results were due

~~Risk~~

~~Risk Analysis~~

in part to ~~the unexpectedly strong performance~~our successful reduction of ~~the economy in Switzerland, described above,~~exposures to international credit risk, which produced fewer new impaired and non-performing loans than in previous years, and in part to continuing efforts to conclude proceedings and reach settlement on existing ~~nonperforming~~non-performing loans. ~~UBS Switzerland’s portfolio therefore saw decreases in the impaired and nonperforming loans of CHF 5,495 million and CHF 3,544 million, respectively.~~

~~UBS Warburg’s portfolio, on the other hand, saw an increase in impaired loans of CHF 1,571 million and in~~Although UBS’s non-performing loans ~~of CHF 960 million, in line with the trends in the international credit markets and especially the US. Although UBS’s non-performing~~to total loans ratio is somewhat higher than that of comparable US banks, the comparison principally reflects different ~~charge-off practices~~write-off procedures under Swiss regulation and practice, rather than necessarily implying a lower underlying asset quality. In turn, this practice causes relatively higher allowances and provisions to be kept on the balance sheet, than if we operated under US conventions. (See Provisioning policies on page 64).

Market risk

Market risk is the risk of loss arising from movements in observable market variables such as interest rates, exchange rates and equity markets. In addition to these and other general market risk factors, the risk of price movements specific to an individual issuer of securities or an individual issue (“residual risk”) are included in the measurement of market risk.

~~UBS’s market~~Market risk is incurred ~~principally~~in UBS primarily through ~~the~~ trading activities which are centered in the Corporate and Institutional Clients business of UBS Warburg. It arises primarily from market making, ~~and~~ client facilitation ~~activity~~and proprietary positions in equities, fixed income and interest rate products, ~~and in~~ foreign exchange and, to a lesser extent, precious metals. Activity is mainly in OECD markets, with some business in emerging markets. ~~Proprietary positions based on market views are also taken.~~

Group Treasury assumes market risk in the management of the Group’s balance sheet where long-term interest rate risk is transferred from other Business Groups, and through the Group’s structural foreign exchange ~~positions. Group Treasury’s activities are~~positions, as described in the ~~Asset and Liability Management~~Group Treasury section on pages 6677 to ~~75.~~85.

Further market risks arise, but to a much lesser extent, in other businesses, again, primarily from the facilitation of customer business, but also in the form of interest rate risk in the banking books of the private label banks of UBS ~~Switzerland.~~Switzerland (Private Banking’s independently branded, but wholly owned private banking subsidiaries).

Market risk measures are applied to all the trading books of UBS Warburg, to all foreign exchange and precious metals exposures of the Group, to interest rate risk in the banking book taken by Group Treasury and the private label banks, ~~and Group Treasury,~~ and to any other material market risk arising.

Risk measurement

The expected, statistical and stress loss framework is applied to market risk as follows:

–
–	Expected lossis reflected in the valuation adjustments made to the portfolio. These cover price uncertainties resulting from a lack of market liquidity or the absence of a reliable market price for an instrument or position, and model risk in more complex models.
–		Statistical lossis measured using a ~~Value-at-Risk~~Value at Risk (VaR) methodology. VaR expresses the potential loss on the current portfolio assuming a specified time horizon before positions can be adjusted (holding period), and measured to a specified level of confidence. UBS measures VaR on both a one-day and a ~~ten day~~tenday holding period, in both cases to a 99% confidence level. Estimates are based on historical simulation, assessing the impact of historical market movements on today’s portfolio, based on five years of historical data. ~~One day~~

One-day VaR exposure expresses the maximum daily ~~mark to market~~mark-to-market loss that UBS is likely to incur on the current portfolio under normal market conditions with a larger loss being statistically likely only once in a hundred ~~times.~~business days.
– Stress lossis ~~measured based on extreme but plausible market~~assessed against our standard set of forward looking scenarios, approved by the Board of Directors, using stress moves in market variables which are regularly reviewed and approved by the Group CRO. Scenarios may be derived from severe historical events or based on prospective crisis scenarios developed from the current economic situation and perceived market trends. They are kept under continuous review and enhanced or augmented as and when necessary to reflect changing market and economic conditions.

The Board of Directors has set ~~limits~~a limit on statistical loss for market risk at the Group level in terms of ~~both~~ ten-day ~~VaR (risk appetite) and stress loss (risk capacity). The Group VaR~~VaR. This limit is allocated by the GEB among the Business Groups, the largest ~~limit~~allocation being into UBS ~~Warburg, and~~

~~Risk~~

~~Risk Analysis~~

~~Summary of 10-day 99% Confidence Value at Risk~~

~~UBS Warburg~~

12 months ending 29.12.00¹ 12 months ending 31.12.99
CHF million Min. Max. Average 29.12.00 Min. Max. Average 31.12.99
Risk type

Equities 144.7 245.9 199.4 146.5 121.8 207.6 162.5 172.8
Interest rates 113.8 202.3 149.8 132.8 87.7 187.6 140.2 140.1
Foreign exchange 7.6 97.5 32.5 31.6 9.5 144.7 57.5 76.1
Precious metals 2.1 27.4 9.7 5.3 5.3 35.8 21.0 27.8
Diversification effect –2 –2 (148.3 ) (129 ) – ² – ² (168.2 ) (193.2 )
Total UBS Warburg
186.8 296.1 243.0 187.1 176.6 275.7 213.1 223.6

¹ ~~Positions from PaineWebber are included from legal merger date 3 November 2000 onwards.~~ ² ~~As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.~~

~~Summary of 10-day 99% Confidence Value at Risk for UBS Group~~

~~UBS Group VaR~~¹

Utilization
CHF million Limit 29.12.00 31.12.99
Business Groups

UBS Warburg 450.0 187.1 223.6
UBS Switzerland 50.0 3.7 4.3
Corporate Center 350.0 45.3 59.8
Reserves 100.0
Diversification effect n/a (46.5 ) (55.5 )
UBS Group
600.0 189.6 232.2

¹ ~~Remark: VaR numbers include interest rate exposures in the banking books of the Private Label Banks and Group Treasury.~~

~~within~~Warburg. Within the Business Groups, the limit is allocated to lower organizational levels as necessary. The internal ten-day VaR measure is also the basis of UBS’s market risk regulatory capital requirement.

All VaR models, while forward-looking, are based on past events and are dependent upon the quality of available market data. ~~In order to enhance the continuing accuracy and effectiveness~~The quality of the VaR model is therefore continuously monitored by backtesting. In backtesting we compare the actual revenues arising from the previous day’s closing positions ~~are compared~~(“backtesting revenue”, which excludes non-trading revenues such as commissions and fees and revenues from intraday trading) with the ~~risk~~one-day VaR calculated for the previous day on ~~those positions, in a process known as backtesting.~~these same positions. If the revenue, whether positive or negative, exceeds the one-day VaR, a “backtesting exception” is considered to have occurred. When VaR is measured at a 99% confidence level, a backtesting exception is expected, on average, ~~one day~~one-day in a hundred. A higher rate of occurrence may indicate that the VaR model (the combination of the inputs and the calculations) is not fully capturing all risks. UBS conducts backtesting daily at a number of organizational levels down to individual trading portfolios, and investigates all backtesting exceptions to establish ~~the~~their cause and ~~take~~any necessary remedial ~~action where necessary.~~

action. Backtesting is also a regulatory requirement, and negative backtesting exceptions (where revenue is negative and greater than the previous one-day VaR) must be reported to the regulators.

The Board of Directors has also set a stress loss limit on market risk for UBS Warburg.

The market risk VaR and ~~market risk~~ stress loss limits are the principal controls on UBS’s exposure to ~~day-to-day~~dayto-day movements in market prices, but complementary controls are also applied to prevent undue concentrations, including limits on exposure to individual market risk variables, such as individual interest or exchange rates, and limits on positions in the securities of individual issuers. These controls are set at levels which reflect variations in price volatility and market depth and liquidity.

~~Investment~~Risk control of investment positions

Investment positions such as private equity ~~require different~~are, by definition, positions held with a longer-term view than trading positions and pose difficulties for risk quantification: liquidity may be limited, market quoted prices may not be readily available and there may be legal or other constraints on sale. Thus, although such positions are subject to fair value accounting, the risk measures ~~from those~~ applied to trading positions ~~because their intended holding period~~are not appropriate to investment positions without modification. On the other hand, there are elements of the credit risk control approach that can usefully be applied to such positions, for example debt capacity analysis and valuation techniques. Our risk control approach to investment positions therefore draws on the tools of both credit and market risk.

The approach starts with a rigorous evaluation of new investments and a defined business plan which addresses the purpose, the likely time frame and the ~~time scale over~~expected or targeted returns. Every investment is owned by a specific business unit, management of which ~~they can~~is responsible for continuous monitoring against the original plan and regular reporting to senior management at Business Group and Group level. Where investments are made on a regular basis, limits per investment and for the total portfolio may be ~~hedged or liquidated~~applied. In other cases, case by case approval is ~~longer than~~required.

Valuation reviews are conducted regularly for material investments - quarterly for private equity. These reviews are a joint effort between the ~~holding periods assumed in~~relevant business unit, Financial Control, the CRO Organization and Credit Risk Control.

Capital and Risk

Management
Risk Analysis

UBS Warburg — Value at Risk (10-day 99% confidence)¹


	Year ended 31.12.01												Year ended 31.12.00												Year ended 31.12.99

CHF million	Min.			Max.			Average			31.12.01			Min.			Max.			Average			31.12.00			Min.			Max.			Average			31.12.99

Risk type




Equities		124.1			458.0			181.6			157.4			144.7			245.9			199.4			146.5			121.8			207.6			162.5			172.8




Interest rates		136.6			318.7			193.3			239.7			113.8			202.3			149.8			132.8			87.7			187.6			140.2			140.1




Foreign exchange		9.3			90.7			28.5			25.8			7.6			97.5			32.5			31.6			9.5			144.7			57.5			76.1




Precious metals		2.2			14.4			6.1			5.1			2.1			27.4			9.7			5.3			5.3			35.8			21.0			27.8




Diversification effect			²			²		(148.6	)		(144.2	)			²			²		(148.3	)		(129.0	)			²			²		(168.1	)		(193.2	)

Total		187.2			479.6			260.9	³		283.8			186.8			296.1			243.0	³		187.1			176.6			275.7			213.1	³		223.6

¹		Positions from PaineWebber are included from legal merger date 3 November 2000 onwards.
²		As the minimum and maximum occur on different days for different risk types, it is not meaningful to calculate a portfolio diversification effect.
³		The corresponding figures for the Corporate and Institutional Clients business unit of UBS Warburg were CHF 252 million at 31 December 2001, CHF 242 million at 31 December 2000 and CHF 213 million at 31 December 1999.

the trading book measures. They are not, therefore, included in the market risk measures described above, but are controlled through limits to prevent undue concentration in individual investments or sectors, and through close monitoring and management of exposures.

Market risk developments

The table above shows average, minimum, maximum and year end market risk exposure for UBS Warburg, as measured by ~~10-day~~ten day, 99% confidence VaR exposure.

~~Market risk in UBS Warburg, as measured by average VaR exposure, increased~~As in 2000, ~~compared with 1999, although the year end position was lower for 2000 than for 1999. The variations in VaR through the year can be seen in the graph on the following page.~~

~~As in 1999,~~ the major ~~VaR~~ exposures arose in the equity and interest rate risk ~~classes.~~classes, but while average VaR for equities decreased from CHF 199.4 million to CHF 181.6 million, for interest rates the average increased from CHF 149.8 million to CHF 193.3 million. These changes reflect changing market opportunities and, in particular, good trading opportunities in the bond markets which resulted in interest rates being the strongest risk driver at the end of 2001. Average VaR ~~increased~~ for ~~both, but most noticeably in equities where there were particularly good trading opportunities.~~ UBS Warburg ~~has kept direct price exposure~~increased only slightly from CHF 243.0 million in 2000 to CHF 260.9 million in 2001 and, in general, market risk exposures have stayed within the ~~new economy stocks deliberately low~~normal ranges. There was, however, a short-term but significant increase in VaR in December 2001 resulting from sizeable client-driven equity transactions. The need for a temporary increase in limits was anticipated and ~~as a consequence, has not suffered exceptional P&L swings from these highly volatile stocks, as can be seen from~~pre-approved by the ~~revenue line in~~Group Executive Board. The trades were successfully executed and the ~~graph on the following page. The overall reduction in UBS Warburg’s VaR at year end was caused largely by reductions in equities positions.~~

~~The PaineWebber merger did not cause a significant change in UBS Warburg’s total VaR exposure.~~risk reduced to normal levels.

Market risk positions in UBS Switzerland and Corporate Center have only a marginal impact on the total VaR at Group level as can be seen in the ~~main contribution being from UBS Warburg.~~table below.

UBS has had no regulatory backtesting ~~exceptions~~excep tions in ~~2000.~~

~~Consequential risks~~

2001, as can be seen in the backtesting revenue and VaR graph. The ~~consequential risk (or operational risk) categories are transaction processing risk, liability risk, legal risk, compliance risk, security risk and tax risk.~~

~~UBS~~10-day VaR, which is ~~continuing to develop both qualitative and quantitative approaches to~~ the ~~management and control~~basis of ~~consequential risks. A measurement framework has been formulated, but full implementation depends upon~~ the existence of multiperiod exposure and loss data. Current efforts are therefore centered on building this history and on the qualitative aspects of risk management and control – identification and recording of riskslimits and exposures ~~establishment of policies, standards and procedures, close monitoring and management of identified risks, and initiation of corrective action where necessary in response to incidents.~~

~~By identifying and recording these risks and tracking their evolution, UBS will establish the basis from which the quantitative framework can be realized.~~

~~The consideration of consequential risks is an important element~~ in the ~~assessment of new businesses~~tables, is also shown for information. Note that the revenues shown in this graph are “backtesting revenues” — they exclude non-trading revenues, such as commissions and ~~of transactions with unusual structure.~~fees, and revenues from intra-day trading, which are not relevant in the

~~Consequential risk developments~~

~~Under the~~UBS Group ~~and Business Group CROs, all consequential risks are now formally integrated into the independent risk control process.~~

With information security assuming ever increasing importance in today’s banking environment, UBS has separated information security risk control from IT development and production functions by creating independent information security risk control units, reporting to the Group CRO. The successful parrying of recent virus attacks against UBS has shown the expertise and strength of the information security risk control and management organization in protecting the confidentiality and integrity of our client data and assets.

~~UBS, as the largest Private Bank in the world, initiated and achieved international agreement with 11 major banks and Trans-~~

— Value at Risk (10-day 99% confidence)


			Average utilization for the year ended

CHF million	Limit		31.12.01			31.12.00			31.12.99

Business Groups




UBS Warburg		450		260.9			243.0			213.1




UBS Switzerland¹		50		4.8			4.1			4.1




Corporate Center²		250		37.4			69.4			37.1




Reserves		100




Diversification effect		n/a		(37.3	)		(68.5	)		(40.5	)

UBS Group		600		265.8			248.0			213.8

¹		Includes interest rate exposures in the banking books of the private label banks.
²		Includes interest exposures in the banking book of Group Treasury.

~~Risk~~

~~Risk Analysis~~

parency International, the leading international organization dedicated to combating corruption, on global anti-money laundering guidelines for private banking – the “Wolfsberg Anti-Money Laundering Principles”. Their purpose is to try to prevent the use of banks’ worldwide operations for criminal purposes. Banks adopting these principles will endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate. The principles deal with “know your customer” policies and the identification and follow-up of unusual or suspicious activities. UBS is committed to following these principles.

context of backtesting. The first histogram below shows these backtesting revenues, while the second shows daily revenues from all sources in Corporate and Institutional Clients (“full revenues”).

UBS has continued to refine its VaR model during 2001,particularly in modeling risk on the break up of merger and acquisition deals. Following final approval from the EBK the new methodology will be implemented in 2002 but we do not anticipate a major impact on overall VaR exposure.

Market risk in energy trading

~~Risk~~In mid-February 2002, UBS Warburg established a new energy trading unit, based on Enron’s wholesale electricity and natural gas trading operations, through a licensing agreement that will give Enron an interest in the future income of the business. Further details of the new business are given in the UBS Warburg business description, on pages 43 to 44.

We estimate that the Value at Risk (VaR) for this product may reach around CHF 100 million initially, but that there will be an offsetting diversification effect, which means that overall VaR usage within UBS Warburg is expected to rise by less than this amount. Future VaR usage will be

~~Asset and Liability Management~~

~~Asset~~Capital and ~~Liability~~Risk Management
Risk Analysis

reviewed later in 2002 in light of the performance of the new business.

Consequential risk developments

~~Management~~The events of 11 September 2001 resulted in a renewed and more intensive focus on the principle of “Know your customer” and on antimoney laundering activities. UBS’s involvement in the Wolfsberg Group and enhancements to our own internal practices are discussed in the Corporate Responsibility chapter on page 111.

~~UBS’s Asset~~Information security

Financial institutions are typically highly dependent on IT infrastructure, which is subject to everincreasing attempted attacks. In UBS, information security risk is subject to independent controls with multiple layers of oversight, in the Business Groups and ~~Liability Management processes~~at Corporate Center, and within both the IT organization and Risk Control. Corporate Security also provides an independent view, on behalf of senior risk control management, into the complex risk environment created by a global network of sensitive applications with multiple attachments to the internet. The mandatory requirements of confidentiality, integrity and availability of critical information throughout the Group are set out in the UBS IT Security Framework, which is further elaborated in the Business Groups to meet their specific market environment and regulatory requirements.

As in previous years, the frequency, scope, and severity of attempted attacks on IT systems and information through the internet has increased. UBS is responding to this heightened risk through a combination of human and technical defenses. Defensive barriers and attack detection systems are designed to ~~manage~~combat cyber attacks, while internal access control systems ensure that sensitive data can only be accessed by authorized persons.

The effectiveness of our security defenses was demonstrated in our response to global internet virus attacks, such as Nimda and Goner — our e-mail servers were immediately protected to prevent spread of the hostile code, defensive tools were updated on all ~~balance-sheet related~~desktops and servers, and all copies of the virus were quickly located and removed.

Basel Capital Accord

Credit and market risk are well established risk categories for which management and control processes, although constantly evolving, are widely established and understood in the industry. These risks are the basis of the current Basel Capital Accord, which determines regulatory capital requirements for internationally active banks, including UBS.

A new Basel Capital Accord has been under development since 1999 and throughout 2001 UBS has been active in the ongoing discussion between the regulators and the industry. It is hoped that the new Accord, which is currently scheduled to be implemented from 1 January 2005, will provide a more risk sensitive framework for credit risk than the 1988 Accord, and that any capital requirement imposed on ~~a co-ordinated Group-wide basis.~~ consequential (operational) risk will be responsive to changing risk and loss experience and will promote further rational development of risk control practice in this area.

Capital and Risk Management
Group Treasury

Group Treasury

Group Treasury ~~is responsible for~~manages the ~~management of these risks so that the~~core financial ~~resources~~positions of the Group ~~are efficiently used.~~and coordinates and controls the corresponding processes on a Group-wide basis.

The ~~primary mission of our asset and liability management activities is to contribute to the maximization of UBS’s shareholder value through the optimal management~~goals of the ~~Group’s financial resources. The individual goals of these~~Group Treasury processes are:

–
–	Efficient management ~~and control~~ of the Group’s main non-trading interest rate exposures, to immunize originating business units from interest rate risk and ~~foreign exchange exposures.~~provide them with an interest rate risk free margin.
–		Sustainable and cost-efficient funding of the Group’s balance ~~sheet.~~sheet, using a well diversified portfolio of funding sources and preserving a balanced liability structure.
–	~~Optimal~~	Providing a framework for optimal liquidity management in order to generate cash when ~~required.~~required without compromising our ability to take advantage of market opportunities. This includes an integrated collateral management process, operated in conjunction with UBS Warburg’s Cash and Collateral Trading book (CCT) to generate revenues for both the Group and our clients.
–		Efficient management of the Group’s nontrading foreign exchange exposure, to shield our equity and expected future cash flows from adverse fluctuations in exchange rates against the Swiss franc.
–		Efficient management of regulatory capital, while maintaining strategic flexibility, sound capitalization and strong ratings.
–	~~Compliance with all applicable legal and regulatory requirements.~~

Group Treasury is ~~governed by~~subject to the Group’s Risk Management and Control Principles, ~~with~~but also has its own specific processes and policies, tailored to the ~~types of risk it manages: Group liquidity risk, Group funding risk and non-trading related foreign exchange and interest rate risk.~~

~~Principles~~

~~The Group’s approach to interest rate risk management is based on a comprehensive framework in~~risks for which ~~only a limited number of business areas are allowed to actively manage interest rate risk. All non-trading interest rate risk is transferred, as~~ it is ~~incurred, to either Group Treasury or to UBS Warburg’s Cash and Collateral Trading book (CCT), depending on the maturity and currency of the underlying transaction.~~

These two business areas manage these risks centrally, within pre-defined risk limits, exploiting the Group-wide netting potential. If appropriate, Group Treasury transfers some of its risk to CCT which, in turn, interacts with the external market.

~~These processes aim to immunize the originating business unit from all interest rate risk, providing them with an interest rate risk-free margin.~~

UBS’s liquidity management ensures that the Group can at all times fulfil its payment obligations, without compromising its ability to take advantage of market opportunities as they arise. Liquidity management is based on an integrated system which encompasses all known cash flows within the Group, and takes account of the availability of high-grade collateral. The liquidity position is managed using scenario-based analysis taking stress factors into consideration.

Group Treasury and CCT operate an integrated collateral management process which both provides collateral for CCT’s securities lending activities and constitutes a key element of the Group’s liquidity management. CCT is able to generate substantial revenues for the Group and its clients through securities lending transactions.

Group Treasury co-ordinates all funding activities in order to ensure that the Group’s businesses are funded at the lowest possible costs. It also seeks to maintain a well diversified portfolio of funding sources and to preserve a balanced liability structure.

~~UBS’s currency management seeks to shield UBS’s equity and expected future cash flows from adverse currency fluctuations against the Swiss franc.~~

Currency translation risk management ensures that UBS’s equity is always invested in Swiss francs, while currency transaction risk management proactively hedges recognized future foreign currency exposures against the Swiss franc. The hedging process is centered on the use of a cost-efficient option strategy, designed to retain the upside potential of any favorable currency movements.

UBS’s capital management aims to guarantee sound capitalization, strong credit ratings and compliance with regulatory requirements, while maximizing shareholder value. UBS’s capital needs are constantly analyzed to ensure that the individual business areas are always supplied with sufficient capital to meet their anticipated requirements. Where excess capital is identified, UBS is committed to the innovative use of capital management techniques to return surplus funds to shareholders.

66responsible.

~~Risk~~

~~Asset and Liability Management~~

Interest rate risk management

Interest rate risk is inherent toin many of UBS’s businesses. ~~Interest rate risks arise~~It arises from a variety of factors, including differences in ~~the~~ timing between ~~the~~ contractual maturity or ~~repricing~~re-pricing of assets, liabilities and derivative ~~instruments. Net~~instruments, which impact net interest income ~~is affected by~~in the event of changes in market interest ~~rates, because the repricing characteristics of loans and other interest earning assets do not necessarily match those of deposits, other borrowings and capital.~~rates. In the case of floating rate assets and liabilities, UBS is also exposed to basis risk, which is the difference in ~~repricing~~re-pricing characteristics ~~of the relevant pairs~~ of floating rate indices, such as the savings rate and six months LIBOR. These differences can result in changes to net income and in the valuation of our assets and liabilities when one group of assets or liabilities bears or pays interest on one basis, while others bear or pay interest on another. In addition, certain products have embedded options that affect their pricing and ~~their~~ effective maturity.

~~UBS adopts a comprehensive Group-wide approach to managing interest~~Interest rate risk ~~and allocates the responsibility for managing this risk to a limited number of business areas. Under this approach, interest rate risk~~ is ~~clearly~~ segregated into trading and non-trading risk. ~~All~~Interest rate risk positions which are not subject to “trading book” regulatory capital treatment (and are therefore not included in our Value-at-Risk process discussed in the Market risk section on pages 71 to 76) are reported as “Bank Book” (non-trading risk) positions.

Most interest rate risks ~~arising from non-trading business activities~~ are captured at the point of business origination and then transferred, ~~either to CCT or to the Group Treasury~~ through a Group-wide transfer pricing ~~mechanism. The~~mechanism, to one of the risk ~~is then managed centrally~~management units. Centralized risk management takes place within pre-defined risk limits, either byin Group Treasury or byin CCT, ~~in accordance~~depending on the currency and original maturity.

This process allows us to exploit Group-wide netting potential and to shift the interest rate risk away from the originating business units, for financial reporting and internal risk management purposes, providing them with an interest rate risk-free margin. The only notable exceptions to this rule are the ~~relevant risk policies and limits.~~~~(The~~five independent private ~~label banks~~banking subsidiaries of UBS Switzerland ~~while subject to the same transfer prices, are an exception to this rule, and~~which manage their own interest rate risk ~~separately.)~~separately; however the amount of interest rate risk involved is not material to the financial condition or results of the Group as a whole.

Internal hedging process

In applying our internal hedging process, a distinction is made between transactions with fixed maturities and those without contractual maturity dates or directly market-linked rates (such as retail products), and also between long-term (over one year) and short-term (up to one year) Swiss franc denominated business.

Capital and Risk Management
Group Treasury

Transactions with fixed maturities are transferred by individual back-to-back transactions to Group Treasury in the case of ~~client businesses which~~long-term Swiss franc transactions, and to CCT in the case of short-term Swiss franc and all non-Swiss franc transactions.

Client current and savings accounts and many other products of UBS Switzerland have no contractual maturity date or directly ~~marketlinked customer~~market-linked rate, ~~such~~and can be thought of as ~~savings accounts or current accounts, the~~effectively containing embedded pre-payment/withdrawal and re-pricing options. Their interest rate risk iscannot be transferred ~~from the business areas by pooled transactions~~ to Group ~~Treasury’s Bank Book. Since these products effectively contain embedded options in respect of withdrawal/pre-payment~~Treasury or CCT by simple back-to-back transactions and ~~rate setting,~~ they ~~cannot be economically hedged by single back-to-back transactions. Group Treasury~~are therefore ~~manages the inherent interest rate risk in these products through~~transferred on a pooled basis. This entails the establishment of ~~replicating portfolios~~a “replication” portfolio — a portfolio of revolving ~~fixed-rate~~ transactions ~~of predefined maturities which~~between the originating business unit and Group Treasury at market rates designed to approximate the average cash flow and re-pricing behavior of ~~these positions.~~the pooled client transactions.

~~Until~~In both cases, risk transferred to CCT is managed by CCT within its risk limits, according to its risk view and appetite (see also Market Risk section on pages 71 to 76). To the ~~end~~extent that Group Treasury needs to hedge its positions, it also deals with CCT, which is the sole interface to the money market.

As a result of ~~2000,~~this process the originating business unit is “immunized”, for financial reporting and risk management purposes, against market interest rate ~~risk of~~movements, but retains the product margin, while Group Treasury acquires market rate based positions which it can manage within the Bank Book.

By transferring long-term Swiss franc ~~transactions with fixed maturities beyond 1 year was transferred by single back-to-back transactions from the originating business area~~exposures to CCT. In this way the originating business area was immunized from any residual interest rate risk and thus locked in an interestrate-risk-free margin on these products. Since the start of 2001 these back-to-back transactions have been carried out with Group Treasury, ~~rather than with CCT. This~~this process also allows ~~UBS~~us to benefit directly from the netting potential between ~~these~~the two types of client transactions, before the positions are transferred to CCT, where there is further netting potential and from where the ~~replicating portfolios. Group Treasury then economically hedges all remaining risks (after netting) through internal transactions with CCT.~~

~~Short-term (fixed maturity below 1 year) and non-Swiss franc transactions continue to~~risk may be transferred ~~directly into~~to the ~~trading book of CCT.~~market.

In addition to the interest rate risk associated with client business, a significant amount of interest rate risk arises ~~in relation to~~from non-business related balance sheet items, such as in the ~~refinancing~~financing of the Group’s real estate and equity investments in associated companies, and the investment of ~~UBS’s~~our own equity. ~~The refinancing of real estate and equity investments and the investment of equity~~These are all strategic decisions, which implicitly create ~~nontrading~~Bank Book interest rate exposures. ~~The interest rate risks inherent in these balance sheet~~In a process similar to that used for client products that are at non-market rates or lack contractual maturity dates, the non-business items are ~~managed~~represented by ~~Group Treasury by representing them as~~ replicating portfolios onto approximate the ~~basis of decisions taken~~investment or funding profile mandated by the Group Executive Board as(GEB), and are thereby transferred to ~~the appropriate effective maturities.~~Group Treasury.

All ~~the~~ replicating portfolios ~~in the Bank Book~~ are updated monthly by replacing maturing tranches with new ~~aggregate~~ tranches, ~~which reflect the~~taking into account changes in the ~~balance sheet~~underlying portfolios over the period. ~~By their nature,~~Although the ~~staggered tranches, making up~~choice of monthly rollovers for each replicating portfolio ~~reduce~~helps to minimize the volume ~~that must be economically hedged by the Bank Book~~of transactions required at ~~each monthly rollover. Even so, the~~any one time, new aggregate tranches are, nevertheless, of such a size that they cannot be ~~offset~~laid off to the market instantly. The Bank Book therefore ~~assumes intra-month~~staggers the execution of offsetting hedges with CCT, thereby assuming intramonth interest rate exposure, ~~while it executes~~which fluctuates somewhat during the ~~necessary offsetting hedges with CCT. The exposure~~course of each month.

Interest rate risk in the Bank

~~Risk~~

~~Asset and Liability Management~~

~~Interest Rate Sensitivity of the Bank~~ Book

Within 1 1 to 3 3 to 12 1 to 5 Over
CHF thousand per basis point month months months years 5 years Total
CHF (11 ) 60 239 493 (37 ) 744
USD 13 58 11 (342 ) (183 ) (443 )
EUR 0 9 1 82 177 269
GBP 0 0 (36 ) 270 585 819
JPY 0 0 0 (1 ) (4 ) (5 )
Others 0 0 0 0 0 0
Total
2 127 215 502 538 1,384
of which equity replicating portfolio
CHF 28 11 288 7,295 2,981 10,603
Bank Book without equity replicating portfolio
Total
(26 ) 116 (73 ) (6,793 ) (2,443 ) (9,219 )

~~Book therefore tends to fluctuate between monthly rollovers.~~

~~Within its risk limits, CCT decides whether the internal hedge transactions will be offset with the external market or remain in its trading book.~~

~~Interest rate sensitivity of the Bank Book~~

The ~~Group Executive Board~~GEB has approved risk management policies, risk limits and a control framework for the entire Bank Book interest rate risk management ~~process, including~~process.

The internal control framework includes an allocation of the ~~establishment of a Value-at-Risk (VaR)~~Group VaR limit, ~~for~~which covers both the interest rate risk and the foreign exchange risk for which Group Treasury is responsible. (Under Swiss Banking Commission regulations, only the foreign exchange risk is included in VaR for determination of regulatory capital — interest rate risk is included for internal risk management and control purposes only.) Group Treasury’s VaR exposure ofis included in the ~~Bank Book. The Market Risk Control function~~table on page 74. UBS Warburg’s central VaR Reporting unit monitors the risk in ~~both CCT and~~ Group Treasury on a daily basis as part of UBS’s overall market risk ~~in order to ensure the integrity of the~~control process.

Three key interest rate risk ~~management process and its compliance with the defined risk limits.~~

UBS’s approach to managing the interest rate risks in the Bank Book follows the regulatory framework recently introduced by Swiss Federal Banking Commission (FBC). In the course of 2000, it became mandatory for all Swiss banks to report to the Swiss National Bank the interest rate sensitivity of the Bank Book on a quarterly basis. Additionally, the specific composition of the underlying replicating portfolios used to manage individual balance sheet items must be disclosed in order to assist the regulators to identify “outliers” in terms of interest rate risk profiles – profiles whichmeasures are ~~not typical of a bank or the part of its business that is being monitored.~~

The table above shows the interest rate sensitivity of the Bank Book as at 31 December 2000 measured in terms of the potential impact of a one basis point (0.01%) parallel rise in interest rates on the market value of each balance sheet item.

The most significant component of the Bank Book sensitivity stems from the investment of the Group’s equity. At 31 December 2000, the Group’s equity was invested in a portfolio of fixed-rate CHF deposits with an average duration of 2.5 years and a sensitivity of CHF 10.6 million per basis point, in line with the strategic investment targets set by the Group Executive Board. In order to ensure that these targets are met, the Group’s equity is offset by a liability position represented as a replicating portfolio reflecting this target bench mark. The Group’s equity is thus automatically invested according to the strategic targets so as to offset the interest rate risk associated with this equity replicating portfolio. The interest rate sensitivity of these investments indicates the extent to which their fair value would be affected by a move in interest rates. This in turn is directly related to the chosen investment duration. However, when measured against the offsetting equity replicating portfolio, the residual interest rate risk is not significant. Moreover, any reduction in the interest rate sensitivity relating to the investment of UBS’s equity would inevitably require investing at significantly shorter maturities, which would lead to a higher volatility in the Group’s interest earnings.

~~In addition to the standard sensitivity measure shown above, UBS uses the following two measures to help monitor the risk inherent in the Bank Book:~~also used:

–		Interest rate sensitivity expresses the impact of a one basis point (0.01%) parallel rise in interest rates on the fair value (net present value) of all Bank Book items.
–		Economic value sensitivity measures the potential change in fair value of the Bank Book resulting from a large instantaneous shock to interest rates.
–		Net interest income at risk ~~which~~ is defined as the ~~exposure of the~~potential change in net interest income

~~Risk~~

~~Asset and Liability Management~~

~~arising in~~ from the Bank Book ~~to an~~resulting from adverse ~~movement~~movements in interest rates over the next twelve months. Since all client business with fixed maturities is “match funded”, the product margins of these transactions are not affected by changes in interest rates. Therefore only net interest income positions resulting from replicating portfolios are exposed to market changes. The net interest income at risk figure estimates the impact of differentVarious changes in the level of interest rates are applied. Usually the worst case is captured by

Interest rate sensitivity of the Bank Book


As at 31.12.2001	Within 1			1 to 3			3 to 12			1 to 5			Over 5
CHF thousand per basis point increase	month			months			months			years			years			Total

CHF		9			0			(2	)		(173	)		(863	)		(1,029	)




USD		35			(113	)		(157	)		(274	)		(15	)		(524	)




EUR		(2	)		(6	)		(38	)		182			0			136




GBP		0			(7	)		(57	)		175			624			735




JPY		1			0			(3	)		1			(4	)		(5	)




Others		0			(1	)		0			(1	)		(4	)		(6	)

Total		43			(127	)		(257	)		(90	)		(262	)		(693	)

of which equity replicating portfolio (CHF)		6			24			364			7,483			5,167			13,044

Bank Book without equity replicating portfolio (total)		37			(151	)		(621	)		(7,573	)		(5,429	)		(13,737	)

using instantaneous shock ~~scenarios as well as gradual changes in interest rates over a period of time.~~scenarios. All of the scenarios are compared with a scenario where current market rates and client behavior are held constant for the next twelve months.
This measure considers such variables as:
– Economic value sensitivity, which is the potential change in market value of the Bank Book resulting from large changes in interest rates. This estimates the effect of an immediate interest rate shock on the net position in the Bank Book.

~~The net interest income at risk measure on the Bank Book considers such variables as:~~


–	Re-pricing characteristics of assets and liabilities.
–		The effect of rate ~~barrier,~~barriers, such as caps and floors, on assets and liabilities.
–		Maturity effects of replicating portfolios.
–		Behavior of ~~competitors.~~clients.

The methodology is designed to highlight the effects of market changes in interest rates on existing balance sheet ~~positions;~~positions — it ignores future changes in the asset and liability mix and therefore it is not ~~by itself,~~ a predictor of future net interest income.

~~Both measures are based on the Bank Book’s~~The interest rate ~~position excluding the liability position relating to the “equity replicating portfolio”.~~

sensitivity measure is a simple unit measure of sensitivity, which does not in itself provide an indication of potential loss. The ~~two~~economic value sensitivity and net interest income at risk methodologies provide different ~~measures~~views of ~~the level of~~potential loss from interest rate risk. The economic value sensitivity measure provides both a longer-term view and a view of the whole book, since ~~this considers~~it takes into account the present value of all future cash flows generated from the existing balance sheet positions. The net interest income at risk measure provides a shorter-term view, as it considers only the ~~repricing~~re-pricing effect from ~~all~~positions maturing ~~positions~~ over the next twelve months.

In all three measures, for internal purposes we assess the exposure both including and excluding the replication portfolio representing the Group’s equity. When this portfolio is excluded, the exposure under all three measures increases, since the exposures on assets in which the equity is invested are no longer netted against the benchmark for equity investment.

At 31 December 2001, our equity was invested in a portfolio of fixed-rate CHF assets with an average duration of three years. This is equivalent to a sensitivity of CHF 13.0 million per basis point, in line with the strategic investment targets set by the GEB.

The interest rate sensitivity of these investments is directly related to the chosen investment duration. It should be recognized that, although investing in significantly shorter maturities would lead to a reduction in the apparent interest rate sensitivity and economic value sensitivity of the Bank Book, it would lead to higher net interest income at risk and to higher volatility in the Group’s interest earnings.

The table above shows the interest rate sensitivity of the Bank Book as at 31 December 2001. The first total is the sensitivity including the equity replicating portfolio, while the final total, which is significantly larger, excludes this portfolio.

The table below shows the change in risk under ~~both~~the economic value sensitivity and net interest income at risk measures between 31 December 1999 and 31 December ~~2000.~~2001.

~~Among various scenarios that have been analyzed,~~

Change in risk under the two methodologies


	As at

CHF million	31.12.01			31.12.00			31.12.99

Net interest income at risk		(313	)		(247	)		(355	)




Economic value sensitivity		(1,319	)		(908	)		(555	)

Capital and Risk Management
Group Treasury

The net interest income at risk figure shown is the worst case among various interest rate scenarios that have been analyzed, and ~~relates to~~results from an assumed downward interest rate shock (parallel shift) of ~~–200~~200 basis points. At 31 December ~~1999,~~2001, the difference toin the projected outcome in this scenario from that projected in a constant market rate scenario represented ~~–5.6%~~a reduction of 3.9% in the year’s total net interest income, ~~and –3.0%~~compared with a reduction of 3% at 31 December 2000. In this extreme scenario, the largest part of the decrease would ~~occur due to~~result from lower margins on savings, deposit and current accounts and lower returns on the investment of the Group’s equity.

The economic value sensitivity measure shows the effect of a 100 basis point adverse interest rate shock. At 31 December 2001 a 100 basis point upward shock ~~implying that UBS had~~of Swiss franc rates would lead to a CHF 1,319 million decline in fair value, compared with an exposure of CHF ~~–555~~908 million to ~~that degree of rising rates at 31 December 1999 and CHF –908 million~~the same scenario at 31 December 2000.

The ~~substantial~~ increase in the economic value sensitivity in the course of ~~2000 was primarily~~2001 is mainly due to the decision to lengthen the duration of the investment of Group’s CHF equity, ~~investment. The other main contribution to the increase resulted from the USD~~while maintaining shortterm refinancing of ~~the PaineWebber acquisition, which lead to a negative sensitivity to USD rates.~~equity investments in UBS Group companies.

Other effects of interest rate changes on

UBS’s profitability

Neither of these two methodologies gives a complete picture of the potential effect of interest rate changes on the Group’s revenues and costs. In principle, higher rates give UBS opportunities to improve loan pricing and deposit margins. Income from invested equity also increases, particularly where the yield curve is steep, ~~al-~~

~~Change in Risk under two Methodologies~~

For the year ended
CHF million 31.12.00 31.12.99 31.12.98
Net interest income at risk (247 ) (355 ) (265 )
Economic value sensitivity (908 ) (555 ) (493 )

~~Risk~~

~~Asset and Liability Management~~

~~though~~although as it is mostly invested ~~long term~~long-term, the average rate rises only ~~rises~~ slowly. However, rising interest rates can also ~~cost the Group money, through~~reduce income: the cost of funding ~~its~~ trading portfolios increases, especially if the yield curve is inverted. Loan demand may ~~also~~ reduce ~~and~~with higher rates, while the likely deterioration in credit quality ~~is likely,~~may result in increased credit loss expense, especially if rates rise towards the ~~end~~bottom of the ~~yield~~credit cycle. At the same time, increased rates may reduce the prospects for growth in equity markets, leading to lower net new money in our client businesses and lower transaction volumes in our wholesale businesses, both of which would impact our fee income. Furthermore, changes in rates in different currencies have stronger or weaker effects on different aspects of the overall Group picture ~~– trading related~~— trading-related revenues are more exposed to changes in ~~USD~~US dollar rates, ~~but loans~~loan and deposit margins to changes in ~~CHF~~Swiss franc rates.

A similarly ~~complicated~~complex picture would apply to a reduction in interest rates. So, although the sensitivity of UBS’s income to changes in the rates applied to its current balance sheet positions gives some indication of interest rate risk, the overall effect of a change in interest rates on the whole of the Group’s business is much harder to model. It will partly depend on other factors, such as the shape of the yield curve, the position in the credit cycle and market perceptions of the progress of key economies.

Liquidity and funding management

The ~~Group Executive Board (GEB)~~GEB has approved a policy, which establishes the core principles for liquidity management and has defined an appropriate contingency plan. A first set of principles relates to the establishment of liquidity risk limits (for example, a net overnight funding limit). The risk limits are set by the GEB and monitored by the Group Treasury Committee (GTC) which is chaired by the Group Treasurer and meets on a monthly basis to assess the Group’s liquidity exposure. A second set of principles concentrates on liquidity crisis management, for which detailed contingency plans have been developed. Regional committees ~~constantly~~ monitor the markets in which UBS operates for potential threats and regularly report their findings to the GTC. In the event of a liquidity crisis, regional crisis task forces ~~will perform all necessary~~implement contingency ~~actions~~plans under the direction of senior management.

The liquidity management process is undertaken jointly by Group Treasury and ~~CCT.~~UBS Warburg’s CCT unit. Group Treasury’s function is to establish a comprehensive framework of policies and risk limits, while CCT undertakes operational cash and collateral management transactions within the established parameters. ~~UBS’s~~This centralized cash and collateral management structure permits a tight control on both ~~its~~our global cash position and ~~the~~our stock of highly liquid and rediscountable securities.

Liquidity management approach

UBS’s approach to liquidity management ~~seeks~~is to ensure, as far as possible, that the Group will

always have sufficient liquidity to meet its liabilities when due, without compromising ~~its~~our ability to respond quickly to strategic market opportunities. UBS’s centralized approach to liquidity management encompasses ~~the entire network of~~all branches and ~~all~~ subsidiaries and ~~ensures~~seeks to ensure that the liquidity position is more than adequate to cover ~~short-term~~shortterm liabilities at all times. UBS’s liquidity management is based on an integrated framework that incorporates an assessment of all ~~known~~expected cash flows within the Group and the availability of high-grade collateral which could be used to secure additional funding if required. The liquidity position is ~~prudently~~assessed and managed under a variety of potential scenarios, ~~taking~~giving due consideration to stress ~~factors into due consideration.~~factors. The range of scenarios analyzed encompasses both normal market conditions and stressed conditions, including both ~~bank-specific~~UBS specific and general market crises. For each scenario considered, the short-term liquidity position arising out of ~~nontrading~~non-trading activities is determined by ~~matching~~identifying the gap between liabilities running off ~~against~~and maturing assets repaid. This gap is then augmented by that of the trading book by ascertaining the value of assets which could be liquidated as compared to the liabilities which would have to be repaid. ~~Here, due~~In assessing this gap, we take into account both our ability to utilize collateral — both our own and collateral borrowed from customers — to raise funds, which may enhance our liquidity, and the possibility that our customers may seek to draw down unutilized capacity under credit lines we extend them, which may place further demands on liquidity. We also take into account the fact that, while under normal market conditions it can be safely assumed that most maturing assets would be repaid, trading assets successfully liquidated and maturing liabilities replaced by creating new liabilities, this will not necessarily be the case under stressed conditions.

The starting point for these stress analyses is the breakdown by contractual maturity of our assets and liabilities. This is displayed as of 31 December 2001 in Note 30 to the Financial Statements, which shows the profile of UBS’s overall cash-flow ladder under a going-concern scenario. Various stress scenarios are then simulated by adjusting this assumed cash-flow ladder according to each type of stress event. These scenarios range from a liquidity squeeze that remains confined to the capital and inter-bank markets (akin to the Asian crisis of 1997 and the Russian crisis of 1998) to a full-blown general market crisis that affects all participants and spans all market sectors on a global basis. Particular emphasis is also ~~taken~~placed on a bank-specific crisis, where UBS alone is affected. Once again, this crisis is assumed to occur globally across all market sectors. In this way, varying degrees of severity are simulated and all of UBS’s funding sources and investments are assumed to be put under stress. The range of effects evaluated encompasses the following stress factors:

–		inability to roll over maturing unsecured debt (both long-term and short-term debt such as UBS’s commercial paper programs),
–		inability to raise new unsecured (short-term or long-term) debt,
–		increased collateral margins on the banks secured funding sources,
–		a sudden, large outflow of retail deposits (“bank run”),
–		a large increase in draw-downs of unutilized committed credit lines.

Furthermore, because of the possibility that customers will also be affected by the liquidity crisis and thus unable to meet their obligations, it is assumed that all core businesses and investments, such as consumer loans and mortgages, must continue to be financed, even if they fall due during the assumed crisis period.

UBS’s exposure under these liquidity stress scenarios is analyzed on a monthly basis and any ensuing liquidity gap is assessed to ascertain the ability of the bank to bridge the gap by means of its large stock of ~~high-quality collateral.~~pledged, undrawn central bank facilities and through increased use of repurchase and similar transactions. The assumed crisis gap is monitored monthly by Group Treasury and, if it were to exceed a predefined trigger level, appropriate measures would be taken to reduce the liquidity gap exposure accordingly.

The results of the liquidity stress scenario analyses are reported on a monthly basis to the Chief Risk Officer and are presented on a quarterly basis to the Group Executive Board.

Benefits of centralization

Being a globally integrated financial services firm, UBS’s range of business activities naturally ~~generate~~generates asset and liability portfolios which are highly diversified with respect to market, product and currency. This lowers UBS’s exposure to

Capital and Risk Management
Group Treasury

~~Risk~~

~~Asset and Liability Management~~

~~UBS’s exposure to~~ individual funding sources, and also provides a broader range of investment opportunities, which in turn reduces liquidity risk. The centralized approach to liquidity management adopted at UBS allows these advantages to be exploited. Group Treasury is, furthermore, instrumental in ~~implementing~~executing an integrated collateral management process on a Group-wide basis to ensure that the large, high-quality pool of collateral gathered across the Group is made accessible tofor repurchase and securities lending transactions as part of UBS Warburg’s CCT activities. Through these securities lending transactions, CCT creates additional revenues for both UBS Group and its ~~clients. These activities~~clients, and also ~~generate~~generates substantial funding on a secured basis, ~~and provide~~providing an additional liquidity cushion ~~which~~that could be crucial in crisis situations.

Funding management approach

UBS’s funding strategy seeks to ensure that business activities are funded at the lowest possible cost. With a broad diversification of funding sources (by market, product and currency), UBS maintains a well-balanced portfolio of liabilities which generates a stable flow of financing and ~~additionally~~ provides protection in the event of market disruptions.

In this context, UBS’s strong domestic retail business is a very valuable, cost efficient and reliable source of funding. Through the establishment of short, medium and long-term funding programs in Europe, in the US and in Asia, UBS can both provide specialized investments to its customers and efficiently raise funds globally, ~~in a very efficient manner and minimize~~minimizing its dependence on any particular ~~source~~source.

UBS also makes frequent use of ~~funding.~~asset-securitization structures, in particular in connection with the sale of corporate loans and retail mortgages. However, these securitizations do not constitute a material portion of UBS’s funding activities and our liquidity status would not be significantly affected if capital markets were to become inaccessible for such securitization transactions. UBS has no long-term commitments to continue to purchase the types of assets being securitized.

The charts show a breakdown by product type and by currency of our secured and unsecured funding as at 31 December 2001. Of our total funding, 39% was raised on a secured basis and 61% unsecured. Most of our funding was originated in US dollars, with major portions also being raised in Swiss francs and in Euro, roughly mirroring the currency breakdown of our asset base. Around 12% of our funding was denominated in other currencies (primarily GBP and JPY).

~~Development during 2000~~

In the course of ~~2000,~~2001, UBS’s long-term debt ~~portfolio has decreased~~increased slightly from ~~CHF 56.3 billion at 31 December 1999 to~~ CHF 54.9 billion at 31 December 2000 ~~as maturing issues were not fully replaced.~~to CHF 57.2 billion at 31 December 2001. The maturity profile of ~~the~~our long-term debt portfolio is well ~~balanced with a slight bias towards shorter-term maturities.~~balanced. See ~~note 21~~Note 19 to the Financial Statements in UBS’s Financial Report ~~2000~~2001 for further information concerning long-term debt.

During 2001, UBS revised and fully implemented an expanded Global Crisis Management Concept (GCMC). The revised concept covers all types of crisis events - - including a liquidity crisis — and applies to all Business Groups and subsidiaries of the UBS Group. Within the concept, a set of Regional Task Forces, each containing experts spanning all business areas, ensures global coverage of any crisis. The Group Liquidity Contingency Plan has been fully incorporated into the overall GCMC.

The market reaction to the terrorist attacks in America on 11 September 2001 resulted in a severe liquidity squeeze in the financial markets, in particular in the US dollar, which had come to be regarded as a safe-haven currency. UBS’s liquidity management and contingency plans successfully overcame this severe test.

Currency management

UBS reports its results in Swiss francs (CHF), the currency of the country in which it is incorporated. UBS’s corporate currency management activities are designed to protect the Group’s equity and expected future foreign currency cash flows from adverse currency movements against the Swiss franc, while preserving the option to take advantage of ~~exploiting any~~ market opportunities which may arise.

~~While~~In managing this risk, the following overarching principles are ~~adhered to~~applied:

–
–	Equity must be invested in Swiss francs.
–		Currency management processes must be designed to minimize exposures against the Swiss franc.
–		Core currency exposures must be actively managed to protect ~~them~~ against adverse currency movements.

Translation (balance sheet) currency risk

UBS aims to maintain the flexibility to allow foreign assets ~~(a business unit or a non-financial asset)~~ to be divested at any time without adverse currency impacts. Foreign currency assets are therefore ~~match funded~~match-funded in the relevant ~~currency.~~currency — i.e. a US dollar asset is funded in US dollars, a Euro asset in Euros. The match-funding principle is also applied to the financing of foreign investments, including foreign equity investments. This strategy, together with the periodic repatriation ~~into Swiss francs~~ of foreign currency dividends and ~~capital,~~retained earnings, ensures that the Group’s equity is always fully invested in Swiss francs.

Transaction (revenues/~~costs)~~expenses) currency risk

~~From 1 January 2001, a new process has been implemented to improve and streamline the process of transforming foreign currency results~~At each month end profits or losses are translated for financial accounting purposes into Swiss francs ~~creating greater transparency for the currency risk management, budgeting and performance measurement processes.~~

~~The new process involves the regular conversion of each month’s profits or losses~~ from the original transaction currencies ~~directly~~at the prevailing month-end rate, with actual exchange into Swiss francs attaking place within a few days of month end instead of the previous, annual, two-step process initially involving a conversion into the local reporting currency and only then into Swiss francs. Foreign currency exposures will be translated into Swiss francs at prevailing month end foreign exchange rates rather than at the yearly average rates previously used.end. (Small gains or losses from these timing differences are reported as income in Corporate Center.)

The benefits of ~~the~~

~~Risk~~

~~Asset and Liability Management~~

~~new transaction currency risk management~~this transaction-currency riskmanagement process ~~are~~are:

–
–	~~the~~The monthly sell-down of foreign currency profits or losses into Swiss francs ~~will reduce~~reduces volatility in the Group’s earnings ~~due to currency fluctuations;~~from changes in exchange rates.
–	~~the~~	The visibility of ~~the break-down into~~ the underlying original transaction currencies enables UBS to ~~more effectively~~ manage the currency exposures inherent in the Group’s cost and revenue ~~flows;~~
–	~~the foreign exchange rates used in the financial accounts will be the same as those used in management accounting.~~flows.

While the ~~new~~ process ~~will reduce~~reduces the susceptibility of annual earnings to adverse currency movements, it ~~will~~does not completely ~~immunize the Group against them.~~eliminate their effect. Group Treasury ~~will~~ therefore proactively ~~hedge~~hedges significant currency exposures (mainly USD, EUR and GBP), in accordance with the instructions of the Group Executive Board and subject to the VaR limit which has been established for this risk. ~~Hedging~~Economic hedging strategies employed include a cost-efficient option strategy, providing a safety net against unfavorable currency fluctuations while preserving ~~the~~ upside potential.

~~Process in use during 2000~~New developments

~~The transaction currency risk management~~From 1 January 2002 a rolling medium-term business planning process ~~in use during 2000 was designed to protect~~will replace UBS’s current annual budget process. In line with this development, the ~~budgeted annual~~economic hedging process for foreign currency ~~net~~ profits ~~against adverse currency movements during~~and losses will be adjusted: instead of managing this risk on a strict financial year basis (1 January until 31 December of the ~~year. Foreign currency net profits in each currency were actively managed by~~current year), Group Treasury will employ a rolling twelve month hedge program. In this way, the total hedge volume is kept roughly constant (depending on behalf of the Group. The non-trading foreign currency exposures were mainly hedged with foreign exchange forward contracts, although foreign exchange options were also used, particularly where there was a measure of uncertainty about the magnitude of the underlying income. During the year, actual results were continuously monitored, and major budget deviations were communicated to Group Treasury for potential ~~additional hedge transactions.~~business plan adjustments).

~~The table below summarizes the VaR usage in relation to transaction currency risk in the course of 2000.~~

~~The net position of the budgeted net profits and the corresponding hedges is the basis for the VaR calculation on Group Treasury’s non-trading currency position.~~

The principal contributors to non-trading currency exposure are operations in the UK and the US. In general under this previous process, the VaR position was highest at the beginning of the year when the budgeted net profits were transferred to Group Treasury and was gradually reduced during the year, depending on the exact hedge strategy being used. The underlying policy was to keep the VaR of the non-trading currency position as low as practicable.

Non-trading currency risk VaR ~~exposure in 2001 is expected to be lower, thanks to the new currency management process.~~

~~Non-trading Currency Risk VaR~~


							Last value
CHF million	Minimum		Maximum		Average		of period		Minimum		Maximum		Average		End of period


1999		1.4		77.8		37.1		59.7		1.4		77.8		37.1		59.7
2000		11.6		113.4		33.7		12.7		11.6		113.4		33.7		12.7




2001										0.9		16.2		3.6		1.0

~~Capital Adequacy~~

CHF million, except ratios 31.12.00 31.12.99 31.12.98
BIS Tier 1 capital 31,892 28,952 28,220
BIS Tier 1 and Tier 2 capital 42,860 39,682 40,306
BIS Tier 1 capital ratio (%) 11.7 10.6 9.3
BIS Tier 1 and Tier 2 capital ratio (%) 15.7 14.5 13.2
Balance sheet assets 223,528 214,012 237,042
Off balance sheet and other positions 39,002 48,282 50,659
Market risk positions 10,760 10,813 16,018
Total BIS risk-weighted assets 273,290 273,107 303,719

Capital and Risk Management
Group Treasury

~~Risk~~

~~Asset and Liability Management~~

~~Capital management~~

Capital management

Over recent years, European companies have become increasingly active managers of their capital, resulting in a growth of hybrid capital issuance and share repurchase programs. UBS’s capital management is ~~undertaken~~driven by ~~Group Treasury as an integral part~~shareholder value considerations, while sound capitalization and strong ratings are also key parts of ~~the Group’s asset~~UBS’s attractiveness to clients and ~~liability management function.~~investors. UBS’s overall capital needs are continually reviewed to ensure that our capital base can appropriately support ~~the anticipated needs of~~our business ~~units as well as~~and regulatory capital requirements.

As The use of a variety of instruments, such as trust preferred securities, to meet the ~~table above shows, UBS~~overall capital level is very well capitalized. In the course of 2000, the BIS Tier 1 ratio increased from 10.6% at 31 December 1999 to 11.7% at 31 December 2000. This improvement was possible despite the merger with PaineWebber thanks to the increase in retained earnings and the issuance of new equity and hybrid capital (a share capital increase of 12 million new sharesdesigned to help ~~fund~~support the ~~PaineWebber merger~~Group’s efforts to meet its return on equity targets and ~~the issuance of USD 1.5 billion Trust Preferred Securities) and a substantial decrease from UBS’s in risk-weighted assets excluding the effect of adding PaineWebber business.~~enhance shareholder value.

Sound capitalization

The table ~~above~~below shows the key capital figures and ratios as of 31 December 2001, 31 December 2000 and 31 December 1999.

The ratios measure capital adequacy by comparing UBS’s eligible capital with its risk-weighted assets, which include balance sheet assets, net positions in securities not held in the trading portfolio, off-balance sheet transactions converted into their credit equivalents and market risk positions (based on Value at Risk) at a weighted amount to reflect their relative risk.

The calculation of capital requirements applicable to UBS under Swiss ~~Federal~~ Banking Commission (“EBK”) regulations differs in certain respects from the calculation under the Basel Capital Accord (“BIS ~~guidelines.~~guidelines”). Most ~~importantly~~importantly:

–
–	~~where~~Where BIS guidelines apply a maximum risk weight of 100%, the ~~BIS currently does not apply~~EBK applies risk ~~weightings~~weights above 100% to ~~any~~certain asset ~~category, the Swiss Federal Banking Commission applies risk weightings of greater than 100% to certain kinds of assets~~classes (for example real estate, bank premises, other fixed assets, intangible assets excluding goodwill, equity securities and unconsolidated equity investments);.
–	~~where~~	Where the BIS guidelines apply a 20% risk ~~weighting~~weight to obligations of OECD banks, the ~~Swiss Federal Banking Commission’s regulations apply~~EBK applies risk ~~weightings~~weights of 25% to 75% ~~(depending~~, depending on ~~maturities)~~maturity, to ~~debts from OECD banks.~~such obligations.

As a result of these differences, UBS’s ~~risk-weighted~~riskweighted assets are higher, and its ratios of total capital and Tier 1 capital are lower when calculated under the ~~Swiss Federal Banking Commission~~EBK regulations ~~as compared to~~than they would be if calculated under the BIS guidelines. Nevertheless, UBS and its predecessor banks have always had total capital and Tier 1 capital in excess of the minimum requirements of both the BIS and the ~~Swiss Federal Banking Commission,~~EBK, since ~~the~~these regulations and guidelines were first implemented in 1988.

~~Initiatives~~Capital adequacy

As at

CHF million, except ratios 31.12.01 31.12.00 31.12.99
BIS Tier 1 capital 29,322 31,892 28,952
BIS total capital 37,471 42,860 39,682
BIS Tier 1 capital ratio (%) 11.6 11.7 10.6
BIS total capital ratio (%) 14.8 15.7 14.5
Balance sheet assets 214,481 223,528 214,012
Off balance sheet and other positions 25,935 39,002 48,282
Market risk positions 13,319 10,760 10,813
Total BIS risk-weighted assets 253,735 273,290 273,107

Capital management in ~~2000~~2001

UBS’s capital management is primarily driven by shareholder value considerations, respecting the need to maintain strategic flexibility, sound capitalization and strong ratings. During the course of 2000 several major measures were taken to achieve these goals.

Share buy back and cancellation

~~In view~~UBS’s careful balance sheet management and strong earnings continued to generate additional capital in 2000. This enabled us to fund part of the ~~continuous increase of capital from retained earnings experienced during 1999,~~share issuance for the ~~Group introduced~~merger with PaineWebber through a share buy-back program in ~~January~~late 2000 and early 2001, minimizing dilution to existing shareholders. When this had been completed, in ~~order~~February 2001, we were also able to announce a further share buy back program, intended to reduce the number of issued shares and enhance earnings per share. ~~The~~

As in 2000, this was a “second line” trading program, allowing for the tax efficient cancellation of shares and aimed mainly at institutional investors. Under Swiss regulations a company wishing to cancel shares must purchase them on the stock exchange under a special security code which clearly identifies the time and quantity of shares repurchased for this purpose. This separate coding is known as a “second line trading program”.

This program ran ~~until June 2000, during which time a~~from 5 March 2001 to 5 March 2002. A total of ~~18.4 million~~28,818,690 shares were repurchased at an average price of CHF ~~217,~~79 per share representing a total ~~expenditure~~cost of CHF 42.29 billion and repurchase of ~~about 4.3%~~2.25% of the shares ~~outstanding.~~issued at 31 December 2001. These shares will be cancelled in July ~~2001,~~2002, following the approval of shareholders at the Annual General Meeting on 2618 April ~~2001.~~2002.

~~Stock Split~~

At the Annual General Meeting in April 2000, shareholders approved a 2-for-1 stock split, effective 8 May 2000, reducing the par value of the share to the minimum of CHF 10 then permissible under Swiss law. The motivation behind the split was that, in absolute terms, the UBS share was of relatively high value per share compared to stocks of other European, and particularly US financial services providers.

~~New York Stock Exchange (NYSE) listing~~

~~On 16 May 2000 our shares were listed on the NYSE in the form of global registered shares creating one global share traded in Zurich, New York and Tokyo. As the first Swiss com-~~

Effect of second line trading program on basic earnings per share (EPS)


	For the year ended

	31.12.01		31.12.00		31.12.99

Weighted average shares for basic EPS after treasury shares		1,266,038,193		1,209,087,927		1,214,227,446




Weighted average second trading line treasury shares		40,116,921		43,261,410		0




Basic EPS		3.93		6.44		5.07




Impact of buy-back on basic EPS		0.12		0.23		0

~~Risk~~

~~Asset and Liability Management~~

~~pany~~ The number of shares bought back through the second line trading programm is linked to ~~list~~the Group’s ability to generate free equity while maintaining a ~~global~~strong BIS Tier 1 capital ratio. The table shows the impact on basic earnings per share in New York, UBS contributed to a significant enhancement in clearing and settlement infrastructure, most notably the creation of a link between the US and Swiss securities depositories to facilitate cross-border settlement.

~~Equity funding~~ of the ~~PaineWebber merger~~

~~UBS merged with Paine Webber Group Inc. on 3 November 2000. Half~~purchase of Treasury shares through the ~~consideration was paid in UBS shares, requiring a total~~second line trading program.

The issuance of ~~41 million shares.~~

~~At an extraordinary general meeting on 7 September 2000, UBS shareholders approved the creation of 38 million~~ new shares ~~in the form of authorized capital~~ for the merger with PaineWebber in fourth quarter 2000 had its main impact on the average outstanding shares and ~~17 million new~~therefore on basic earnings per share in 2001. By 31 December 2001 the number of outstanding shares inwas again below the ~~form of conditional capital for PaineWebber options outstanding beyond~~level before the merger ~~date. In order~~with PaineWebber, thanks to ~~minimize~~ the dilutive effects of the merger to existing shareholders, UBS issued only 12 million new shares from authorized capital on the completion date. 7 million shares were re-issued out of the Group’s Treasury holdings and 22 million shares were borrowed.

~~On 6 November 2000 a new~~ share buy-back program, ~~was launched, which ran until 2 March 2001. Unlike~~and the ~~program which ran in the first half of 2000 it was not designed to result in cancellation~~careful structuring of the ~~repurchased shares. 22 million shares were purchased under this program between November 2000 and January 2001, at an average price of CHF 262, and used to repay~~share issuance for the shares borrowed to pay the PaineWebber merger consideration. The remaining 8 million shares purchased under this program will primarily be used to cover the requirements of UBS’s employee share schemes.merger.

~~Capital management plans for 2001~~

~~New second-line buy-back program~~

Given its continuing strong capital generation, UBS intends again to repurchase shares for capital reduction purposes under a “second-line” buyback program, aimed at institutional investors, allowing tax efficient cancellation of shares.

This new second-line program becomes available from 5 March 2001 and may run until 5 March 2002. A maximum of CHF 5 billion worth of shares may be repurchased under the program. These shares will be cancelled following approval by the Annual General Meeting in April 2002.

Share split and ~~distribution by~~ par value reduction

The minimum par value allowed under law for a Swiss share is CHF 10. The share split that UBS implemented in May last year brought the par value of its share down to this level, removing any further opportunity to split the share.

Under new regulations, which ~~are currently passing through the Swiss legislative process and are expected to become~~became effective on 1 May 2001, the minimum par value ~~is expected to be~~for Swiss shares was reduced to CHF 0.01. UBS ~~intends to utilize~~took advantage of this change to lower ~~the~~its market price per share to a level more in line with that of its global peer group, and to make a tax efficient payment to its shareholders in the form of a CHF 1.60 reduction in the ~~nominal~~par value of its shares.

~~If shareholder approval is granted, a distribution~~This type of ~~CHF 1.60, in respect of the fourth quarter 2000, will be paid in the form of a par value reduction. This~~payment is treated ~~in Switzerland~~under Swiss regulations as a return of capital to shareholders, not as income, and is therefore tax efficient for shareholders who pay tax in ~~Switzerland. The par value reduction~~Switzerland and is also ~~has advantages for~~beneficial to shareholders outside Switzerland, as noit is not subject to Swiss withholding ~~tax is payable on it. Holders outside of Switzerland should consult their tax advisors in determining the tax implications in their country.~~tax.

~~Risk~~

~~Asset and Liability Management~~

The distribution ~~will reduce~~reduced the par value of the share to CHF ~~8.40. UBS will then split its share~~8.40 and was followed by a 3 for 1 share split, resulting in a new par value of CHF ~~2.80 per share.~~2.80.

~~Because of the legal and regulatory processes involved, the~~The par value reduction ~~is expected to take~~took place on 16 July 2001, for payment on 18 July 2001 to holders of record on 13 July ~~2001 if the relevant legislation has come into force.~~2001. The share split ~~will~~was also be implemented on 16 July 2001.

Combined with the dividend paid in October 2000 in respect of the first three quarters of 2000, the par value repayment meant that UBS distributed CHF 2.03 per share (CHF 6.10 before adjustment for the share split), compared to CHF 1.83 (CHF 5.50 before share split) the previous year.

~~Proposed Changes~~Capital management plans for 2002

New second line buy back program

Given our continuing strong cash flow generation UBS intends again to repurchase shares for capital reduction purposes under a “second-line” buyback program aimed at institutional investors, allowing tax efficient cancellation of shares.

This new second line program becomes available from 6 March 2002 and can run until 5 March 2003. A maximum of CHF 5 billion worth of shares may be repurchased under the program.

The number of shares repurchased and the average number of outstanding shares will be published weekly on the internet at www.ubs.com/investors. The repurchased shares will be cancelled following approval by the Annual General Meeting in April 2003.

Par ~~Value~~value reduction


	~~CHF~~


~~Par value at 01.01.01~~		~~10.0~~
~~Proposed distribution in the form of par value reduction~~		~~1.6~~

~~New par value~~		~~8.4~~
~~Proposed stock split~~		~~3 for 1~~

~~New per value after proposed distribution and stock split~~		~~2.8~~

75This year we plan once again to make use of the new regulations introduced in Switzerland in 2001 to make a tax efficient distribution of capital to our shareholders rather than paying a dividend.

The Board of Directors will recommend to the Annual General Meeting on 18 April 2002 that UBS should make a par value repayment of CHF 2.00 per share. This proposed distribution in respect of 2001 is consistent with last year, when the total per share distribution to shareholders (adjusted for last July’s 3-for-1-share split) was CHF 2.03.

If the par value reduction is approved, it will take place on 8 July 2002, with payment on 10 July 2002 for shareholders of record on 5 July 2002, and will bring the par value of each UBS share down to CHF 0.80.

~~[INTENTIONALLY LEFT BLANK]~~

~~Corporate Governance~~

~~Corporate Organization~~

Corporate Governance
Corporate Organization
Corpor

Corporate Organization

UBS is committed to meeting the highest international standards of corporate governance in its organizational structure. Corporate and executive bodies are organized in line with the leading codes of best practice.

~~Corporate Organization~~

UBS’s organizational structure, based on two separate boards having different functions and responsibilities, ~~guarantees~~provides clear controls and a balance between the Board of Directors (Board) and the Group Executive Board (GEB).

The functions of Chairman of the Board of Directors (Chairman) and President of the Group Executive Board (President) are conferred on two different people, ~~guaranteeing~~thus providing separation of powers.

Organizational principles

The shareholders elect each member of the Board. The Board appoints the Chairman, the Vice Chairmen and the members of the various Board committees from among the elected Board members. It also appoints the President and members of the ~~GEB and the Group Managing Board (GMB).~~

GEB.

The Board is the highest corporate body with responsibility for the ultimate direction ~~and strategy~~ of the company and the ~~appointment and~~ supervision of its executive management. The Board, and in particular its Chairman, takes responsibility for the mid and long-term strategic direction of the Group, for appointments and dismissals at top-management levels, for mid-term succession planning and for global compensation principles. It defines the Group’s risk appetite and risk limit structure. A large majority of the Board members are non-executive and ~~fully~~ independent. The Chairman and at least one Vice Chairman have executive roles and assume supervisory and leadership ~~responsibilities for matters including strategy, risk supervision, compensation principles~~responsibilities. The Chairman also assumes a leadership role in corporate responsibility issues, public and ~~succession planning.~~

political affairs and developing corporate culture.

The GEB has ~~executive~~business management responsibility for the company. Together with the Chairman’s Office (the Chairman working with the executive and non-executive Vice Chairmen) it assumes overall responsibility for the development of UBS’s strategies. ItThe GEB, and in particular its President, is responsible for the implementation and results of those ~~strategies. Its membership includes~~strategies, for the ~~CEOs~~alignment of the Business Groups ~~who are accountable~~ to the ~~President~~UBS Group’s integrated model and for the exploitation of synergies across the Group. The President also assumes responsibility for business and financial ~~results~~planning, financial reporting and ~~management~~the definition and supervision of ~~their Business Groups.~~risk control. The President and the GEB are accountable to the Chairman and ~~his~~the Board for the Group results, and the Board in turn is accountable to UBS’s shareholders.

In order to ensure that the Board and GEB are independent of each other, no member of one board may also be a member of the other.

The Board of Directors

As at 31 December ~~2000,~~2001, the Board consisted of ~~eight~~nine Directors (see list on page ~~81)~~94). ~~Alex Krauer,~~At its Annual General Meeting (AGM) on 26 April 2001, UBS’s shareholders elected Marcel Ospel to the Board, and the Board appointed him as its Chairman with effect from that date. Eric Honegger, member of the Board since 1999, resigned as of 15 October 2001, for personal reasons. Markus Kundig, Vice Chairman since 1998, has reached retirement age and ~~Andreas Reinhart~~ will therefore step down ~~from their functions~~ at the ~~Annual General Meeting of Shareholders (AGM),~~AGM to be held on 2618 April ~~2001.~~2002. The Board will propose to the AGM that ~~Marcel Ospel, currently Group Chief Executive Officer,~~Ernesto Bertarelli (born 1965), CEO of Serono International SA, Geneva, be elected to the Board, and has decided to then appoint Marcel Ospel as its Chairman. In order to reflect UBS’s global reach at board level, the AGM will also be asked to elect three new non-Swiss Directors: Sir Peter Davis (born 1941), CEO of Sainsbury plc, London; Johannes Antonie de Gier (1944), former Chairman and CEO of Warburg Dillon Read (now UBS Warburg), London; Lawrence Allen Weinbach (1940), Chairman and CEO of Unisys Corporation, New York.Board.

The Board is organized as follows:

The Chairman operates aChairman’s Office,, including the ~~Vice-Chairmen,~~Vice Chairmen, which meets regularly with the President and his appointees drawn from the GEB to address fundamental issues for the Group, such as overall strategy, mid-term financial and business planning, mid-term succession plans, global compensation principles, and the risk profile of the Group. The

Chairman’s Office assumes special authority in the credit approval ~~process.~~process and is responsible for the appointment and dismissal of the members of the Group Managing Board (GMB). It also acts as theAudit Supervisory Board, with responsibility for the supervision of Group Internal Audit, and as theNomination Committee.

~~Following~~, with responsibility for identifying and proposing candidates for membership of the ~~2001 AGM, a separate~~Board of Directors and for the long-term preparation of succession planning for the Chairman and Board of Directors.

TheCompensation Committee~~will be appointed, mainly from among the non-executive directors. It will have~~ has responsibility ~~for setting the global compensation policy of the organization and~~ for determining the individual compensation and bonus for the executive Directors, the President and members of the ~~Chairman’s Office,~~ GEB and ~~GMB.~~for submitting proposals for the compensation of non-executive Directors to the Board. The Committee is chaired by Markus Kundig, with Rolf A. Meyer and Marcel Ospel as its additional members.

The Board appoints anAudit Committee from among its non-executive members. The Audit Committee meets at least ~~three~~four times a year to oversee the performance of the external Group and Statutory Auditors. It also monitors interaction between Group Internal Audit and the external auditors. All three members –— Peter Böckli as Chairman, ~~Rolf Meyer~~Lawrence A. Weinbach and ~~Andreas Reinhart –~~Hans Peter Ming — are fully independent from UBS. They are financially literate and familiar with the accounting practices of international financial services groups. The Audit Committee does not itself perform audits, but supervises the ~~auditing~~ work ~~done by internal and external~~of the auditors. Its primary responsibility is thereby to review the organization and efficiency of internal control

~~Corporate Governance~~

~~Corporate Organization~~

procedures and the financial reporting process.

~~Following the 2001 AGM, the Board will appoint a~~ TheCorporate Responsibility Committee~~, composed~~ is described in the Corporate Responsibility section on pages 111 to 118.

Changes to committee memberships following the AGM

Following the Annual General Meeting on 18 April 2002, there will be some changes to the membership of committees of the Board. Professor Peter Böckli will become non-executive Vice Chairman of UBS. He will succeed Markus Kundig, who will retire from the Board ~~GEB~~of Directors at the Annual General Meeting, after 20 years service first as a Director and ~~GMB members.~~later as Vice Chairman of UBS. Lawrence A. Weinbach will replace Peter Böckli as Chairman of the Audit Committee. Rolf A. Meyer will replace Markus Kundig as Chairman of the Compensation Committee. The Nomination Committee will ~~be responsible for corporate social responsibility issues, for supervision of the Group’s adherence to relevant international standards, and for appropriate associated reporting.~~become a separate committee, with Hans de Gier as its Chairman.

The Group Executive Board

~~From 1 January~~As at 31 December 2001, the ~~Group Executive Board (GEB)~~GEB consisted of ~~eight~~six members (see list on page ~~83)~~95). ~~Joseph J. Grano joined the GEB on 1 January 2001, following UBS’s merger with PaineWebber.~~

Marcel Ospel, Chief Executive Officer, ~~will step~~stepped down from his function after the 2001 AGM when he ~~is to be proposed for election~~was elected to the Board. At the same time, Luqman Arnold ~~currently Chief Financial Officer, will assume the role of~~became President of the ~~GEB.~~

Group Executive Board. Pierre de Weck left UBS in July 2001.

In December 2001, Luqman Arnold left UBS and was replaced as President of the Group Executive Board by Peter Wuffli. John Costas was appointed Chief Executive Officer of UBS Warburg and joined the Group Executive Board.

The GEB appoints the following major committees:

~~The~~~~Group Governance Committee~~~~is responsible for the co-ordination of the Group’s interface with central banks and regulators, and for minimizing the Group’s reputation risks.~~

~~The~~~~Group Finance Committee~~is responsible for co-ordinating the Group’s accounting, risk management and control, treasury and financial communication processes, aiming for the long-term maximization of shareholder value. The Group Finance Committee includes the chairmen of the associated functional committees: Group Risk Committee, Group Controlling Committee, and Group Treasury Committee.

~~The~~~~Group Communications and Marketing Committee~~~~ensures that communication to all stakeholders, internally and externally, is transparent, accurate, concise, timely and consistent.~~

~~The~~~~Group Human Resources Committee~~~~has responsibility for the definition of human resources policies and standards which contribute to the identification, recruitment, development and retention of high-caliber staff.~~

~~The~~~~Group IT Committee~~~~ensures Groupwide coordination of policies and standards in the information technology area.~~

– TheGroup Governance Committee is responsible for the coordination of the Group’s interface with central banks and regulators, and for minimizing the Group’s reputation risks.
– TheGroup Finance and Risk Committee is responsible for coordinating the Group’s accounting, risk management and control, treasury and financial communication processes, aiming for the long-term maximization of shareholder value. The Group Finance and Risk Committee includes the chairmen of the associated functional committees: Group Risk Committee, Group Controlling Committee, and Group Treasury Committee.
– TheGroup Communications and Marketing Committee ensures that communication to all stakeholders, internally and externally, is transparent, accurate, concise, timely and consistent.
– TheGroup Human Resources Committee has responsibility for the definition of human resources policies and standards which contribute to the identification, recruitment, development and retention of high-caliber staff.

The Group Managing Board

~~As of 1 March 2001 the~~The Group Managing Board (GMB) ~~had 30 members all~~consists of ~~whom hold high-level functions in~~

Corporate Governance
Corporate Organization

the ~~business groups, or~~most senior managers from the Business Groups and Corporate Center, ~~(see list on page 85).~~

who are not members of the GEB. The GMB ~~is regularly informed of important decisions, and~~ meets ~~physically~~ at least once a year to discuss fundamental Group issues.

As of 31 December 2001 the GMB had 30 members (see list on page 98).

Senior management compensation principles

Overall philosophy

UBS operates in extremely competitive labor markets, around the globe and across different sectors of the financial services industry. Accordingly, it seeks to attract, retain, motivate and develop highly qualified employees at all levels. In particular, it is critical to achieve this for positions with the greatest degree of influence over the leadership and management of the firm and the creation of shareholder value. UBS is prepared to provide its senior executives with superior compensation in return for superior performance, and has developed the measurement systems and decision processes necessary to ensure that pay is tied directly to performance.

The performance of senior executives (executive members of the UBS Board of Directors, members of the UBS Group Executive Board, and members of the UBS Group Managing Board) is evaluated in the context of UBS Group, Business Group and business area results, as appropriate to a particular executive’s responsibilities. Performance assessments consider both quantitative and qualitative factors, and include a balanced assessment of both current financial results and key performance indicators, which are longer-term value drivers crucial to the Group’s ability to deliver future performance and growth. This assessment process is closely linked to the value-based management process that UBS is now implementing.

In conducting its assessments of executive performance, UBS reviews changes to its overall performance and the performance of its individual businesses over time, results achieved against specifically established performance targets, and results compared to competitor performance, to the extent that such data are available.

Compensation levels are strongly correlated with performance assessments and are highly variable from year to year. As such, should UBS Group and Business Group performance decline from the prior year, lag behind established performance targets or trail competitor trends, senior executives’ compensation will clearly reflect this. The converse is also true, should performance exceed all of these benchmarks.

Components of compensation

Compensation for senior executives consists of base salary and a discretionary performance-based incentive component. A significant portion of the incentive component is paid in the form of forfeitable UBS equity, which may be restricted stock, employee stock option grants, or a combination of both. This incentive component is determined on a discretionary basis considering the performance data described above, and generally represents a substantial portion of total compensation. Annual examination of competitor pay practices is conducted to ensure that our compensation policies and practices continue to support the objectives of attracting outstanding new executives, motivating and retaining valuable employees, and delivering sus- tained superior returns to shareholders.

Executive share ownership commitment

It is UBS’s long standing policy to strongly encourage significant levels of stock ownership among its senior executives, aligning the interests of management closely with those of shareholders. Share ownership is encouraged in the following ways:

– A significant portion of each senior executive’s annual performance-based incentive compensation is delivered in the form of UBS shares or employee stock options, on a mandatory basis.
– Additional incentives are provided for senior executives who voluntarily elect to take an even greater portion of their annual performance-based incentive compensation in the form of restricted UBS shares. Executives opting to take a greater than mandatory proportion of their annual incentive in restricted/ deferred UBS shares will receive additional stock options. Executives will also be eligible for additional discretionary stock option grants made separately from the regular annual incentive awards and intended to reward exemplary performance.
– Beginning in 2002, senior executives will be required to accumulate over a five-year period and then hold, a number of UBS shares

equivalent in value to a multiple of their cash compensation earned (base salary plus cash portion of incentive). Although the first official measurement of stock ownership attainment will be conducted after five years, progress reports will be provided annually in the interim and executives will be expected to make steady progress towards attaining their target multiple.

Governance

The approval of senior executive compensation recommendations and the design of senior executive compensation systems (plan design, performance measures, pay/performance relationship) are subject to a rigorous process which ensures that decisions are taken at least of two organizational levels above the executive concerned. The following is a description of the decision making process for different senior executive populations:

– Group Managing Board members: Compensation recommendations are developed by the responsible member of the Group Executive Board. Recommendations are reviewed by the President of the Group Executive Board and then final recommendations are submitted to the Chairman of the Board for approval. The compensation system for the Group Managing Board is subject to the approval of the Chairman’s Office.
– Group Executive Board members: Compensation recommendations are developed jointly by the President of the Group Executive Board and the Chairman of the Board. The Compensation Committee of the Board of Directors reviews and approves the design of the compensation system for the Group Executive Board and all resulting compensation recommendations.
– President of the Group Executive Board and Vice Chairmen: Compensation recommendations are developed by the Chairman of the Board. The Compensation Committee of the Board of Directors reviews and approves the design of the compensation system for the President of the Group Executive Board and the Vice Chairmen and all resulting compensation recommendations.
– Chairman of the Board: On behalf of the full Board of Directors, non-executive members of the Compensation Committee of the Board of Directors have authority to develop and approve the design of the compensation system for the Chairman of the Board and all resulting compensation recommendations. For details of membership of the Compensation Committee, please see page 89.

Employee share ownership commitment

Below the senior executive level, significant numbers of employees are required to take a portion of their annual performance-based compensation in the form of UBS shares, employee stock options, or a combination of both. Additionally, they are provided with opportunities to own stock through various voluntary programs.

UBS also believes that broader-based employee stock ownership will further enhance its ability to deliver superior shareholder returns by increasing the alignment between the interests of employees and shareholders. UBS hopes to increase its level of employee stock ownership through shares and options from approximately 14% in 2000 to 20-25% over the next three years. Broader employee share ownership is encouraged in the following ways:

– Employee incentive awards above a certain threshold are delivered in UBS shares, or a combination of shares and employee stock options, on a mandatory basis. The threshold varies by business and labor market. Generally, employees are further encouraged to voluntarily elect to defer a portion of their incentives into UBS shares in exchange for additional stock options, or to diversify into an array of funds including those managed by UBS fund managers. UBS believes it is important to provide employees the opportunity and incentive to voluntarily invest into UBS shares, but where possible also to encourage employees to consider the same wealth management principles in diversifying their personal portfolios as they would apply to a client.
– The highest performing and highest potential employees are also eligible for discretionary stock option grants. These highly selective awards are intended to provide the greatest degree of shareholder alignment among the emerging pool of future UBS leaders, senior managers and technical experts, and to enhance UBS’s value proposition in an increasingly competitive market for the best management, financial and technical talent.

Corporate Governance
Corporate Organization

– Beginning in 2002, all UBS employees (unless prohibited by local law) are eligible to participate in a program called Equity Plus which is a global adaptation of a program that was implemented at PaineWebber before its merger with UBS in November 2000. Equity Plus enables UBS employees in 48 countries to voluntarily elect to purchase a limited number of UBS shares with after-tax funds either from their incentive awards or base salaries, and receive two UBS stock options for every share acquired and held for two years. The goal of this program is to build on UBS’s “Power of Partnership” strategy by motivating employees at all levels to become partners in UBS’s success.

Audit

Group Internal Audit

To ~~guarantee full~~maximize its independence from management, the head of Group Internal Audit, ~~– Walter Stürzinger until 31 December 2000,~~ Markus Ronner, ~~from 1 January 2001 –~~ reports directly to the Chairman of the Board and the Audit Supervisory Board.

With ~~240~~230 professionals worldwide at 31 December 2001, Group Internal Audit provides an independent review of the effectiveness of the system of internal controls and compliance with key rules and regulations. All key issues raised by Group Internal Audit are communicated to the management responsible, to the President of the GEB and to the Chairman’s Office via formal Audit Reports. The Audit Supervisory Board and the Audit Committee of the Board are regularly informed of important findings.

~~Extensive~~

Continous coordination and close ~~cooperation~~coopera- tion with the external auditors enhances the efficiency of Group Internal Audit’s work.

External auditors

Ernst & Young Ltd., Basel, ~~have~~has been assigned the mandate of global auditors for the UBS Group. They assume all auditing functions according to laws, regulatory requests, and the UBS Articles of Association (see also the paragraph about auditors responsibilities in the Regulation and supervision section, on ~~Relations with Regulators)~~page 105). Ernst & Young Ltd. meets all independence requirements established by the Securities and Exchange Commission (SEC). As part of its audit process, Ernst & Young Ltd. informs the Audit Committee of the measures it takes to ensure its and its employees’ independence from UBS, and outlines the ~~nonaudit~~non-audit services which it delivers to UBS. The Audit Committee assesses this information on behalf of the Board and informs the Board accordingly.

At the Extraordinary General Meeting on 7 September 2000, UBS shareholders appointed Deloitte & Touche Experta AG, Basel, as Special auditors according to Article 31 paragraph 3 of the UBS Articles of ~~Associa-~~

~~Corporate Governance~~

~~Corporate Organization~~

~~tion.~~Association. The Special auditors ~~provided an~~provide audit ~~opinion~~opinions in respect of the details of ~~the~~ capital ~~increase required for the PaineWebber transaction,~~increases, independently from the ~~normal~~Group auditors.

Relations with shareholders

UBS has nearly 250,000 shareholders registered in the Swiss or US Share Registry, ranging from large investment institutions to individual investors. All registered shareholders receive an illustrated Annual Review providing an overview of the Group and its activities during the year, and a short letter each quarter outlining new initiatives and UBS’s financial performance during the quarter. More detailed financial reports are produced each quarter and each year, and can be received on request (see page 5 for ordering details). All registered shareholders are personally invited to ordinary and extraordinary Shareholders’ Meetings and receive direct written information in case of special events.

~~Senior management compensation principles~~Shareholder rights

~~Overall philosophy~~

~~UBS operates in extremely competitive labor markets around~~Shareholders, as the world. Accordingly, it seeks to attract, retain, motivate and develop highly qualified employees at all levels. In particular, it is critical to achieve this for positions where performance is most important toowners of the ~~UBS’s overall success.~~company, have specific rights under Swiss law. UBS is ~~prepared~~committed to ~~provide superior compensation opportunities~~make it as easy as possible for shareholders to take part in ~~return~~its decision-making processes. There are no restrictions with regard to share ownership and voting rights, except for ~~superior performance,~~nominees and ~~has developed the measurement systems and decision processes necessary to ensure that pay is tied directly to performance.~~

~~Individual performance is measured on the basis of business area, Business Group, or Groupwide results, as appropriate~~trustees, whose voting rights are limited to a ~~particular executive’s responsibilities. In assessing performance,~~maximum of 5% of the ~~Group considers both quantitative and qualitative factors. It also makes a balanced assessment~~outstanding shares. This limitation exists in order to avoid the risk of both current results and key performance indicators – longer-term value drivers crucial to the Group’s ability to deliver future performance and growth. This assessment is closely linked to the value-based management process which UBS is now implementing.

In conducting its assessments of executive performance, UBS reviews changes to its overall performance and the performance of its business units over time, against specifically established performance targets, and against the performance of our competitors, to the extent that such data are available.

~~Components of compensation~~

~~Compensation of senior executives consists of base salary and discretionary (performance-based) bonus, a significant portion of which is paid~~unknown shareholders with extensive holdings being entered in the ~~form~~share register. An exception from the strict 5% rule exists for securities clearing organizations such as The Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland, which both fulfil a special fiduciary function for UBS shareholders.

UBS Annual General Meetings (AGMs) are open for participation to all shareholders. Personal invitations are sent to every registered shareholder at least 20 days ahead of ~~forfeitable restricted stock and employee stock option grants. Annual examination of competitors’ pay practices is conducted~~the meeting. Shareholders may, if they do not wish to ~~ensure that UBS’s compensation policies and practices continue to support the objectives of attracting outstanding new executives, and motivating and retaining valuable employees.~~

~~Bonuses are discretionary, and generally represent a substantial portion of total compensation for UBS’s senior management.~~

attend in

~~Share ownership commitment~~

It is UBS’s long-standing policy to strongly encourage significant levels of stock ownership among its senior management, aligning the interests of management closely with those of our shareholders. Share ownership is encouraged in the following ways:


–	~~A significant portion of each senior executive’s annual performance-based compensation is delivered in the form of UBS shares or employee stock options, on a mandatory basis.~~
–	Additional incentives are provided for senior managers who voluntarily elect to take an even greater portion of their annual performance-based compensation in the form of shares or employee stock options.
–	Below the senior executive level, significant numbers of employees are required to take a significant portion of their annual performance-based compensation in the form of shares, employee stock options, or other UBS equity-linked vehicles. Additionally, they are provided with opportunities to own stock through various programs.

person, issue instructions to accept, reject or abstain on each individual item on the agenda. They may also appoint UBS, another bank or a person of their choice to vote on their behalf, or appoint the Independent Proxy designated by UBS as required under Swiss company law. AGMs offer the opportunity to shareholders to raise any questions regarding the development of the company and the events of the year under review. The members of the Board and Group Executive Board as well as the internal and external auditors are present to answer these questions. Decisions are normally taken by the majority of votes cast and in some cases, defined by law or UBS Articles of Association, a two-third majority of the votes represented at the AGM is required.

Shareholders representing shares with an aggregate par value of one million Swiss francs may submit proposals for matters to be placed on the agenda for consideration by the AGM, provided that their proposals are submitted in writing within the deadline published by the company. Shareholders representing at least ten percent of the share capital, may ask that an Extraordinary General Meeting be convened to deal with a specific issue put forward by these shareholders.

UBS Group legal entity structure

The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (UBS Warburg, UBS Switzerland and UBS Asset Management) nor the Corporate Center operate through their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.

The goal of the focus on the parent bank structure is to capitalize on the synergies offered by the use of a single legal platform, enable the flexible use of capital in an efficient manner and to provide a structure where the activities of the Business Groups may be carried on without the need to set up separate subsidiaries beforehand.

Where it is either not possible or not efficient to operate out of the parent bank, usually due to local legal, tax or regulatory rules or due to additional legal entities joining the UBS Group via acquisition, then the businesses operate through local subsidiary companies. The significant operating subsidiary companies in the Group are listed in note 36 to the Financial Statements, in our Financial Report 2001.

Corporate Governance

Directors and Officers of UBS

Directors and

Officers of UBS

The Board of Directors

Each member of the Board is elected at the Annual General Meeting of Shareholders for a four-year term. The initial term of office for each Director is, however, ~~fixed~~planned in such a way as to ensure that about a quarter of all the members have to be newly elected or reelected every year.

The table below shows information about the Board of Directors as at 31 December ~~2000.~~

2001.
Expiration of
Year of initial current term
Name and business address Position held appointment of office
Alex Krauer
UBS AG
Bahnhofstrasse 45
CH-8098 Zurich Chairman
Member of the Audit Supervisory Board 1998 2002¹
Alberto Togni
UBS AG
Bahnhofstrasse 45
CH-8098 Zurich Vice Chairman
Chairman of the Audit Supervisory Board 1998 2001
Markus Kündig
Bundesplatz 10
CH-6304 Zug Vice Chairman
Member of the Audit Supervisory Board 1998 2002
Peter Böckli
Böckli Bodmer & Partners
St. Jakobs-Strasse 41
P.O. Box 2348
CH-4002 Basel Chairman of the Audit Committee 1998 2003
Rolf A. Meyer
Heiniweidstrasse 18
CH-8806 Bäch Member of the Audit Committee 1998 2003
Hans Peter Ming
Sika Finanz AG
Wiesenstrasse 7
CH-8008 Zurich Board Member 1998 2004
Andreas Reinhart
Volkart Brothers Holding Ltd.
P.O. Box 343
CH-8401 Winterthur Member of the Audit Committee 1998 2004¹
Eric Honegger
SAirGroup
CH-8058 Zurich-Airport Board Member 1999 2003


				Expiration of
		Year of initial		current term
Name and business address	Positions held	appointment		of office

Marcel Ospel UBS AG Bahnhofstrasse 45 CH-8098 Zurich	Chairman Chairman of the Corporate Responsibility Committee		2001		2005





Alberto Togni UBS AG Bahnhofstrasse 45 CH-8098 Zurich	Executive Vice Chairman Chairman of the Audit Supervisory Board		1998		2005





Johannes A. de Gier UBS AG Bahnhofstrasse 45 CH-8098 Zurich	Executive Vice Chairman		2001		2003





Markus Kundig Bundesplatz 10 CH-6304 Zug	Vice Chairman Chairman of the Compensation Committee		1998		2002





Peter Böckli Böckli Bodmer & Partners St. Jakobs-Strasse 41 P.O. Box 2348 CH-4002 Basel	Chairman of the Audit Committee		1998		2003





Sir Peter Davis J. Sainsbury plc. Stamford House, Stamford Street London SE1 9LL	Board Member		2001		2004





Rolf A. Meyer Heiniweidstrasse 18 CH-8806 Bach	Member of the Compensation Committee		1998		2003





Hans Peter Ming Sika Finanz AG Wiesenstrasse 7 CH-8008 Zurich	Member of the Audit Committee		1998		2004





Lawrence A. Weinbach Unisys Corporation Unisys Way Blue Bell, PA 19424	Member of the Audit Committee		2001		2005


	¹ ~~Alex Krauer and Andreas Reinhart will step down from their functions at the Annual General Meeting in April 2001.~~

~~Corporate Governance~~

~~Directors~~Marcel Ospelwas elected to the Board at the AGM in April 2001 and ~~Officers~~thereafter appointed as Chairman. Prior to this mandate, he served as Group Chief Executive Officer of UBS

~~Alex Krauer~~~~, Chairman of~~ AG. He was the ~~Board of Directors since 1998, joined the Board of Directors~~President and Group Chief Executive Officer of Swiss Bank Corporation in 1988. In 1994, he became First Vice Chairman of Swiss Bank Corporation, and following the merger between Swiss Bank Corporation and Union Bank of Switzerland was named Vice Chairman of UBS AG in 1998. Mr. Krauer previously held various management functions in Ciba Ltd. and subsequently Ciba-Geigy Ltd. He was Chairman and CEO of Ciba-Geigy Ltd. from 1987 to 1996, and after the merger between Ciba-Geigy Ltd. and Sandoz Ltd. Chairman of Novartis Inc.(SBC) from 1996 to ~~1999.~~1998. He ~~also served as~~was made CEO of SBC Warburg in 1995, having been a member of the ~~Boards~~Executive Board of ~~Directors~~SBC since 1990. From 1987 to 1990 he was in charge of ~~Bâloise Holding~~Securities Trading and Sales at SBC. From 1984 to 1987 Mr. Ospel was Managing Director with Merrill Lynch Capital Markets, and from 1980 to ~~1999~~1984 he worked at SBC London and ~~of Chiron~~New York in the Capital Markets division. He began his career at Swiss Bank Corporation ~~from 1995 to 1999.~~in the Central Planning and Marketing Division in 1977. Mr. ~~Krauer~~Ospel was born on ~~3 June 1931.~~8 February 1950 and is a Swiss citizen.

Alberto Togni, Vice Chairman, ~~of the Board of Directors,~~ has been with UBS and SBC since 1959. From 1994 to 1997 he was Chief Risk Officer and a member of the Group Executive Committee of Swiss Bank Corporation. He previously held various functions in the Commercial division, becoming its head in 1993. In 1987 he was named General Manager and member of the Executive Board. Prior to that, he assumed different management roles in Zurich, New York, Tokyo and as representative for the Middle East in Beirut. Mr. Togni serves as a director of Unilever (Schweiz) AG, Zurich; Laboratories Thomson Multimedia Ltd., Zurich; and Swiss National Bank, Zurich. Mr. Togni was born on 30 October ~~1938.~~1938 and is a Swiss citizen.

Johannes A. de Gier, Vice Chairman, was with UBS and SBC from 1980 until 1999. From 1998 to 1999 he was Chairman and CEO of Warburg Dillon Read and a member of the Group Executive Board of UBS AG. Prior to this, he served as Chairman of SBC Warburg and as Vice President of the Executive Committee of SBC. From 1991 to 1994 Mr. de Gier was responsible for Global Corporate Finance and from 1994 for the International Finance division. From 1988 to 1991 he was Chief Executive of SBC London. He first joined SBC International London in 1980 as an Executive Director, after having been with ABN, Amsterdam and Amro, Amsterdam. Mr. de Gier was born on 24 December 1944 and is a Dutch citizen.

Markus ~~Kündig~~Kundig,, Vice Chairman of the Board and Chairman of ~~Directors,~~the Compensation Committee, is also the Chairman of the Board of Directors of LZ Medien Holding AG and the Vice Chairman of the Board of Directors of Clariant. He is a member of the Boards of Directors of Metro International AG, ~~Merck AG~~ and Pelikan Holding AG. Until 1999, Mr. ~~Kündig~~Kundig was the proprietor of ~~Kündig~~Kundig Printers Ltd. Mr. ~~Kündig~~Kundig was born on 12 October ~~1931.~~1931 and is a Swiss citizen.

Peter Böckli,, Chairman of the Audit Committee, is a partner in the law office of Böckli Bodmer & Partners and a part-time ~~professor~~pro- fessor of tax and business law at the University of Basel. He is a member of the Boards of Directors of ~~Nestlé~~Nestle S.A., Vevey and ~~Firmenich.~~Firmenich International S.A., Geneva. In addition, he is the Vice Chairman of the Board of Directors of Manufacture des Montres Rolex S.A., Bienne. Mr. ~~Böckli~~Bockli was born on 7 May ~~1936.~~1936 and is a Swiss citizen.

~~Rolf A. Meyer~~Sir Peter Davis, a member of the ~~Audit~~Board since 2001, has been Group Chief Executive Officer of J. Sainsbury plc, London, since 2000. He was the Group Chief Executive of Prudential plc from 1995 to 2000 and Chief Executive and Chairman of Reed International and Chairman of Reed Elsevier respectively (following the merger of Reed International with Elsevier) from 1986 to 1995. From 1976 to 1986, he had responsibility for all buying and marketing operations at J. Sainsbury plc. Prior to that he served as Marketing and Sales Director at Fitch Lovell Ltd., and as Marketing and Sales manager at General Foods Ltd., Banbury. He is also a member of the Board of Directors of Shaw’s Supermarkets Inc., Boston, USA. Sir Peter was born on 23 December 1941 and is a British citizen.

Rolf A. Meyer, a member of the Compensation Committee, was ~~until recently~~ Chairman and CEO of Ciba Specialty Chemicals until November 2000. He was with Ciba-Geigy Ltd. from when he first joined in 1973 as a financial analyst, and subsequently became Head of Finance and Information Systems and later Chief Financial Officer. After the merger of Ciba-Geigy and Sandoz to create Novartis, he led the spinoff of Ciba Specialty Chemicals. He is now a consultant and is also Vice Chairman of the Board of Siber Hegner AG and a member of the Board of ~~Siber Hegner~~COS AG. Mr. Meyer was born on 31 October ~~1943.~~1943 and is a Swiss citizen.

Hans Peter Ming, a member of the ~~Board,~~Audit Committee, is the Chairman of the Board of

Corporate Governance
Directors and Officers of UBS

Directors of Sika Finanz AG. He has been with SIKA AG since he first joined in 1967, and assumed various management positions in this group in Germany and in Switzerland. He was named CEO in 1986 and delegate of the Board of Directors in 1987. In 1999 he was elected as Chairman. He is also a member of the Board of Pestalozzi AG, Dietikon, Switzerland. Mr. Ming was born on 12 October 1938 and is a Swiss citizen.

Lawrence A. Weinbach, a member of the Audit Committee, has been the Chairman, President and CEO of Unisys Corporation since 1997. From 1961 to 1997 he was with Arthur Andersen / Andersen Worldwide, as Managing Partner and Chief Executive of Andersen Worldwide from 1989 to 1997, Chief Operating Officer from 1987 to 1989, and Managing Partner of the New York office since 1983. He was elected to partnership at Arthur Andersen in 1970 and became Managing Partner of the Stamford, Connecticut, office in 1974 and Partner in charge of accounting audit practice in New York. He is also a member of the Board of Directors of ~~Swiss Steel and sits on the Board of the Swiss Society of Chemical Industries.~~Avon Products Inc., New York. Mr. ~~Ming~~Weinbach was born on ~~12 October 1938.~~

~~Andreas Reinhart~~,8 January 1940 and is a ~~member of~~US citizen.

Marcel Ospel, Alberto Togni and Johannes de Gier, the ~~Audit Committee, is proprietor~~Chairman and ~~Chairman of Volkart Group and a member~~the two executive Vice Chairmen of the Board, have entered into contracts with UBS AG in connection with their service in those capacities. The compensation payable to them under those contracts is included in the compensation arrangements described in Notes 33 and 34 to the Financial Statements.

There are no service contracts with any of ~~Directors of Volkart Foundation and Volkart Vision. He is Chairman of SAM Sustainability Group and of Non-Violence Project AG. He is a member~~the other members of the Board, ofalthough they do receive remuneration for their work for UBS. The remuneration paid to the non-executive Directors ~~of Scalo Publishers. Mr. Reinhart was born on 24 December 1944.~~

~~Eric Honegger~~~~, a member of the Board, is the Chairman of the Board of Directors of SAirGroup. He~~ is also included in the ~~Chairman of~~compensation figures shown in Note 34 to the ~~Board of Directors of Neue Zürcher Zeitung. Before joining SAirGroup Mr. Honegger was a member of the Zurich Government. Mr. Honegger was born on 29 April 1946.~~

Financial Statements.

~~Corporate Governance~~

~~Directors and Officers of UBS~~

The Group Executive Board

The table below shows the membership of the Group Executive Board at ~~1 January 2001, following the appointment to the board of Joseph J. Grano.~~31 December 2001.


		Year of initial
		appointment
Name	Position held	~~appointment~~
to the GEB

~~Marcel Ospel~~	~~President and Group Chief Executive Officer~~Peter A. Wuffli	President		1998

~~Luqman Arnold~~



~~Chief Financial Officer~~John P. Costas	~~1999~~Chief Executive Officer, UBS Warburg		2001





Georges Gagnebin	Chief Executive Officer, UBS Private Banking		2000





Joseph J. Grano Jr.	~~President and CEO, UBS PaineWebber~~	~~2001~~

~~Markus Granziol~~	Chairman and Chief Executive Officer, UBS ~~Warburg~~PaineWebber	~~1999~~	2001

~~Stephan Haeringer~~



~~Chief Executive Officer, UBS Switzerlands~~Markus Granziol	~~1998~~Chairman, UBS Warburg		1999





~~Pierre de Weck~~Stephan Haeringer	Chief Executive Officer, UBS ~~Capital~~Switzerland		1998

~~Peter A. Wuffli~~	~~Chairman and Chief Executive Officer, UBS Asset Management~~	~~1998~~

The business address of all members of the Group Executive Board is UBS AG, Bahnhofstrasse 45, Zurich, Switzerland. Peter Kurer, the Group General Counsel, is an ex-officio member of the Group Executive Board.

~~The business address of all members of the Group Executive Board is UBS AG, Bahnhofstrasse 45, Zurich, Switzerland.~~

~~Marcel Ospel~~Peter A. Wuffli,,previously Chairman and CEO of UBS Asset Management, was named President of the Group Executive Board on 18 December 2001. He was Group Chief ~~Executive~~Financial Officer of UBS from 1998 to 1999. From 1994 to 1998, he was the ~~President~~Chief Financial Officer at SBC and ~~Group Chief Executive Officer of Swiss Bank Corporation (SBC), from 1996 to 1998. He was made CEO of SBC Warburg in 1995, having been~~ a member of SBC’s Group Executive Committee. In 1984, he joined McKinsey & Co as management consultant and in 1990 became a partner of the ~~Executive Board~~McKinsey Switzerland senior management. Mr. Wuffli was born on 26 October 1957. He is a Swiss citizen.

John P. Costasis the CEO of ~~SBC since 1990.~~UBS Warburg. He was President and Chief Operating Officer of UBS Warburg from the beginning of 2001, after having been COO and Global Head Fixed Income. Mr. Costas joined UBS in 1996 as Head of Fixed Income. From ~~1987~~1981 to ~~1990,~~1996 he was in charge of Securities Trading and Sales at SBC. From 1984 to 1987 Mr. Ospel was Managing Director with Merrill Lynch Capital Markets; and from 1980 to 1984, he worked at SBC London and New York in the Capital Markets division. He began his career at Swiss Bank Corporation in the Central Planning and Marketing Division in 1977. Mr. Ospel was born on 8 February 1950.

~~Luqman Arnold~~ previously served as Chief Operating Officer of Warburg Dillon Read. Mr. Arnold joined SBC Warburg in 1996 as Chairman of the Asia/ Pacific division and was later named Chief Executive Officer of the successor organization in Asia/ Pacific. From 1993 to 1996 he was employed by Banque Paribas and was appointed to the Executive and Management Committees. Between 1983 and 1992 Mr. Arnold held various senior management positionsGlobal Fixed Income at Credit Suisse First Boston. ~~From 1973 to 1983 he worked at Manufacturers Hanover Corporation and at First National Bank in Dallas.~~ Mr. ~~Arnold~~Costas was born on ~~16 April 1950.~~27 January 1957. He is a US citizen.

Georges Gagnebinis the CEO of the Private Banking unit of UBS Switzerland. Before holding this function, he was the Head of the International Clients Europe, Middle East & Africa business area in the Private Banking division. In 1994, he was named General Manager and Member of the SBC Group Executive Board, and in 1992, he became Deputy General Manager and a Member of the Executive Board.

Between 1987 and 1992, he served as Head of Finance & Investment at SBC in Berne and Lausanne. In 1982, he was named Head of the Finance & Investment unit of SBC in Berne. Mr. Gagnebin began his career in 1969 at SBC in Berne. Mr. Gagnebin was born on 3 March 1946.

He is a Swiss citizen.

Joseph J. Grano, Jr., ~~President~~Chairman and CEO of UBS PaineWebber, joined the UBS AG Group Executive Board on 1 January ~~2001.~~2001 after the merger of PaineWebber with UBS. In 1994, he was named President of PaineWebber Inc. He joined PaineWebber in 1988 as President of Retail Sales and Marketing. Before working for PaineWebber, Mr. Grano was with Merrill Lynch for 16 years holding various senior management positions including director of National Sales for Merrill Lynch Consumer Markets. Prior to joining Merrill Lynch in 1972, Mr. Grano served in the US Special Forces. Mr. Grano was born on 7 March 1948. He is a US citizen.

Markus Granziol, Chairman ~~and CEO~~ of UBS Warburg, ~~served~~was also CEO of this Business Group from 1999 until 2001. From 1998 to 1999 he served as Global Head Equities and Fixed Income at Warburg Dillon Read and was a member of the Group Managing Board. From 1996 to

~~Corporate Governance~~

~~Directors and Officers of UBS~~

1998, he was General Manager and member of the SBC Group Executive Board. Between 1995 and 1996 he served with SBC Warburg as the Joint Global Head of Equities. In 1994, he became Global Head of Equities at SBC in Hong Kong. Mr. Granziol joined SBC in 1987 as Head of the Securities Department ~~at SBC~~ in Zurich. Prior to that, he was Chief of Staff at the Swiss National Bank, and was also lecturer in ~~macroeconomics~~macro-economics and financial theory at the University of Zurich. Mr. Granziol was born on 21 January 1952.

He is a Swiss citizen.

Stephan Haeringer,, CEO of UBS Switzerland and of its Private and Corporate Clients business unit, has held several positions with UBS during the last three decades. From 1996 to 1998, he was Chief Executive Officer Region Switzerland. From 1991 to 1996, he served as Division Head, Private Banking and Institutional Asset Management. In 1991, he was appointed member of the Group Executive Board, and in 1987 he became Executive Vice President and served as Head of the Financial division. During the years 1967 to 1988, Mr. Haeringer assumed various management roles within the areas of Investment Counseling, Specialized Investments, Portfolio Management, Securities Administration and Collateral Loans. Mr. Haeringer was born on 6 December 1946.

~~Pierre de Weck~~~~, CEO of UBS Capital, has assumed several functions at UBS. Until 1999, he served as Chief Credit Officer and Head of Private Equity. From 1995 to 1998, he served as~~ He is a member of the Group Executive Board and Division Head Corporate and Institutional Finance. In 1994, Mr. de Weck was named Executive Vice President and member of the Group Executive Board while heading the Corporate Finance, Primary Markets and Merchant Banking division. Between 1992 and 1994 he was Chief Executive Officer Europe and between 1991 and 1992 Chief Executive Officer North America. In 1987, Mr. de Weck became Branch Manager in New York. He joined UBS in 1985 as Head of Project Finance in Zurich. Between 1976 and 1985 he held various positions at Citicorp in Zurich and New York. Mr. de Weck was born on 15 July 1950.Swiss citizen.

~~Peter A. Wuffli~~is the Chairman and CEO of UBS Asset Management. Most recently, he was Group Chief Financial Officer of UBS. From 1994 to 1998, he was the Chief Financial Officer at SBC and a member of SBC’s Group Executive Committee. In 1984, he joined McKinsey & Co as management consultant and in 1990 became a partner of the McKinsey Switzerland senior management. Mr. Wuffli was born on 26 October 1957.

Corporate Governance

Directors and Officers of UBS

Group Managing Board

~~In addition to the members of the Group Executive Board, the~~

The following members belonged to the Group Managing Board as at ~~1 March~~31 December 2001:



Colin Buchan		~~Global Head Equities,~~Senior Advisor, UBS Warburg





Crispian Collins		Vice Chairman, UBS Asset Management

~~John Costas~~		~~President and Chief Operating Officer, UBS Warburg~~



Arthur Decurtins		Head ~~Business Area~~of Asia, UBS Private Banking





Jeffrey J. Diermeier		Chief Investment Officer, UBS Asset Management





Regina A. Dolan		Chief Administrative Officer, UBS PaineWebber





Thomas K. Escher		Head ~~Business Area~~of IT, UBS Switzerland





John A. Fraser		~~Head Business Area Asia Pacific,~~Chief Executive Officer, UBS Asset Management





Robert Gillespie		Joint Global Head of Corporate Finance, UBS Warburg

~~Jürg~~



Jurg Haller		Head ~~Business Area~~of Risk Transformation and Capital Management, UBS Switzerland





Eugen Haltiner		Head ~~Business Area~~of Corporate Clients, UBS Switzerland





Gabriel Herrera		Head ~~Business Area~~of Europe, Middle East and Africa / Investment Funds, UBS Asset Management





Alan C. Hodson		Head of ~~European~~ Equities, UBS Warburg





Peter Kurer		Group General Counsel





Benjamin F. Lenhardt, Jr.		Deputy Head of Business ~~Area~~Management / Head of Americas, UBS Asset Management





Donald B. Marron		Chairman UBS Americas (ex officio GMB member)





Urs. B. Rinderknecht		Group Mandates





Alain Robert		Head ~~Business Area~~of Individual Clients, UBS Switzerland





Marcel Rohner		Chief Operating Officer, Deputy CEO, UBS Private Banking





Gian Pietro Rossetti		Head ~~Business Area~~of Swiss Clients, UBS Private Banking





Hugo Schaub		Group Controller





Jean Francis Sierro		Head ~~Business Area~~of Resources, UBS Switzerland





Robert H. Silver		~~Head Operations and Systems, UBS PaineWebber~~HeadofOperations,Technology,andCorporateEmployeeFinancialServices,UBSPaineWebber





J. Richard Sipes		Joint Head ~~Business Area~~of Europe, UBS Private Banking





Clive Standish		~~CEO~~Chief Executive Officer Asia Pacific, UBS Warburg





Walter ~~Stürzinger~~Sturzinger		Group Chief Risk Officer





Marco Suter		Group Chief Credit Officer





Mark B. Sutton		Head of US Private Clients, UBS PaineWebber





Rory Tapner		Joint Global Head of Corporate Finance, UBS Warburg





Raoul Weil		Joint Head ~~Business Area~~of Europe, UBS Private Banking





Stephan Zimmermann		Head ~~Business Area~~of Operations, UBS Switzerland

Auditors

External auditors






~~External auditors~~

Ernst & Young Ltd.,Basel	Auditors for the Parent Bank and for the Group	(term expires AGM ~~2001,~~ 2002, proposed for reelection)





Deloitte~~&Touche~~ & Touche Experta, Ltd., Basel	Special auditors ~~(term~~	(term expires AGM 2003)

Internal audit

~~Internal Audit~~

Markus Ronner		Head of Group Internal Audit

Corporate Governance
Financial Disclosure Principles

Financial Disclosure Principles

UBS’s financial disclosure policies aim to achieve a fair market value for the UBS share by communicating transparently, openly and consistently with investors and the financial markets at all times.

Based on our discussions with analysts and investors, we believe that the market accords a “transparency premium” to the share prices of companies who provide clear, consistent and informative disclosure about their business. Our aim therefore is to communicate UBS’s strategy and results in such a way that investors can gain a full and accurate understanding of how the company works, what its growth prospects are and what risks there are that this growth will not be realized.

To continue to achieve these goals, we apply the following principles in our financial reporting and disclosure:

– Transparency: our disclosure is designed to enhance understanding of the economic drivers and detailed results of the business, building trust and credibility.
– Consistency: we aim to ensure that our disclosure is consistent and comparable within each reporting period and between reporting periods.
– Simplicity: we try to disclose information in as simple a manner as possible consistent with allowing readers to gain the appropriate level of understanding of our businesses’ performance.
– Relevance: we aim to avoid information overload by disclosing information only where it is relevant to UBS’s stakeholders, or required by regulation or statute.
– Best practice: we strive to ensure that our disclosure is in line with industry norms, and if possible leads the way to improved standards.

We report UBS’s results quarterly, including a breakdown of results by Business Groups and business units and extensive disclosures relating to credit and market risk. The quantity of disclosure and the quality of analysis and comment we provide put UBS’s reporting among the leaders in the banking sector, worldwide.

We also aim to take a prominent role in developing and enhancing industry standards for disclosure. UBS is actively represented in committees and similar bodies helping to improve accounting standards and risk disclosure stan- dards. Last year we took the lead in proposing a new standard for measuring and reporting client assets. This was well received by investors, analysts and peers.

Performance measures and targets

Group targets

UBS focuses on four key performance targets, designed to ensure that it delivers continually improving returns to its shareholders. We report UBS’s performance against these targets each quarter:

– We seek to increase the value of the Group by achieving a sustainable, after-tax return on equity of 15-20%, across periods of varying market conditions.
– We aim to increase shareholder value through double-digit average annual percentage growth in basic earnings per share (EPS), across periods of varying market conditions.
– Through cost reduction and earnings enhancement initiatives we aim to reduce UBS’s cost/income ratio, to a level that compares positively with best-in-class competitors.
– We aim to achieve a clear growth trend in net new money in our private client businesses.

The first three targets are all reported pre- goodwill amortization, and adjusted for significant financial events (see below).

Business Group key performance indicators

We also report carefully chosen key performance indicators for each of UBS’s Business Groups and business units. These do not carry explicit targets, but are indicators of the business units’ success in

Corporate Governance
Financial Disclosure Principles

creating value for shareholders. They include financial metrics, such as the cost/income ratio, and non-financial metrics such as client assets.

These key performance indicators are used for internal performance measurement and planning as well as external reporting. This ensures that management has a clear responsibility to lead their businesses towards achieving success in the externally reported value drivers and avoid the risk of managing to purely internal performance measures.

Financial reporting policies

Accounting principles

We prepare UBS Group’s accounts according to International Accounting Standards (IAS), and provide additional information to reconcile the Group accounts to US Generally Accepted Accounting Principals (US GAAP). A detailed explanation of the basis of UBS’s accounting is given in Note 1 to the Financial Statements, which is published in the Financial Report 2001.

In addition, the Financial Report 2001 contains the financial statements of the UBS AG parent bank, the Swiss company, including branches worldwide, which owns all the UBS Group companies directly or indirectly. These parent bank financial statements exclude the results of all UBS’s subsidiaries and associated companies, and are prepared to meet Swiss regulatory requirements and Swiss federal banking law. Major differences between Swiss federal banking law requirements and International Accounting Standards are described in Note 39 to the UBS Group Financial Statements.

Significant financial events

~~Relations~~The financial targets we have set and the analysis of financial results which we provide in quarterly and annual reports, concentrate on figures which have been adjusted by the exclusion of what we call Significant Financial Events. This adjustment is designed to facilitate meaningful comparisons between different reporting periods, illustrating the underlying operational performance of the business, insulated from the impact of one-off gains or losses outside the normal course of business.

Treatment of an item as a significant financial event is at the discretion of the Group Executive Board, but in general the item should be:

– Non-recurring
– Event specific
– Material at Group level
– UBS-specific, not industry-wide and should not be a consequence of the normal run of business.

Examples of items that we would treat as significant financial events include the gain or loss on the sale of a significant subsidiary or associate, such as the divestment in 1999 of UBS’s stake in Swiss Life/Rentenanstalt, or the restructuring costs associated with ~~Regulators~~a major integration, such as the merger in 2000 with PaineWebber.

Significant financial events are not a recognized accounting concept under International Accounting Standards or US GAAP, and are therefore not separately reflected in our Financial Statements. The use of numbers which have been adjusted for significant financial events is restricted to the Business Group and business unit reporting and to the analysis of the Group results and the accompanying illustrative tables. We clearly identify all adjusted figures, and disclose the pre-tax amount of each individual significant financial event in the quarter in which it is recorded, and in the annual report for that year, together with the net tax benefit or cost associated with the significant financial events recorded in each period.

Restatement of results

As required under IAS, we are committed to maintaining the transparency of UBS’s reported results and to ensuring that analysts and investors can make meaningful comparisons with previous periods. If there is a major reorganization of our business units or if changes to accounting standards or interpretations lead to a material change in the Group’s reported results, we restate UBS’s results for previous periods to show how they would have been reported according to the new basis (except when accounting standards prohibit us from doing so), and provide clear explanations of all changes.

Disclosure channels

We meet with UBS’s institutional investors regularly throughout the year, holding results presentations, specialist investor seminars, roadshows and one-to-one or group meetings across the world. Where possible, these events involve UBS senior management in addition to the UBS

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Investor Relations ~~with Regulators~~team. We have also made significant progress in developing the use of technology to further broaden access to our presentations through webcasting, audio links and cross-location video-conferencing for external audiences.

We fully subscribe to the principle of equal treatment of all shareholders. To ensure fair access to information, we make UBS publications available to all shareholders at the same time and generally make key documents available in both English and German. Letters to shareholders and media releases about results are also translated into French and Italian. We post letters to shareholders and material information related to corporate events direct to all shareholders, while other information is distributed via press release and posted to UBS’s website, at www.ubs.com/investors. Our website includes comprehensive information about UBS, including a complete set of our published reporting documents, on demand access to recent webcast presentations and copies of presentations that senior management have given at industry conferences.

US regulatory disclosure requirements

As a Swiss company listed on the New York Stock Exchange (NYSE), we comply with the disclosure requirements of the Securities and Exchange Commission (SEC) and the NYSE for foreign issuers. These include the requirement to make certain filings with the SEC. As a foreign issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to UBS. We provide UBS’s regular quarterly reports to the SEC under cover of Form 6-K, and file an annual report on Form 20-F. We also provide additional disclosure at half year to meet specific SEC or US GAAP requirements, which again is provided under cover of Form 6-K. In addition, important corporate announcements, including press releases, are provided under cover of Form 6-K as they occur. These reports, as well as materials sent to shareholders in connection with annual and special meetings, are all available on our website, at www.ubs.com/investors.

New Basel Capital Accord — Pillar 3

Pillar 3 of the proposed New Basel Capital Accord will require internationally active banks to disclose a range of information about the risks they take, the way they assess risks and their regulatory capital position, beyond the present financial reporting guidelines. The intention is to subject banks to “market discipline” — the markets would reinforce regulatory supervision by requiring higher or lower costs of capital based on the individual bank’s level of risk and quality of risk management and control.

UBS is a supporter and exponent of transparency in banks’ financial statements, and of disclosure as a means to promote market discipline. The philosophy behind Pillar 3 is therefore close to our thinking and we fully support it indeed, we would like to see it extended to other financial institutions, including securities firms, insurance companies and intermediaries.

For a publicly quoted financial institution, we believe market discipline is a three-step feedback loop:

– evidence of a firm’s practices and their results through disclosure
– market reaction to the disclosure, and its impact on shareholder value
– change in behavior or strategy by firms seeking to maximize shareholder value.

Although the effect of market discipline is not uniform, enhanced disclosure requirements can undoubtedly contribute to improved risk management and control. In this we fully support the aims of Pillar 3.

UBS has been active in the ongoing discussion between the regulators and the industry, and we believe that this is a unique opportunity for regulators, accounting standard setters and industry participants to work together to achieve a disclosure framework that meets the needs of all relevant parties.

As a result of these discussions, we have identified areas where further improvements to our risk disclosure can be made in future, taking into account the needs of both equity and credit analysts. New developments and standards in risk management and control emerge all the time, and risk disclosure is therefore a moving target, but we are committed to developing our reporting over coming years, with the aim of remaining at the forefront of meaningful disclosure.

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Corporate Governance
Value-based Management

Value-based Management

UBS’s performance measurement framework considers the creation of long-term value for shareholders in a more explicit way than traditional profit-based measures. UBS believes that the measurement of value creation can only be effective in the context of a comprehensive value-based management (VBM) process which is truly embedded in its management decisions, and consistently applied across the organization.

Overview of objectives and process

Value-based business decisions:To ensure that UBS’s actions are value-enhancing, the Group evaluates strategic initiatives, acquisitions and investments on the basis of the impact of their earnings potential and inherent risk on shareholder value. Funding and capital resources are allocated only to business plans and projects that are expected to create value on a sustainable basis.

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To help make this evaluation, UBS benchmarks the internal assessment of a project’s value creation potential against analysts’ and investors’ expectations. The Group ~~Governance Committee~~also assesses and manages the risk of current and planned business strategies by analyzing the impact of long-term industry and macro-economic trends on value.

Performance assessment: Performance measures are designed to demonstrate the extent to which value has been created: both the value derived from actual performance during the current reporting period and the value of future growth prospects resulting from tactical and strategic positioning.

External communication:The ~~Group Governance Committee, chaired by the President~~drivers of value creation are a focal point of our communication to investors and analysts. The analysis and interpretation of sources of valuation gaps provides valuable evidence of the ~~GEB, ensures~~external evaluation of our future prospects.

Measuring value creation

Measuring value creation at the Group level

The fundamental assumption underlying the VBM framework is that ~~adequate policies~~the creation of sustainable value is the primary objective of business activity. By emphasizing sustainable value creation, UBS considers the interests of both its shareholders and ~~procedures to minimize the Group’s reputational risks exist and are enforced. The Committee co-ordinates the Group’s public policy interface with governments, central banks~~other important stakeholders such as employees, clients and regulators. The ~~permanent members~~framework views the management as custodians of shareholder wealth. They are responsible for generating adequate returns on a risk-adjusted basis through strategic decisions and their effective implementation.

To be a long-term success, a company must provide its owners with a total return greater than its risk-adjusted cost of capital. For the shareholders, the total return on their investment is a combination of cash distributions and share price appreciation over a specific period. Share price development is therefore a very important indicator of value creation at the corporate level, since it reflects the assessment by investors of current performance, of the ~~committee~~ability of management to define, communicate and implement innovative and compelling strategies for the future and of the level of strategic risk those plans involve.

Measuring value creation at the business level

The share price is a useful indicator of the value creation performance of the Group, but it cannot be used to evaluate the performance of business units. As business units are not listed on any stock exchange, UBS needs a measure that corresponds to the total return on shares but is applicable to business units. For this, UBS has chosen fair value and total return on fair value as the most suitable measures of value creation.

The starting point in assessing value creation for a business unit is thus to assess its fair value, i.e., the theoretical value of the current franchise and associated earnings potential as well as the resources the business unit management has been entrusted with.

By relating realized cash earnings and the incremental fair value added by strategic plans and investments to the initial fair value, we then calculate the total return on fair value of the business unit. Actual total return is compared to the business unit hurdle rate, which represents the minimum required return for a given level of business risk.

For the purposes of value-based management, fair value is calculated as the sum of all future discounted free cash flows, which correspond to anticipated earnings adjusted for investments and depreciation. The discount rate reflects the financial and business risks of the unit and is also the targeted total return on fair value (the business unit hurdle rate). Discount rates are derived from historical market data using the capital asset pricing model (CAPM), which yields discount rates that account for the undiversifiable (systematic) risk of the business.

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Value-based Management

Since our business units are not listed on any stock market, their cost of equity is inferred from stock market data of listed competitors and peers.

Generated free equity

An important difference between a financial institution and industrial firms is that borrowing and lending form part of everyday business activities and are not used merely for financing and placement of excess liquidity. This makes the traditional definition of free cash flow, as used in industrial firms, difficult to apply to a bank. In addition, banks face regulatory constraints in the form of capital adequacy regulation, which reduce their discretion to determine and implement an optimal capital structure.

In view of these differences, free cash flow for banks is generally defined as the change in free equity, after investments and after all claims from debt holders (interests and principal repayments) have been serviced. UBS has dubbed this measure “Generated Free Equity” (GFE) as it is the amount that can be either reinvested or returned to shareholders via dividends and share repurchases. We use GFE in the calculation of its fair value and the total return on fair value. This method is known as the equity method of valuation, as opposed to the enterprise method which arrives at the value of the equity by discounting the entire cash flow and thereafter deducting the value of the debt.

GFE is the net profit after tax adjusted for changes in the required equity. There are many possible methods to determine the equity requirements for a business. For the calculation of GFE, UBS uses the regulatory requirements for each business unit as the key for determining the equity requirements of its business units.

The VBM process

The implementation of a comprehensive VBM framework in a large organization like UBS is a complex task and the full benefit of it will only materialize over time. To be truly effective the VBM framework must become an integrated part of key management processes, such as the formulation and evaluation of strategic plans and investments, the measurement and evaluation of performance, and the definition of criteria for performance related compensation.

Value drivers

The analysis of the future development of value drivers extends beyond the standard business plan horizon of three years to consider the potential impact on value of long-term industry and macro-economic trends, and constitutes an important input in the evaluation of strategic options.

Value-based decisions in strategic planning

The business units of UBS complement their standard business plans with explicit projections for key value drivers. Equity expenditures (investments and incremental working capital), which are required to increase or sustain current operating levels, are explicitly considered via their effect on generated free equity.

Value-based decisions and strategic risk

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tive, compelling value propositions for customers and investors, as the major challenge in today’s competitive environment.

UBS produces a Value Report, circulated quarterly to senior managers throughout the Group. This report to management tracks the development of value drivers and also measures total return on fair value of the Group and Business Groups, which includes the incremental impact of new business initiatives and the realized generated free equity. In addition, the value report contains a section which analyzes the source of gaps between internal valuation and market capitalization and between internal valuation of the Group and its Business Groups and leading external analysts’ valuations of business units.

Compensation

A key aspect of a comprehensive VBM framework is compensation. The objective of value-based compensation is to reward sustainable shareholder value creation. Managers and employees should receive an appropriate share of the value created in order to align their interests to the interests of shareholders. As with all other professional services organizations, human resources costs in banking are the ~~Group Controller, Group Chief Risk Officer~~single largest operating expense. As a result compensation is a highly sensitive area, where market practice and ~~Group Chief Credit Officer, the head of Group Internal Audit, the Group General Counsel~~cultural considerations need to be taken into account.

Total return on fair value and the ~~Business Groups’ heads~~development of value drivers are very powerful measures for compensation and UBS currently is in the process of developing methods to include the VBM measures in its compensation scheme. However, UBS believes that compensation should never be formula driven, so, while these measures will become important inputs, they will not replace managerial judgement in determining compensation levels.

One of the goals of value-based compensation is the alignment of the interests of employees and shareholders. Such alignment can also be achieved through increased employee ownership. UBS has launched Equity Plus, a program that aims to substantially increase employee ownership by stimulating employees to use part of their total compensation to buy UBS shares.

External communication

Although VBM is essentially an internal management tool, it can also provide useful information for investors and analysts. Unfortunately, as many of the concepts in the framework are forward-looking, subject to frequent change and contain sensitive proprietary information, they are unsuitable for public disclosure. However, there is a strong conceptual link between the development of value drivers and value creation. During 2002 we intend to publish further quantitative information on the development of key value drivers as well as guidance on how the value drivers fit into a valuation framework.

Conclusion

UBS believes that the focus on value drivers in planning and performance tracking is the most effective and efficient way to direct the organization towards building value. It also allows the linking of compensation to the key drivers of sustainable profitability in a pragmatic way. Valuebased management combines the analysis of current performance with the analysis of future earnings potential. This increases management’s focus on strategic risk and further improves UBS’s ability to create sustainable value.

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Corporate Governance
Regulation and ~~of Legal~~Supervision

Regulation and ~~Compliance.~~

Supervision

As a Swiss-registered company, UBS’s main regulator is the Swiss Federal Banking Commission (Eidgenossische Bankenkommission or “EBK”), but ~~it is~~we are also regulated worldwide by ~~key regulators worldwide. UBS aims~~supervisory agencies in the countries in which we conduct business, most notably the US and the UK. We aim to monitor regulatory developments, to comply with all local and regional provisions and to work closely and maintain good relations with the regulators in all jurisdictions where ~~it has~~we have offices, branches and subsidiaries.

The Group Governance Committee oversees the interface with our regulators, which is coordinated by the risk control, compliance and financial control functions at Corporate Center and in the Business Groups.

~~Regulation and supervision~~

UBS’s operations throughout the world are regulated and supervised by the relevant central banks and regulatory authorities in each of the jurisdictions in which ~~it has~~we have offices, branches and subsidiaries. These authorities impose reserve and reporting requirements and controls on banks, including those relating to capital adequacy, depositor protection and prudential supervision. In addition, a number of countries where UBS operates impose additional limitations on or affecting foreign-owned or controlled banks and financial institutions, including

–
– restrictions on the opening of local offices, branches or subsidiaries and the types of banking and non-banking activities that may be conducted by those local offices, branches or subsidiaries;
– restrictions on the acquisition or level of ownership of local banks; ~~and~~
– restrictions on investment and other financial flows entering or leaving the country.

~~Changes in the~~

The supervisory and regulatory regimes of the countries where UBS operates will determine, to some degree, ~~its~~our ability to expand into new markets, the services and products that itwe will be able to offer in those markets and how ~~it structures~~we structure specific operations.

The following sections describe the regulation and supervision of UBS’s business in Switzerland, ~~and, to extend discussion of~~ our ~~regulatory relationships, we also discuss regulation of our business~~home market, and in the United States and the United Kingdom, ~~where~~our next two largest operations which together employ a total of 49% of our ~~staff are employed.~~

staff.

Regulation and supervision in Switzerland

General

UBS is regulated in Switzerland under a system established by the Swiss Federal Law relating to Banks and Savings Banks of 8 November 1934, as amended, and the related Implementing Ordinance of 17 May 1972, as amended, which are together known as the Federal Banking ~~Law (FBL).~~Law. Under ~~the FBL,~~this law, banks in Switzerland are permitted to engage in a full range of financial services activities, including commercial banking, investment banking and ~~funds~~fund management. Banking groups may also engage in insurance activities, but these must be undertaken through a separate subsidiary.

The ~~FBL~~Federal Banking Law establishes a framework for supervision by the ~~Federal Banking Commission (FBC). The FBC implements this framework through the issuance of Ordinances or Circular Letters to the banks that it supervises.~~EBK.

In ~~addition, the regulatory framework in Switzerland relies on self-regulation through the Swiss Bankers Association (SBA). The SBA issues guidelines to banks on conduct of business issues, such as~~


–	~~The Due Diligence Convention, which established know your customer standards to protect against money laundering;~~
–	Risk Management Guidelines for Trading and for the Use of Derivatives, which set out standards based on the recommendations on this subject from the Group of Thirty, The Basel Committee on Banking Supervision and The International Organization of Securities Commissions;
–	~~Portfolio Management Guidelines, which set standards for banks when managing customer funds and administering assets on their behalf;~~
–	~~Guidelines for the Management of Country Risk; and~~
–	~~Guidelines on the Treatment of Dormant Accounts, Custody Accounts and Safe Deposit Boxes held in Swiss Banks.~~

~~In its~~our capacity as a securities broker, UBS is governed by the Swiss Federal Law on Stock Exchanges and Trading in Securities of

~~Corporate Governance~~

~~Relations with Regulators~~

24 March 1995, as amended, under which ~~appoints~~ the ~~FBC~~EBK is appointed as prime regulator for these activities.

Regulatory policy

Swiss regulatory policies are formulated on three levels. The first two are the statutory levels of primary and secondary legislation issued by Parliament and the Swiss Federal Council. The EBK has substantial influence on the drafting of regulatory statutes. On more technical policy, the EBK is empowered to issue so-called circulars, 21 of which have been issued to date. In certain fields, the EBK officially endorses self-regulatory guidelines issued by the banking industry (through the Swiss Bankers’ Association), which thus become an integral part of banking regulation. Recent examples are:

– Guidelines concerning a Code of Conduct with regard to the Exercise of Due Diligence by Banks, 1998.

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– Guidelines concerning the Treatment of Accounts, Custody Deposits and Safe Deposit Boxes Remaining Dormant at Swiss Banks, 2000.
– Guidelines concerning the Exercise of Asset Management Mandates, 2000.

Certain aspects of securities broking, such as the organization of trading, are subject to ~~self-regulation~~self- regulation through the SWX Swiss Exchange and the ~~SBA, but~~Swiss Bankers’ Association, under the overall supervision of the ~~FBC.~~

EBK.

~~Mandatory annual audits~~Role of external auditors and direct supervision of large banking groups

The ~~approach to supervising banks in Switzerland places a particular emphasis~~Swiss supervisory system relies on ~~the role of the~~banks’ external ~~auditor. UBS’s~~ auditors, who ~~must be approved~~are licensed and supervised by the ~~FBC~~EBK, and carry out official duties subject to ~~perform this role, are required to submit an annual report to~~sanctions imposed by the ~~FBC that assesses UBS’s financial situation and its~~EBK. The responsibility of external auditors not only encompasses the audit of Financial Statements but also entails the review of banks’ compliance with the regulations and self-regulatory guidelines that are applicable to its business. If the audit reveals violations or other irregularities, the independent auditors must (1) inform the FBC if a correction is not carried out within a designated time limit or (2) inform the FBC immediately in the case of serious violations or irregularities. The FBC may issue directives as necessary to require a bank to address any issues identified by the auditors and may also appoint an expert to act as an observer of a bank if the claims of the bank’s creditors appear to be seriously jeopardized.all prudential requirements.

~~Supervision by~~ In recent years, the ~~FBC~~

~~In July 1999, the FBC established~~EBK has taken on more direct responsibility for supervision in two areas: capital requirements for market risk, for which there is a ~~dedicated unit called the Large Banking Groups Department which focuses solely on~~specialist team; and the supervision of the two large Swiss banking groups, including UBS, ~~AG and~~for which a dedicated department was created in 1998. Thus, the ~~Credit Suisse Group. The group, which consists~~supervisory strategy now entails direct supervision in the form of ~~experts covering all the main business activities in which UBS operates, supervises UBS directly through~~ regular meetings with bank management, supervisory visits, on site reviews, direct reporting, both routine and ad hoc, and regular meetings with the host regulators of our overseas operations. Close cooperation, including regular trilateral meetings, has been established between the EBK and UBS’s US and UK regulators, and further links are being established by the EBK with other relevant regulators.

Reporting requirements and capital requirements

UBS reports to the EBK both financial information and prudential information in such areas as risk exposures, risk concentrations, liquidity, reserves and provisions. The EBK also reviews the bank’s risk management and ~~on-site visits. The group also co-ordinates~~control policies and procedures in all areas of risk, including know your customer and anti-money laundering practices.

Switzerland applies the ~~activities~~internationally accepted capital adequacy rules of the ~~FBC with those~~Basel Capital Accord but the EBK implementation imposes a more differentiated and tighter regime than the internationally agreed rules, including a more stringent definition of ~~UBS’s main overseas supervisors and~~capital (see Capital management on page 84.) Furthermore, the ~~external auditors.~~

~~The FBC also monitors UBS’s compliance with~~EBK expects banks to hold capital ~~and liquidity requirements. These are described in detail~~at least 20% above the minimum that would be required under the Basel Capital Accord. A bank falling below this level would be subject to more intense supervision. (The Basel Capital Accord is currently in the ~~Asset and Liability Management section,~~process of being revised, as discussed below on ~~pages 70 to 71 and 73 to 74.~~

page 110) .

Disclosures to the Swiss National Bank

Although the primary responsibility for supervision of banks under the ~~FBL~~Federal Banking Law lies with the ~~FBC,~~EBK, UBS also submits an annual statement of condition and detailed monthly interim balance sheets to the Swiss National Bank, which ~~it uses to monitor~~monitors compliance with liquidity rules. The Swiss National Bank ~~may~~can require UBS to supply further disclosures ~~from UBS concerning its~~of financial condition and other information relevant to its regulatory oversight.

Regulation and supervision in the
United States

Banking regulation

UBS’s operations in the United States are subject to a variety of regulatory regimes. ~~UBS maintains~~We maintain branches in California, Connecticut, Illinois and New York and agencies in Florida and Texas. ~~UBS refers to these as its US “banking offices”.~~ UBS’s California branches are located in Los Angeles and San Francisco and are licensed by the Office of the Comptroller of the Currency. Each of ~~UBS’s~~our other US banking offices is licensed by the state banking authority of the state in which it is located. Each US banking office is subject to regulation and examination by its licensing ~~authority.~~authority and. In addition, the Board of Governors of the Federal Reserve System exercises examination and regulatory authority over ~~UBS’s statelicensed~~our state-licensed US banking offices. We also maintain state and federally chartered trust companies and other limited purpose banks, which are regulated by state regulators or the Office of the Comptroller of the Currency. None of UBS’s US banking offices ~~are~~is insured by the Federal Deposit Insurance Corporation. The regulation of ~~UBS’s~~our US banking offices and subsidiaries imposes restrictions on the activities of those

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Corporate Governance
Regulation and Supervision

offices, as well as prudential restrictions, such as limits on extensions of credit to a single borrower, including UBS subsidiaries.

The licensing authority of each US banking office has the authority to take possession of the business and property of the office it licenses in certain circumstances. Such circumstances generally include violations of law, unsafe business practices and insolvency. So long as UBS maintains one or more federal branches, such as ~~its~~our California branches, the Office of the Comptroller of the Currency also has the authority to take possession of our US operations under similar circumstances, and this federal power may preempt the state insolvency regimes that would otherwise be applicable to ~~its~~our state licensed ~~offices may be preempted by US federal law.~~offices. As a result, if the Office of the Comptroller of the Currency exercised its authority over ~~UBS’s~~our US banking offices pursuant to federal law in the event of a UBS insolvency, all of UBS’s US assets would be applied first to satisfy creditors of ~~its~~our US banking offices as a group, and then made available for application pursuant to any Swiss insolvency proceeding.

~~Corporate Governance~~

~~Relations with Regulators~~

In addition to the direct regulation of ~~its~~our US banking offices, operating ~~its~~ US banking offices subjects UBS to regulation by the Board of Governors of the Federal Reserve System under various laws, including the International Banking Act of 1978, as amended, ~~and~~ the Bank Holding Company Act of 1956, as ~~amended.~~amended, and the Gramm-Leach-Bliley Financial Modernization Act of 1999. The Bank Holding Company Act imposes significant restrictions on UBS’s US non-banking operations and on ~~its~~our worldwide holdings of equity in companies operating in the United ~~States. Historically, UBS’s US non-banking activities were principally limited to activities that the Board of Governors of the Federal Reserve System found to be so “closely related to banking~~States, as to be a proper incident thereto”. Moreover, prior approval by the Board of Governors of the Federal Reserve System has been required to engage in new activities and to make acquisitions in the United States.

~~The Gramm-Leach-Bliley Financial Modernization Act of 1999 was enacted last year, liberalizing the~~well as restrictions on ~~the non-banking activities of banking organizations, including non-US banks operating~~transactions between our US banking ~~offices. Among other things,~~offices and our non-banking subsidiaries. On 10 April 2000, UBS AG was designated a “financial holding company” under the Gramm-Leach-Bliley ~~Act~~

Act. This designation generally permits us to exercise the new powers granted by that act, which include the following:

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– ~~allows bank~~Bank holding companies meeting management and capital standards are permitted to engage in a substantially broader range of non-banking activities than previously was permissible, including insurance underwriting and making merchant banking ~~investments;~~investments.
– ~~allows insurers~~ Insurers and other financial services companies are permitted to acquire ~~banks;~~banks.
– ~~removes various~~ Various restrictions that previously applied to bank holding company ownership of securities firms and mutual fund advisory ~~companies; and~~companies have been removed.
– ~~revises the~~ The overall regulatory structure applicable to bank holding companies, including those that also engage in insurance and securities ~~operations.~~operations, has been revised.

These provisions of the Gramm-Leach-Bliley Act became effective on 11 March 2000. On 10 April 2000, UBS AG was designated a “financial holding company” under the Gramm-Leach-Bliley Act, which generally permits it to exercise the new powers granted by that act.

The Gramm-Leach-Bliley Act also ~~modifies~~modified other ~~current~~existing financial laws, including laws related to the conduct of securities activities by US banks and US banking offices. As a result, UBS ~~will relocate~~is in the process of relocating certain activities ~~now~~previously conducted by ~~its~~our US banking offices to a UBS subsidiary or elsewhere.

~~Other~~ US regulation of other US operations

In the United States, UBS Warburg LLC and UBS PaineWebber Inc., as well as UBS’s other US registered broker-dealer entities, ~~including Paine Webber, Incorporated,~~ are subject to regulations that cover all aspects of the securities business, ~~including~~including:

–
– sales methods
– trade practices among broker-dealers
– use and safekeeping of customers’ funds and securities
– capital structure
– record-keeping
– the financing of customers’ purchases ~~and~~
– the conduct of directors, officers and employees.

These entities are regulated by a number of different government agencies and self-regulatory organizations, including the Securities and Exchange Commission and the National Association of Securities Dealers. Depending upon the specific nature of a broker-dealer’s business, it may also be regulated by some or all of the New York Stock Exchange, the Municipal Securities Rulemaking Board, the US Department of the Treasury, the Commodities Futures Trading Commission, and other exchanges of which it may be a member. These regulators have available a variety of sanctions, including the authority to conduct administrative proceedings that can result in censure, fines, the issuance of cease-and-desist orders ofor the suspension or expulsion of the broker-dealer or its directors, officers or employees.

UBS subsidiaries in the United States ~~including the former PaineWebber businesses,~~ are also subject to regulation by applicable federal and state regulators of their activities in the ~~investment~~invest-

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ment advisory, mutual fund, trust company, mortgage lending and insurance businesses.

USA Patriot Act

On 26 October 2001, the US adopted the USA Patriot Act in response to the events of 11 September 2001. The Act requires US banks and foreign banks with US operations, including UBS, to take certain steps to help prevent, detect and prosecute international money laundering and the financing of terrorism. The required actions include terminating correspondent accounts with “shell banks” and obtaining information about the owners of foreign bank clients and the identity of the foreign bank’s agent for service of process in the US. The Act also expands the power of the US government to subpoena foreign banks for records relating to transactions in their US correspondent accounts, including records kept outside the US.

The scope of the Act will be determined, to some degree, by the regulations that are adopted to implement its provisions. The US Secretary of the Treasury has published interim guidance and proposed regulations to implement some portions of the Act, and is expected to propose additional regulations to implement other sections. Although we cannot predict when and in what form these regulations will be adopted, we believe that the cost of compliance with the Act is not likely to be material to us, and that compliance with the statute will not have a material effect on our global operations.

Regulation and supervision in the
United Kingdom

~~UBS operates~~

Since 1 December 2001, following the implementation of the Financial Services and Markets Act 2000, UBS’s operations in the United Kingdom ~~under a regulatory regime that is undergoing comprehensive restructuring aimed at establishing~~have been regulated by the Financial Services Authority (FSA), as the

~~Corporate Governance~~

~~Relations with Regulators~~

United Kingdom’s unified regulator. FSA assumed the responsibilities of UBS’s previous UK regulators, the Securities and Futures Authority and the Investment Management Regulatory Organisation, with effect from this date. The Bank of England’s responsibilities for regulation of banking activities were transferred to the FSA by the Bank of England Act 1998.

The FSA has established a risk-based approach to supervision and UBS is supervised by the Major Financial Groups section of the Deposit Takers and Markets Directorate. The FSA has a wide variety of supervisory tools available to it, including on-site inspections by supervisors (which may relate to a risk-based industry-wide theme or be firm-specific) and the ability to commission reports by skilled persons (who may be the firm’s auditors or IT specialists, compliance consultants or lawyers). The FSA also has an extremely wide set of sanctions which it may impose under the new Act, similar to those available to US regulators.

During ~~2000,~~most of 2001, however, UBS was regulated by the FSA in respect of its banking activities but continued to be regulated by the Securities and Futures Authority in respect of its investment banking, individual asset management, brokerage and principal trading activities, and by the Investment Management Regulatory ~~Organization~~Organisation in respect of its institutional asset management and fund management activities.

Full implementation of the Financial Services and Markets Act 2000, the legislation establishing the complete role of the FSA, is currently anticipated in the second half of 2001. When it is fully implemented the responsibilities of the Securities and Futures Authority and Investment Management Regulatory Organization will be taken over by the FSA.

Some of ~~UBS’s~~our subsidiaries and affiliates are also regulated by the London Stock Exchange and other United Kingdom securities and commodities exchanges of which UBS is a member.

The investment services that are subject to oversight by United Kingdom regulators are regulated in accordance with European Union directives requiring, among other things, compliance with certain capital adequacy standards, customer protection requirements and conduct of business rules. These standards, requirements and rules are similarly implemented, under the same directives, throughout the European Union and are broadly comparable in scope and purpose to the regulatory capital and customer protection requirements imposed under applicable US law.

A number of UBS’s United Kingdom incorporated subsidiaries have the benefit of the “passport” conferred by European Directives, enabling them to establish branches in, and provide services cross-border into, other European Union countries without the need to comply with local (or “host state”) licensing requirements, although host state customer protection requirements will often apply.

Basel Committee on Banking Supervision

~~UBS supports the current initiative of~~

In January 2001, the Basel Committee on Banking Supervision issued “A New Basel Capital Accord”, a second consultative paper in the drive to ~~reform~~radically overhaul the ~~Capital~~way minimum regulatory capital requirements are determined for internationally active banks, including UBS. UBS supports the aims of the new Accord, ~~introduced~~which include increasing the risk sensitivity of the capital measure, reducing regulatory capital arbitrage in ~~1988,~~the area of credit risk, and promoting greater safety and soundness in the banking system worldwide.

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Regulation and Supervision

The new Accord will introduce a capital requirement for operational (consequential) risks. It is ~~an active participant~~hoped that, when finally agreed, this requirement will be responsive to changing risk and loss experience and will promote further rational development of risk control practice in this area.

Implementation was originally scheduled for 1 January 2004, but has been delayed to 1 January 2005 following intensive consultation with the industry. UBS provided a comprehensive written response to the Committee, participated actively in the development of industry ~~dialogue~~group responses and contributed to the formal quantitative impact studies conducted by the regulators. Discussions will continue with the Committee well into 2002 when a third quantitative impact study will be conducted and ~~with international regulators on this reform. It is critically important that the revision~~a final consultative paper issued. The release of the ~~Capital~~final Accord ~~achieves a more flexible~~will then be followed by extensive dialogue with individual regulators as they incorporate the new Accord into local regulations.

The new Accord has been the main focus of industry and ~~risk-sensitive assessment~~UBS interaction with the Committee over the last year, but the Committee continues to explore other areas of ~~capital requirements, without undue complexity,~~regulatory interest and ~~particularly that banks are not disadvantaged relative~~concern and to ~~securities firms that are not subject to the same capital requirements.~~issue consultative and sound practice papers, for example “Customer Due Diligence for Banks”.

~~Relations with shareholders~~

UBS has almost 250,000 registered shareholders, ranging from sophisticated investment institutions to individual investors. All registered shareholders receive an illustrated Annual Review providing an overview of the Group during the year, and a short letter each quarter outlining new initiatives and UBS’s financial performance during the quarter. More detailed financial reports are produced each quarter and each year, and can be received on request. All registered shareholders are informed by mail about extraordinary general meetings, or other special events.

~~Shareholder rights~~

Shareholders, as the owners of the company, have specific rights under Swiss law. UBS is committed to make it as easy as possible for shareholders to take part in its decision-making processes. There are no restrictions with regard to share ownership and voting rights, except for nominees and trustees, whose voting rights are limited to a maximum of 5% of the outstanding shares. This limitation exists in order to avoid the risk of unknown shareholders with extensive holdings being entered in the share register. An exception from the strict 5% rule exists for securities clearing organizations such as the Depository Trust Company (DTC) in New York and SegaInterSettle (SIS) in Switzerland, which both fulfil a special fiduciary function for UBS shareholders.

~~UBS Annual General Meetings (AGMs) are open for participation to all shareholders. Per-~~

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Corporate Responsibility

~~Relations~~
Corporate Responsibility
UBS has a strong commitment to corporate responsibility. We recognize the demands that are placed on us by different stakeholders, and have therefore made corporate responsibility part of our culture and our identity, integral to our business model.

Corporate responsibility means different things to different people and different businesses. UBS aims to build a truly responsible corporate strategy by continuously identifying and anticipating new issues through regular dialogues with ~~Regulators~~

stakeholders, outside experts and the media. Key corporate responsibility issues for a financial institution like UBS include strengthening corporate governance, fighting money laundering, protecting financial privacy, being an equal opportunity employer, promoting environmental stewardship and contributing to the communities which we are part of. At UBS, we take a pragmatic approach, emphasizing issues that provide clear benefits for our shareholders, clients, employees and societies in our main markets.

We realize that simply meeting existing legal requirements is not sufficient. Society’s expectations are constantly evolving and often precede formal legal and regulatory requirements; we find that we are being held to ever higher standards. Globalization has added to these demands as multinationals are accused of arbitraging social standards to boost their bottom line. However the growing demand for more responsible corporate behavior means that firms that meet this demand at an early stage stand to win, while laggards put themselves at risk.

~~sonal invitations are sent~~ Taking our corporate responsibilities seriously can bring positive benefits to ~~every registered shareholder at least 20 days ahead~~all our stakeholders. Good corporate governance benefits our shareholders, putting their interests first. Protecting the privacy of our clients helps win their trust. Being recognized as a responsible employer helps increase employee satisfaction and the retention and recruitment of the ~~meeting. Shareholders may, if they do not wish~~best staff.

Managing our responsibilities

Reaping the full benefits of corporate responsibility requires a formal management process to ~~attend~~identify and analyze the relevant topics, shape strategy, implement guidelines in ~~person, issue instructions~~the businesses, and provide efficient control.

The challenge is to ~~accept, reject or abstain on each individual item on~~develop a comprehensive approach to corporate responsibility that is Group-wide and globally consistent. The active participation of all Business Groups and regions is critical for an effective corporate responsibility program. Our goal is to build upon their different areas of expertise and to ensure that corporate responsibility issues are handled as part of regular ongoing business operations. At the ~~agen da. They may also appoint~~same time, implementing a corporate responsibility strategy requires sustained effort over a number of years policies and procedures can be changed relatively quickly, but reshaping attitudes can be much harder, and requires commitment throughout an organization, especially at the highest levels.

In 2001, we created a Corporate Responsibility Committee to guide this process at UBS, another bank or the Independent Proxy to vote on their behalf AGMs offer the opportunity to shareholders to raise any questions regarding the development of the company and the events of the year under review. Thecomprising members of the Board ~~and~~of Directors, the Group Executive Board, ~~as well as~~and the ~~internal~~Group Managing Board. This committee is chaired by Marcel Ospel and external auditors are present to answer these questions. Decisions are normally taken by the majority of votes cast and in some cases, defined by law or UBS Articles of Association, a two-third majorityhas Hans de Gier, Vice Chairman of the ~~votes represented at the AGM is required.~~

~~UBS Group legal entity structure~~

Where it is either not possible or not efficient to operate out of the parent bank, usually due to local legal, tax or regulatory rules or due to additional legal entities joining the UBS Group via acquisition, then the businesses operate through local subsidiary companies. The significant operating subsidiary companies in the Group are listed in note 38 to the financial statements, in UBS’s Financial Report 2000.

~~Corporate Governance~~

~~Financial Disclosure Principles~~

~~Financial Disclosure~~

~~Principles~~

UBS believes that the market accords a “transparency premium” to the share prices of companies who provide clear, consistent and informative disclosure about their business. UBS aims to communicate its strategy and results in such a way that investors can gain a full and accurate understanding of how the company works, what its growth prospects are and what risks there are that this growth will not be realized.

~~To continue to achieve these goals, UBS applies the following principles:~~


–	~~Transparency:~~ ~~disclosure aims to enhance the understandability of the economic drivers and detailed results of the business building trust and credibility;~~
–	~~Consistency:~~ ~~disclosure should be consistent and comparable within each reporting period and between reporting periods;~~
–	~~Simplicity:~~ ~~disclosure of information is made in as simple a manner as possible to facilitate the required level of understanding of business performance;~~
–	~~Relevance:~~ ~~information is disclosed only when relevant to UBS’s stakeholders, or required by regulation or statute;~~
–	~~Best practice:~~ ~~disclosure is in line with and, if possible, leads industry norms.~~

UBS reports its results quarterly, including a breakdown of results by business unit and extensive disclosures relating to credit and market risk. The quantity of disclosure and the quality of analysis and comment provided put UBS’s reporting among the leaders in the banking sector, worldwide.

UBS also aims to take a prominent role in developing industry standards for disclosure. The Group is actively represented in committees and similar bodies helping to develop new accounting standards and risk disclosure standards.

UBS recently took the lead in proposing a new standard for measuring and reporting client assets. This has been well received by investors, analysts and peers and UBS is optimistic that the International Accounting Standards Committee will include such a standard in its revised publication of IAS 30 relating to bank-specific disclosure.

~~Performance measures and targets~~

~~Group targets~~


–	~~UBS seeks to increase the value of the Group by achieving a sustainable, after-tax return on equity of 15–20%, across periods of varying market conditions.~~
–	~~UBS aims to increase shareholder value through double-digit average annual earnings per share (EPS) growth, across periods of varying market conditions.~~
–	~~Through cost reduction and earnings enhancement initiatives UBS aims to reduce the Group’s cost/income ratio, to a level that compares positively with best-in-class competitors.~~
–	~~UBS aims to achieve a clear growth trend in net new money in its private client businesses.~~

~~The first three targets are all reported pregoodwill amortization, and adjusted for significant financial events (see page 92).~~

~~Business unit key performance indicators~~

UBS reports carefully chosen key performance indicators for each of its business units. These do not carry explicit targets, but are indicators of the business units’ success in creating value for shareholders. They include financial metrics, such as the cost/income ratio and non-financial metrics such as client assets.

The key performance indicators are used for internal performance measurement as well as external reporting. This ensures that management have a clear responsibility to lead their businesses towards achieving success in the externally reported value drivers and reduce the risk of managing to purely internal performance measures.

~~Financial reporting policies~~

~~Accounting principles~~

~~UBS Group prepares its accounts according to International Accounting Standards, and provides additional information to reconcile its accounts to U.S. GAAP. A detailed explana-~~

~~Corporate Governance~~

~~Financial Disclosure Principles~~

~~tion of the basis of UBS’s accounting is given in Note 1 to the Financial Statements, which are published in the Financial Report 2000.~~

~~Significant financial events~~

~~UBS’s financial targets and the analysis of financial results which is provided in quarterly and annual reports, concentrate on figures which have been adjusted by the exclusion of what UBS calls~~~~Significant Financial Events~~. This facilitates meaningful comparisons between different reporting periods, illustrating the underlying operational performance of the business, insulated from the impact of one-off gains or losses outside the normal course of business.

~~Treatment of an item as a significant financial event is at the discretion~~Board, Peter Wuffli, President of the Group Executive Board, ~~but in general~~Donald Marron, Chairman UBS Americas, and Marcel Rohner, Chief Operating Officer UBS Private Banking as members. The Committee has the ~~item should be:~~

~~– Non-recurring~~

~~– Event specific~~

~~– Material at Group level~~

~~– UBS-specific, not industry-wide~~

~~and should not be a consequence of the normal run of business.~~

Examples of items that are treated as significant financial events include the gain or loss on the sale of a significant subsidiary or associate, such as the divestment in 1999 of UBS’s stake in Swiss Life/ Rentenanstalt, or the restructuring costs associated with a major integration, such as the merger with PaineWebber.

Significant financial events are not a recognized accounting concept under International Accounting Standards, and are therefore not separately reflected in our financial statements. The use of numbers which have been adjusted for significant financial events is restricted to the business group and business unit reporting and to the analysis of the Group results and the accompanying illustrative tables. All adjusted figures are clearly identified as such, and the pre-tax amount of each individual significant financial event is disclosed in the quarter in which it is recorded, and in the annual report for that year, as is the net tax benefit or loss associated with the significant financial events recorded in each period.

following duties:

~~Restatement of results~~

As required under IAS, UBS is committed to maintaining the transparency of its reported results and to ensuring that analysts and investors can make meaningful comparisons with previous periods. If there is a major reorganization of its business units or if changes to accounting standards or interpretations lead to a material change in the Group’s reported results, UBS restates results for previous periods to show how they would have been reported according to the new basis, and provides clear explanations of all changes.

–		to determine the company’s policy with respect to corporate responsibility and sustainable development;

–		to support increased awareness of and moni- tor the company’s adherence to international standards in these areas;

–		to advise the Group Executive Board and other bodies on corporate responsibility;

–		to advise the Board of Directors on reporting about the Group’s efforts on corporate responsibility and sustainable development.

~~Disclosure channels~~

UBS meets with its institutional investors regularly throughout the year, holding results presentations, specialist investor seminars, roadshows and one-on-one or group meetings across the world. Where possible, these events involve UBS senior management in addition to the UBS Investor Relations team. UBS is also developing the use of technology to further broaden access to its presentations through webcasting, audio links and cross-location video-conferencing for external audiences.

UBS fully subscribes to the principle of equal treatment of all shareholders. To ensure fair access to information, all UBS publications are made available to shareholders at the same time and key documents are generally available in both English and German. Shareholder letters and media releases are also translated into French and Italian. Letters to shareholders and material information related to corporate events are posted direct to all shareholders, while other information is distributed via press release and posted to UBS’s website, at www.ubs.com/investorrelations.

~~US regulatory disclosure requirements~~

As a Swiss company listed on the New York Stock Exchange, UBS complies with disclosure requirements of the Securities and Exchange Commission (SEC) and the NYSE for foreign issuers with registered securities listed on the NYSE. These include the requirement to make certain filings with the SEC. As a foreign issuer, some of the SEC’s regulations and requirements which apply to domestic issuers are not applicable to UBS. Instead, UBS files its regular quarterly reports with the SEC under cover of Form 6-K, and files an annual report on Form 20-F. These reports, as well as materials sent to shareholders in connection with annual and special meetings, are all available on our website, at www.ubs.com/ investor-relations.

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Corporate Responsibility

In close cooperation with the Business Groups, a specialized unit in the Corporate Center guides the Corporate Responsibility Committee in shaping the Group’s overall strategy. The objective is to add value by combining existing, Group-wide activities into a consistent framework, systematically identifying and analyzing market opportunities and risks associated with society’s changing expectations of corporate behavior, and ensuring that all relevant corporate responsibility issues are effectively covered. The following section highlights some of the progress made in key issues of interest to our stakeholders.

Shareholders

Corporate governance

The key corporate responsibility issue for shareholders is that of corporate governance. Shareholders seek assurance that management always acts in their best interest and that the benefits they receive from their ownership stakes are being maximized. To this end the protection of shareholders’ rights, a strong commitment to disclosure, and a clear board structure are crucial. We are committed to meeting the highest international standards of corporate governance in UBS’s organizational structure. The organization of our corporate and executive bodies is designed to conform to the leading codes of best practice. For further information, please refer to the section on Corporate Organization on pages 88 to 93 of this Handbook.

In 2001 a working group under the lead of Economiesuisse, the Swiss business federation, has been involved in drafting a “Swiss Code of Best Practice” in Corporate Governance, while the SWX Swiss Exchange has proposed “Reporting Guidelines on Corporate Governance”, which aim to make available for investors standardized information on the corporate governance of the companies listed on the Swiss Exchange. UBS ~~Share Information~~has contributed to the review of both proposals. It is planned that both the Code and the Reporting Guidelines become effective mid-2002.

Clients

Trust is critical for a global financial company like UBS. That trust is based on our having a sensible view of future risks and returns, sound corporate ethics (including stringent “know your customer rules”) and protecting clients’ private information. However, due to the growing importance of advisory-based financial services and of regulations regarding the exercise of due diligence, financial institutions are gathering more and more information from their clients. Unsurprisingly, public and private sector agents are showing a strong appetite for that data, and clients are worried about its misuse. In line with its Corporate Responsibility commitment, UBS carefully protects the privacy of its customers.

Fighting money laundering

Over the years, UBS has established an effective internal framework to prevent the misuse of its services by criminals, and has extended this framework as part of the international efforts to combat terrorism. Switzerland’s “know your customer rules” and other regulations concerning the exercise of due diligence are among the most stringent in the world:

– Banks in Switzerland are not only required to verify the identity of their clients but also have to establish the identity of the beneficial owners of funds and assets.
– To prevent the misuse of their services for purposes of money laundering or financing crime, banks in Switzerland must notify the authorities whenever they have knowledge or a justified suspicion that assets are of criminal origin or are under the control of a criminal organization. This includes the financing of terrorist activity.

Since 11 September 2001, UBS has actively supported the investigations into the terrorist attacks in the US, making use of the procedures already in place. A process of gathering information from all accessible public and private sources globally was started immediately. Based on this information, an internal Watch List of all names of persons and companies who could be implicated in the terrorist attacks was created and is continually updated. Currently the list contains more than a thousand names, predominantly those published by the US government, and it is steadily growing. UBS has searched its files and reported a small number of possible matches which could be of help for further investigation by the relevant local authorities.

The effectiveness of UBS’s process of due diligence is further enhanced by an internal Financial

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Intelligence Unit. Drawing on worldwide research and intelligence resources, the unit can provide detailed information on existing and prospective clients. In addition, it maintains a special database on politically exposed persons (and other persons with public exposure) in order to reduce reputation and legal risks that may arise from such client relationships.

The Wolfsberg Principles

As part of its commitment to promote stringent due diligence processes in the financial industry, UBS was one of the driving forces behind the launch of the Wolfsberg Anti-Money Laundering Principles for international private banks jointly announced on 30 October 2000 by eleven of the world’s largest private banks and by Transparency International, the global anti-corruption organization.

These principles encompass “know your customer” policies, in particular identification of the source of a client’s wealth, and the identification and follow-up or reporting of unusual or suspicious activities. They are designed to ensure that private banking services are only offered to clients with legitimate sources of wealth and that the same high standards are applied globally.

Following the attacks in the US on 11 September 2001, the Wolfsberg group has drafted a statement on the “Suppression of the Financing of Terrorism” in which the banks commit themselves to support authorities in the fight against terrorism.

Employees

In an increasingly competitive global market for talented employees, becoming an employer of choice allows UBS to attract and retain a top quality workforce. But highly talented people want to work for firms that they can be proud of. An ethical corporate culture has an impact on the behavior of every employee and helps build such pride.

An important part of developing a strong and compelling corporate culture in the workplace is promoting diversity: accepting and valuing people from different backgrounds and cultures, and encouraging them to bring their varied talents and perspectives to bear on all tasks, encouraging problem-solving and innovation.

Since the mid-1990s, we have initiated more than 200 pro-diversity activities in UBS’s different businesses across the world, designed to approach this issue with appropriate sensitivity to local circumstances. Our efforts have covered recruiting, education, training and development programs, but also the creation of structures and networks to provide long-term support.

One of our competitive strengths in many of our businesses is the ability to leverage the skills

The challenges of avoiding money laundering

As part of our ongoing internal control procedures, UBS in Zurich identified a business relationship with a suspected connection to the family of the late Nigerian dictator Sani Abacha, and reported this suspicion to the Swiss Federal Banking Commission and the Swiss Federal Money Laundering Reporting Office.

This case demonstrated the challenges of preventing money laundering, but also gave us an opportunity to publicly reaffirm the strength of our commitment to avoiding inappropriate banking relationships.

In 1996, a British citizen resident in London who was a reputable and longstanding UBS client, introduced to UBS a company in which he and two Nigerian business partners held interests. When questioned by us, the client gave a credible assurance that his business partners had no political background or interests.

After ascertaining one of the false names used by one of Abacha’s sons, we requested further information. When further clarifications were not forthcoming, we conducted additional internal investigations, which led us to suspect that at least part of the money in the accounts belongs to Abacha’s sons. At this point we reported this suspicion to the authorities and blocked the company’s accounts.

It is our strict policy that suspect business connections of this sort are to be avoided under all circumstances, so it was a matter of deep regret that this relationship with UBS was not prevented at the outset and was not discovered earlier.

UBS takes its responsibilities in this area extremely seriously and remains dedicated to meeting both legal and regulatory requirements and our commitments under the Wolfsberg principles.

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and knowledge of our staff across the 50 countries in which UBS operates. We believe that our intercultural training program is one of the most integrated, comprehensive and advanced in the world. Last year more than 600 new and early career staff worldwide were involved in workshops to help them learn how to develop cultural understanding and how to succeed in intercultural communication and integration.

We are increasingly coordinating our efforts on a global basis. In February 2001, a “Global Diversity Steering Committee” was established within UBS Warburg, supported by a Global Diversity Manager in human resources. In November 2001, the Committee launched a Diversity intranet website which provides detailed information about UBS Warburg’s diversity initiatives and is designed to facilitate employee involvement.

A number of initiatives are specifically targeted to increase the representation of women in senior management positions at UBS. For example, UBS Warburg has increased the number of college graduate women it hires. Of some 600 hires in the latest UBS Warburg graduate intake, approximately 30 per cent are women, even though women represented only 20 per cent of applicants. In July 2001, 375 senior female executives and financial advisors from UBS Warburg and UBS PaineWebber offices around the globe attended the fourth annual UBS Women’s Leadership Conference in New York City to share insights and exchange ideas with UBS’s senior managers.

Valuing diversity also opens up market opportunities: a workforce that reflects the variety of cultures where the bank does business will help identify new markets, develop innovative products and strengthen client relationships. A report on women and investing was commissioned as part of UBS PaineWebber’s ongoing Index of Investor Optimism Survey. It showed that the number of wealthy women investors had increased significantly, despite the recent economic downturn. In 2001, they represented 47% of investors with $100,000 or more in investable assets an increase of 11% since 1999.

Our Annual Review 2001 provides more information about how UBS recruits and
retains some of the best talent in the industry.

Society

Investing in the community

UBS is committed to honoring its responsibility to the communities in which it operates. The success of UBS depends not only on the skills and resources of our people and the relationships we foster with our clients, but also on the health and prosperity of the communities of which we are part. We receive very direct benefit, for instance, from a stable political and social environment, an advanced infrastructure and a good education system. Furthermore, community programs create benefits for a company’s reputation, and increase its appeal to its clients.

UBS supports communities through cash donations given directly to organizations, through employee volunteering and through matching donations made by employees on their own initiative. We have set up several Community Affairs programs, organized at a regional level in order to be responsive to local expectations. Here are some examples of their activities.

At Group level we provide regular ongoing support to UNICEF and the Theodora Foundation, and in September 2001 we set up a special UBS Humanitarian Fund to help the victims of the terrorist attacks in the US.

UNICEF, the United Nations Children’s Fund, is dedicated to ensuring that the basic needs of children around the world are met. UBS has been in partnership with UNICEF Switzerland since November 1996, actively supporting the Fund in its aid programs. One such is the “Change for Good” fund-raising campaign. Its aim is to encourage people to donate any foreign currency they may have that is too small to be changed at a bank. Donation envelopes are available throughout our branches in Switzerland. We then convert the money into Swiss Francs for UNICEF. In the context of the physical introduction of the Euro in January 2002, the amounts collected by UBS massively increased towards the end of 2001: up to 2 tons of coins were collected every week in the last quarter of 2001.

The Theodora Foundation is a Swiss based charity which aims to help ease the suffering of children in hospital by making them laugh. Specially trained Clown Doctors entertain them with music, juggling, conjuring tricks and by telling them stories. UBS has supported the Theodora Foundation since 1995.

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In September 2001, following the terrorist attacks in the US, UBS set up the UBS Humanitarian Fund to help those in need as a result of the attacks. UBS pledged USD 5 million towards the relief efforts, alongside many donations from our employees. Many of our US staff, especially from our New York, New Jersey and Stamford offices, took part in volunteer efforts in support of the injured and bereaved.

UBS Warburg runs a tightly focussed program of community investment, concentrated on education and community regeneration. In the UK, community regeneration is targeted at the East End of London and aims to assist in the social and economic regeneration of one of the country’s most deprived regions. For instance, UBS Warburg provides funds and expertise to assist in job creation and business start up in the deprived boroughs adjacent to the City of London. The bank also encourages its employees to be actively involved in the community and to contribute time and skills to help causes they care about. One example is the mentoring scheme run in cooperation with local schools, where UBS Warburg employees act as mentor to a teenager, meeting regularly with them to motivate them, to give them an idea of how business works and to help them understand the importance of succeeding in their education. In 2001 nearly 15% of staff in London took part in volunteering activities through UBS. For the fourth consecutive year, UBS Warburg employees in London have won an `Employee Volunteer of the Year’ award by the East London Business Alliance.

In the US, UBS has also been recognized as a leader in community affairs. Employees of UBS PaineWebber, UBS Warburg and UBS Asset Management serve as literacy tutors and mentors in their local communities. For example, over 200 employees in New York, Stamford and Chicago volunteered in 2001 to participate in the Everybody WINS! Power Lunch program, a lunchtime reading and mentoring program for elementary school students.

In Switzerland, the UBS Optimus Foundation harnesses the expertise and the capabilities of UBS as a global financial services company to support clients in their contributions to worthy causes. The Foundation focuses on three areas - Children, Talents and Medical Research. Another foundation, the UBS Foundation for Social Issues and Education, contributes to various social projects in Switzerland. Finally, the association “UBS employees lend a hand” in Switzerland provides assistance through staff collection schemes to charitable institutions, which has collected over CHF 3 million for a great number of social projects.

Promoting environmental awareness

UBS’s overall commitment to the environment, its environmental policy, has been approved by the Group Executive Board. The following is an outline of the key points of the policy:

– Environmental protection is one of the most pressing issues facing our world today. UBS is committed to continuing the integration of environmental issues into business activities, while building shareholder value by taking advantage of environmental market opportu- nities. We also incorporate due consideration of environmental risks into our risk management processes, especially in lending and investment banking.
– We actively seek ways to reduce the environmental impact to air, soil and water from our in-house operations. The main focus is the reduction of greenhouse gas emissions.
– We seek to ensure the efficient implementation of our environmental policy through an environmental management system which includes sound objectives, programs and monitoring.

The environmental factor in asset management Studies and stock indices have shown that there can be a positive link between environmental and social aspects and economic performance. As a result, clients — particularly institutional investors such as pension funds — increasingly demand that asset management decisions take into account environmental and social aspects as well as economic ones. UBS Asset Management has developed expertise in incorporating environmental and social aspects into its investment research, looking at how companies’ strategies, processes and products impact their financial success, society and the environment.

Focusing on the concept of sustainability, UBS launched a new investment fund in 1997, the “UBS (Lux) Equity Fund — Eco Performance”. This fund invests worldwide in stocks of exemplary sector leaders and forward-looking small

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and medium-sized companies with above average financial, environmental and social performance.

Moves towards low-carbon energy production, (lower CO2 emissions per unit of usable energy produced), continue to be supported by legislative changes and the increasing liberalization of the energy markets. Against this background, in July 2001 UBS launched a new energy sector fund, the UBS (Lux) Equity Fund - Future Energy. The fund invests in carefully selected smaller and medium-sized companies which operate in solar energy, wind energy and fuel cell technology as well as other forward- looking research areas in the renewable energy sector.

By 31 December 2001, the total of UBS clients’ invested assets managed according to environmental and social criteria amounted to approximately CHF 776 million.

The environmental factor in investment banking

Adequate assessment of the risk involved in an investment banking transaction is crucial to its success. Although financial risks dominate, environmental aspects can also be important. Environmental risks can become credit risks — for example, if a client can no longer repay a loan as a result of environmental problems. Furthermore, liability risks could be incurred if, for example, UBS were to become owner of a company or were to sit on the management board of a company which finds itself facing environmental liabilities. Lastly, environmental risks could damage the Group’s reputation if it were to be involved in a controversial transaction.

Based on its Global Environmental Risk Policy, UBS Warburg has introduced processes that allow early identification of environmental risks in transactions. Initially, environmental factors are screened by investment banking staff. If there are indications of increased risk, external environment specialists are called in to investigate the issues as part of the due diligence process.

The environmental factor in credit business

A prerequisite for a healthy loan portfolio is professional risk analysis that takes account of all types of risk, including environmental risks. Alongside traditional rating factors such as financial data and management quality, a careful review of financially relevant environmental aspects is an important part of UBS’s credit risk analysis. In assessing a loan application, the client advisor uses internal guidelines and up-to- date information to assess environmental risks, and includes environmental information in the data provided to the loan assessor.

During 2001 we have continued to integrate environmental risk assessment into our loan processes. We have rolled out a comprehensive information platform for account managers and credit officers to help identification and decision- making in case of environmental risks.

The benefits of incorporating the “environmental factor” into the lending business are threefold: UBS has a healthier loan portfolio, the client is aware of the environmental risks and opportunities for its company, and the environ- ment itself benefits from the resulting improvements.

The environmental factor in-house

UBS impacts the environment primarily through its energy consumption, the running of its heating systems, its paper consumption and business travel. The more efficiently and sparingly UBS uses its resources and hence reduces emission levels, the less its expenses will be. Professional know-how and an efficient environmental management system allow the Group to use resources better and reduce these costs. Clearly, energy management and in-house environmental initiatives enhance operating margins.

During 2001, as part of our regular process of updating obsolete IT equipment, we replaced 32,000 CRT monitors in UBS Switzerland with more energy-efficient flat screen LCD monitors. These new displays require 75%-80% less electrical power. We expect that as a result, UBS will save between 4 and 6 Gigawatt hours of electricity each year, representing around 2-3% of our total electricity consumption in Switzerland.

We have also entered into a pilot project with ATEL, our exclusive energy supplier in Switzerland. ATEL will install monitoring devices for heating, cooling, water and electricity consumption and UBS’s building maintenance staff will periodically receive advice on how to reduce energy consumption. ATEL will receive a share of any profit resulting from cost and energy saving. Finally, we have started work on integrating all of our non-Swiss locations into our formal environmental management system.

116

Further details and Environmental Performance Indicators are available in
our Environmental Report, which can be found at www.ubs.com/environment.

Performance assessment

A corporate responsibility strategy needs to be transparent and to show clear results for the efforts undertaken. Measuring performance is therefore essential, but remains a challenge. Although various organizations are developing proposals in this area, there are currently no comprehensive and generally accepted criteria or standards for corporate responsibility reporting that would allow one to measure progress against objectives and make comparisons within our industry, across the whole range of corporate responsibility issues.

We believe that corporate responsibility criteria and standards must be industry specific, and need to be defined through consultation with key players. An example of what can be done is the EPI-Finance 2000 standard, jointly developed by eleven finance and insurance companies, including UBS, to measure and report environmental performance. Details of our performance against EPI-Finance 2000 indicators are shown in our Environmental Report.

A similar process was initiated in 2001, to develop performance indicators for the financial industry covering key areas of social performance.

Third-party ratings of our corporate responsibility programs

Although a comprehensive framework for assessing corporate responsibility is still to be developed, a number of different certifying bodies and independent rating agencies that assess corporate responsibility programs across the world have rated UBS among the leaders in this field:

– In May 1999, UBS was the first bank to obtain ISO 14001 certification for its worldwide environmental management system in its banking business. UBS also received certification for its corporate services in Switzerland. The certification was undertaken by an independent certification company, SGS International Certification Services AG.
– The Dow Jones Sustainability Group Indexes (DJSGI) have tracked, since 1999, the per-

Commitments and memberships

In 1992, UBS was one of the first signatories to the United Nations Environment Program’s Bank Declaration and is helping to shape further developments through its role on the Steering Committee for financial institutions. The Statement commits UBS to integrating environmentally sound practices into all its activities.

UBS is also an active member of the World Business Council for Sustainable Development (WBCSD), a coalition of 150 international companies united by a shared commitment to sustainable development. The WBCSD provides business leadership as a catalyst for change toward sustainable development, and promotes the role of eco-efficiency, innovation and corporate responsibility.

UBS was one of the 36 companies from around the world to sign the Statement “Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards” presented at the World Economic Forum Annual Meeting in New York in January 2002. The statement recommends a framework for action that CEOs, chairmen, and executive management teams can use to develop a strategy for managing their company’s impact on society and its relationships with stakeholders.

117

Corporate Governance
Corporate Responsibility

formance of companies in the Dow Jones Global Index that lead the field in terms of corporate responsibility. UBS has been part of the DJSGI since their inception, and has been the leader in the global banking industry since 2000. The bank’s top position in this sector of the index was last confirmed on 15 October 2001.
– In October 2001, UBS was selected as leader for the banking sector of the Dow Jones STOXX Sustainability indices, that track the performance of the top 20% of sustainability leaders of the Dow Jones STOXX 600 index.
– UBS is included in the FTSE4Good Index, which measures global companies performance in the areas of environmental sustainability, stakeholder relations and support for human rights.
– In Spring 2001, UBS was the strongest new entrant in the Business in the Environment Index of global corporate environmental management. This index is designed to engage companies and drive continuous improvement in environmental management and performance. 184 international companies were included in this year’s index.

118

120

121

UBS Share Information

The Global Registered Share

UBS ordinary shares are registered shares with a par value of CHF 102.80 per share, fully paid up and non-assessable. As outlined in the Capital Management section on page ~~74,~~85, UBS plans to reduce the par value of its shares through a distribution ~~and~~of CHF 2.00 per share ~~split, which are expected~~on 8 July 2002, to ~~take place~~shareholders of record on 165 July ~~2001. If these plans are implemented~~2002. Following this distribution, the par value of the share will be reduced to CHF ~~2.80.~~

0.80.

UBS’s ordinary shares are issued in the form of Global Registered Shares. UBS ~~is the first Swiss company pioneering~~has pioneered the use of Global Registered Shares (GRS), which ~~allows~~allow for cross-market portability at ~~minimal~~a minimized cost to investors. ~~The concept behind American Depository Receipts (ADRs), the most popular alternative~~Alternatives to the GRS ~~for accessing the US market, is~~involve the creation of tailor-made securities for individual unlinked markets, following local regulations. UBS believes that, with the globalization of financial markets, this concept is becoming less valid, and that securities will increasingly be traded in multiple ~~markets. UBS also believes that a~~markets; such global fungible ~~security~~securities can best track the changing patterns of liquidity across the world.

UBS also believes that regulatory structures of different markets will continue to align, reducing the need to have individual securities in each mar- ket to comply with different local regulations.

A Global Registered Share is a security that provides direct and equal ownership for all shareholders. It can be traded and transferred across applicable borders without the need for conversion, with identical shares traded on different stock exchanges in different currencies. For example, the same share purchased on the New York Stock Exchange (NYSE) can be sold on virt-x, the ~~SWX Swiss Exchange~~pan-European stock exchange where Swiss-listed blue chip stocks are traded, or vice versa. The UBS GRS is listed on the Swiss, New York ~~Zurich~~ and Tokyo ~~Stock Exchanges.~~

stock exchanges. All members of the SMI Swiss Market Index listed on the Swiss stock exchange are now traded on virt-x, a joint venture between the SWX Swiss Exchange and Tradepoint.

The UBS ADR (American Depositary Receipt) program was terminated at the time of the listing of the GRS on the New York Stock Exchange (NYSE) – 16 May 2000. UBS ADR owners still have the option to exchange any outstanding ADRs for UBS shares. The exchange ratio is 10 ADRs for 1 GRS. This option is open until May 2001, after which only a cash equivalent will be available.

Registration

A single register exists for UBS ordinary shares, split into two parts – a Swiss register, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by ~~The Bank of New York,~~Mellon Investor Services, as US transfer agent. A shareholder is entitled to hold shares registered in their name on either register and transfer shares from one register to the other upon giving proper instruction to the transfer agents.

Share liquidity and currency effects

For the foreseeable future, because of the greater volume of UBS shares traded on ~~the SWX Swiss Exchange, Swiss~~virt-x, trading ~~will~~on this exchange is expected to be the primary determinant of the share price, and liquidity on virt-x is expected to be higher than on the ~~SWX Swiss Exchange will be higher.~~

NYSE. During 2001, daily trading volume in UBS shares on the NYSE represented an average of just 5.19% of the total daily trading volume in UBS shares.

During the hours in which both ~~the SWX~~virt-x and NYSE are simultaneously open for trading (currently ~~1530~~15.30 to ~~1700~~17.30 CET), price differences are likely to be arbitraged away by professional market makers. The NYSE price will therefore typically be expected to depend on both the ~~SWX~~virt-x price and the prevailing USD/CHF exchange rate. When ~~the SWX~~virt-x is closed for trading, traded volumes will typically be lower, however the specialist firm making a market in UBS shares on the NYSE, Van der Moolen, ~~will~~is required to facilitate sufficient liquidity and an orderly ~~market.~~

market in the UBS share.

As a global financial services firm, UBS earns profits in many currencies. Since UBS prepares its accounts in CHF, changes in currency exchange rates, particularly CHF/USD and CHF/~~GBP,~~EUR may have an effect on reported earnings.

~~With the PaineWebber merger the USD earnings component of UBS will increase.~~

~~The UBS dividend~~Dividends

UBS normally pays ~~its~~a regular annual dividend to shareholders registered as of the date of the Annual General Meeting (the record date). Payment is usually scheduled 3three business days thereafter.

122

Following an AGM, UBS shares typically begin trading ex-dividend. As a result of this structure, shareholders that sell shares on ~~the SWX Swiss Exchange~~virt-x two business days prior to the payment date are required to compensate the purchaser for the amount of the dividend. An automated compensation system properly allocates the dividend for those transactions and allows SIS SegaInterSettle participants to execute transactions between the record date and the payment date.

These practices differ from the US norm of declaring dividends at least ten days in advance of the applicable record date and the commencement of ex-dividend trading two days before the record date. To ensure that shareholders on the Swiss ~~shareholders~~ and US ~~shareholders~~registers are ~~simi-~~

~~UBS Share Information~~

~~The Global Registered Share~~

~~larly~~similarly treated in connection with dividend payments, and to avoid disparities between the two markets, NYSE trading will be with due bills for the two business day period preceding the dividend record date.

UBS pays dividends in ~~Swiss francs.~~CHF (Swiss francs). For UBS ordinary shares held in street name through The Depository Trust Company, any dividend will be converted into ~~US dollars.~~USD (US dollars). Holders of UBS ordinary shares registered on the US ~~register~~reg- ister will receive dividend payments in ~~US dollars,~~USD unless they provide notice to ~~The Bank of New York,~~Mellon Investor Services, UBS’s US transfer agent, that they wish to receive dividend payments in ~~Swiss franc~~

CHF.

UBS will fix the USD dividend amount on the basis of the DJ Interbank Foreign Exchange rate for sale of CHF against USD. The date for this fixing will be set at the same time as the respective ex-dividend, record and payment dates are set.

Holders of UBS shares who are US taxpayers are normally subject to 35% withholding tax on dividends they receive from UBS, although they can normally reclaim part of this, bringing their withholding tax rate down to 15%. UBS is currently in discussions with the Swiss tax authorities to change the withholding tax treatment of Global Registered Shares, so that either tax is only withheld at 15% for US tax payers, or to allow approved processors to file bulk reclamations on behalf of qualified UBS shareholders. Despite our efforts, there can be no assurance that this withholding tax will be reduced or eliminated.

95 Further disclosure relating to the taxation of US holders of UBS shares can be found in our Form 20-F, in section E of item 10.

Dividends in 2001

In 2001 UBS departed from its normal process for paying dividends. Initially, as part of the process for the acquisition of Paine Webber Group, Inc., we paid a dividend in respect of the first three quarters of 2000 in October 2000. In 2001 we then took advantage of Swiss regulations which allow a company to reduce the par value of its shares by returning capital to shareholders, to make a distribution in this form in respect of the last quarter of 2000, instead of paying a dividend.

Par value distribution July 2002

As outlined in the Capital management section on page 85, UBS again plans to reduce the par value of its shares through a distribution of CHF 2.00 on 8 July 2002. This will be done instead of paying a dividend in respect of the year ended 31 December 2001.

This will generally follow the principles described in the preceding section with respect to dividends. The record date for the distribution has been set for the close of business on 5 July 2002. NYSE trades on 8 and 9 July will be with due bills. The CHF/USD exchange rate for the distribution will be fixed on 8 July 2002 the day on which the par value reduction itself takes place. The distribution will be paid for value on 10 July 2002.

The par value distribution in July 2002 will not be subject to the 35% withholding tax on dividends.

Ticker symbols

Trading exchange

Bloomberg

Reuters

Telekurs

virt-x

UBSN VX

UBSZn.VX

UBSN, 004

New York Stock Exchange

UBS US

UBS.N

UBS, 65

Tokyo Stock Exchange

8657 JP

UBS.T

N16631, 106

123

UBS Share Information
UBS Shares 2001

UBS Shares ~~2000~~2001

~~UBS Shares 2000~~

~~UBS Share Data~~

For the year ended
Registered shares in 1000 units 31.12.00 31.12.99 31.12.98
Total shares outstanding 444,380 430,893 429,953
Total shares ranking for dividend 425,958 430,893 429,953
Treasury shares (average) 31,199 27,882 18,601
Treasury shares (year end) 18,422 36,874 24,457
Weighted average shares (for basic EPS calculation) 403,029 404,742 405,222
Weighted average shares (for diluted EPS calculation) 408,526 408,375 412,881
Per share data CHF

Basic earnings per share 19.33 15.20 7.33
Basic earnings per share before goodwill 20.99 16.04 8.18
Diluted earnings per share 19.04 15.07 7.20
Diluted earnings per share before goodwill 20.67 15.90 8.03
Distribution 6.10 5.50 5.00
Market capitalization – CHF billion

Year-end 112.7 92.6 90.7
% change year-on-year 21.70 2.09 0.55
As a % of the Swiss Market Index (SMI) 10.80 10.62 11.76
As a % of the Swiss Performance Index (SPI) 9.08 8.51 9.56
Trading volumes – 1000 units

SWX total 403,767 346,405 244,080
SWX daily average 1,609 1,364 1,878
NYSE total 27,767
NYSE daily average 175

UBS share price performance in ~~2000~~2001

~~UBS’s~~ The UBS share price performed ~~strongly~~well during 2001, in ~~2000, rising 23%~~the context of weak European bank stocks in general (as measured by the DJ Europe Stoxx Europe Banks index). The UBS share fell 5.0% through the year, and ~~generating~~generated a total pre-tax return of ~~28%~~-4.4% to investors over the year if ~~dividends~~distributions are included.

The year began well for European banking stocks, rising approximately 4% by 6 February. In the same period, UBS ~~believes that three key factors underly~~rose 10% to the year’s high of CHF 96.83. By 22 March, however, the index had fallen 18% from these levels with rising investor fears over a sharp economic downturn, and a related decline in investment banking profits, combined with increased credit losses. The UBS share fell to a first-quarter low of CHF 72.33 on this ~~strong performance. Firstly~~date.

Sentiment improved during April and May 2001, and by 1 June the index had recovered to the level at the start of the year. UBS ~~firmly demonstrated its commitment~~outperformed European banks during this period, rising to ~~achieving its strategic goals, improving investors’ confidence~~a mid-year high of CHF 91.17 on 5 June. From this date, pessimistic economic data, and poor second quarter financial results, caused European bank stock prices to decline slowly, falling 9% by end August 2001. The UBS share fell to CHF 81.40.

As September 2001 began, bank stocks fell 7% in the ~~Group’s ability to revitalize under-performing businesses and position itself excellently to tap growth markets and opportunities. Secondly, financial results demonstrated~~first 10 days of September, as fears rapidly escalated over further economic downturn. In the ~~attractiveness of~~three days following the ~~Group’s mix of businesses, and its ability to weather deteriorating international market conditions during the year and maintain its strong financial performance. Finally,~~US terrorist attacks on 11 September bank stocks fell a further 10% from their 10 September close. The UBS has maintained its commitment to manage its capital for the benefit of its shareholders, minimizing the dilution to existing shareholders that resulted from the PaineWebber merger and buying back over 18 million shares for cancellation.

~~The year started poorly for most banking stocks, including UBS, following concerns over the sustainability of the “new economy” paradigm. Opening the year at CHF 215, the~~ share price fell to ~~its lowest point for the~~a year low of CHF ~~190.75~~62.10 on ~~25 January.~~21 September. However, during the ~~stock recovered quickly and went on to reach CHF 250~~first week in ~~mid June as~~December 2001, European bank stocks were once again nearing their end-August levels. UBS ~~began to deliver on its strategic commitments, with particularly positive reactions to the New York Stock Exchange listing and the communication of e-commerce strategy in May, and to our record first~~reached a fourth quarter ~~results.~~

~~Announcement of the merger with PaineWebber brought a temporary technical arbitrage driven drop in the stock price, to CHF 224, but by 18 August the price recovered to a year-to-date~~ high of CHF ~~264 as arbitrage pressures reduced. Investor concerns over losses in the investment banking sector, and increasing signs of a weakening US economy began to put downward pressure~~86.85 on ~~the~~10 December. Our share price ~~which fell to~~then declined, ending the year down 5.0% from the level on 1 January 2001 at CHF ~~213.50 on 11 October.~~

~~The shares recovered to close at a year’s high of 264.50 as strong third quarter results demonstrated~~83.80, although outperforming the ~~resilience of UBS’s earnings, and investors saw~~DJ Europe Stoxx Banks index by 5.1% over the ~~benefits of exposure to the strong Swiss economy as a hedge against a potential downturn in international markets.~~

year.

124

UBS share data¹


	As at

Registered shares in 1000 units	31.12.01		31.12.00		31.12.99

Total shares outstanding		1,281,717		1,333,139		1,292,679




Total shares ranking for dividend		1,258,653		1,277,874		1,292,679




Treasury shares (average)		47,244		97,545		77,264




Treasury shares (year end)		41,255		55,265		110,621




Weighted average shares (for basic EPS calculations)		1,266,038		1,209,088		1,214,227




Weighted average shares (for diluted EPS calculations)		1,288,578		1,225,578		1,225,125


	For the year ended

CHF	31.12.01		31.12.00		31.12.99

Earnings per share








Basic EPS		3.93		6.44		5.07




Basic EPS before goodwill amortization²		4.97		7.00		5.35




Diluted EPS		3.78		6.35		5.02




Diluted EPS before goodwill amortization²		4.81		6.89		5.30


	As at

CHF billions	31.12.01			31.12.00		31.12.99

Market capitalization		105.5			112.7		92.6




% change year-on-year		(6	)		22		2




As a % of the Swiss Market Index (SMI)		13.80			10.80		10.62




As a % of the Swiss Performance Index (SPI)		12.48			9.08		8.51


	For the year ended

1000 shares	31.12.01		31.12.00		31.12.99

Trading volumes virt-x/SWX total		1,000,402		1,211,446		1,068,732




virt-x/SWX daily average		4,002		4,826		4,224




NYSE total		54,768		83,032		—




NYSE daily average		221		522		—

~~UBS Share Information~~

~~UBS Shares 2000~~


¹		All share and earnings per share figures have been restated for the 3 for 1 share split which took place on 16 July 2001. ²Excludes the amortization of goodwill and other intangible assets.

125

UBS Share Information
UBS Shares 2001

Stock ~~Exchange Prices~~exchange prices¹


													virt-x/SWX Swiss Exchange						New York Stock Exchange²
	SWX Swiss Exchange						New York Stock Exchange
													High		Low		Period end		High		Low		Period end
	High		Low		Period end		High		Low		Period end		(CHF)		(CHF)		(CHF)		(USD)		(USD)		(USD)
	(CHF)		(CHF)		(CHF)		(USD)		(USD)		(USD)

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




December														86.85		80.90		83.80		52.83		49.18		50.00




November														86.15		76.55		81.75		51.80		47.52		49.86




October														79.05		69.70		75.95		47.60		43.23		46.37




Third quarter 2001														86.33		62.10		75.60		49.73		40.12		46.15




September														81.20		62.10		75.60		47.70		40.12		46.15




August														82.80		74.30		81.40		49.73		44.36		48.82




July														86.33		75.00		78.35		47.09		43.41		45.15




Second quarter 2001														92.00		77.50		85.83		51.47		44.87		47.02




June														91.17		83.17		85.83		50.69		46.33		47.02




May														92.00		82.50		89.33		51.47		47.35		49.62




April														88.33		77.50		88.00		51.16		44.87		50.26




First quarter 2001														96.83		72.33		83.17		58.49		43.02		47.68




March														90.83		72.33		83.17		54.57		43.02		47.68




February														96.83		86.33		88.67		58.32		50.96		52.85




January														96.67		86.67		96.67		58.49		53.24		58.49

2000		264.50		190.75		264.50		153.00		129.85		163.40		88.17		63.58		88.17		54.10		40.18		54.10
Fourth quarter 2000		264.50		213.50		264.50		163.40		141.80		163.40		88.17		71.17		88.17		54.10		40.18		54.10
Third quarter 2000		264.00		224.00		230.00		153.25		135.19		135.45		88.00		74.67		76.67		50.74		44.76		44.85
Second quarter 2000		250.00		209.50		239.00		153.00		129.85		147.00		83.33		69.83		79.67		50.66		42.99		48.67
First quarter 2000		218.50		190.75		218.50								72.83		63.58		72.83

1999		264.00		202.50		215.00								80.00		67.50		71.67
Fourth quarter 1999		239.75		202.50		215.00								79.92		67.50		71.67
Third quarter 1999		246.75		202.50		211.50								82.25		67.50		70.50
Second quarter 1999		264.00		221.00		232.00								88.00		73.67		77.33
First quarter 1999		246.00		207.25		232.50								82.00		69.08		77.50

1998²		326.50		135.00		211.00




1998³														108.83		45.00		70.33






1997³

¹ ~~The share prices and volumes have been adjusted for the two-for-one stock split that became effective on 8 May 2000.~~² 2 As a result of the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation, shares of UBS AG began trading on 29 June 1998. UBS ordinary shares did not trade at any time prior to that date.

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.
² UBS was listed on 16 May 2000, therefore there are no NYSE figures for periods prior to May 2000. NYSEfigures for second quarter 2000 are for 16 May 2000 to 30 June 2000 only, and NYSE figures for full year 2000 are for 16 May 2000 to 31 December 2000 only.
³ UBS was created by the merger of Union Bank of Switzerland and Swiss Bank Corporation, on 29 June 1998. 1998 figures are therefore for the period 29 June 1998 to 31 December 1998 only. There are no figures for 1997.

126

UBS Shares and ~~Market Capitalization~~market capitalization

Number of shares % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Total ordinary shares issued¹
444,379,729 430,893,162 429,952,612 3
Less second trading line treasury shares 18,421,783
Net shares outstanding
425,957,946 430,893,162 429,952,612 (1 )
Market capitalization (CHF million)
112,666 92,642 90,720 22

Second trading line treasury shares 18,421,783
Other treasury shares 0 36,873,714 24,456,698 (100 )
Total number of treasury shares
18,421,783 36,873,714 24,456,698 (50 )


									% change from
Number of shares, except where indicated
As at	31.12.01			31.12.00			31.12.99		31.12.00			31.12.99

Total ordinary shares issued		1,281,717,499			1,333,139,187			1,292,679,486		(4	)		(1	)




Second trading line treasury shares (2000 program)					(55,265,349	)




Second trading line treasury shares (2001 program)		(23,064,356	)





Shares outstanding for market capitalization		1,258,653,143			1,277,873,838			1,292,679,486		(2	)		(3	)





Share Price (CHF)		83.80			88.17			71.67		(5	)		17





Market Capitalization (CHF million)		105,475			112,666			92,642		(6	)		14





Total treasury shares		*41,254,951*			55,265,349			110,621,142		(25	)		(63	)

¹ ~~Excludes 9,481,596 of shares to be delivered against borrowed own equity contracts, at 31 December 2000.~~

~~UBS Share Information~~

~~UBS Shares 2000~~

Distribution of UBS Shares ~~at 31 December 2000~~

Shareholders registered Shares registered
Total shares
Number of shares registered Number % Number % of shares issued issued
1–100 110,697 49.0 5,744,131 1.3
101–1,000 102,038 45.1 31,548,461 7.1
1,001–5,000 10,962 4.8 21,951,728 4.9
5,001–10,000 1,176 0.5 8,242,804 1.9
10,001–50,000 924 0.4 19,204,403 4.3
50,001–100,000 127 0.1 8,663,750 2.0
100,001–2,583,506 (1%) 207 0.1 115,639,346 26.0
1–2% 1 4,516,000 1.0
2–3% 0 0
3–4% 1 14,852,677 3.3
4–5% 0 0
Over 5% 1 ³ 27,987,339 6.3
Total registered 226,134 100.0 258,350,639 58.1 258,350,639
Non-registered²
186,029,090
Total
444,379,729


	Shareholders registered					Shares registered
As at 31.12.01
Number of shares registered	Number			%		Number			% of shares issued

1-100		43,268			19.7		2,211,404			0.2




101-1,000		134,713			61.3		52,016,145			4.1




1,001-10,000		38,414			17.5		95,134,124			7.4




10,001-100,000		2,905			1.3		71,936,991			5.6




100,001-1,000,000		338			0.2		94,420,825			7.4




1,000,001-5,000,000		61					127,656,380			10.0




5,000,001-12,817,174 (1%)		14					108,210,291			8.4




1-2%		2					28,812,592			2.2




2-3%		0					0




3-4%		1					40,834,352			3.2




4-5%		1					54,816,479			4.3




Over 5%		1	¹				88,946,417			6.9





Total registered		219,718			100		764,996,000	³		59.7




Unregistered²							516,721,499			40.3





Total shares issued							1,281,717,499			100

¹ ~~46,705,889 shares registered do not carry voting rights.~~

¹ As at 31.12.2001, Chase Nominees Ltd., London, was entered as a trustee/nominee holding 6.94% of all shares issued. ²Shares not entered in the share register at 31 December 2001. ³154,153,201 shares registered do not carry voting rights.

As far as UBS is aware, UBS is neither directly nor indirectly owned or controlled by another corporation or government, there are no arrangements in place, the ~~share register at 31.12.2000.~~³ ~~As at 31.12.2000, Chase Nominees Ltd., London, was entered as~~operation of which may result in a ~~trustee/nominee holding 6.3% of all shares issued. No~~change in control and UBS has no shareholders whose beneficial ~~owner held more than~~ownership exceeds 5% of the total ~~of outstanding shares.~~

shares issued.

127

UBS Share Information
UBS Shares 2001

~~Details on shareholders~~Registered shareholders: type and ~~shares registered~~distribution


									Shareholders				Shares
	Shareholders				Shares

	Number		%		Number		%

As at 31.12.2001									Number		%		Number		%

Individual shareholders		216,549		95.7		67,703,420		26.2		210,463		95.8		182,196,910		23.8
Legal entities		8,969		4.0		120,451,892		46.6		8,610		3.9		235,014,128		30.7
Nominees, fiduciaries		616		0.3		70,195,327		27.2		645		0.3		347,784,962		45.5

Total		226,134		100.0		258,350,639		100.0		219,718		100.0		764,996,000		100.0


Switzerland		210,860		93,3		144,552,709		56.0		204,582		93.1		396,665,957		51.9
Europe		9,580		4,2		63,850,105		24.7		9,612		4.4		227,465,501		29.7
North America		2,980		1,3		31,112,987		12.0		2,995		1.4		59,904,634		7.8
Other countries		2,714		1,2		18,834,838		7.3




Other Countries										2,529		1.1		80,959,908		10.6

Total		226,134		100.0		258,350,639		100.0		219,718		100.0		764,996,000		100.0

At 31 December 2001,UBS employees held approximately 8% of all shares issued, and options equivalent to about a further 6%.

128

~~Cautionary statement regarding forward-looking statements~~

This communication contains statements that constitute “forward-looking statements”, including, without limitation, statements relating to the implementation of strategic initiatives, including the implementation of the new European wealth management strategy and the implementation of a new business model for UBS Capital, 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.

More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

~~For information contact:~~Financial Report 2001

~~UBS AG, Investor Relations G41B, P.O. Box, CH-8098 Zurich~~

~~Phone: +41-1-234 41 00, Fax: +41-1-234 34 15~~

~~E-mail: SH-investorrelations@ubs.com, Internet: www.ubs.com/investor-relations~~

~~Change of address~~

~~UBS AG, Shareholder Services GUMV, P.O. Box, CH-8098 Zurich~~

~~Phone: +41-1-235 62 02, Fax: +41-1-235 31 54~~

~~E-mail: SH-shareholder-services@ubs.com~~

~~Published by UBS AG~~

~~Edited by: UBS AG, Investor Relations~~

~~Languages: English, German. Copyright: UBS AG.~~

~~UBS AG~~

~~P.O. Box, CH-8098 Zurich~~

~~P.O. Box, CH-4002 Basel~~

~~www.ubs.com~~

~~Our Information Portfolio~~

This Financial Report 2000 contains our audited financial statements for the year 2000 and accompanying detailed analysis. It is available in English and German (SAP-80531-0101). It is supplemented by the following documents:

~~Annual Review 2000~~

~~Our Annual Review provides brief descriptions of our business groups and a summary review of the year 2000. It is available in English, German, French, Italian and Spanish (SAP-80530-0101).~~

~~Handbook 2000/2001~~

Our Handbook contains detailed descriptions of our business groups and other in-depth information about UBS, including risk management and control, asset and liability management, corporate governance and our financial disclosure principals. It is available in English and German (SAP-80532-0101).

~~Environmental reporting:~~ ~~The Handbook also contains information on UBS and the environment.~~

~~Quarterly Reports~~

~~UBS provides detailed quarterly financial reporting and analysis, including comment on the progress of its businesses and key strategic initiatives.~~

~~Our Commitment 1999/2000~~

~~Each of these reports is available on the internet at: www.ubs.com/investor-relations.~~

~~Alternatively, printed copies of these reports can be ordered, quoting the SAP number and language preference, from: UBS AG, Information Center, CA50-XMB, P.O. Box, CH-8098 Zurich, Switzerland.~~

~~Table of~~ Contents


Profile




Introduction		21
~~Information for Readers~~


3
UBS Group Financial Highlights		72




UBS Group ~~Financial Review~~		93
~~Review of~~



Our Business ~~Group Performance~~Groups		234

~~Principles~~


Sources of Information about UBS		245




Information for Readers		8









Group Financial Review		17




Group Results		18









Review of Business
Group Performance		31




Introduction		32




UBS Switzerland		2638




UBS Asset Management		3250




UBS Warburg		3856




Corporate Center		5270

~~UBS Group Financial Statements~~


		55

~~Table of Contents~~


UBS Group Financial Statements		5675

~~Financial Statements~~


		58

~~Notes to the Financial Statements~~


UBS AG (Parent Bank)		63171

~~Report of the Group Auditors~~


		~~143~~

~~UBS AG (Parent Bank) Financial Statements~~


Additional Disclosure Required under SEC Regulations		~~146~~183
	~~Table of Contents~~		~~147~~
	~~Parent Bank Review~~		~~148~~
	~~Financial Statements~~		~~149~~
	~~Notes to the Financial Statements~~		~~152~~
	~~Report of the Statutory Auditors~~		~~156~~
~~Information for Shareholders~~

~~157~~

~~Introduction~~

Introduction

The ~~UBS~~ Financial Report ~~2000, published for the first time in this format,~~2001 forms an essential part of ~~UBS’s~~our reporting portfolio. It includes the audited ~~consolidated financial statements~~Financial Statements of UBS Group for ~~2000~~2001 and ~~1999,~~2000, prepared according to International Accounting Standards (IAS) and reconciled to ~~U.S. GAAP,~~United States Generally Accepted Accounting Principles (US GAAP), and the audited financial statements of ~~the~~ UBS AG (the Parent ~~Bank~~Bank) for ~~2000,~~2001, prepared according to Swiss Banking Law requirements. It also contains ~~the~~a discussion and analysis of the ~~results~~financial and business performance of UBS Group and its Business Groups, and some additional disclosures required ~~for the~~under Swiss and US ~~Securities and Exchange Commission’s Form 20-F.~~

regulations.

The ~~UBS~~ Financial Report ~~2000 is complemented~~should be read in conjunction with the other information published by ~~another new publication, the~~ UBS ~~Handbook 2000/2001, which describes the Group’s strategy and organization, the businesses it operates, the way it manages risk and its arrangements for corporate governance.~~

In addition, UBS publishes Quarterly Financial Reports, analyzing its performance during each quarter of the year, and an Annual Review, which provides a brief summary of the Group and its financial performance in 2000.

described on page 5.

We hope that you will find the information in these documents useful and informative. We believe that UBS is among the leaders in corporate disclosure, but we would be very interested to hear your views on how we might improve the content and presentation of our information portfolio.

~~Please contact UBS Investor Relations with any enquiries:~~

Mark Branson
Head of Group Communications
UBS AG

~~Investor Relations G41B~~

~~P.O. Box, CH-8098 Zurich~~

~~Phone +41-1-234 41 00~~

~~Fax +41-1-234 34 15~~

~~E-mail SH-investorrelations@ubs.com~~

~~www.ubs.com/investor-relations~~

~~Information for Readers~~Profile

~~Information for Readers~~

~~The discussion and analysis in the~~UBS Group Financial Review and Review of Business Group Performance should be read in conjunction with the UBS Group’s consolidated financial statements and the related notes, which are shown in pages 58 to 142 of this document.

~~Parent Bank~~Highlights

Pages 147 to 154 contain the financial statements for the UBS AG Parent Bank – the Swiss company, including branches worldwide, which owns all the UBS Group companies, directly or indirectly. Except in those pages, or where otherwise explicitly stated, all references to “UBS” refer to the UBS Group and not to the Parent Bank.

~~Accounting standards~~

The UBS Group’s consolidated financial statements have been prepared in accordance with International Accounting Standards (IAS). As a US listed company, UBS provides a description in Note 41 to its consolidated financial statements of the significant differences which would arise were our accounts to be presented under U.S. GAAP, and a specific reconciliation of the two methods of calculating shareholders’ equity and net profit.

~~Unless otherwise stated, all of UBS Group’s financial information presented in this document is presented on a consolidated basis under IAS.~~

~~The Parent Bank’s financial statements have been prepared in accordance with Swiss Banking Law requirements.~~

All references to 2000, 1999 and 1998 refer to the UBS Group and the Parent Bank’s fiscal years ended 31 December 2000, 1999 and 1998, respectively. The financial statements for the UBS Group and the Parent Bank for each of these periods have been audited by Ernst & Young Ltd., as described in the Reports of the Independent Auditors on pages 143 and 155.

~~Accounting changes and restatements~~

For comparative purposes, UBS Group’s 1999 and 1998 figures have been restated to conform to the 2000 presentation, reflecting certain changes in accounting standards and methods of presentation, including
¹ Operating expenses / operating income before credit loss expense.
–
² Excludes the ~~removal from net trading income~~amortization of ~~profit on UBS ordinary shares held for trading purposes;~~goodwill and other intangible assets.
–
³ For EPS calculation, see Note 9 to the ~~treatment of these shares as treasury shares, reducing both the number of shares and the~~Financial Statements.
⁴ Net profit / average shareholders’ equity ~~used in ratio calculations;~~excluding dividends.
–
⁵ Includes hybrid tier 1 capital, please refer to Note 30e in the ~~reclassification of trading-related interest and dividend revenues from net trading income~~Notes to ~~net interest income; and~~the Financial Statements.
–
⁶ Calculated using the ~~removal~~former definition of assets under management.
⁷ The Group headcount does not include the Klinik Hirslanden AG headcount of 2,450, 1,839 and 1,853 for 31 December 2001, 31 December 2000 and 31 December 1999, respectively.
⁸ See the Capital strength section on pages 10 to 11 of the ~~credit to net interest income and matching debit to net trading income~~UBS Handbook 2001/2002.
⁹ Details of significant financial events can be found in the Group Financial Review.
All earnings per share figures have been restated for the ~~cost~~3 for 1 share split which took place on 16 July 2001.
Except where otherwise stated, all 31 December 2001 and 31 December 2000 figures throughout this report include the impact of ~~funding trading positions.~~the acquisition of PaineWebber, which occurred on
3 November 2000.
All invested assets figures for 31 December 2000 have been restated to reflect the new definition.


CHF million, except where indicated							% change from
For the year ended	31.12.01		31.12.00		31.12.99		31.12.00

Income statement key figures




Operating income		37,114		36,402		28,425		2




Operating expenses		30,396		26,203		20,532		16




Operating profit before tax		6,718		10,199		7,893		(34	)




Net profit		4,973		7,792		6,153		(36	)




Cost / income ratio (%)¹		80.8		72.2		69.9




Cost / income ratio before goodwill (%)^1,2		77.3		70.4		68.7

Per share data (CHF)




Basic earnings per share³		3.93		6.44		5.07		(39	)




Basic earnings per share before goodwill^2,3		4.97		7.00		5.35		(29	)




Diluted earnings per share³		3.78		6.35		5.02		(40	)




Diluted earnings per share before goodwill^2,3		4.81		6.89		5.30		(30	)

Return on shareholders’ equity (%)




Return on shareholders’ equity⁴		11.7		21.5		22.4




Return on shareholders’ equity before goodwill^2,4		14.8		23.4		23.6


CHF million, except where indicated								% change from
As at	31.12.01		31.12.00		31.12.99			31.12.00

Balance sheet key figures




Total assets		1,253,297		1,087,552		896,556			15




Shareholders’ equity		43,530		44,833		30,608			(3	)

Market capitalization		105,475		112,666		92,642			(6	)

BIS capital ratios




Tier 1 (%)⁵		11.6		11.7		10.6			(1	)




Total BIS (%)		14.8		15.7		14.5			(6	)




Risk-weighted assets		253,735		273,290		273,107			(7	)

Invested assets (CHF billion)		2,457		2,452		1,744	⁶		0

Headcount (full time equivalents)⁷		69,985		71,076		49,058			(2	)

Long-term ratings⁸




Fitch, London	AAA		AAA		AAA




Moody’s, New York	Aa2		Aa1		Aa1




Standard & Poor’s, New York	AA+		AA+		AA+

~~Note 1 of UBS’s consolidated financial statements includes a complete explanation of these and other accounting changes.~~

~~PaineWebber~~

Except where otherwise stated, all 2000 figures for UBS Group throughout this report, include the impact of the merger with Paine Webber Group, Inc., which was completed on 3 November 2000. Under purchase accounting rules, the results reflect PaineWebber’s income and expenses for two months only, from 3 November 2000 until year end.

~~Restructuring provision~~

The 1998 merger of Swiss Bank Corporation and Union Bank of Switzerland, which was completed on 29 June 1998, was accounted for under the “pooling-of-interests” method of accounting. Under the pooling-of-interests method, a single uniform set of accounting policies was adopted and applied retrospectively for the restatement of comparative information.

After the merger was effected, UBS began integrating the operations of the two banks. This process included streamlining operations, eliminating duplicate information technology infrastructure, and consolidating banking premises. At the time of the merger, UBS established a restructuring provision of CHF 7 billion to cover its expected costs associated with the integration process.

~~An additional pre-tax restructuring charge of CHF 300 million in respect of the merger,~~

~~Information for Readers~~

~~Restructuring Provision Used~~

For the year ended
CHF million Personnel IT Premises Other 31.12.00 31.12.99 31.12.98
UBS Switzerland 176 32 4 16 228 916 821
UBS Asset Management 7 0 0 0 7 15 22
UBS Warburg 0 0 0 0 0 348 2,423
Corporate Center 5 31 395 33 464 565 761
Group total
188 63 399 49 699 1,844 4,027

Initial restructuring provision in 1997 7,000
Additional provision in 1999 300
Used in 1998 4,027
Used in 1999 1,844
Used in 2000 699
Total used through 31.12.2000 6,570
Restructuring provision remaining at 31.12.2000 730

representing about 4% of the original CHF 7 billion provision, was recognized in December 1999. The majority of the additional provision was due to revised estimates of the cost of lease breaks and property disposals.

UBS has now largely completed the integration and restructuring process relating to the merger and, at 31 December 2000, had used approximately CHF 6.6 billion of the CHF 7.3 billion restructuring provision. UBS expects to have utilized the entire provision by the end of 2001.

~~Significant financial events~~

UBS analyses its performance on a reported basis determined in accordance with International Accounting Standards, and on a normalized basis which excludes from the reported amounts certain items UBS calls~~significant financial events~~.

~~Figures~~Earnings adjusted for significant financial events are used to illustrate the underlying operational performance of the business, insulated from the impact of one off gains or losses outside the normal run of business. In particular, UBS’s financial targets have been set in terms of adjusted results, excluding significant financial events. A policy approved by the Group Executive Board defines which items may be classified as significant financial events.

~~The use of numbers which have been adjusted for significant financial events is restricted to UBS’s business unit reporting~~ and to the discussion and analysis of the Group’s results and the accompanying illustrative tables. All segmental reporting includes tables showing both reported figures and adjusted ones, if applicable.pre-goodwill^{2, 9}

All adjusted figures are clearly identified as such, and the pre-tax amount of each individual significant financial event is clearly disclosed, as is the net tax benefit or loss associated with all the significant financial events in each period.

UBS introduced the concept of significant financial events for the first time in its 1999 Reporting, and did not define significant financial events for 1998. The comparison of results for 1999 against 1998 therefore considers only unadjusted figures.

~~Significant financial events during 1999 and 2000 are shown in the table on page 5 and described in more detail below.~~


–	~~During 2000, UBS recorded restructuring charges and provisions of CHF 290 million pre-tax relating to the integration of PaineWebber into UBS.~~
–	During 1999, UBS recognized pre-tax gains of CHF 1,490 million on the sale of its 25% stake in Swiss Life/ Rentenanstalt; CHF 110 million on the disposal of Julius Baer registered shares; CHF 200 million on the sale of its international Global Trade Finance business; and CHF 38 million from its residual holding in Long Term Capital Management.
–	~~In fourth quarter 1999, UBS recognized a one-time credit of CHF 456 million in~~ ~~con-~~

~~Information for Readers~~

~~Significant Financial Events~~

For the year ended
CHF million 31.12.00 31.12.99
Operating income as reported
36,402 28,425 ¹
Julius Baer registered shares divestment (110 )
International Global Trade Finance divestment (200 )
Swiss Life / Rentenanstalt divestment (1,490 )
LTCM gain (38 )
Adjusted operating income
36,402 26,587
Operating expenses as reported
26,203 20,532
US Global Settlement Fund provision (150 ) (154 )
Pension Fund accounting credit 456
UBS / SBC Restructuring provision (300 )
PaineWebber integration costs (290 )
Adjusted operating expenses
25,763 20,534
Adjusted operating profit before tax and minority interests
10,639 6,053
Tax expense 2,320 1,686
Tax effect of significant financial events 100 (352 )
Adjusted tax expense 2,420 1,334
Minority interests (87 ) (54 )
Adjusted net profit
8,132 4,665


CHF million, except where indicated							% change from
For the year ended	31.12.01		31.12.00		31.12.99		31.12.00

Operating income		37,114		36,402		26,587		2




Operating expenses		29,073		25,096		20,194		16




Operating profit before tax		8,041		11,306		6,393		(29	)




Net profit		6,296		8,799		5,005		(28	)

Cost / income ratio (%)¹		77.3		69.2		73.3




Basic earnings per share (CHF)³		4.97		7.28		4.12		(32	)




Diluted earnings per share (CHF)³		4.81		7.17		4.09		(33	)

Return on shareholders’ equity (%)⁴		14.8		24.3		18.2

~~nection with excess pension fund employer pre-payments.~~
– ~~In fourth quarter 1999, UBS recognized an additional pre-tax restructuring charge of CHF 300 million in respect of the 1998 merger between Union Bank of Switzerland and Swiss Bank Corporation.~~
– During 1998, UBS established a provision of CHF 842 million in connection with the US Global Settlement of World War II related claims. UBS recognized additional pre-tax provisions relating to this claim of CHF 154 million in 1999 and CHF 150 million in 2000.

~~Risk factors~~

As a global financial services firm, UBS’s businesses are affected by the external environment in the markets in which UBS operates. In particular, the results of UBS’s business in Switzerland, and notably the results of its credit-related activities, would be adversely affected by any deterioration in the state of the Swiss economy because of the impact this would have on UBS’s customers’ creditworthiness. More generally, global economic and political conditions can impact UBS’s results and financial position by affecting the demand for UBS’s products and services, and the credit quality of UBS’s borrowers and counterparties. Similarly, any prolonged weakness in international securities markets would affect UBS’s business revenues through its effect on UBS’s clients’ investment activity and the value of portfolios under management, which would in turn reduce UBS’s revenues from its private banking and asset management businesses.

~~Competitive forces~~

UBS faces intense competition in all aspects of its business. UBS competes with asset managers, retail and commercial banks, private banking firms, investment banking firms, brokerage firms and other investment services firms. In addition, the trend toward consolidation in the global financial services industry is creating competitors with broader ranges of product and service offerings, increased access to capital, and greater efficiency and pricing power.

~~Information for Readers~~

~~Fluctuations in currency exchange rates and interest rates~~

Because UBS prepares its accounts in Swiss francs, changes in currency exchange rates, particularly between the Swiss franc and the US dollar, may have an effect on the earnings that it reports. UBS’s approach to managing this risk is explained in the Currency Management section of the discussion of Asset and Liability Management in the UBS Handbook 2000/2001.

In addition, changes in financial market structures can affect UBS’s earnings. For example, the establishment of the euro during 1999 affected foreign exchange markets in Europe by reducing the extent of foreign exchange dealings among member countries and generating more harmonized financial products. Movements in interest rates can also affect UBS’s results. UBS’s interest income is affected by changes in interest rates, although the precise mechanisms are complicated. Interest rate movements can also affect UBS’s fixed income trading portfolio and the investment performance of its asset management businesses. For further discussion of the effect of interest rate changes on UBS’s business see the Interest Rate Risk Management section of the discussion of Asset and Liability Management in the UBS Handbook 2000/2001.

~~Operational risks~~

UBS’s businesses are dependent on its ability to process a large number of complex transactions across numerous and diverse markets in different currencies and subject to many different legal and regulatory regimes. UBS’s systems and processes are designed to ensure that the risks associated with UBS’s activities are appropriately controlled, but UBS recognizes that any weaknesses in these systems could have a negative impact on its results of operations.

As a result of these and other factors beyond its control, UBS’s revenues and operating profit have been and are likely to continue to be subject to a measure of variability from period to period. Therefore UBS’s revenues and operating profit for any particular fiscal period may not be indicative of sustainable results, may vary from year to year and may impact UBS’s ability to achieve its strategic objectives.

~~For a discussion of UBS’s risk management and control procedures see the Risk Management and Control section of the UBS Handbook 2000/2001.~~

~~UBS Group~~

~~Financial Highlights~~2

UBS Group

~~Financial Highlights~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income statement key figures

Operating income 36,402 28,425 22,247 28
Operating expenses 26,203 20,532 18,376 28
Operating profit before tax 10,199 7,893 3,871 29
Net profit 7,792 6,153 2,972 27
Cost / income ratio (%)²
72.2 69.9 79.2
Cost / income ratio before goodwill (%)^2, 3
70.4 68.7 77.7
Per share data (CHF)

Basic earnings per share^4, 7
19.33 15.20 7.33 27
Basic earnings per share before goodwill^3, 4, 7
20.99 16.04 8.18 31
Diluted earnings per share^4, 7
19.04 15.07 7.20 26
Diluted earnings per share before goodwill^3, 4, 7
20.67 15.90 8.03 30
Return on shareholders’ equity (%)

Return on shareholders’ equity⁵
21.5 22.4 10.7
Return on shareholders’ equity before goodwill^3,5
23.4 23.6 12.0

CHF million, except where indicated % change from
As of 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Balance sheet key figures

Total assets 1,087,552 896,556 861,282 21
Shareholders’ equity 44,833 30,608 28,794 46
Market capitalization 112,666 92,642 90,720 22
BIS capital ratios

Tier 1 (%) 11.7 10.6 9.3
Total BIS (%) 15.7 14.5 13.2
Risk-weighted assets 273,290 273,107 303,719 0
Total assets under management (CHF billion)
2,469 1,744 1,573 42
Headcount (full time equivalents)⁶
71,076 49,058 48,011 45
Long-term ratings

Fitch, London AAA AAA AAA
Moody’s, New York Aa1 Aa1 Aa1
Standard & Poor’s, New York AA+ AA+ AA+

~~Earnings adjusted for significant financial events~~⁸

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.99
Operating income 36,402 26,587 37
Operating expenses 25,763 20,534 25
Operating profit before tax 10,639 6,053 76
Net profit 8,132 4,665 74
Cost / income ratio before goodwill (%)^2, 3
69.2 73.3
Basic earnings per share before goodwill (CHF)^3, 4, 7
21.83 12.37 76
Diluted earnings per share before goodwill (CHF)^3, 4, 7
21.50 12.26 75
Return on shareholders’ equity before goodwill (%)^3, 5
24.3 18.2

~~Except where otherwise stated, all 31 December 2000 figures throughout this report include the impact~~one of the ~~acquisition of PaineWebber,~~world’s leading financial firms, serving a discerning global client base. As an organization, we combine financial strength with a reputation for innovation and a global culture which ~~occurred on 3 November 2000.~~

~~(This page intentionally left blank)~~

~~Group Financial~~

~~Review~~

~~Group Financial Review~~

~~Group Performance~~

~~Introduction~~

~~UBS~~embraces change. Our vision is ato be the pre-eminent global integrated investment services firm and the leading bank in Switzerland. We are the world’s leading provider of private banking services and one of the largest asset managers globally. In the investment banking and securities businesses we are among the select bracket of major global houses. In Switzerland, we are the clear market leader in corporate and retail banking. As an integrated group, not merely a holding company, we create added value for our clients by drawing on the combined resources and expertise of all our businesses.

With head offices in Zurich and Basel, we operate in over 50 countries and from all major international financial centers. Our global physical presence is complemented by leading edge on-line services. All our clients can benefit from our technology – it complements our advisory services and allows us to deliver our services faster, more widely and more cost-effectively than ever before.

Profile

~~UBS operates through three~~

Our Business Groups ~~and its Corporate Center. The three~~

All our Business Groups ~~are:~~are in the top echelons of their sectors globally and are committed to vigorously growing their franchises.

UBS Switzerland


–	~~UBS Switzerland, which is made up of two business units: Private and Corporate Clients and Private Banking;~~
–	~~UBS Asset Management, which, until January 2001, consisted of two business units: Institutional Asset Management and Investment Funds/ GAM; and,~~
–	~~UBS Warburg, which, until January 2001, was composed of five business units: Corporate & Institutional Clients, UBS Capital, US Private Clients, International Private Clients and e-services.~~

UBS Asset Management

~~Within each~~UBS Asset Management is a leading institutional asset manager and mutual fund provider, with invested assets of CHF 672 billion at 31 December 2001, offering a broad range of asset management services and products for institutional and individual clients across the world.

UBS Warburg

Corporate Center

Our portfolio of businesses is planned and ~~other resources.~~managed for the long-term maximization of shareholder value. The role of the Corporate Center is to ensure that the Business Groups operate as a coherent and effective whole, in alignment with UBS’s overall corporate goals.

~~A full~~

Sources of Information about UBS

This Financial Report contains our audited Financial Statements for the year 2001 and accompanying detailed analysis. You can find out more about UBS from the sources shown below.

Publications

This Financial Report is available in English and German. (SAP-R/3 80531-0201)

Annual Review 2001

Our Annual Review contains a short description of UBS, and a summary review of our performance in the year 2001. It is available in English, German, French, Italian and Spanish. (SAP-R/3 80530-0201)

Handbook 2001/2002

Our Handbook 2001/2002 contains a detailed description of UBS, its ~~Business Groups~~strategy, its organization and the businesses that make it up. It is available in English and German. (SAP-R/3 80532-0201)

Quarterly reports

We provide detailed quarterly financial reporting and analysis, including comment on the progress of our businesses and key strategic initiatives. These reports are available in English.

How to order reports

Each of these reports is available on the internet at: www.ubs.com/investors, in the Financials section. Alternatively, printed copies can be ordered, quoting the SAP number and the language preference where applicable, from UBS AG, Information Center, CA50-XMB, P.O. Box, CH-8098 Zurich, Switzerland.

E-information tools for investors

Website

Our internet-based information is available in English and German, with some sections also in French and Italian.

Messenger service

Results presentations

Senior management presents UBS’s quarterly results every quarter on publication date. These presentations are broadcast live over the internet, and can be downloaded on demand. The most recent results webcasts can also be found in the ~~UBS Handbook 2000/2001.~~Financials section of our Investors and Analysts website.

UBS and the Environment

The ~~financial impact on~~Handbook 2001/2002 contains a summary of UBS environmental policies. More detailed information is available at www.ubs.com/environment.

Form 20-F and other submissions to the US Securities and Exchange Commission

Our Form 20-F filing is structured as a “wrap-around” document. Most sections of the ~~PaineWebber merger~~filing are satisfied by referring to part of the Handbook or to part of this Financial Report

~~Restructuring costs~~Profile

~~UBS has incurred~~

2001. However, there is a ~~total~~small amount of ~~CHF 746 million (USD 431 million)~~additional information in the Form 20-F which is not presented elsewhere, and is particularly targeted at readers from the US. You are encouraged to refer to this additional disclosure.

You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 450 Fifth Street NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 (in the US) for further information on the operation of ~~restructuring costs~~its public reference room. You may also inspect our SEC reports and other ~~one-off merger-related costs~~information at the New York Stock Exchange, Inc., 20 Broad Street, New York, NY 10005 and the American Stock Exchange LLC, 86 Trinity Place, New York, NY 10006. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of documents filed with the SEC may be obtained from UBS’s Investor Relations team, at the addresses shown below.

Corporate information

The address and telephone number of our two registered offices and principal places of business are:

Bahnhofstrasse 45, CH-8098 Zurich, Switzerland, telephone +41-1-234 11 11;

and Aeschenvorstadt 1, CH-4051 Basel, Switzerland, telephone +41-61-288 20 20.



UBS Investor Relations	E-mail: sh-investorrelations@ubs.com		Web: www.ubs.com/investors




Our Investor Relations team
supports institutional,
professional and retail	Zurich		New York
investors from offices
in Zurich and New York.	Hotline Zurich:	+41 1 234 4100	Hotline New York:	+1 212 713 3641

	Christian Gruetter	+41 1 234 4360	Richard Feder	+1 212 713 6142

	Mark Hengel	+41 1 234 8439	Christopher McNamee	+1 212 713 3091

	Charles Gorman	+41 1 234 2733

	Catherine Lybrook	+41 1 234 2281

	Fax	+41 1 234 3415	Fax	+1 212 713 1381






	UBS AG Investor Relations G41B P.O. Box CH-8098 Zurich, Switzerland		UBS Americas Inc. Investor Relations 1285 Avenue of the Americas, 14th Floor New York, NY 10019, USA

UBS Group Media Relations		Telephone	Fax	E-mail

	Zurich	+41 1 234 8500	+41 1 234 8561	sh-gpr@ubs.com

	London	+44 20 7567 4714	+44 20 7568 0955	sh-mr-london@ubsw.com

	New York	+1 212 713 8391	+1 212 713 9818	mediarelations-ny@ubsw.com

	Tokyo	+81 3 5208 6275	+81 3 52 08 69 51	sh-comms-mktg-tokyo@ubs.com






Other useful contacts






Switchboards		Telephone





For all general queries.	Zurich	+41 1 234 1111

	London	+44 20 7568 0000





	New York	+1 212 821 3000





	Tokyo	+81 3 5293 3000





UBS Shareholder Services		Telephone	Fax	E-mail
UBS Shareholder Services,
a unit of the Company Secretary, is responsible for	Zurich	+41 1 235 6202	+41 1 235 3154	sh-shareholder-service@ubs.com
Global Registered Shares. It
the registration of the
is split into two parts – a Swiss register, which is maintained by UBS acting as Swiss transfer agent, and a US register, which is maintained by Mellon Investor Services as US transfer agent (see below).	UBS AG Shareholder Services P.O. Box CH-8098 Zurich, Switzerland





UBS Transfer Agent For all Global Registered Share related queries in the USA.	Mellon Investor Services Overpeck Center 85 Challenger Road Ridgefield Park, NJ 07660, USA.		Telephone: +1 866 541 9689 Fax: +1 201 296 4801 Web: http://www.melloninvestor.com





	UBS listed its Global Registered Shares on the New York Stock Exchange on 16 May 2000. Prior to that date UBS operated an ADR program. See the Frequently Asked Questions (FAQs) section at www.ubs.com/investors for further details about the UBS share.

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Information for Readers

You should read the discussion and analysis in the Group Financial Review and Review of Business Group Performance in conjunction with the UBS Group Financial Statements and the related notes, which are shown in pages 75 to 169 of this document.

Parent Bank

Pages 171 to 181 contain the financial statements for the UBS AG Parent Bank – the Swiss company, including branches worldwide, which owns all the UBS Group companies, directly or indirectly. Except in those pages, or where otherwise explicitly stated, all references to “UBS” refer to the UBS Group and not to the Parent Bank.

Accounting standards

The UBS Group Financial Statements have been prepared in accordance with International Accounting Standards (IAS). As a US listed company, UBS Group provides a description in Note 40 of its Financial Statements of the significant differences which would arise were our accounts to be presented under United States Generally Accepted Accounting Principles (US GAAP), and a detailed reconciliation of IAS shareholders’ equity and net profit to US GAAP. Major differences between Swiss federal banking law requirements and IAS are described in Note 39 to the UBS Group Financial Statements.

Except where clearly identified otherwise, all of UBS Group’s financial information presented in this document is presented on a consolidated basis under IAS.

The Parent Bank’s financial statements are prepared in order to meet Swiss regulatory requirements and in compliance with Swiss federal banking law.

All references to 2001, 2000 and 1999 refer to the UBS Group and the Parent Bank’s fiscal years ended 31 December 2001, 2000, and 1999, respectively. The Financial Statements for the UBS Group and the Parent Bank for each of these periods have been audited by Ernst & Young Ltd., as described in the Report of the Independent Auditors on page 169 and the Report of the Statutory Auditors on page 181.

Implementation of IAS 39

On 1 January 2001, UBS Group adopted the new accounting standard IAS 39:Recognition and measurement of financial instruments. The principal effects on our accounts are outlined below.

Profit and loss impact

UBS’s strategy has always been to minimize the profit and loss volatility that can be caused by “non-qualifying” hedges. As a result, implementation of IAS 39 has not had any significant effects on UBS’s net profit, and is not expected to do so in the foreseeable future.

Changes to shareholders’ equity

For the first time this year we identify “Gains/Losses not recognized in the income statement” as a separate section within shareholders’ equity. Within this we show three sub-sections, Foreign currency translation (which was an existing line in shareholders’ equity, reported in previous years) and two new sub-sections introduced as a result of the adoption of IAS 39 on 1 January 2001: Unrealized gains/losses on available for sale investments and Changes in fair value of derivative instruments designated as cash flows hedges. Both sub-sections had opening balances:

–		The opening balance of Unrealized gains/losses on available-for-sale investments was a net gain of CHF 1,577 million, net of taxes, due to unrealized mark-to-market gains on financial investments classified as available for sale which were principally attributable to private equity investments, but also included other financial investments held by the Group.
–		The opening balance of Changes in fair value of derivative instruments designated as cash flows hedges was a net loss of CHF 380 million, net of taxes, due to unrealized mark-to-market losses on derivatives designated as cash flow hedges. These losses were previously

UBS / SBC merger restructuring provision used


									For the year ended

CHF million	Personnel		IT		Premises		Other		31.12.01		31.12.00		31.12.99

UBS Switzerland		361		23		35		0		419		228		916




UBS Asset Management		2		0		0		0		2		7		15




UBS Warburg		0		0		0		0		0		0		348




Corporate Center		7		0		267		14		288		464		565

Group total		370		23		302		14		709		699		1,844


Initial restructuring provision in 1997										7,000




Additional provision in 1999										300

Used in 1998										4,027




Used in 1999										1,844




Used in 2000										699




Used in 2001										709

Total used up to 31.12.2001										7,279

Released to the income statement										21

Restructuring provision at 31.12.2001										0

recorded in the balance sheet as a part of deferred losses.

All movements within these categories are now recorded each year in the Statement of changes in equity.

Other changes to accounting presentation

For comparative purposes, UBS Group’s 2000 and 1999 figures have been restated to conform to the presentation used in 2001, reflecting changes in methods of presentation, including the reclassification of Money market paper held as Trading portfolio assets or Financial Investments, as appropriate, and of Money market paper issued as Debt issued.

Note 1 to the UBS Group Financial Statements includes a detailed explanation of these and other accounting changes.

The segment reporting shown in Note 2 to UBS Group Financial Statements has been restated to reflect the organization of the Group during 2001. See the Review of Business Group performance for details of changes since the 2000 presentation.

PaineWebber ~~merger.~~merger

Except where otherwise stated, all 2000 figures for UBS Group throughout this report, include the impact of the merger with Paine Webber Group, Inc., which was completed on 3 November 2000. Under purchase accounting rules, the results for 2000 reflect PaineWebber’s income and expenses for two months only, from 3 November 2000 until 31 December 2000. Results for 2001 include PaineWebber for the full year, while results for 1999 contain no contribution from PaineWebber.

Restructuring provision

The 1998 merger of Swiss Bank Corporation and Union Bank of Switzerland, which was completed on 29 June 1998, was accounted for under the “pooling-of-interests” method of accounting, referred to in IAS as “uniting of interests”. Under this method, a single uniform set of accounting policies was adopted and applied retrospectively for the restatement of comparative information.

After the merger was effected, we began integrating the operations of the two predecessor banks. This process included streamlining operations, eliminating duplicate information technology infrastructure, and consolidating banking premises. At the time of the merger, we established a restructuring provision of CHF 7 billion to cover UBS’s expected costs associated with the integration process.

In December 1999, we recognized an additional pre-tax restructuring charge of CHF 300 million in respect of the merger. The majority of the additional provision was due to revised estimates of the cost of lease breaks and property disposals.

We have now completed the integration and restructuring process relating to the merger. At

Profile

31 December 2001, CHF 21 million of the restructuring provision remained and was released to the income statement.

Critical accounting policies

We prepare our Financial Statements in accordance with IAS, and provide a reconciliation to US GAAP. When feasible, we try to reduce the differences between our Financial Statements under the two standards by applying accounting policies that are in accordance with both sets of standards. This approach limits (but does not completely eliminate) the range of elective accounting treatments available to us, but there are still rules under both standards which require us to apply judgment and make estimates in preparing our Financial Statements. The more significant of these accounting treatments are discussed in this section, as a guide to better understanding how their application affects our reported results and our disclosure. A broader description of the accounting policies we employ is shown in Note 1 to the UBS Group Financial Statements.

The existence of alternatives and the application of judgment mean that any selection of different alternatives or estimates would cause our reported results to differ. We believe that the choices we have made are appropriate, and that our Financial Statements therefore present our financial position and results fairly, in all material respects. The alternative outcomes discussed below are presented solely to assist the reader to understand our Financial Statements, and are not intended to suggest that other alternatives or estimates would be more appropriate.

Many of the judgments which we make in applying accounting principles depend on an assumption, which we believe to be correct, that UBS maintains sufficient liquidity to hold positions or investments until a particular trading strategy matures – i.e. that we do not need to realize positions at unfavorable prices in order to fund immediate cash needs. Liquidity is discussed in more detail on pages 80 to 83 of the UBS Handbook 2001/2002.

Financial instruments – fair value

Ourtrading portfolioassets and liabilities are recorded at fair value. As such, they must be recorded at fair value at each balance sheet date, with changes in fair value recorded as trading income in the income statement. Key judgments affecting this accounting policy relate to how we determine fair value for such assets and liabilities.

Where liquid markets exist, fair value is based on quoted market prices. However, for certain complex or illiquid financial instruments, we have to use projections, estimates and models to determine fair value. In addition, judgmental factors such as the need for credit adjustments, liquidity adjustments and other valuation adjustments affect the reported fair value amounts of many assets and liabilities. Further details of our valuation policies, including stress loss scenarios and interest rate risks, are given in the Risk Analysis section of the UBS Handbook 2001/2002, on pages 61 to 76.

We believe the assumptions and estimates we have used are reasonable and supportable in the existing market environment. Because of the range of assumptions and estimates that could be used and the number of different sorts of products covered, it is not possible to quantify or meaningfully disclose the impact of using different assumptions and estimates that would also be supportable.

Hedge accounting. IAS 39 allows a company to apply hedge accounting if it fully complies with the specified hedge criteria. We have chosen to apply hedge accounting whenever we meet these criteria so that our Financial Statements clearly reflect the economic hedge effect obtained from the use of these instruments.

Over the entire life of an effective hedging instrument, changes in the fair value or cash flows of the hedged item can be expected to be almost fully offset by changes in the fair value or cash flows of the hedging instrument, so the net impact on profit over time is relatively small. However, if the hedged item is one that would normally not be recorded at fair value (for instance if it is held at cost less impairment), but the hedging instrument is of a sort that would normally be accounted for at fair value, there could be substantial differences in the profit and loss effect for the two items during specific accounting periods, although over the whole life of the instrument these would be expected to balance out.

Applying hedge accounting means that changes in the fair values of designated hedging instruments affect reported net profit in a periodonly to the extent that each hedge is ineffective.

Alternatively, if we were to choose not to apply hedge accounting, the entire change in fair value of the designated hedging instruments in each individual reporting period would be reported in net income for that period, regardless of the economic effectiveness of the hedge. For 2001, this would have resulted in a pre-tax gain of CHF 240 million. We believe that not applying hedge accounting could lead to misinterpretations of our results and financial position, since hedging transactions could have a material impact on reported net profit in a particular period, although over the total life of a hedge the net effect of the two treatments is identical.

Financial investments – available for sale

UBS has classified some of its financial assets, including investments not held for trading purposes, as available-for-sale. This classification is based on our determination that these assets are not held for the purpose of generating short-term trading gains. Upon adoption of IAS 39 at 1 January 2001, we elected to record changes in the fair value of available-for-sale assets in a separate component of shareholders’ equity rather than in income. Had we made a different election, any changes in the fair value of these assets (i.e. unrealized gains or losses) would be reflected in the income statement. Similarly, if we had originally decided that these were trading assets, or if we were to reclassify these assets as trading assets, changes in fair value would then have to be reflected in income rather than shareholders’ equity. The amount of unrealized gains or losses on the balance sheet date is disclosed in the statement of changes in equity in the UBS Group Financial Statements.

Companies held in our private equity portfolio are not consolidated in UBS’s Financial Statements. This treatment has been determined after considering such matters as liquidity, exit strategies and degree and timing of our influence and control over these investments.

We classify our private equity investments as financial investments available-for-sale, and carry them on the balance sheet at fair value, with changes in fair value being recorded directly in equity, while unrealized losses which are determined to be permanent are recorded in our income statement as impairment charges. Since quoted market prices are generally unavailable for these companies, fair value is determined by applying recognized valuation techniques, which require the use of assumptions and estimates. While we believe that the assumptions and estimates we use to determine fair value are reasonable and supportable, different assumptions and estimates could be used, which would lead to different results. In addition, the determination of when a decline in fair value below cost is permanent is judgmental by nature, so profit and loss would be affected by differences in this judgment.

Goodwill and other intangible assets

We regularly review assets that are not carried at fair value for possible impairment indications. If impairment indicators are identified we make an assessment about whether the carrying value of such assets remains fully recoverable. When making this assessment we compare the carrying value to the market value, if available, or the value in use. Value in use is determined by discounting expected future net cash flows generated by an asset or group of assets to its present value. Determination of the value in use requires management to make assumptions and use estimates. We believe that our assumptions and estimates used are reasonable and supportable in the existing market environment, but different ones could be used which would lead to different results.

The single most significant amount of goodwill relates to the acquisition of PaineWebber. The valuation model used to determine the fair value of UBS PaineWebber is sensitive to changes in the assumptions about the discount rate, growth rate and expected cash flows (i.e., assumptions about the future performance of the business). Adverse changes in any of these factors could lead us to record a goodwill impairment charge.

Allowances and provisions for credit losses

UBS has an extensive loan portfolio which is exposed to credit risk. These loans are initially recorded at cost (i.e., at the net amount of proceeds lent), and then held at amortized cost reduced for credit reserves. Credit reserves are based upon management’s assessment of the likelihood that the borrower will not repay principal and interest according to the contractually agreed terms. Had we made different judgments about the need for credit reserves and their amounts, our credit loss expense charge would have been different.

Profile

Further details of our policies in this area are given in the Risk Analysis section of the UBS Handbook 2001/2002, on pages 61 to 76.

Securitizations and Special Purpose Entities

UBS sponsors the formation of Special Purpose Entities (SPEs) primarily for the purpose of allowing clients to hold investments, for asset securitization transactions, and for credit protection. In accordance with IAS ~~purchase~~we do not consolidate those SPEs that we do not control. Under applicable accounting ~~rules, CHF 456 million~~standards, determining the existence of control of an SPE is a complex matter and often requires judgments to be made about risks and rewards and the ability to make operating decisions for the SPE.

The main difference to our financial statements between consolidation and non-consolidation of SPEs is generally that only in the latter case can we recognize gains arising on securitization of assets and other transactions.

UBS has a comprehensive process for monitoring and controlling the creation and running of SPEs, designed to ensure that they are only created for purposes connected with our business, that any change of status, such as the activation of a dormant SPE, is appropriate and that the SPEs and their assets and liabilities are correctly accounted for.

UBS manages the risk of consolidated SPEs in the same way as for any other subsidiary. Unconsolidated SPEs are treated like any other unaffiliated counterparty, under normal credit risk principles.

Principal types of SPE used by UBS

SPEs used to allow clients to hold investmentsare structures that allow one or more clients to invest in an asset or set of assets which are purchased by the SPE in the open market and not transferred from UBS. The risk or reward of the assets held by the SPE resides with the customer – UBS has no exposure to them. Typically, UBS will receive service and commission fees for creation of the SPE, or because it acts as investment manager, custodian or in some other function.

These SPEs range from mutual funds to trusts investing in real estate, for example UBS Alternative Portfolio AG, which provides a vehicle for investors to invest in a diversified range of alternative investments through a single share. The majority of our SPEs fall into this category. SPEs created for client investment purposes are generally not consolidated.

SPEs used for securitization. SPEs for securitization are created when UBS has an asset (for example a portfolio of loans) which it sells to an SPE. The SPE in turn sells interests in the asset as securities to investors. Consolidation of these ~~costs~~SPEs depends on whether UBS retains the risks and rewards of the assets in the SPE.

We do not consolidate SPEs for securitization if UBS no longer retains any significant exposure (gain or loss) to the returns, including liquidation, on the assets sold to the SPE. This type of SPE is a bankruptcy remote entity – if UBS were to go bankrupt the holders of the securities would clearly be owners of the asset, while if the SPE were to go bankrupt the securities holders would have no recourse to UBS.

However, in some cases UBS does retain exposure to some of the returns from the assets sold to the SPE – for example first loss on a loan portfolio. In these cases we consolidate the SPE and then derecognize the assets to the extent that we do not have exposure.

SPEs for credit protection are set up to allow UBS to sell the credit risk on portfolios to investors. They are primarily to allow UBS to have a single counterparty (the SPE) which sells credit protection to UBS. The SPE in turn has a large number of investors who provide it with capital and participate in the risks and rewards of the credit events that it insures. SPEs for credit protection are generally consolidated.

Equity compensation

IAS does not specifically address the recognition and measurement of equity-based compensation plans, including employee option plans. Extensive literature on accounting for options granted to employees exists under US GAAP, which permits a company to elect either the intrinsic value method or the fair value method. Under the intrinsic value method, if the exercise price of options granted is equal to or greater than the fair value of the underlying equity at grant date, no compensation expense need be recorded. Under the fair value method, an amount would be computed for such options and charged to compensation expense. For IAS, UBS records as compensation expense only the intrinsic value at grant date, if any, of options

granted to employees. Subsequent changes in value are not recognized. Further information on UBS equity compensation plans is disclosed in Note 33 to the Financial Statements.

Deferred tax

UBS records a valuation allowance to reduce its deferred tax assets to the amount that we believe can be realized in our future tax returns. Our valuation allowance is based on the assessment of future taxable income and our tax planning strategies. At each balance sheet date, existing assessments are reviewed and, if necessary, revised to reflect changed circumstances. Changes in circumstances may result in either an increase or reduction of the valuation allowance, and therefore net income, depending on an adverse or favorable change of the factors that impact the recognized deferred tax assets. See Note 22 to the Financial Statements for further details.

Segment reporting

The policies used in preparation of our segment reporting affect the split of our income and expenses between the different Business Groups. Applying different rules would lead to different net profit in the different Business Groups, but would have no effect on the total Group profits.

The most significant of these policies is the treatment of credit loss expense. If we had not applied the concept of adjusted expected loss in calculating the credit loss expense for each Business Group, Corporate Center would have incurred a significantly higher loss, UBS Warburg would have achieved a slightly lower profit and UBS Switzerland a significantly higher profit, in both 2001 and 2000. The concept of adjusted expected credit loss is explained in more detail in the Management Accounting section of this report on pages 32 to 36, which includes a table which reconciles the adjusted expected credit loss amount charged to the Business Groups with the actual IAS credit loss.

Significant financial events

We analyze UBS’s performance on a reported basis determined in accordance with IAS, and on a normalized basis which excludes from the reported amounts certain items we term significant financial events.

We use figures adjusted for significant financial events to illustrate the underlying operational performance of our business, insulated from the impact of one off gains or losses outside the normal run of business. In particular, our financial targets have been ~~accounted for~~set in terms of adjusted results, excluding significant financial events. A policy approved by the Group Executive Board defines which items may be classified as ~~a pre-acquisition liability of PaineWebber and were therefore added to the goodwill amount for the transaction.~~

~~The remaining expenses, of CHF 290 million, were charged in fourth quarter 2000, and~~significant financial events. In general an item that is treated as a significant financial ~~event. CHF 152~~event should be:

–		Non-recurring
–		Event specific
–		Material at Group level
–		UBS-specific, not industry-wide

and should not be a consequence of the normal run of business.

Examples of items that we would treat as significant financial events include the gain or loss on the sale of a significant subsidiary or associate, such as the divestment in 1999 of UBS’s stake in Swiss Life/Rentenanstalt, or the restructuring costs associated with a major integration, such as the merger with PaineWebber.

Significant financial events are not a recognized accounting concept under IAS or US GAAP, and are therefore not separately reflected in the UBS Group Financial Statements. We restrict the use of numbers which have been adjusted for significant financial events to UBS’s business unit reporting and to the discussion and analysis of the Group’s results and the accompanying illustrative tables. Where tables in the Business Group reporting show adjusted figures, we also include a table showing the reported figures.

We clearly identify all adjusted figures as such, and clearly disclose both the pre-tax amount of each individual significant financial event, and the net tax benefit or loss associated with all the significant financial events in each period.

We have not declared any significant financial events in 2001.

Significant financial events during 1999 and 2000 are shown in the table on page 14 and described in more detail below.

–		During 2000, we recorded restructuring charges and provisions of CHF 290 million pre-tax relating to the integration of PaineWebber into UBS.
–		During 1999, we recognized pre-tax gains of CHF 1,490 million on the sale of our 25% stake in Swiss Life/Rentenanstalt; CHF 110

Profile

Significant Financial Events


CHF million										%changefrom
For the year ended	31.12.01			31.12.00			31.12.99			31.12.00

Operating income as reported		37,114			36,402			28,425			2




Julius Baer registered shares divestment								(110	)




International Global Trade Finance divestment								(200	)




Swiss Life / Rentenanstalt divestment								(1,490	)




LTCM gain								(38	)

Adjusted operating income		37,114			36,402			26,587			2

Operating expenses as reported		30,396			26,203			20,532			16




US Global Settlement Fund provision					(150	)		(154	)




Pension Fund Accounting credit								456




UBS / SBC Restructuring provision								(300	)




PaineWebber integration costs					(290	)

Adjusted operating expenses		30,396			25,763			20,534			18

Adjusted operating profit before tax and minority interests		6,718			10,639			6,053			(37	)

Tax expense		1,401			2,320			1,686			(40	)




Tax effect of significant financial events					100			(352	)

Adjusted tax expense		1,401			2,420			1,334			(42	)




Minority interests		(344	)		(87	)		(54	)		295

Adjusted net profit		4,973			8,132			4,665			(39	)

Adjusted net profit before goodwill		6,296			8,799			5,005			(28	)

million on the disposal of Julius Baer registered shares; CHF 200 million on the sale of our international Global Trade Finance business; and CHF 38 million from our residual holding in Long Term Capital Management.
– In fourth quarter 1999, we recognized a one-time credit of CHF 456 million in connection with excess employer pre-payments to staff pension funds.
– In fourth quarter 1999, UBS recognized an additional pre-tax restructuring charge of CHF 300 million in respect of the 1998 merger between Union Bank of Switzerland and Swiss Bank Corporation.
– During 1998, we established a provision of CHF 842 million in connection with the US Global Settlement of World War II related claims. We recognized additional pre-tax provisions relating to this claim of CHF 154 million in 1999 and CHF 150 million in 2000.

Risk factors

As a global financial services firm, UBS’s businesses are affected by the external environment in the markets in which UBS operates. In particular, the results of our business in Switzerland, and notably the results of our credit-related activities, would be adversely affected by any deterioration in the state of the Swiss economy because of the impact this would have on our customers’ creditworthiness. More generally, global economic and political conditions can impact UBS’s results and financial position by affecting the demand for our products and services, and the credit quality of our borrowers and counterparties. Similarly, any continued prolonged weakness in international securities markets would affect our business revenues through its effect on our clients’ investment activity and the value of their invested assets, which would in turn reduce our revenues from wealth management businesses.

Competitive forces

UBS faces intense competition in all aspects of its business. We compete with asset managers, retail and commercial banks, private banking firms, investment banking firms, brokerage firms and other investment services firms. In addition, the trend toward consolidation in the global financial services industry is creating competitors with broader ranges of product and service offerings, increased access to capital, and greater efficiency and pricing power.

Fluctuations in currency exchange rates and interest rates

Because UBS prepares its accounts in Swiss francs, changes in currency exchange rates, particularly between the Swiss franc and the US dollar, may have an effect on the earnings that UBS reports. (Revenues in US dollars represent the major part of our non-Swiss franc earnings). Our approach to managing this risk is explained in the Currency management section of the Group Treasury chapter in the UBS Handbook 2001/2002.

In addition, changes in financial market structures can affect our earnings. For example, the establishment of the euro during 1999 affected foreign exchange markets in Europe by reducing the extent of foreign exchange dealings among member countries and generating more harmonized financial products. Movements in interest rates can also affect our results. Our interest income is affected by changes in interest rates, although the precise mechanisms are complicated. Interest rate movements can also affect our fixed income trading portfolio and the investment performance of our asset management businesses. For further discussion of the effect of interest rate changes on our business see the Interest rate risk management section of the discussion of the Group Treasury chapter in the UBS Handbook 2001/2002.

Operational risks

All our businesses are dependent on our ability to process a large number of complex transactions across numerous and diverse markets in different currencies and subject to many different legal and regulatory regimes. UBS’s systems and processes are designed to ensure that the risks associated with our activities are appropriately controlled, but we recognize that any weaknesses in these systems could have a negative impact on the results of our operations.

As a result of these and other factors beyond our control, UBS’s revenues and operating profit have been and are likely to continue to be subject to a measure of variability from period to period. Therefore UBS’s revenues and operating profit for any particular fiscal period may not be indicative of sustainable results, may vary from year to year and may impact our ability to achieve UBS’s strategic objectives.

For a discussion of UBS’s risk management and control procedures see the Risk Management and Control section of the UBS Handbook 2001/2002.

(IMAGE)

Group Financial Review
Group Results

Group Results

2001

UBS made significant progress in 2001, successfully integrating UBS PaineWebber, building our European wealth management business and expanding our presence in corporate finance, particularly in the US. Our clients invested substantial net new money through our private client and asset management businesses, and we significantly improved our investment banking market share. It has been a challenging year for us financially, with a difficult market environment depressing trading returns, transaction volumes, and private equity valuations, in stark contrast to the buoyant climate in 2000. Despite the markets, relative operational performance in our core businesses has remained strong and we have benefited from our prudent attitude to risk and careful cost control.

Group targets

We focus on four key performance targets, designed to ensure that UBS delivers continually improving returns to its shareholders.

–	We seek to increase the value of UBS by achieving a sustainable, after-tax return on equity of 15–20%, across periods of varying market conditions.
–	We aim to increase shareholder value through double-digit average annual percentage growth of basic earnings per share (EPS), across periods of varying market conditions.
–	Through cost reduction and earnings enhancement initiatives, we aim to reduce UBS’s cost/income ratio to a level that compares positively with best-in-class competitors.
–	We aim to achieve a clear growth trend in net new money in the private client businesses (Private Banking and Private Clients).

The first three targets are all measured pre-goodwill amortization, and adjusted for significant financial events.

Our performance against these targets in 2001 reflects the extremely difficult market conditions we have faced. Before goodwill and adjusted for significant financial events:

–	Our return on equity for 2001 was 14.8%, only just below our target range of 15–20%.

UBS Group Performance against Targets


For the year ended	31.12.01	31.12.00	31.12.99

RoE (%)




as reported	11.7	21.5	22.4




before goodwill and adjusted for significant financial events¹	14.8	24.3	18.2

Basic EPS (CHF)




as reported	3.93	6.44	5.07




before goodwill and adjusted for significant financial events¹	4.97	7.28	4.12

Cost / income ratio (%)




as reported	80.8	72.2	69.9




before goodwill and adjusted for significant financial events¹	77.3	69.2	73.3

Net new money, private client units (CHF bn)^2,3




UBS Switzerland – Private Banking	22.5	2.8	2.3




UBS Warburg – Private Clients	36.0	15.2	2.0

Total	58.5	18.0	4.3

¹ Excludes the amortization of goodwill and other intangible assets.
² Excludes interest and dividend income.
³ Calculated using the former definition of assets under management in 2000 and 1999.

Although this is lower than the 24.3% that we achieved in 2000, it represents a solid performance when set in the context of the trading environment. Our return on equity in 2000 was ~~charged~~boosted by extremely high returns in the exuberant markets of the first half-year, while this year has seen much weaker economic and stock market performance combined with higher average equity resulting from the acquisition of PaineWebber in fourth quarter 2000.

(BAR GRAPH)

– Basic earnings per share fell 32% to CHF 4.97, a level still 21% higher than we achieved in 1999. Outstanding shares started 2001 higher than in most of 2000, as a result of issuance to fund the merger with PaineWebber, but our continued buy-back program meant that by 31 December 2001 they were again below the pre-merger level.
– The cost/income ratio for the year rose from 69.2% to 77.3%, reflecting lower revenues, the poor performance of our private equity portfolio this year and the influence of the relatively high cost/income ratio typical of

(BAR GRAPH)

UBS PaineWebber’s business. Despite this rise, operating expenses remained under tight control, with decreases from 2000 levels in UBS Switzerland’s Private Banking and Private and Corporate Clients business units and UBS Warburg’s Corporate and Institutional Clients business unit, and a clear reduction through the year in UBS Warburg’s ~~e-services~~Private Clients business ~~unit, representing~~unit.

(BAR GRAPH)

Our disciplined approach to both compensation and non-personnel costs allows us to continue investing in the future growth of our key businesses. The percentage of revenue which we dedicate to rewarding our staff has remained almost unchanged since last year in our most important businesses, reflecting a substantial decrease in bonus payments.

(BAR GRAPH)

Our asset gathering activities have delivered very strong results this year, with inflows in the private client units (Private Banking and Private Clients) of CHF 58.5 billion during 2001, compared to CHF 18.0 billion in 2000. Over the whole Group, we attracted a total of

Group Financial Review
Group Results

Invested Assets


					Net new		Net new
					money²		money^2,3
CHF billion	31.12.01		31.12.00¹		2001		2000

UBS Group		2,457		2,452

UBS Switzerland




Private and Corporate Clients		320		345		8.5		0.4




Private Banking		682		691		22.5		2.8

UBS Asset Management




Institutional		328		323		6.2		(70.8	)




Mutual funds		344		319		28.7		2.9

UBS Warburg




Private Clients		782		773		36.0		15.2




UBS Capital		1		1		0.1

¹ Calculated using the new definition of invested assets.
² Excludes interest and dividend income.
³ Calculated using the former definition of assets under management.

CHF 102.0 billion in net new money, as clients increasingly value the quality of our advice and the breadth and depth of our wealth management capabilities.

(BAR GRAPH)

Net profit

Our net profit for the year 2001 was CHF 4,973 million, 36% less than the CHF 7,792 million achieved in 2000, reflecting the much more difficult market environment in 2001.

The merger with PaineWebber resulted in much higher goodwill amortization expense in 2001 than in 2000. Pre-goodwill, net profit for the year was CHF 6,296 million, 26% lower than we achieved in the much stronger markets of 2000 and 28% lower if adjusted for significant financial events.

Operating income

Operating income was 2% higher in 2001 than in 2000, at CHF 37,114 million, with the effect of much more difficult market conditions offset by the addition of UBS PaineWebber’s businesses.

There were no significant financial events that affected operating income in either 2001 or 2000.

Net interest income was 1% lower than in 2000, at CHF 8,041 million, compared to CHF 8,130 million in 2000, andnet trading income was 12% lower than in 2000 at CHF 8,802 million, compared to CHF 9,953 million in 2000.

Various factors can alter the mix between net interest income and net trading income between periods.

As well as income from interest margin based activities (for example loans and deposits), net interest income includes some income earned as a result of trading activities (such as coupon and dividend income). This component is volatile from period to period, depending on the composition of the trading portfolio.

Furthermore, the classification of income arising from positions and their offsetting economic hedging transactions may be different. In fourth quarter 2001 this effect was particularly pronounced, as a result of the significant fall in short term USD interest rates which substantially reduced our borrowing costs, so boosting net interest income for the quarter. Our overall interest rate exposures are limited by hedging transactions using derivative instruments. As the USD rates fell, these economic hedges generated mark-to-market losses recorded in fixed income net trading income, offsetting a portion of the gains in net interest income.

Net Interest and Trading Income


CHF million										% change from
For the year ended	31.12.01			31.12.00			31.12.99			31.12.00

Net interest income		8,041			8,130			5,909			(1	)




Net trading income		8,802			9,953			7,719			(12	)

Total net interest and trading income		16,843			18,083			13,628			(7	)

Breakdown by business activity:

Net income from interest margin products		5,694			5,430			5,139			5




Net income from trading activities		11,529			12,642			8,200			(9	)




Net income from treasury activities		1,424			762			628			87




Other¹		(1,804	)		(751	)		(339	)		(140	)

Total net interest and trading income		16,843			18,083			13,628			(7	)

Principally goodwill funding costs.

In order to provide a better explanation of the movements in net interest income and net trading income, we produce the disclosure shown above which sums net interest income and net trading income, and then analyzes the total according to the business activities which gave rise to the income, rather than by the type of income generated.

Net income from interest margin products increased 5% from CHF 5,430 million to CHF 5,694 million, driven by the inclusion of UBS PaineWebber.

Net income from trading activities was CHF 11,529 million, 9% lower than the CHF 12,642 million achieved in 2000. Falling interest rates and increased volatility in debt markets led to a very strong year for fixed income and foreign exchange trading, but equity trading revenues suffered from much lower market volumes, increased volatility and reduced arbitrage opportunities.

Net income from treasury activities was 87% higher than in 2000, at CHF 1,424 million, reflecting two main factors:

–	increased income from our invested equity, as a result of the expansion of our capital base since the PaineWebber merger, and changes in the investment portfolio’s maturity structure leading to an increase in average interest rates;
–	and improved currency management results due to introduction of a new economic hedging strategy and some one-off gains.

Other net trading and interest income principally reflects the costs of ~~closure~~goodwill funding, with the CHF 1,053 million increase in cost from CHF 751 million in 2000 to CHF 1,804 million in 2001 mainly due to goodwill funding costs arising from the acquisition of ~~telephone call centers~~PaineWebber.

Credit loss expense. In 2001 credit loss expenses amounted to CHF 498 million, compared to a net recovery of CHF 130 million in 2000 but down from an expense of CHF 956 million in 1999.

Actual IAS Credit Loss Expense (Recovery)


CHF million
For the year ended	31.12.01		31.12.00			31.12.99

UBS Switzerland		123		(695	)		965




UBS Asset Management		0		0			0




UBS Warburg		375		565			0




Corporate Center							(9	)

Total		498		(130	)		956

Group Financial Review
Group Results

Net Fee and Commission Income


CHF million							% change from
For the year ended	31.12.01		31.12.00		31.12.99		31.12.00

Underwriting fees		2,158		1,434		905		50




Corporate finance fees		1,339		1,772		1,298		(24	)




Brokerage fees¹		6,445		5,742		3,934		12




Investment fund fees		4,276		2,821		1,915		52




Fiduciary fees		355		351		317		1




Custodian fees		1,356		1,439		1,583		(6	)




Portfolio and other management and advisory fees¹		4,650		3,666		2,612		27




Insurance-related and other fees¹		538		111		57		385

Total security trading and investment activity fees		21,117		17,336		12,621		22

Credit-related fees and commissions		307		310		372		(1	)




Commission income from other services		946		802		765		18

Total fee and commission income		22,370		18,448		13,758		21

Brokerage fees paid		1,281		1,084		795		18




Other		878		661		356		33

Total fee and commission expense		2,159		1,745		1,151		24

Net fee and commission income		20,211		16,703		12,607		21

Fee and commission income from insurance products now reported in Insurance-related and other fees was previously reported in Brokerage fees and in Portfolio and other management and advisory fees. Prior years have been restated.

and challenging environment we have focused on ensuring that our counterparty ratings are rapidly adjusted to reflect the changing economic situation. At the same time, we have increased the frequency of sector and geographic rating reviews.

In UBS Warburg, the ongoing strategy of actively hedging credit exposure has kept new provisions to a relatively low level, resulting in a credit loss expense of CHF 375 million in 2001, compared to CHF 565 million in 2000.

Corporate bankruptcies in Switzerland have now reached their lowest level since the early 1990s, and we have successfully improved the credit quality of our domestic portfolio over recent years. The level of recoveries of previously existing provisions has, however, declined compared to the somewhat exceptional levels of 2000, reflecting less robust growth in the Swiss economy towards the end of 2001, following the global economic slowdown. As a result, the trend of net recoveries of loan loss provisions observed in the previous year was reversed and credit loss expenses increased accordingly during 2001, although remaining below the long-term trend. Credit loss expense in UBS Switzerland in 2001 was CHF 123 million, compared to a net recovery of CHF 695 million in 2000.

For further details on our risk management approach, how we measure credit risk and the ~~write-down~~development of ~~capitalized software no longer required~~our credit risk exposures, please see the Capital and Risk Management chapter of our Handbook 2001/2002.

Net fee and commission income was CHF 20,211 million, up 21% from 2000 and at a record level, reflecting the inclusion of UBS PaineWebber and the introduction of higher fees for investment funds. Without UBS PaineWebber, net fee and commission income would have dropped 7%, driven by much lower brokerage fees and a reduction in ~~light~~corporate finance fees, with increases in market share during the year achieved against a background of ~~changes~~much reduced market activity.

Underwriting fees increased 50%, from CHF 1,434 million in 2000 to CHF 2,158 million in 2001. The majority of this increase was due to UBS PaineWebber, whose extensive retail network in the ~~strategy~~US provides a strong platform for distribution of both bonds and equities.

UBS PaineWebber has a significant US municipal securities business, which completed the largest deal in its history in fourth quarter, raising USD 1.9 billion for the New Jersey Transit Trust Fund Authority, and helping to push it into first place in the league table rankings for fourth quarter, and second place for the

whole of 2001. The mortgage-backed securities business in the US has also benefited from the combination of UBS’s franchise and capital strength with existing PaineWebber expertise. UBS Warburg ranked first in US residential mortgage-backed securities in 2001, according to Thomson Financial Data.

Equity underwriting was depressed in 2001, as volatile and uncertain markets reduced issuance. However, UBS’s league table rankings improved, from seventh in international equity new issues in 2000 to second in 2001, according to Capital Data Bondware. Even excluding the contribution from UBS PaineWebber, equity underwriting revenues increased by CHF 77 million, or 7%, from 2000.

Although our corporate finance league table rankings were disappointing, down from sixth in 2000 for completed global mergers and acquisitions to eighth in 2001, we outperformed 2000 in terms of market share, with full year analysis showing us with a 4.5% share of fees, compared to 3.6% in 2000. Despite this, Corporate Finance fees were down 24%, from CHF 1,772 million in 2000 to CHF 1,339 million in 2001, reflecting the much more difficult market environment this year.

Net brokerage fees rose 11% from CHF 4,658 million in 2000 to CHF 5,164 million in 2001, driven by the inclusion of UBS PaineWebber. Without the contribution from UBS PaineWebber, net brokerage fees would have fallen by about 17% compared to 2000, reflecting the much lower trading volumes experienced in almost all major markets world wide in 2001. The level of net brokerage fees is closely linked to transaction volumes, and performance in 2002 will largely depend on whether markets improve and investor confidence returns.

Investment fund fees rose 52% from CHF 2,821 million in 2000 to CHF 4,276 million in 2001, driven by the inclusion of UBS PaineWebber. Excluding UBS PaineWebber, investment fund fees would have increased by CHF 268 million, mainly reflecting a change in the pricing structure for UBS Investment Funds, introduced in January 2001, which brought charges up to market levels.

Custodian fees, at CHF 1,356 million in 2001 were down 6% from 2000’s level of CHF 1,439 million, principally reflecting lower average assets in Private Banking in Switzerland.

Portfolio and other management and advisory fees increased 27% from CHF 3,666 million in 2000 to CHF 4,650 million in 2001, due to the addition of UBS PaineWebber. Excluding UBS PaineWebber, ~~acquisition.~~there would have been a slight decline from 2000, as a full year’s contribution from the O’Connor business in UBS Asset Management (created in June 2000) was more than offset by the effect of lower average assets on managed account fees.

Insurance related and other fees increased substantially from CHF ~~106~~111 million in 2000 to CHF 538 million in 2001, with almost all this increase due to UBS PaineWebber, where the biggest contribution came from the deferred annuities business.

Other income fell 62% from CHF 1,486 million in 2000 to CHF 558 million in 2001, reflecting the very difficult conditions in the private equity market this year, which led to minimal opportunities for divestment and much greater levels of write-downs than last year.

Operating expenses

In light of lower revenues in 2001, cost control was ~~charged~~a key focus of all our management teams, as we maintained strong discipline on both personnel and non-personnel costs, particularly in the Corporate and Institutional Clients and Private and Corporate Clients business ~~unit, principally covering severance~~units, bringing their operating expenses to record low levels.

Total operating expenses increased 16% from CHF 26,203 million in 2000 to CHF 30,396 million in 2001, driven by the inclusion of UBS PaineWebber. Excluding significant financial events in 2000 and ~~other personnel costs.~~UBS PaineWebber, costs fell 7%, as performance-related compensation reduced, and non-personnel costs were carefully restricted.

The ~~remaining~~principal significant financial events affecting the comparison of operating expenses are the CHF 32150 million additional provision for the US Global Settlement of World War II related claims, recorded in 2000 in General and administrative expenses, and CHF 290 million of costs from the integration of PaineWebber, also recorded in 2000. Of this CHF 290 million, CHF 118 million was charged ~~in Corporate Center.~~to Personnel expenses, CHF 93 million to General and administrative expenses and CHF 79 million to Depreciation.

Group Financial Review
Group Results

~~Goodwill~~Headcount¹


(full time equivalents)	31.12.01		31.12.00		Change in %

UBS Switzerland		29,204		30,025		(3	)




Private and Corporate Clients		19,938		21,100		(6	)




Private Banking		9,266		8,925		4




UBS Asset Management		3,281		2,860		15




UBS Warburg		36,368		37,205		(2	)




Corporate and Institutional Clients		15,562		15,262		2




UBS Capital		128		129		(1	)




Private Clients		20,678		21,814		(5	)




Corporate Center		1,132		986		15

Group total		69,985		71,076		(2	)




thereof: Switzerland		*29,163*		30,095		(3	)

The Group headcount does not include the Klinik Hirslanden AG headcount of 2,450 at 31 December 2001 and 1,839 at 31 December 2000.

Personnel expenses in 2001 reflect considerable reductions in bonus and performance-related compensation, with average variable compensation per head down 23%, ensuring that overall compensation ratios for the year were kept in line with 2000’s ratio in our core businesses. However, the inclusion of CHF 5,178 million of PaineWebber personnel expenses more than offset the reduction in performance-related pay, bringing the total to CHF 19,828 million, 16% up from 2000. Approximately 43% of this year’s personnel expenses were bonus or other variable compensation, down from 48% last year.

~~The amount~~ UBS Groupheadcount fell by 2% from 71,076 at 31 December 2000 to 69,985 at 31 December 2001, principally reflecting the effect of successful cost control efforts at UBS Switzerland’s Private and Corporate Clients business unit and UBS Warburg’s Private Clients business unit, slightly offset by the effect of acquisitions in UBS Asset Management and the expansion in Europe of UBS Switzerland’s Private Banking business unit.

General and administrative expenses increased by 13% from CHF 6,765 million in 2000 to CHF 7,631 million in 2001 reflecting a full year’s costs for UBS PaineWebber, which more than offset the absence of the one-off charges and provisions recorded in 2000.

General and administrative expenses in 2000 included a final provision of CHF 150 million related to the US Global Settlement of World War II related claims, and CHF 93 million of PaineWebber integration costs, which were both treated as significant financial events. Excluding these provisions and the extra costs in 2001 due to the inclusion of UBS PaineWebber, general and administrative costs would have been almost unchanged in 2001 compared to 2000.

Depreciation and amortization increased 29% from CHF 2,275 million in 2000 to CHF 2,937 million in 2001, driven primarily by the goodwill amortization resulting from the merger with PaineWebber.

UBS Group incurred atax expense of CHF 1,401 million in 2001, down from CHF 2,320 million in 2000. This corresponds to an effective tax rate of 21% in 2001, compared to 23% in 2000. This relatively low rate results from significantly lower tax in Switzerland, reflecting the effect of lower profits triggering lower progressive tax rates, and a change in geographical earnings mix of the Group. We believe that this year’s tax rate of 21% is also a reasonable indicator for 2002.

PaineWebber merger-related costs

In 2001, UBS incurred amortization costs of CHF 846 million on goodwill and intangible assets resulting from the ~~merger was USD 10.0 billion, or CHF 17.5 billion.~~

~~Within this total USD 2.7 billion relates to identified intangible assets, including the value~~acquisition of ~~PaineWebber’s brand and infrastructure.~~

~~The~~UBS PaineWebber, while goodwill ~~and intangible assets will be amortized over 20 years. Amortization~~funding costs amounted to CHF ~~138 million in the fourth quarter 2000.~~763 million.

~~Retention payments~~

As part of the merger, UBS agreed to make retention payments to PaineWebber financial advisors, senior executives and other staff, subject to these employees’ continued employment and other restrictions. The ~~value of these~~ payments ~~is expected to amount to a total of USD 875 million (CHF 1,541 million), the vast majority of which will be paid in the form of UBS shares. The payments will~~ vest over periods of up to four years from the ~~merger.~~merger and the vast majority of them will be paid in the form of UBS shares. Because these payments are a regular and continuing cost of the business, they are not treated as significant financial events. Personnel expenses in 2001 include retention payments for key PaineWebber staff of USD 76284 million (CHF ~~128~~482 million) ~~was charged in fourth quarter~~for the full year.

Dividend

This year we plan once again to make a tax efficient distribution of capital to our shareholders rather than paying a dividend. The Board of Directors will recommend to the Annual General Meeting on 18 April 2002 that UBS make a par value repayment of CHF 2.00 per share, consistent with last year’s total per share distribution to shareholders of CHF 2.03.

Balance sheet

Total assets increased CHF 165 billion, or 15%, from CHF 1,088 billion at 31 December 2000, ~~and approximately USD 280 million (approximately~~to CHF ~~458 million~~1,253 billion at ~~year end 2000 exchange rates) is expected to be charged in~~31 December 2001.

~~Cash consideration~~

The ~~cash portion~~balance sheet growth mostly occurred during the first half of the ~~merger consideration~~year, with a contraction following the terrorist attacks in the US on 11 September 2001, although this reduction was ~~USD 6.0~~reversed during fourth quarter.

Cash and balances with central banks rose from CHF 3 billion orat 31 December 2000 to 21 billion at 31 December 2001, of which the overwhelming part stemmed from increased deposits with the Bank of Japan. This build-up relates to a change in the structure of our Japanese financial assets triggered by the regime of negative short-term interest rates in Japan.

Trading related assets (cash collateral on securities borrowed, trading portfolio assets and reverse repurchase agreements), grew by CHF ~~10.6 billion. UBS took advantage~~143 billion from 31 December 2000 to 31 December 2001. A significant part of ~~the focus on the company~~this change reflects an increase in ~~US markets~~collateralized positions, which grew by CHF 61 billion, due to increased client demand for collateralized funding in uncertain markets.

Loans, net of allowances for credit losses declined from CHF 245 billion at 31 December 2000 to CHF 227 billion at 31 December 2001 as a result of reduced lending to corporate customers and public authorities.

Total liabilities increased 16%, from CHF 1,040 billion at 31 December 2000 to CHF 1,206 billion at 31 December 2001, principally reflecting expansion of trading related liabilities (cash collateral on securities lent, repurchase agreements and trading portfolio liabilities) which together increased by CHF 103 billion during 2001. Amounts due to customers rose CHF 23 billion to CHF 334 billion at 31 December 2001 due to an increase in time deposits originated with our retail and institutional customer base in Switzerland. Debt issued increased CHF 26.6 billion largely due to increased issuance of money market paper in support of the Principal Finance business in the US.

UBS’s long-term debt portfolio increased from CHF 55 billion at 31 December 2000 to CHF 57 billion at 31 December 2001, driven by increased sales of retail structured products in the US and Europe, as clients sought ways to compensate for higher market volatility. During this year CHF 18.2 billion of long-term debt were issued while CHF 18.5 billion matured. UBS believes the maturity profile of the long-term debt portfolio is well balanced to match the maturity profile of UBS’s assets.

Shareholders’ equity decreased CHF 1.3 billion, or 3%, from 31 December 2000 to 31 December 2001. The increase in retained earnings was more than offset by the effect of the repurchase of own shares in 2001. Shares were repurchased under UBS’ second trading line buy-back program, for employee share schemes and in order to repay the shares borrowed to pay the PaineWebber ~~transaction~~merger consideration.

UBS maintains a significant percentage of liquid assets, including collateralized receivables and trading portfolios that can be converted into cash on relatively short notice and without adversely affecting UBS’s ability to ~~make~~conduct its ~~inaugural US public offering, issuing USD 1.5 billion~~ongoing businesses, in order to meet short-term funding needs. Collateralized receivables include reverse repurchase agreements and cash collateral on securities borrowed, and marketable corporate debt and equity securities and a portion of ~~8.622% Trust Preferred Securities~~UBS’s loans and amounts due from banks which are secured primarily by real estate. The value of UBS’s collateralized receivables and trading portfolio will fluctuate depending on ~~10 October 2000.~~market conditions and client business. The individual components of UBS’s total assets, including the proportion of liquid assets, may vary significantly from period to period due to changing client needs, economic and market conditions and trading strategies.

Cash flows

10In the twelve-month period to December 2001, cash equivalents increased by CHF 22,889 million, principally as a result of financing activities, which generated positive cash flow of CHF 18,103 million. CHF 24,226 million from the issuance of money market paper was offset by

Group Financial Review

Group ~~Performance~~Results

~~Issue~~CHF 6,038 million for treasury shares and treasury share contract activity as well as CHF 683 million for capital repayment.

Operating activities generated positive cash flow of ~~shares~~CHF 12,873 million. Of this amount, CHF 4,973 million resulted from net profit, CHF 27,306 million from a net increase in amounts due to ~~finance~~and from banks, a net increase in amounts due to customers and loans of CHF 42,813 million and a net cash inflow of CHF 19,470 million from repurchase and reverse repurchase agreements and cash collateral on securities borrowed and lent. These were offset by CHF 78,456 million from an increase in the ~~PaineWebber merger~~

At an Extraordinary General Meeting on 7 September 2000, UBS shareholders approved a resolution to create 38 million shares of authorized capital in connection with the PaineWebber merger. UBS shareholders also granted the Board of Directors a “green shoe option” giving them the flexibility to issue some of these shares at the timesize of the ~~merger,~~trading portfolio.

Investing activities generated negative cash flow of CHF 7,783 million. CHF 5,770 million from the purchase of financial investments and ~~then~~CHF 2,021 million from the purchase of property and equipment.

Outlook 2002

UBS’s core businesses have performed relatively strongly in 2001, demonstrating their ability to ~~issue additional shares as required during~~enhance market share in a challenging environment. As 2002 begins, markets remain difficult, with uncertainty and volatility continuing to affect transaction levels and corporate activity. In the ~~three months following completion~~face of this challenging environment, we will continue to assess our cost base carefully, investing where strategically most important. Our prudent resource management over the ~~merger, up~~last two years means that we do not believe that significant staff reductions are likely to be necessary, unless markets stagnate. With prospects for an economic recovery receding into the ~~38 million shares limit.~~

~~As announced at the completion of the merger, 40.6 million shares were delivered to PaineWebber shareholders as~~latter part of the ~~merger consideration. UBS chose~~year, potential for this year to ~~fund this amount by issuing 12 million new ordinary shares, re-issuing 7 million shares held~~outperform 2001 is limited. However, our businesses have shown themselves to be increasingly competitive and we are confident that we can continue the progress we have made in ~~Treasury~~the past year, expanding in corporate finance, further developing our European wealth management initiative and ~~borrowing the remaining 21.6 million ordinary shares~~ensuring that ~~were required.~~

On 6 November 2000, following completion of the merger, UBS launched a new treasury share buy-back program in Switzerland, designed principally to repurchase shares to cover the borrowings. When the program was completed on 2 March 2000, a total of 30 million shares had been repurchased at an average price of CHF 266. By 31 December 2000, 14.2 million shares had been purchased through this program, and 13.8 million of them had been delivered to cover the borrowed shares, leaving 7.8 million borrowed shares still outstanding. UBS completed the repurchase of sufficient shares to cover all the ~~borrowed shares~~strengths of our integrated group are focused on ~~24 January 2001, having paid an average price of CHF 262 per share.~~

~~With no requirement to issue further shares in connection with~~building the ~~PaineWebber merger, the green shoe option lapsed. UBS has met its commitment to minimize the dilution of earnings~~world's leading wealth management and voting power, by keeping the final number of new UBS shares issued as small as possible. The weighted average number of shares in the fourth quarter was 5% higher than if the PaineWebber transaction had not occurred.

The Annual General Meeting on 26 April 2001 will be asked to give formal approval for the elimination of the remaining 26 million shares of authorized capital which were not required for the transaction. It will also be asked to reduce the conditional capital created to cover future exercise of options held by PaineWebber staff from 16.3 million to the 5.6 million required to cover the remaining outstanding options.

11investment banking businesses.

2000

~~Group Financial Review~~

~~Group Performance~~

~~UBS Group Performance against Targets~~

For the year ended 31.12.00 31.12.99¹
RoE (%)
as reported 21.5 22.4
before goodwill and adjusted for significant financial events²
24.3 18.2
Basic EPS (CHF)
as reported³ 19.33 15.20
before goodwill and adjusted for significant financial events^{2, 3}
21.83 12.37
Cost / income ratio (%)
as reported 72.2 69.9
before goodwill and adjusted for significant financial events²
69.2 73.3

~~Assets under Management~~

Net new Net new
money⁴ money⁴
CHF billion 31.12.00 31.12.99 2000 1999
UBS Group 2,469 1,744
UBS Switzerland
Private and Corporate Clients 440 439 0
Private Banking 681 671 (1 ) 1
UBS Asset Management
Institutional Asset Management⁵ 496 574 (67 ) (50 )
Investment Funds / GAM 219 225 4 1
UBS Warburg
US Private Clients⁶ 794 8
International Private Clients 33 36 10 4

¹ The 1999 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies).² ~~The amortization of goodwill and other intangible assets is excluded from the calculation.~~³ ~~1999 share figures are restated for the two-for-one share split, effective 8 May 2000.~~⁴ ~~Excludes interest and dividend income.~~⁵ ~~Includes non-institutional assets also reported in the Investment Funds / GAM business unit.~~⁶ ~~Client Assets were CHF 890 billion at 3 November 2000.~~

~~Group results 2000~~

Group targets

~~UBS focuses on four key performance targets, designed to drive us to deliver continually improving returns to our shareholders.~~


–	~~UBS seeks to achieve a sustainable, after-tax return on equity of 15-20%, across periods of varying market conditions.~~
–	~~UBS aims to increase shareholder value through double-digit average annual earnings per share (EPS) growth, across periods of varying market conditions.~~
–	~~Through cost reduction and earnings enhancement initiatives, UBS aims to reduce the Group’s cost/ income ratio to a level that compares positively with best-in-class competitors.~~
–	~~UBS aims to achieve a clear growth trend in net new money in its private client businesses.~~

~~The first three targets are all measured pre-goodwill amortization, and adjusted for significant financial events.~~

Adjusted for significant financial events, our pre-goodwill return on equity for the year 2000 was 24.3%, clearly above our target range of ~~15-20%~~15–20%. Pre-goodwill earnings per share, again on an adjusted basis, were CHF ~~21.83~~7.28 in 2000, representing an increase of ~~76%~~77% over 1999, well in excess of our target of double-digit growth over the cycle. Continued focus on cost control ~~has~~ brought the pre-goodwill cost/income ratio, adjusted for significant financial events, down to 69.2% in 2000, from 73.3% in 1999.

~~Group Financial Review~~

~~Group Performance~~

Net new money in the private client businesses (Private Banking ~~US Private Clients~~ and ~~International~~ Private Clients) was CHF 1818.0 billion for the year, compared to CHF 44.3 billion in 1999, and including CHF 88.3 billion of net new money in UBS PaineWebber in ~~only~~the last two ~~months.~~months of 2000. UBS PaineWebber’s net new money growth since completion of the merger demonstrates the strength of its franchise and the momentum that it brings to UBS’s asset gathering performance.

Net profit

Full year net profit was CHF 7,792 million, up 27% from the CHF 6,153 million reported in 1999. When adjusted for significant financial events, net profit for 2000 was CHF 8,132 million, up 74% from the CHF 4,665 million achieved in 1999. These results reflect the very strong and consistent performance recorded by the Group in every quarter of 2000.

Operating income and expense includes income and expense of the former PaineWebber businesses from 3 November 2000, the date of the completion of the merger with PaineWebber.

Operating income

Total operating income increased 28% from 1999, to CHF 36,402 million, from CHF 28,425 million. Adjusted for significant financial events, total operating income increased 37%, to CHF 36,402 million, from CHF 26,587 million in 1999. This strong performance relative to 1999 was driven by excellent trading results, improved credit conditions in the Swiss market, much higher fee and commission income, and a successful year for the Group’s investment banking business.

The principal significant financial events affecting the income comparison were from the one-off sales of businesses and investments in 1999, including pre-tax gains of CHF 1,490 million on the sale of UBS’s 25% stake in Swiss Life/Rentenanstalt, ~~and~~ CHF 110 million on the disposal of Julius Baer registered shares, ~~recorded in Net gains from disposal of associates~~ and ~~subsidiaries, and~~

CHF 200 million on the sale of UBS’s international Global Trade Finance business, which ~~was~~were all recorded in Other income. In addition UBS recognized a CHF 38 million gain in 1999 from its residual holdings in Long Term Capital Management, L.P., which was also recorded in Other income.

Net interest income before credit loss increased by CHF 2,221 million, or 38%, from CHF 5,909 million in 1999 to CHF 8,130 million in 2000. This was principally the result of much stronger trading-related ~~perform-~~

~~Net Interest Income~~

CHF million % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Interest income

Interest earned on loans and advances to banks 5,615 6,105 7,687 (8 )
Interest earned on loans and advances to customers 14,692 12,077 14,111 22
Interest from finance leasing 36 49 60 (27 )
Interest earned on securities borrowed and reverse repurchase agreements 19,088 11,422 10,380 67
Interest and dividend income from financial investments 202 160 372 26
Interest and dividend income from trading portfolio 11,842 5,598 3,901 112
Other 270 193 931 40
Total 51,745 35,604 37,442 45
Interest expense

Interest on amounts due to banks 6,155 5,515 8,205 12
Interest on amounts due to customers 9,505 8,330 9,890 14
Interest on securities lent and repurchase agreements 14,915 8,446 7,543 77
Interest and dividend expense from trading portfolio 5,309 2,070 1,741 156
Interest on medium and long term debt 7,731 5,334 5,045 45
Total 43,615 29,695 32,424 47
Net interest income
8,130 5,909 5,018 38

~~Group Financial Review~~

~~Group Performance~~

~~Net Fee and Commission Income~~

CHF million % change from
For the year ended 31.12.00 31.12.99 31.12.98 31.12.99
Credit-related fees and commissions 310 372 559 (17 )
Security trading and investment activity fees
Underwriting fees¹ 1,434 905 1,122 58
Corporate finance fees¹ 1,772 1,298 1,016 37
Brokerage fees 5,792 3,934 3,670 47
Investment fund fees 2,821 1,915 1,778 47
Fiduciary fees 351 317 349 11
Custodian fees 1,439 1,583 1,386 (9 )
Portfolio and other management and advisory fees¹ 3,677 2,612 2,891 41
Other 50 57 110 (12 )
Total 17,336 12,621 12,322 37
Commission income from other services 802 765 776 5
Total fee and commission income 18,448 13,758 13,657 34
Fee and commission expense
Brokerage fees paid 1,084 795 704 36
Other 661 356 327 86
Total 1,745 1,151 1,031 52
Net fee and commission income 16,703 12,607 12,626 32

¹ In prior periods, Corporate finance related advisory fees were included in Portfolio and other management and advisory fees. These fees are now reported in the new disclosure line Corporate finance fees together with merger and acquisition fees which were previously reported in Underwriting and corporate finance fees. All previous periods have been restated accordingly.

~~ance,~~performance, as a result of buoyant markets, and the return of the balance sheet to more normal proportions after the contraction implemented as part of the Group’s precautions against potential Year 2000 related problems.

Net ~~interest~~trading income increased CHF 2,234 million, or 29%, to CHF 9,953 million for 2000, compared to CHF 7,719 million for 1999, driven by strong growth in equity trading income as a result of increased global market activity, especially in the first quarter of 2000, and the increasing strength of UBS Warburg’s secondary client franchise.

Net income from ~~loans and advances to banks and amounts due to banks fell~~interest margin products increased 6% from ~~CHF 590 million in~~ 1999 to ~~a net expense of~~ CHF ~~540~~5,430 million in 2000, ~~due to increased average liabilities as~~driven by the addition of UBS ~~used its unsecured funding power to take advantage of opportunities for investments~~PaineWebber. In the main lending and deposit taking business in ~~low risk assets such as collateralized lending.~~ Switzerland, a reduction in loan volumes was more than offset by a slight improvement in margins, reflecting a change in product mix.

Net ~~interest~~ income from ~~collateralized lending – repos, reverse repos, securities borrowing and lending – increased 40%, or~~trading activities in 2000 was CHF ~~1,197~~12,642 million, ~~to CHF 4,173 million in 2000.~~

~~Interest paid on medium and long term debt (including commercial paper) increased 45% or CHF 2,397 million from CHF 5,334 million~~54% higher than in 1999, driven by the exceptionally strong performance of the equity business in first half 2000, reflecting increased trading volumes, higher market share and record levels of mergers and acquisitions activity. Fixed income and foreign exchange trading income also improved compared to 1999, driven by improved markets, a strong government bond and derivatives business and higher client flow in treasury products.

Net income from treasury activities was CHF ~~7,731~~762 million in 2000, ~~as interest rates rose~~21% higher than in 1999, reflecting better results from the hedging of foreign currency revenues and ~~UBS’s funding requirements~~higher income from the investment of equity. Income from invested equity increased due to ~~balance sheet growth~~the higher average equity following the issuance of trust preferred securities in ~~more active markets. UBS also changed~~September 2000 and the ~~mix~~merger with PaineWebber.

Other net trading and interest income principally reflects the costs of ~~its debt~~goodwill funding, with the increase since 2000 mainly due to ~~include a higher proportion~~goodwill funding costs arising from the acquisition of ~~short-term financing.~~PaineWebber in November 2000 and the acquisition of Global Asset Management (GAM) at the end of 1999.

Credit loss expense. As a result of the significant recovery of the Swiss economy in 2000 and especially its effect on the real estate and construction markets, UBS was able to write back CHF 695 million of credit loss provisions in UBS Switzerland in 2000. These write-backs were only partly offset by additional provisions for the UBS Warburg portfolio of CHF 565 million, leading to an overall net credit recovery of CHF 130 million for 2000, compared to an expense of CHF 956 million in 1999.

Net fee and commission incomeincreased by CHF 4,096 million, or 32%, from CHF 12,607 million in 1999 to CHF 16,703 million in 2000. This was principally the result of high levels of brokerage fees, due to increased client activity in strong markets, especially in the first quarter of 2000, and the addition of PaineWebber. In addition, two other new businesses, ~~Global Asset Management (GAM),~~GAM, acquired at the end of 1999, and O’Connor, created in June 2000, contributed to the increase, as did the strong performance of UBS’s investment banking business during 2000.

Credit-related fees and commissions decreased by CHF 62 million in 2000 mainly as a result of the sale of UBS’s international Global Trade Finance business in 1999.

~~Group Financial Review~~

~~Group Performance~~

Underwriting fees increased by 58% over 1999 with strong results in both fixed income and equity underwriting, despite UBS’s relatively limited involvement in the Technology, Media and Telecoms (TMT) sector, which led to lower equity league table rankings in 2000 than in 1999. Corporate Finance fees grew 37%, or CHF 474 million, from CHF 1,298 million in 1999 to CHF 1,772 million in 2000, reflecting good results in Europe and a strong performance in ~~Mergers~~mergers and ~~Acquisitions,~~acquisitions, where our league table rankings improved compared to 1999.

Net brokerage fees were ~~50%~~48% higher in 2000 than in 1999 as a result of high levels of client activity in the exuberant markets of the early part of the year, and the inclusion of two months of results from PaineWebber. The increase of

47% in Investment fund fees from 1999 to 2000 resulted from higher average volumes in 2000 and a shift in the product mix, with a higher proportion of assets under management invested in higher margin equity funds. In addition, Investment fund fees in 2000 benefited from the inclusion of GAM and PaineWebber’s ~~contribution in the last two months.~~ contribution.

Group Financial Review
Group Results

Custodian fees and ~~portfolio~~Portfolio and other management and advisory fees increased by a total of CHF ~~921~~910 million, or 22%, from 1999, due to higher asset-related fees in 2000 and the inclusion of PaineWebber and the new O’Connor business.

~~Net trading~~Other income~~increased~~ decreased CHF ~~2,234~~1,660 million, or 29%, to CHF 9,953 million for 2000, compared to CHF 7,719 million for 1999, driven by strong growth in equity trading income as a result of increased global market activity, especially in the first quarter of 2000, and the increasing strength of UBS Warburg’s secondary client franchise.

Net trading income from foreign exchange increased CHF 179 million, or 16%, from 1999 to 2000 despite difficult trading conditions at the start of the year, with lower levels of market activity and narrowing margins on derivative products, compared to 1999.

This income statement line does not fully capture the revenues of UBS Group’s foreign exchange business, which is amongst the largest in the world. The revenues generated by all business areas of the UBS Group from sales and trading of foreign exchange, precious metals, and banknotes products in 2000 were CHF 1,519 million as compared to CHF 1,155 million in 1999.

~~Net trading income from fixed income decreased CHF 1,691 million, or 65%~~53%, from CHF ~~2,603~~3,146 million in 1999 to CHF ~~912~~1,486 million in 2000. Fixed income net trading income does not reflect the full picture of trading-related income in the Fixed Income business, which also includes a considerable contribution from coupon income, which is managed as an integral part of the trading portfolio and is reported as part of net interest income. The relative revenue contributions of mark-to-market gains, coupon income and other factors are somewhat volatile, because they depend on trading strategies and the instrument composition of the portfolio. In 2000, ~~while fixed income trading income fell, net coupon income, which is reported in net interest income, rose from CHF 2,918 million to CHF 5,545 million.~~

Net trading income from equities increased CHF 3,746 million, or 93%, from 1999 to 2000. Positive markets led to an exceptionally good first quarter of 2000, with record client volumes. Performance in subsequent quarters of 2000 fell slightly in more varied market conditions, but was still well ahead of the same periods in 1999.

~~Net gains from disposal of associates and subsidiaries~~~~fell 95% from CHF 1,821 million to CHF 83 million. 1999 included~~driven by gains from the sales of our holdings in ~~SwissLife/~~ Swiss Life/Rentenanstalt ~~and Julius Baer registered shares.~~in 1999.

~~Net Trading Income~~

CHF million % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Foreign exchange 1,287 1,108 1,992 16
Fixed income 912 2,603 162 (65 )
Equities 7,754 4,008 1,159 93
Net trading income
9,953 7,719 3,313 29

~~Group Financial Review~~

~~Group Performance~~

~~Other income~~increased CHF 78 million, or 6%, from CHF 1,325 million in 1999 to CHF 1,403 million in 2000, with income from investments in associates lower, following sales in 1999, more than offset by higher income from the sale of private equity investments and a reduction of losses on property sales.

Operating expenses

Total operating expenses increased 28% from CHF 20,532 million to CHF 26,203 million in 2000. Adjusted for significant financial events, total operating expenses increased 25% to CHF 25,763 million from CHF 20,534 million in 1999. The increase was principally due to increased personnel expenses, reflecting higher performance-related pay driven by UBS’s excellent results in 2000, the inclusion of PaineWebber and the cost of retention payments for PaineWebber staff.

The principal significant financial events affecting the comparison of operating expenses are the CHF 150 million additional provision for the US Global Settlement of World War II related claims, recorded in 2000 in General and administrative expenses, and CHF 290 million of costs from the integration of PaineWebber, also recorded in 2000. Of this CHF 290 million, CHF 118 million ~~were~~was charged to Personnel expenses, ~~and amortization,~~ CHF 93 million to General and administrative expenses and CHF 79 million to Depreciation.

The various significant financial events affecting expenses in 1999, described on ~~pages 4 and 5,~~page 13, resulted in an increase in expense of CHF 2 million, made up of a CHF 456 million increase to personnel expenses and a decrease of CHF 454 million in General and administrative expenses.

Personnel expensesincreased CHF 4,586 million, or 36%, from CHF 12,577 million in 1999 to CHF 17,163 million in 2000. This increase was driven by increased bonus compensation, in line with the Group’s excellent results, and CHF 1,083 million resulting from the inclusion of PaineWebber. Approximately 48% of the annual total represented bonus and other variable compensation.

~~As part of the merger, UBS agreed to make~~

Personnel expenses in 2000 include retention payments tofor key UBS PaineWebber ~~financial advisors, senior executives and other~~ staff ~~subject to these employees’ continued employment and other restrictions. These payments are expected to amount to a total~~ of ~~USD 875 million (CHF 1,541 million), the vast majority of which will be paid in the form of UBS shares. The payments will vest over periods of up to four years from the merger.~~ USD 76 million (CHF 128 million) ~~was~~, charged in fourth quarter 2000, and approximately USD 280 million (CHF 458 million at year-end 2000 rates) is expected to be charged in 2001. Because they are a regular and continuing cost of the business, these payments are not treated as significant financial events.

2000.

UBS’sheadcountgrew 45% over the year from 31 December 1999, to 71,076. The vast majority of this change was due to the inclusion of 23,000 PaineWebber staff.

~~Headcount~~¹

(Full-time equivalents) 31.12.00 31.12.99 Change in %
UBS Switzerland
28,785 31,354 (8 )
Private and Corporate Clients 21,100 24,098 (12 )
Private Banking 7,685 7,256 6
UBS Asset Management
2,860 2,576 11
Institutional Asset Management 1,728 1,653 5
Investment Funds / GAM 1,132 923 23
UBS Warburg
38,445 14,266 169
Corporate and Institutional Clients 15,262 12,694 20
UBS Capital 129 116 11
US Private Clients 21,490
e-services 410 70 486
International Private Clients 1,154 1,386 (17 )
Corporate Center
986 862 14
Group total
71,076 49,058 45

¹ ~~The Group headcount does not include the Klinik Hirslanden AG headcount of 1,839 as of 31 December 2000 and 1,853 as of 31 December 1999.~~

~~Group Financial Review~~

~~Group Performance~~

General and administrative expensesincreased CHF 667 million, or 11%, from CHF 6,098 million in 1999 to CHF 6,765 million in 2000.

General and administrative expenses in 2000 included a final provision of CHF 150 million related to the US Global Settlement of World War II related claims, and CHF 93 million of PaineWebber integration costs, which were both treated as significant financial events. General and administrative expenses in 1999 included a provision of CHF 154 million related to the US ~~global settlement~~Global Settlement of World War II related claims, and CHF 300 million of additional provisions in respect of the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation.

Adjusting for these effects, General and administrative costs rose 16%, reflecting the incremental costs from the inclusion of PaineWebber offset by the success of UBS’s continued efforts to control non-revenue driven costs.

Depreciation and amortization expenses~~expenses~~ increased CHF 418 million, or 23%, from CHF 1,857 million in 1999 to CHF 2,275 million in 2000, mainly due to the PaineWebber merger.

Tax expenseincreased CHF 634 million, or 38%, from CHF 1,686 million in 1999 to CHF 2,320 million in 2000, principally due to increased operating profit. The effective tax rate of ~~22.8%~~23% in 2000 is slightly higher than the ~~21.4%~~21% effective tax rate in 1999, reflecting increased income in higher taxation jurisdictions.

UBS Group’s performance without the impact of PaineWebber

There are limitations to our ability to track the effect of the PaineWebber merger on the Group’s performance. Principally this is because of the full integration of PaineWebber’s capital markets business into the Corporate and Institutional

Earnings Adjusted for Significant Financial Events and the Estimated Impact of the PaineWebber Merger


CHF million, except where indicated					% change from
For the year ended	31.12.00		31.12.99		31.12.99

Operating income		35,309		26,587		33




Operating expenses		24,319		20,534		18




Operating profit before tax		10,990		6,053		82




Net profit		8,403		4,665		80

Cost / income ratio before goodwill (%)		67.6		73.3




Basic earnings per share before goodwill (CHF)		7.48		4.12		82




Diluted earnings per share before goodwill (CHF)		7.39		4.09		81

Return on shareholders’ equity before goodwill (%)		27.5		18.2

Clients unit. This was carried out very soon after the merger was completed on 3 November 2000, with staff and revenues completely integrated into the existing UBS Warburg structure. It is therefore not possible to identify clearly the specific impact of the capital markets business on results. However, the remaining PaineWebber businesses ~~are~~were reported as a separate business unit: US Private Clients. It is possible therefore to distinguish their contribution to Group profits. If additional adjustments are made ~~for~~


–	~~goodwill amortization,~~
–	~~funding costs,~~
–	~~the share issuance, borrowing and subsequent repurchase,~~
–	~~restructuring costs, and~~
–	~~retention payments,~~

for: goodwill amortization, funding costs, the share issuance, borrowing and subsequent repurchase, restructuring costs, and retention payments; it is possible to make an approximate estimate of the underlying performance of UBS for 2000.

Although this analysis should not be relied on as a definitive indication of the performance of the continuing UBS businesses during ~~the year,~~2000, it demonstrates the very positive underlying performance of the ~~Group in 2000.~~Group.

~~Earnings Adjusted for Significant Financial Events and~~

~~the Estimated Impact of the PaineWebber Merger~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99 31.12.99
Operating income 35,309 26,587 33
Operating expenses 24,319 20,534 18
Operating profit before tax 10,990 6,053 82
Net profit 8,403 4,665 80
Cost / income ratio before goodwill (%) 67.6 73.3
Basic earnings per share before goodwill (CHF) 22.44 12.37 81
Diluted earnings per share before goodwill (CHF) 22.16 12.26 81
Return on shareholders’ equity before goodwill (%)
27.5 18.2

~~Group Financial Review~~

~~Group Performance~~

~~Dividend and distribution by par~~Par value reduction

In October 2000, UBS paid a dividend of CHF 4.50 per share (CHF 1.50 per share adjusted for the July 2001 share split) in respect of the first three quarters of 2000, as part of the arrangements for the merger with PaineWebber. ~~The Board of Directors recommended~~

On 16 July 2001, UBS made a distribution to shareholders in respect of ~~the~~ fourth quarter of 2000 of CHF 1.60 per share ~~in the form of a par value reduction. This brings the total distribution for the year to CHF 6.10~~(CHF 0.53 per share ~~compared to the dividend of CHF 5.50 per share for 1999.~~

Until this year, the minimum par value allowed under law for a Swiss share was CHF 10. The share split that UBS implemented in May last year brought the par value of its share down to this level, removing any further opportunity to split the share.

Under new regulations, which are currently passing through the Swiss legislative process and are expected to become effective on 1 May 2001, the minimum par value is expected to be reduced to CHF 0.01. UBS intends to utilize this change to lower the market price per share to a level more in line with that of its global peer group, and to make a payment to its shareholderspost split), paid in the form of a reduction in the ~~nominal~~par value of its ~~shares.~~

~~If shareholder approval~~shares, from CHF 10.00 to CHF 8.40. For shareholders who pay tax in Switzerland this payment is ~~granted, and the legislation becomes effective, the distribution of CHF 1.60 per share, in respect of the fourth quarter 2000, will be paid in the form of a par value reduction. This is~~ treated ~~in Switzerland~~ as a return of capital to shareholders, not as income, and is therefore tax ~~efficient for shareholders who pay tax in Switzerland. Treatment in other jurisdictions will vary, although under US tax regulations the distribution will be treated as income. However, the~~efficient. The par value reduction ~~does still have~~also has advantages for shareholders outside Switzerland, as no Swiss withholding tax is ~~payable. Each shareholder should consult with a tax advisor~~payable on it.

This par value reduction brought the total distribution for ~~applicable tax implications~~the year 2000 to CHF 6.10 per share (CHF 2.03 per share post split), compared to the dividend of ~~this distribution.~~CHF 5.50 per share (CHF 1.83 per share post split) for 1999.

~~The distribution will reduce~~At the same time as the par value ~~of the share to CHF 8.40.~~reduction, UBS ~~then intends to~~ split its share 3 for 1, resulting in a new par value of CHF 2.80 per share.

Because of the legal and regulatory processes involved, the distribution is expected to take place on 18 July 2001, for holders of record on 13 July 2001. The shares are expected to start trading at the new par value on 16 July 2001.

~~Balance sheet~~

Total assets increased CHF 191 billion, or 21%, from CHF 897 billion at 31 December 1999 to CHF 1,088 billion at 31 December 2000, including CHF 99 billion as a result of the merger with PaineWebber. The remainder of the increase was principally a result of the unwinding of precautionary measures taken at the end of 1999 in preparation for the millennium, and the currency impact of the weakness of the Swiss franc. The increase in cash collateral on securities borrowed, reverse repurchase agreements and trading portfolio assets was partially offset by decreases in cash and balances with central banks and money market paper, as liquidity levels were adjusted following Y2K, and a reduction in positive replacement values due to netting, thanks to improved systems and new reporting practices. Goodwill and intangible assets increased CHF 16 billion, due to goodwill and intangible assets resulting from the PaineWebber merger.

Total liabilities increased 20%, from CHF 866 billion at 31 December 1999, to CHF 1,040 billion at 31 December 2000, reflecting the unwinding of millennium related precautions. The increase in amounts due under repurchase agreements, cash collateral on securities lent and trading portfolio liabilities and an increase in money market paper issued, was offset in part by a decrease in negative replacement values, again principally due to netting.

UBS’s long-term debt portfolio decreased from CHF 56.3 billion at 31 December 1999 to CHF 54.8 billion at 31 December 2000. During this year CHF 14.9 billion of long-term securities were issued while CHF 24.6 billion matured. UBS believes the maturity profile of the long-term debt portfolio is well balanced with a slight bias towards shorter-term maturities to match the maturity profile of UBS’s assets.

~~Shareholders’ equity increased CHF 14 billion, or 46%, from 31 December 1999 to~~

~~Group Financial Review~~

~~Group Performance~~

~~31 December 2000, reflecting the increase in capital required for the PaineWebber merger, increased retained earnings and the reduced holding of treasury shares.~~

UBS maintains a significant percentage of liquid assets, including collateralized receivables and trading portfolios that can be converted into cash on relatively short notice and without adversely affecting UBS’s ability to conduct its ongoing businesses, in order to meet short-term funding needs. Collateralized receivables include reverse repurchase agreements and cash collateral on securities borrowed, and marketable corporate debt and equity securities and a portion of UBS’s loans and due from banks which are secured primarily by real estate. The value of UBS’s collateralized receivables and trading portfolio will fluctuate depending on market conditions and client business. The individual components of UBS’s total assets, including the proportion of liquid assets, may vary significantly from period to period due to changing client needs, economic and market conditions and trading strategies.

~~Consolidated cash~~Cash flows

In the twelve-month period to December 2000, cash equivalents decreased by CHF 8,907 million, principally as a result of investment activities, which generated negative cash flow of CHF 19,135 million. This was mainly due to CHF 10,722 million of cash required for the PaineWebber merger and the purchase of CHF 8,770 million of financial investments.

The positive cash flow of CHF 11,697 million from operating activities principally resulted from net profit of CHF 7,792 million, a net increase in amounts due to customers and ~~amounts due from customers~~loans of CHF 12,381 million, CHF 11,553 million from an increase in the size of the trading portfolio and a net cash inflow of CHF 10,236 million from other assets and liabilities and accrued income and expenses. These were partially offset by a net cash outflow of CHF 30,292 million for repurchase and reverse repurchase agreements and cash collateral on securities borrowed and lent.

Financing activities generated net cash outflow of CHF 1,581 million. CHF 10,125 million from the issuance of money market ~~paper.~~paper, CHF 14,884 million from long-term debt and CHF 2,594 million from the issuance of trust preferred securities ~~was~~were offset by CHF 24,640 million for repayment of long-term debt and CHF 3,928 million for dividend payments.

~~Group results 1999~~

~~UBS’s current performance targets were first implemented at the beginning of 2000. Performance against targets is not therefore discussed in relation to 1999.~~

~~Operating income~~

~~Net interest income~~before credit loss expense increased by CHF 891 million, or 18%, from CHF 5,018 million in 1998 to CHF 5,909 million in 1999. Increased trading-related interest income and higher interest margins in the domestic loan portfolio in 1999 derived from more consistent application of UBS’s risk-adjusted pricing model were partially offset by the sale of business activities which had contributed to net interest income in 1998, as well as the impact of lower returns on invested equity and the reduction of the international loan portfolio.

~~Credit loss expense~~recorded a slight increase of CHF 5 million from CHF 951 million in 1998 to CHF 956 million in 1999. During 1999, UBS experienced general improvements in the economy and in the credit performance of its loan portfolio, and a reduction in impaired loans in the aggregate. Although impaired loans decreased, additional provisions were required for some of the impaired domestic loans remaining in the portfolio.

~~Net fee and commission income~~~~decreased by CHF 19 million from CHF 12,626 million in 1998 to CHF 12,607 million in 1999. Excluding the effect of divestments in 1998, the decrease was roughly 1%.~~

Credit-related fees and commissions decreased in 1999 in line with reduced emerging market exposures and the sale of UBS’s international Global Trade Finance operations. Underwriting and corporate finance fees increased 3% relative to exceptionally strong performance in 1998. Brokerage fees were higher in 1999 than in 1998 mainly due to strong volumes in the UK, US and Asia. A CHF 137 million increase in investment fund fees was attributable to higher volumes and

~~Group Financial Review~~

~~Group Performance~~

~~pricing adjustments from the integration of the two pre-1998 merger product platforms. Strong increases in custodian fees reflected higher custodian assets and a new pricing model.~~

~~Net trading income~~~~increased CHF 4,406 million, or 133%, from CHF 3,313 million in 1998 to CHF 7,719 million in 1999.~~

Net trading income from foreign exchange decreased CHF 884 million, or 44%, from 1998 to 1999 mostly as a result of lower volumes in key markets. The reduced levels of activity resulted from the introduction of the euro and narrowing margins from increased competition in global markets.

Net trading income from fixed income increased CHF 2,441 million from CHF 162 million in 1998 to CHF 2,603 million in 1999. During 1998, net trading income from fixed income was negatively impacted by the pre-tax CHF 793 million write-down of UBS’s trading position in Long Term Capital Management, L.P. and approximately CHF 690 million in losses in UBS’s emerging markets trading portfolios. Excluding those write-downs from the 1998 results, net trading income from fixed income increased approximately 58% in 1999 over 1998. Fixed income trading revenues were strong across all major products during 1999, led by swaps and options and investment grade debt.

Net trading income from equities increased CHF 2,849 million or 246% from 1998, to CHF 4,008 million in 1999. During 1998, net trading income was negatively impacted by pre-tax CHF 762 million in losses from the Global Equities Derivatives business area. In 1999, net trading income benefited from very strong customer volumes in equity products globally.

~~Other income,~~ including net gains from disposal of associates and subsidiaries, increased CHF 905 million, or 40%, from CHF 2,241 million in 1998 to CHF 3,146 million in 1999. Total net gains on disposal of associates and subsidiaries were CHF 1,821 million in 1999 compared to disposal-related pre-tax gains of CHF 1,119 million in 1998. The first-time consolidation of Klinik Hirslanden in 1999, resulting in Other income of CHF 395 million, was partially offset by lower income from investments in associates as a result of the divestments as well as lower income from other properties. The CHF 367 million portion of the Long Term Capital Management write-down negatively impacted other income in 1998.

~~Operating expenses~~

~~Personnel expenses~~increased CHF 2,761 million, or 28%, from CHF 9,816 million in 1998 to CHF 12,577 million in 1999, despite only a minor increase in headcount from 48,011 at 31 December 1998 to 49,058 at 31 December 1999. At the end of 1997, UBS foresaw the probability of a shortfall in profit in its investment banking business as a result of the then-pending 1998 merger. In order to protect its investment banking franchise, UBS realized it would probably need to make payments to personnel in excess of amounts determined by normal compensation methodologies. An amount of approximately CHF 1 billion was recorded as part of the merger-related restructuring reserve for this purpose. By the end of 1998, this shortfall had materialized, and CHF 1,007 million of accrued payments to personnel were charged against the restructuring reserve in 1998 as planned. The shortfall in profits noted above was aggravated by losses associated with Long Term Capital Management and the Global Equity Derivatives portfolio. Adjusting the prior year for the CHF 1,007 million, personnel expenses in 1999 increased by 16%, which was primarily attributable to higher performance-related compensation based on the good investment banking result in 1999. Personnel expense in 1999 was reduced by the recognition of CHF 456 million in pre-paid employer pension contributions.

~~General and administrative expenses~~decreased CHF 637 million, or 9%, from CHF 6,735 million in 1998 to CHF 6,098 million in 1999. General and administrative expenses in 1998 include the provision of CHF 842 million for the US Global Settlement of World War II related claims. In 1999, the following were included:


–	~~the additional restructuring provision of CHF 300 million;~~
–	~~an additional provision of CHF 154 million for the US Global Settlement of World War II related claims; and~~
–	~~CHF 130 million from the first-time consolidation of Klinik Hirslanden.~~

~~Excluding the impact of these items in 1998 and 1999, General and administrative ex-~~

~~Group Financial Review~~

~~Group Performance~~

~~penses decreased 6% year-on-year, reflecting stringent cost reduction programs.~~

~~Depreciation and amortization~~increased CHF 32 million, or 2%, from CHF 1,825 million in 1998 to CHF 1,857 million in 1999. Excluding the impact of the first-time consolidation of Klinik Hirslanden in 1999, depreciation and amortization remained flat.

~~Tax expense~~increased CHF 782 million, or 87%, from CHF 904 million in 1998 to CHF 1,686 million in 1999, principally due to increased operating profit. The effective tax rate of 21.4% is lower than 23.4%, the effective rate in 1998, primarily due to the utilization of tax loss carry forwards.

~~Outlook for 2001~~

The year 2000 was an outstanding one for UBS, and a good one overall for the markets. Moving into 2001, the prospects for markets and for the international credit environment are particularly difficult to predict. The recent upswing in the economic cycle in Switzerland may, however, afford UBS some protection.

We believe that our credit business is well positioned, thanks to our avoidance of balance sheet-led earnings growth, although we do not expect to see the net credit loss write-backs we experienced this year. UBS Asset Management is cautiously optimistic about prospects for growth as its core price/ value investment style demonstrates its strengths in less bullish markets, and UBS Warburg has already demonstrated the quality and sustainability of its earnings in the less positive conditions of the second half of 2000.

The biggest opportunity for UBS in 2001 lies in realizing the full transforming value of the PaineWebber merger, not only in the US, but through leveraging the marketing and client skills, product innovation and energy of our new partners to build the best wealth management firm in the world.

~~(This page intentionally left blank)~~ (IMAGE)

~~Review of~~

~~Business Group~~

~~Performance~~

~~Review of~~

~~Business Group Performance~~

~~Principles~~

Review of Business Group Performance
Introduction

~~Principles~~

Introduction

Reporting by Business Unit¹


	Private and
CHF million	Corporate Clients						Private Banking

For the year ended	31.12.01			31.12.00			31.12.01			31.12.00

Income		7,161			7,443			6,314			6,928




Credit loss expense / recovery²		(576	)		(759	)		(28	)		(26	)

Total operating income		6,585			6,684			6,286			6,902

Personnel expenses		2,988			3,187			1,776			1,956




General and administrative expenses		991			1,058			1,609			1,561




Depreciation		459			419			157			142




Amortization of goodwill and other intangible assets		0			27			41			43

Total operating expenses		4,438			4,691			3,583			3,702

Business unit performance before tax		2,147			1,993			2,703			3,200

Business unit performance before tax and goodwill³		2,147			2,020			2,744			3,243

Cost income ratio before goodwill (%)^3,4		62			63			56			53




Invested assets		320			345			682			691




Net new money⁵		8.5			0.4			22.5			2.8




Headcount		19,938			21,100			9,266			8,925

¹ Figures for 2000 have been restated to reflect the current business structure of the Group. All figures have been adjusted for significant financial events.
² In management accounts, statistically derived adjusted expected credit loss rather than the IAS actual net credit loss expense is reported in the business units. See Note 2 to the Financial Statements for further details.
³ Excludes the amortization of goodwill and other intangible assets.
⁴ Operating expenses/operating income before credit loss expense.
⁵ Excludes dividend and interest income. Figures for 2000 are calculated using the former definition of assets under management.

Management accounting ~~principles~~

The ~~following~~ discussion in this chapter reviews ~~the 1999~~UBS’s 2001 and 2000 results by Business Group and business unit.

~~UBS’s~~Our management reporting ~~system~~systems and policies determine the revenues and expenses directly attributable to each business unit. Internal charges and transfer pricing adjustments are reflected in the performance of each business unit.

Inter-business unit revenues and ~~expenses~~expenses.~~include transfers between business units and between geographical locations.~~ Revenue sharing agreements are used to allocate external customer revenues to Business Groups on a reasonable basis. Transactions between Business Groups are conducted at arms length. Inter-business unit charges are recorded as a reduction to expenses in the business unit providing the service. Corporate Center expenses are allocated to the operating business units, to the extent ~~possible.~~appropriate.

Interest revenuesare apportioned to business units based on the opportunity costs of funding their activities. Accordingly, all assets and liabilities are refinanced with the Group Treasury based on market rates. Revenues relating to balance sheet products are calculated on a fully-funded basis. As a result, business units are additionally credited with the risk-free return on the average equity used.

Commissionsare credited to the business unit with the corresponding customer relationship.

Regulatory equityis allocated to business units based on the average regulatory capital requirement during the period. Only utilized equity is taken into account, and a buffer of 10% is added. The remaining equity, mainly covering real estate, and any unallocated equity, remains in Corporate Center.

~~Assets under management~~Headcountare defined as third-party on- and off-balance sheet assets for which the Group has investment responsibility. This includes both discretionary assets, where the Group has a mandate to invest and manage the assets, as well as assets where the Group advises clients on their investment decisions. Where two business units share responsibility for management of funds (such as UBS investment funds held within private client portfolios), the assets under management are included in both business segments. Wholesale custody-only assets are excluded.

During 2001, UBS expects to introduce a new way of defining and measuring the client assets it has responsibility for, replacing assets under management with a new concept, distinguishing those assets held with UBS for investment purposes.

~~Net new money~~~~is defined as the net inflow or outflow of assets under management during a period, excluding interest and dividend income and the effects of market or currency movements.~~

~~Headcount~~includes trainees and staff in management development programs, but not contractors.

Changes to disclosure since 2000

Business unit structure

We now report UBS Asset Management as a single Business Group, with no split into business units. However we continue to report separate revenues and Key performance indicators


					Corporate and
UBS Asset Management					Institutional Clients						UBS Capital

31.12.01		31.12.00			31.12.01			31.12.00			31.12.01			31.12.00

	2,110		1,953			16,011			18,033			(868	)		368




	0		0			(112	)		(243	)		0			0

	2,110		1,953			15,899			17,790			(868	)		368

	1,003		880			8,339			9,284			96			142




	564		439			2,705			2,779			66			49




	46		49			454			555			2			2




	266		263			145			149			0			2

	1,879		1,631			11,643			12,767			164			195

	231		322			4,256			5,023			(1,032	)		173

	497		585			4,401			5,172			(1,032	)		175









	76		70			72			70




	672		642									1			1




	34.9		(67.9	)




	3,281		2,860			15,562			15,262			128			129

[Additional columns below]

[Continued from above table, first column(s) repeated]

Private Clients Corporate Center

31.12.01 31.12.00 31.12.01 31.12.00
6,969 1,321 678 358
(18 ) (3 ) 236 1,161
6,951 1,318 914 1,519
5,080 1,106 546 490
1,489 355 207 281
124 42 372 320
0 1 25 44
6,693 1,504 1,150 1,135
258 (186 ) (236 ) 384
258 (185 ) (211 ) 428

96 114
782 773
36.0 15.2
20,678 21,814 1,132 986

for the mutual funds and institutional businesses. In addition, UBS Asset Management now includes Brinson Advisors (formerly Mitchell Hutchins), whose results were previously reported in UBS Warburg’s US Private Clients business unit.

Reflecting the launch of our European wealth management initiative in February 2001, we

(CHART)

Review of Business Group Performance
Introduction

reorganized our business unit reporting with effect from first quarter 2001.

The e-services and International Private Clients business units which were previously part of UBS Warburg are no longer reported separately. The e-services initiative is no longer running as a stand-alone project and its infrastructure has now been inherited by the European wealth management initiative within UBS Private Banking.

The domestic European private client businesses previously reported as part of International Private Clients are now part of the Private Banking business unit, with separate key performance indicators for the European wealth management initiative, maintaining the transparency of this strategic development.

We now report UBS Warburg’s US, Australian and Japanese private client operations, including the UBS PaineWebber business, in a combined Private Clients business unit.

We have restated prior periods for the Private Banking and Private Clients units to reflect these changes.

In December 2001 we announced that UBS Warburg’s Private Clients business unit would become a separate Business Group, and be renamed UBS PaineWebber. This change is effective 1 January 2002 and will first be reflected in our financial reporting starting with the First Quarter 2002 Report, which will be published in May 2002.

Client assets reporting

In November 2000, we launched a proposal for a new definition of assets held for our clients. Following a positive reception for this initiative, we introduced the definitions into our reporting in our first quarter 2001 report. We now show the two assets metrics, Client assets and Invested assets, replacing the assets under management definition we previously used.

–	Client assets represents all client assets managed by or deposited with UBS.
–	Invested assets is more restricted and includes all client assets managed by or deposited with UBS for investment purposes.

Invested assets is our central measure and excludes all assets held for purely transactional purposes. It includes, for example, managed institutional assets, mutual funds, discretionary and advisory private client portfolios, and private client securities or brokerage accounts, but excludes wholesale custody-only assets, correspondent banking assets and transactional cash or current accounts. Non-bankable assets (e.g. Art collections) and interbank deposits are excluded from both measures.

Where products are created in one Business Group, but sold in another, they are counted in both the investment management unit and the distribution unit, and double counted in group totals. (For example a mutual fund provided by UBS Asset Management but sold by Private Banking will be counted as invested assets in both business units.)

Net new money is defined as the net inflow or outflow of invested assets during a period, excluding interest and dividend income. The effects of market or currency movements and of acquisitions and divestments are reported separately.

System limitations mean that we are unable to restate 1999 assets under management figures in terms of the new definition, but invested assets at 31 December 2000 have been restated under the new definition. Group invested assets for 31 December 2000 were CHF 2,452 billion, CHF 17 billion lower than assets under management at the same date, under the old definition.

Further details of the new definition can be found at: www.ubs.com/e/index/investors/archive/corporate_information.html in the client assets reporting section.

Credit loss expense

Credit loss expense represents the charges to the profit and loss account relating to amounts due to UBS from loans and advances, OTC derivatives or ~~other~~ off-balance sheet products, ~~including OTC derivatives,~~ that have had to be written-down because they are impaired or uncollectable.

~~UBS determines~~We determine the amounts of Credit loss expense in ~~its~~UBS’s financial accounts and in the business unit reporting on different bases. In the Group ~~financial accounts, UBS reports its~~income statement, we report UBS’s results according to ~~International Accounting Standards (IAS) definitions.~~IAS. Under these ~~rules,~~standards, Credit loss expense is the total of net new allowances and direct write-offs less recoveries. ~~Losses~~These actual losses are recognized and charged to the ~~financial accounts~~income statement in the period when they arise.

In contrast, in ~~its~~our segment and business unit reporting, ~~UBS applies~~we apply a different approach to the measurement of credit risk which reflects the average annual cost that ~~UBS anticipates~~management antici-

Business Group Credit Loss Charge


CHF million	UBS			UBS			UBS Asset
For the year ended 31.12.01	Switzerland			Warburg			Management		Total

Actuarial expected loss		722			168			0		890




Deferred releases		(118	)		(38	)		0		(156	)

Credit loss expense charged to the Business Groups		604			130			0		734

IAS actual credit loss expense		123			375			0		498

Balancing item charged as Credit loss expense in Corporate Center										(236)

pates will arise from today’s transactions that may become ~~impaired.~~impaired in future. In order to manage exposure to credit risk more effectively, ~~UBS prices~~we price transactions with a view to earning – over time – sufficient income to compensate for the losses that are expected to be caused by value adjustments for impaired assets. The basis for measuring these inherent risks in the credit portfolios is the concept of ~~“Expected Loss”~~“actuarial expected loss” (see further page 62 in the ~~Credit~~ Risk Analysis section of the UBS Handbook ~~2000/2001)~~2001/2002). ~~UBS therefore quantifies the~~

We quantify Credit loss expense at business unit level based on the ~~Expected Loss~~actuarial expected loss rather than

~~Review of~~

~~Business Group Performance~~

~~Principles~~

the actual credit loss expense reported in ~~its financial accounts.~~

AsUBS’s income statement. However, while the actuarial expected loss should equal the actual credit loss expense over time, the latter are more erratic, in both timing and amount. In the business unit reporting therefore, in addition to the actuarial expected loss, we amortize the difference between actual credit loss expense and actuarial expected loss. This deferral mechanism aims to ensure that each business unit is ultimately ~~responsible~~accountable for its credit ~~decisions,~~decisions.

Under amended management accounting policies effective for all Business Groups from 1 January 2001, the difference between ~~the~~ actual credit losses and the ~~annual~~

actuarial expected ~~credit~~ loss calculated for management reporting purposes ~~will be~~is charged or credited back to the business units over a three-year period, so that the risks and rewards ~~of credit decisions~~ are ~~fully~~better reflected in their results. The sum of this deferral is reported together with the expected loss as the credit loss expense charged in the segment and business unit reporting.

~~Credit Loss~~

Expected credit loss
IAS Actual credit expense
CHF million 31.12.00 31.12.9 9 31.12.98 31.12.0 0 31.12. 99 31.12.98
UBS Switzerland 784 1,071 1,186 (695 ) 965 445
UBS Asset Management 0 0 0 0 0 0
UBS Warburg 247 333 510 565 0 506
Corporate Center 0 (9 ) 0
Total
1,031 1,404 1,696 (130 ) 956 951
Balancing item in Corporate Center (1,161 ) (448 ) (745 )

~~UBS reconciles~~

We reconcile the difference between the Credit loss expense in ~~its financial accounts~~UBS’s income statement (the actual loss) and the ~~Expected Loss~~credit loss expense shown in business unit reporting ~~with~~(expected loss plus deferral), by recording a balancing item in the Corporate Center. ~~UBS~~We also ~~shows~~show the allocation of actual Credit loss expense to the business units in the footnotes to Note 3a2a of the ~~financial statements.~~UBS Group Financial Statements.

Key performance indicators

~~UBS reports~~

We report carefully chosen key performance indicators for each of ~~its~~UBS’s business ~~units.~~units or Business Groups, as appropriate. These do not carry explicit targets, but are intended as indicators of the business units’ success in creating value for ~~shareholders.~~shareholders and are an important part of our business planning process. They include both financial metrics, such as the ~~cost/~~cost / income ratio, and non-financial metrics, such as ~~Assets under management.~~Invested assets or the number of Client advisors in a business unit.

~~The~~We use these key performance indicators ~~are used~~ for internal performance measurement as well as external reporting. This ensures that ~~management~~manage-

Reconciliation of Business Group Credit Loss Charge to IAS Actual Credit Loss Expense/(Recovery)

																��
CHF million	Credit loss charge									IAS actual credit loss expense

For the year ended	31.12.01			31.12.00			31.12.99			31.12.01		31.12.00			31.12.99

UBS Switzerland		604			785			1,071			123		(695	)		965




UBS Asset Management		0			0			0			0		0			0




UBS Warburg		130			246			333			375		565			0




Corporate Center																(9	)

Total		734			1,031			1,404			498		(130	)		956

Balancing item in Corporate Center		(236	)		(1,161	)		(448	)

Review of Business Group Performance
Introduction

Indicative Tax Rates


	Tax rate

	Pre-goodwill		Post-goodwill

UBS Switzerland		20		20




Private and Corporate Clients		22		22




Private Banking		19		19

UBS Asset Management		23		33

UBS Warburg		39		68




Corporate and Institutional Clients		32		33




US Private Clients		37		37




UBS Capital		4		4

ment have a clear responsibility to lead their businesses towards achieving success in the Group’s key value drivers and ~~reduces~~avoids any risk of managing to purely internal performance measures.

Business Group tax rates

The Business Groups of UBS do not represent separate legal entities. Business Group results are prepared through the application of UBS’s management accounting policies to the results of the entities through which they operate.

Indicative Business Group and business unit tax rates are calculated on an annual basis based on the results and statutory tax rates of the ~~previous~~current financial year. These rates are approximate calculations, based upon the application to the year’s adjusted earnings of statutory tax rates for the locations in which the Business Groups operated. These tax rates therefore give guidance on the tax cost to each Business Group of doing business during ~~2000 and~~2001 on a ~~standalone~~stand alone basis, without the benefit of tax losses brought forward from earlier ~~years:~~years.






~~UBS Switzerland~~			~~21%~~
~~Private and Corporate Clients~~			~~21%~~
~~Private Banking~~			~~22%~~





~~UBS Asset Management~~			~~22%~~
~~Institutional Asset Management~~			~~23%~~
~~Investment Funds/ GAM~~			~~22%~~





~~UBS Warburg~~			~~22%~~
~~Corporate and Institutional Clients~~			~~23%~~
~~UBS Capital~~			~~26%~~
~~US Private Clients~~			~~37%~~
~~International Private Clients~~			~~32%~~
~~e-services~~			~~30%~~

~~These~~

The indicative tax rates are presented “pre-goodwill” and “post-goodwill”. The tax rate pre-goodwill gives an indication of what the tax rate would have been if goodwill were not charged for accounting purposes. It is the sum of the tax expense payable on net profit before tax and goodwill in each location, divided by the total net profit before tax and goodwill. In contrast, the tax rate post-goodwill reflects the actual tax treatment of goodwill in different jurisdictions, expressed as a percentage of net profit before tax (after goodwill). The tax rates post-goodwill are higher than the pre-goodwill rates, because in some jurisdictions there are limitations on the tax deductibility of amortization costs.

Please note that these tax rates are not necessarily indicative of future tax rates for the businesses or UBS Group as a whole.

Changes to disclosure in 2002

~~Review of~~

The following changes will be implemented in our financial disclosure with effect from the First Quarter Report 2002. They do not apply to the Business Group ~~Performance~~disclosures in this Financial Report – details are provided here to help readers who may read our future reports.

With effect from the beginning of 2002, we will implement a new Business Group structure, with UBS PaineWebber becoming a separate Business Group, and we will be making some other changes to our financial disclosure and management accounting.

At present, goodwill and intangible assets relating to the merger of UBS ~~Switzerland~~and PaineWebber are reported in the UBS Warburg Business Group and are not reflected in the results of the business units which make up the Business Group. With the separation of UBS PaineWebber to form a new Business Group, this goodwill will be assigned to the different business units that have benefited from the merger with PaineWebber. We expect that the majority of the goodwill will be allocated to UBS PaineWebber, but that a significant portion will also be allocated to the Corporate and Institutional Clients business unit in UBS Warburg and smaller amounts to UBS Asset Management, which inherited the Mitchell Hutchins asset management business (now called Brinson Advisors), and also to UBS Switzerland’s Private Banking business unit. Associated amortization expense and funding charges will be charged to each business unit in proportion to its share of the goodwill and intangible assets.

At the same time, we will take the opportunity to rationalize our allocation of Corporate Center costs to the Business Groups, restricting charges to those services which are provided directly under explicit Service Level Agreements (“SLAs”), and discontinuing the practice of allocating a proportion of central Group overheads.

Finally, earnings from the O’Connor business, which are currently allocated equally between the Equities business area in UBS Warburg’s Corporate and Institutional Clients unit and UBS Asset Management will now be allocated fully to UBS Asset Management.

We will provide restated Business Group figures for 2000 and 2001 reflecting the new Business Group structure and other disclosure changes, and expect to publish these at least two weeks prior to our first quarter 2002 financial report, which will be published on 14 May 2002.

Accounting for goodwill under US GAAP

A new accounting standard, SFAS 142, changes the treatment of goodwill in Financial Statements prepared under US GAAP. Instead of amortizing goodwill over its expected life, it will be retained on a company’s balance sheet at the level of 31 December 2001 and the company will be required to perform an annual impairment test according to detailed rules set out in the standard. These specify that the goodwill impairment test must be carried out at the level of a “reporting unit”, equivalent in UBS terms to a Business Group. If the goodwill is found to be impaired, the company must record a write-down, charged to its income statement.

The introduction of SFAS 142 under US GAAP will not have a direct effect on our accounts, which are prepared under IAS, and will still show amortization costs. However, as part of the preparation of the reconciliation of our IAS Financial Statements to US GAAP we will have to perform annual SFAS 142 goodwill impairment tests, starting on 1 January 2002. We do not anticipate that we will need to record any write-downs of goodwill upon adoption of this standard. See Note 40 to the Financial Statements for further details.

Review of Business Group Performance
UBS Switzerland

UBS Switzerland

“UBS Switzerland has completed another successful year, with the launch of the European wealth management initiative and very strong progress in asset gathering.”

Stephan Haeringer

Business Group Reporting


CHF million, except where indicated										% change from												% change from
For the year ended	31.12.00			31.12.99 ¹			31.12.98 ¹			31.12.99			31.12.01			31.12.00¹			31.12.99¹			31.12.00


Income		14,182			12,761			13,958			11			13,475			14,371			12,884			(6	)
Credit loss expense ²		(784	)		(1,071	)		(1,186	)		(27	)		(604	)		(785	)		(1,071	)		(23	)

Total operating income		13,398			11,690			12,772			15			12,871			13,586			11,813			(5	)

Personnel expenses		4,759			4,691			4,448			1			4,764			5,143			4,882			(7	)
General and administrative expenses		2,394			2,308			2,226			4			2,600			2,699			2,450			(4	)
Depreciation		508			460			771			10			616			633			475			(3	)
Amortization of goodwill and other intangible assets		62			23			4			170			41			70			38			(41	)

Total operating expenses		7,723			7,482			7,449			3			8,021			8,545			7,845			(6	)

Business Group performance before tax		5,675			4,208			5,323			35			4,850			5,041			3,968			(4	)

Business Group performance before tax and goodwill⁴														4,891			5,111			4,006			(4	)





Additional information
Assets under management (CHF billion)		1,121			1,110			1,013			1




Regulatory equity used (average)														9,300			10,550			10,150			(12	)




Cost / income ratio (%)⁵														60			59			61




Cost / income ratio before goodwill (%)^4,5														59			59			61

Cost / income ratio (%) ³		54			59			53
Cost / income ratio before goodwill (%) ^{3, 4}		54			58			53

% change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 10,500 10,059 9,519 4
Headcount (full time equivalents) 28,785 31,354 30,589 (8 )

^{38
1 The 1999 and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting standards and changes in presentation (see Note 1: Summary ofBusiness Group Reporting Adjusted for Significant Accounting Policies).² In management accounts, statistically derived adjusted expected loss rather than net IAS credit loss (expense) / recovery is reported in the business units (see Note 3a).³Financial Events

CHF million, except where indicated % change from
For the year ended 31.12.01 31.12.00¹ 31.12.99¹ 31.12.00
Income 13,475 14,371 12,884 (6 )
Credit loss expense² (604 ) (785 ) (1,071 ) (23 )
Total operating income 12,871 13,586 11,813 (5 )
Personnel expenses 4,764 5,143 4,882 (7 )
General and administrative expenses 2,600 2,619 ³ 2,450 (1 )
Depreciation 616 561 ³ 475 10
Amortization of goodwill and other intangible assets 41 70 38 (41 )
Total operating expenses 8,021 8,393 7,845 (4 )
Business Group performance before tax 4,850 5,193 3,968 (7 )
Business Group performance before tax and goodwill⁴ 4,891 5,263 4,006 (7 )

Additional information
Cost / income ratio (%)⁵ 60 58 61
Cost / income ratio before goodwill (%)^4,5 59 58 61
¹ The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001.
² In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).
³ Excludes Significant Financial Events: General and administrative expenses, CHF 80 million, Depreciation, CHF 72 million for the PaineWebber integration.
⁴ Excludes the amortization of goodwill and other intangible assets.
⁵ Operating expenses / operating income before credit loss expense.
39
Review of Business Group Performance
UBS Switzerland
Private and Corporate Clients
Business Unit Reporting

CHF million, except where indicated % change from
For the year ended 31.12.01 31.12.00 31.12.99 31.12.00
Individual clients 4,532 5,026 4,553 (10 )
Corporate clients 1,891 1,975 1,855 (4 )
Risk transformation and capital management 358 307 330 17
Operations 242 205 313 18
Other 138 (70 ) 142
Income 7,161 7,443 7,193 (4 )
Credit loss expense¹ (576 ) (759 ) (1,050 ) (24 )
Total operating income 6,585 6,684 6,143 (1 )
Personnel expenses 2,988 3,187 3,363 (6 )
General and administrative expenses 991 1,058 1,123 (6 )
Depreciation 459 419 384 10
Amortization of goodwill and other intangible assets 0 27 2 (100 )
Total operating expenses 4,438 4,691 4,872 (5 )
Business unit performance before tax 2,147 1,993 1,271 8
Business unit performance before tax and goodwill² 2,147 2,020 1,273 6

KPI’s
Invested assets (CHF billion) 320 345 439³ (7 )
Net new money (CHF billion)^4,5 8.5 0.4
Cost / income ratio (%)⁶ 62 63 68
Cost / income ratio before goodwill (%)^2,6 62 63 68
Non-performing loans / gross loans outstanding (%) 4.6 5.3 6.8
Impaired loans / gross loans outstanding (%) 7.4 9.1 11.4

Additional information % change from
As at 31.12.01 31.12.00 31.12.99 31.12.00
Client assets (CHF billion) 640
Regulatory equity used (average) 7,350 8,550 8,550 (14 )
Headcount (full time equivalents) 19,938 21,100 24,098 (6 )
¹ In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).
² Excludes the amortization of goodwill and other intangible assets.
³ Calculated using the former definition of assets under management.
⁴ Calculated using the former definition of assets under management up to and including second quarter 2001.
⁵ Excludes dividend and interest income.
⁶ Operating expenses / operating income before credit loss expense.
Components of Operating Income}

Private and Corporate Clients derives its operating income ~~before credit loss expense.~~⁴ ~~The amortization of goodwill and other intangible assets is excluded from this calculation.~~

principally from:

–
~~Components of Operating Income~~
~~______________________________________________________________________________~~

~~Private and Corporate Clients derives its operating income principally from~~
– net interest income from its loan portfolio and customer deposits;

– – fees for investment management services; and
– ~~transaction fees.~~

As a result, Private and Corporate Clients’ operating income is affected by movements in interest rates, fluctuations in assets under management, client activity levels, investment performance and changes in market conditions.

~~Private Banking derives its operating income from~~–
– ~~fees for financial planning and wealth management services;~~
– ~~fees for investment management services; and~~
– ~~transaction-related~~transaction fees.

Private Banking’s fees are based on the market value of assets under management and the level of transaction-related activity. As a result, Private Banking’s operating income is affected by such factors as fluctuations in assets under management, changes in market conditions, investment performance and inflows and outflows of client funds.

As a result, Private and Corporate Clients’ operating income is affected by movements in interest rates, fluctuations in invested assets, client activity levels, investment performance and changes in market conditions.

~~Review of~~

~~Business Group Performance~~

~~UBS Switzerland~~

~~Private and Corporate Clients~~

~~Business Unit Reporting~~

% change from
CHF million, except where indicated 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
For the year ended
Individual clients 5,026 4,553 4,785 10
Corporate clients 1,975 1,855 1,728 6
Risk transformation and capital management 307 330 0 (7 )
Operations 205 313 448 (35 )
Other (70 ) 142 64
Income 7,443 7,193 7,025 3
Credit loss expense²
(759 ) (1,050 ) (1,170 ) (28 )
Total operating income
6,684 6,143 5,855 9
Personnel expenses 3,187 3,363 3,238 (5 )
General and administrative expenses 1,058 1,123 1,025 (6 )
Depreciation 419 384 680 9
Amortization of goodwill and other intangible assets 27 2 4
Total operating expenses
4,691 4,872 4,947 (4 )
Business unit performance before tax
1,993 1,271 908 57
KPI’s

Assets under management (CHF billion)³
440 439 434 0
Net new money (CHF billion) 0.4
Cost/income ratio (%)⁴
63 68 70
Cost/income ratio before goodwill (%)^4,5
63 68 70
Non-performing loans/Gross loans outstanding (%) 5.0 6.6

Additional information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 8,550 8,550 8,250 0
Headcount (full time equivalents) 21,100 24,098 24,043 (12 )

~~2000~~

There were no significant financial events that affected this business unit in ~~1999~~2001, 2000 or ~~2000.~~1999.

2001

Key performance Indicators

In 2001, Private and Corporate Clients attracted net new money of CHF 8.5 billion, a clear improvement over last year’s disappointing CHF 0.4 billion, and reflecting improved flows from both private clients and corporate clients, where flows can be larger and more volatile. Invested assets declined CHF 25 billion from CHF 345 billion at 31 December 2000 to CHF 320 billion at 31 December 2001, reflecting the effect of market declines during the year.

(BAR GRAPH)

Private and Corporate Clients continues to focus successfully on stringent cost control measures, reflected in a 1 percentage point decline in the full year’s pre-goodwill cost/income ratio from 63% in 2000 to 62% in 2001. This resulted from reductions in headcount and in performance-related compensation expense.

Private and Corporate Clients’ loan portfolio decreased from CHF 156 billion at 31 Decem-

(BAR GRAPH)

ber 2000 to CHF 152 billion at 31 December 2001, driven by reductions in the more volatile business with banks and the further reduction in the recovery portfolio from CHF 15 billion to CHF 12 billion.

The strength of the Swiss economy in the early part of 2001 and our continued successful recovery efforts were reflected in an improvement in key asset quality ratios since the end of last year. The non-performing loans to total loans ratio decreased from 5.3% to 4.6% while the ratio of impaired loans to gross loans further improved from 9.1% to 7.4%.

Results

Private and Corporate Clients enjoyed a very strong year, despite the much more difficult market conditions, with profit before tax in 2001 up 8% compared to 2000, at CHF 2,147 million, its highest level ever. The implementation of risk adjusted pricing and the strength of the Swiss economy in 2000 and early 2001 led to a significant increase in credit quality, while operating expenses have remained under tight control, falling 5% compared to 2000.

(BAR GRAPH)

Operating income

Operating income in 2001 was down CHF 99 million from 2000 at CHF 6,585 million, principally reflecting the effect of weaker markets in 2001 on fee and commission income, which more than offset the reduction in credit loss expense.

Private and Corporate Clients has improved the quality of its loan portfolio considerably in recent years, principally through the introduction of risk adjusted pricing, leading to a lower adjusted expected loss charge in 2001 compared to 2000. We have also introduced a new process for calculating the adjusted expected loss

Review of Business Group Performance
UBS Switzerland

charged to the Business Groups, under which the difference between the actual IAS credit losses and the actuarial expected loss calculated for management reporting purposes is charged or credited back to the business units over a three year period, so that the risks and rewards over the cycle are better reflected in their results. Since actual credit losses in Private and Corporate Clients have recently been lower than the adjusted expected loss charge, this deferral process has also resulted in a lower adjusted expected loss charge (see page 35 for further details).

Together these effects led to a credit loss expense of CHF 576 million in 2001, down 24% from CHF 759 million in 2000.

Income inIndividual Clients declined 10% from CHF 5,026 million in 2000 to CHF 4,532 million in 2001. This change was driven by the much more difficult and uncertain conditions in securities markets, which led to lower brokerage fees and lower sales of investment funds. Interest income also declined, driven by the effect of the sale of Solothurner Bank in fourth quarter 2000.

Income inCorporate Clients declined 4% from CHF 1,975 million in 2000 to CHF 1,891 in 2001, principally reflecting lower interest income as risk adjusted pricing shifted our focus to higher credit quality counterparties leading to lower lending volumes, but also to lower credit loss expense.

Income from theRisk Transformation and Capital Management area benefited from higher interest income, following a change in the treatment of interest on impaired loans (previously recorded as a reduction in credit loss expense), which more than offset the effects of write-downs in some small investments. Overall income increased to CHF 358 million in 2001, from CHF 307 million in 2000.

Income fromOperations rose CHF 37 million, to CHF 242 million in 2001, reflecting one-off revenues from minority holdings in other companies, a decrease in custody fees paid due to lower average assets, which more than offset a decrease in custody revenues, again reflecting lower average assets, and higher interest income from correspondent bank overdraft balances.

Operating expenses

Operating expenses remain under strict control, totaling CHF 4,438 million in 2001, CHF 253 million lower than in 2000. Operating expenses declined through the year and reached an all-time low in fourth quarter 2001.

General and administrative expenses in 2001, were 6% lower than in 2000, at CHF 991 million, principally reflecting lower IT outsourcing costs and the continued effect of our efforts to control costs. As a result, general and administrative expenses have now fallen for two years running, and are below their 1998 level.

Personnel expenses declined by CHF 199 million compared to 2000, to CHF 2,988 million, reflecting a fall in headcount of 1,162 since the end of 2000, and lower performance related pay. Over the full year, the compensation ratio in Private and Corporate clients was 42%, down from 43% in 2000.

Depreciation increased 10% from 2000, to CHF 459 million, principally reflecting cancellation of previously capitalized software projects as a result of cost control measures. Goodwill amortization dropped from CHF 27 million in 2000 to CHF 0 in 2001, reflecting the write-off of goodwill on a credit card portfolio in 2000.

Headcount

Private and Corporate Clients’ headcount declined by a further 6% in 2001, from 21,100 at 31 December 2000 to 19,938 at 31 December 2001, as the cost control effects from the systematic implementation of the strategic projects portfolio and the benefits of the merger between Union Bank of Switzerland and Swiss Bank Corporation continue to be realized. Headcount has reduced by more than 5,700 since the merger, in line with the targets we set at the time. We expect that headcount will remain around the current level during 2002.

(BAR GRAPH)

2000

Key performance indicators

~~Assets under management increased slightly~~

Invested assets decreased by CHF 194 billion from CHF 439 billion inat 31 December 1999 to CHF ~~440~~345 billion ~~during~~at 31 December 2000. The vast majority of this change was due to the new definition of invested assets introduced at 31 December 2000, ~~including~~which excludes certain asset classes previously included in the old definition of assets under management, particularly current accounts. The underlying development was almost flat, with net new money of CHF 0.4 ~~billion. Market performance was~~billion and slightly positive market performance over the year, roughly offsetting transfers of CHF 5 billion to other business units.

The pre-goodwill cost / income ratio in 2000, at 63%, improved significantly from 68% in 1999. This was principally due to lower operating expenses resulting from continuing strict cost control, as the benefits of the 1998 merger between Union Bank of Switzerland and Swiss Bank Corporation continued to be realized.

The quality of the Private and Corporate Clients’ loan portfolio improved considerably during the year, resulting in a non-performing loans / total loans ratio of ~~5.0%~~5.3% at 31 December 2000, compared to ~~6.6%~~6.8% at the end of 1999. This improvement was due in part to the unexpected strengthening of the Swiss economy, and also to Private and Corporate

~~Review of~~

~~Business Group Performance~~

~~UBS Switzerland~~

Clients’ efforts to further enhance the ~~risk/~~risk / return profile of its loan ~~portfolio~~portfolio. This was achieved through selective origination with clear focus on higher quality counterparties, secondary market transactions, the disposal of non-core business subsidiaries, and the continued work-out of the recovery portfolio, which decreased from CHF 21 billion to CHF 15 billion during the year.

Although UBS Switzerland’s non-performing loans ratio is somewhat higher than some comparable banks, particularly in the US, the comparison reflects different structural practices rather than underlying asset quality. In general, Swiss practice is to write off loans entirely only on final settlement of bankruptcy proceedings, the sale of the underlying assets or a formal debt forgiveness. In contrast, US practice is to write off non-performing loans much sooner, reducing the amount of such loans and corresponding provisions recorded at any given date.

Results

Record pre-tax profit for the year, at CHF 1,993 million, was an increase of CHF 722 million, or 57%, over 1999, clearly demonstrating the substantial benefits of the merger between ~~UBS~~the Union Bank of Switzerland and ~~SBC~~Swiss Bank Corporation for the combined domestic banking franchise.

Operating income

Private and Corporate Clients’ operating income in 2000 was CHF 6,684 million, CHF 541 million, or 9%, higher than in 1999. This improved performance primarily reflected higher fee income, particularly in the first half of the year, and reduced expected ~~loss~~credit losses as the quality of the loan portfolio improved.

Both of Private and Corporate Clients’ two main ~~operating~~client business areas recorded increases in their operating income in 2000 as compared to 1999.

– Individual ~~Clients:~~Clients: Operating income in 2000 was CHF 5,026 million, an increase of CHF 473 million, or 10%, from CHF 4,553 million in 1999. This was primarily due to increases in brokerage and investment fund fees resulting from increased investment activity, and minor gains on sales of subsidiaries and participations.
– Corporate Clients:Operating income in 2000 was CHF 1,975 million, an increase of CHF 120 million, or 6%, from CHF 1,855 million in 1999, primarily due to higher interest income resulting from improved margins as well as increased fee and commission income.

On the other hand, the two support business areas saw their incomes reduce.

– Risk Transformation and Capital Management:Income was CHF 307 million in 2000. This was a decrease of CHF 23 million, or 7%, from the CHF 330 million recorded in 1999, primarily as a result of the reduced average size of the recovery loan portfolio, managed by this unit.
– Operations:Revenues in 2000 were CHF 205 million, a decrease of CHF 108 million, or 35%, from CHF 313 million in 1999. Operations revenues were affected by lower interest revenues as a result of reduced correspondent bank overdraft balances, partially offset by small one-off revenues from the revaluation of minority holdings in other companies.

Review of Business Group Performance
UBS Switzerland

Operating expenses

Full year operating expenses in 2000 were CHF 4,691 million, down 4%, or CHF 181 million, from 1999. This was primarily due to falling personnel costs as headcount was reduced.

~~Operating Income Before Credit Loss Expense by Business Area~~

CHF million
For the year ended 31.12.00 31.12.99 31.12.98
Individual Clients 5,026 4,553 4,785
Corporate Clients 1,975 1,855 1,728
Risk transformation and Capital Management 307 330
Operations 205 313 448
Other (70 ) 142 64
Total
7,443 7,193 7,025

Personnel expense fell by CHF 176 million, or 5%, from CHF 3,363 million in 1999 to CHF 3,187 million in 2000. Increased performance-related compensation, reflecting the good

~~Review of~~

~~Business Group Performance~~

~~UBS Switzerland~~

results, was more than offset by a substantial reduction in headcount during the year.

General and administrative expenses fell 6% over the year, despite our continued investments in online services, reflecting continued cost control efforts.

Depreciation expense increased by CHF 35 million, or 9%, to CHF 419 million, primarily due to the implementation of IAS 38, relating to the capitalization of software costs.

Amortization of goodwill and other intangible assets increased CHF 25 million, from CHF 2 million in 1999 to CHF 27 million in 2000. This increase was primarily due to the acquisition of a credit card portfolio during second quarter 2000.

Headcount

Private and Corporate Clients’ headcount declined by almost 3,000 in 2000 from 24,098 at the end of 1999 to 21,100 at 31 December 2000. This reduction includes 948 staff transferred with Systor, which became an independent company at the start of 2000, 413 staff of Solothurner Bank, which was sold during 2000, and the transfer of 148 financial planning and wealth management staff to Private Banking. The remaining reduction of 1,489 staff demonstrates UBS’s continued success in realizing UBS/SBC merger-related synergies.

~~________________________________________________________________________________~~

~~1999~~44

Private Banking

Business Unit Reporting


CHF million, except where indicated										% change from
For the year ended	31.12.01			31.12.00¹			31.12.99¹			31.12.00

Income		6,314			6,928			5,691			(9	)




Credit loss expense²		(28	)		(26	)		(21	)		8

Total operating income		6,286			6,902			5,670			(9	)

Personnel expenses		1,776			1,956			1,519			(9	)




General and administrative expenses		1,609			1,561	³		1,327			3




Depreciation		157			142	³		91			11




Amortization of goodwill and other intangible assets		41			43			36			(5	)

Total operating expenses		3,583			3,702			2,973			(3	)

Business unit performance before tax		2,703			3,200			2,697			(16	)

Business unit performance before tax and goodwill⁴		2,744			3,243			2,733			(15	)









KPI’s




Invested assets (CHF billion)		682			691			682	⁵		(1	)




Net new money (CHF billion)⁶		22.5			2.8	⁵		2.3	⁵

Gross margin on invested assets (bps)⁷		92			99			90			(7	)

Cost / income ratio (%)⁸		57			53			52




Cost / income ratio before goodwill (%)^4,8		56			53			52




Cost / income ratio before goodwill and excluding the European Wealth Management Initiative (%)^4,8		49

Client advisors (full time equivalents)		2,346			1,744						35






KPI’s for the European Wealth Management Initiative




Income		140

Invested assets (CHF billion)		16




Net new money (CHF billion)⁶		5.6

Client advisors (full time equivalents)		370


Additional information							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Client assets (CHF billion)		840




Regulatory equity used (average)		1,950		2,000		1,600		(3	)




Headcount (full time equivalents)		9,266		8,925		8,131		4

¹ The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001.
² In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).
³ Excludes Significant Financial Events: General and administrative expenses, CHF 80 million, Depreciation, CHF 72 million for the PaineWebber integration.
⁴ Excludes the amortization of goodwill and other intangible assets.
⁵ Calculated using the former definition of assets under management.
⁶ Excludes dividend and interest income.
⁷ Income / average invested assets.
⁸ Operating expenses / operating income before credit loss expense.

Review of Business Group Performance
UBS Switzerland

Components of Operating ~~income~~Income

Operating income before credit loss expense increased CHF 168 million, or 2%, from CHF 7,025 million in 1998 to CHF 7,193 million in 1999. This improvement was primarily due to higher margins on interest-related business, such as mortgages, as well as the first full-year impact of the amalgamation and repricing of products from the two former banks. In conjunction with the creation of the Risk Transformation and Capital Management business area in October 1999, the business areas within

Private ~~and Corporate Clients were realigned in 1999. These realignments and the resulting effects on 1999~~Banking derives its operating income ~~were as follows:~~

principally from:

– fees for financial planning and wealth management services;
– ~~The Business Client segment was transferred from Individual Clients to Corporate Clients, resulting in a decrease in operating income from Individual Clients from 1998 to 1999.~~ fees for investment management services; and
– Operating income from Corporate Clients increased from 1998 to 1999, primarily due to the transfer in of the Business Client segment, the transfer in of the Swiss Global Trade Finance business from UBS Warburg, and improving interest margins. The transfer out of the Recovery portfolio to Risk Transformation and Capital Management partially offset these increases.
– Operating income from Operations decreased compared to 1998. This was the net effect of the transfer of emerging market bank activities from UBS Warburg into UBS Private and Corporate Clients and the transfer of industrialized bank activities to UBS Warburg during 1999.transaction-related fees.

Private Banking’s fees are based on the market value of invested assets and ~~Corporate Clients’ expected loss decreased~~the level of transaction-related activity. As a result, Private Banking’s operating income is affected by such factors as fluctuations in invested assets, changes in market conditions, investment performance and inflows and outflows of client funds.

Significant financial events

Following the merger with PaineWebber, our strategy for extending our wealth management services in Europe was reassessed and focus shifted to more affluent clients than those originally targeted by the e-services initiative. The multi-currency and multi-entity core banking systems developed by the e-services initiative now form part of UBS Private Banking’s new wealth management strategy in Europe. Those parts of the infrastructure that were tailored to the mass affluent market, such as telephone call-centers, were closed and the investment in them written off. This resulted in a charge of CHF ~~120~~80 million ~~or 10%, from~~to General and administrative expenses. In addition, capitalized software costs relating to parts of the systems which will now not be used were written off, resulting in a CHF ~~1,170~~72 million charge to depreciation. These two amounts form part of the PaineWebber integration costs, which were treated as a significant financial event in ~~1998 to CHF 1,050 million in 1999~~2000, and as a result of the accelerated reduction of impaired positions and the movement to higher quality businesses. This was partially offset by increased expected loss primarily resulting from the transfer of the remainder of the Swiss Global Trade Finance business from UBS Warburg during 1999.

~~Operating expenses~~

Personnel, general and administrative expenses increased CHF 223 million, or 5%, from CHF 4,263 million in 1998 to CHF 4,486 million in 1999. This increase was due primarily to merger related IT integration work, work relating to the Year 2000 transition and thethese costs associated with the shift of the Swiss Global Trade Finance business from UBS Warburg. This business, with approximately 400 professionals, was transferred from UBS Warburg in early 1999. These increases were partially offset by cost savings resulting from the closure of redundant branches.

Depreciation and amortization expense decreased CHF 298 million, or 44%, from CHF 684 million in 1998 to CHF 386 million in 1999, primarily due to reduced assets employed subsequent to the 1998 merger.

~~Review of~~

~~Business Group Performance~~

~~UBS Switzerland~~

~~Private Banking~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 6,739 5,568 6,933 21
Credit loss expense²
(25 ) (21 ) (16 ) 19
Total operating income
6,714 5,547 6,917 21
Personnel expenses 1,572 1,328 1,210 18
General and administrative expenses 1,336 1,185 1,201 13
Depreciation 89 76 91 17
Amortization of goodwill and other intangible assets 35 21 0 67
Total operating expenses
3,032 2,610 2,502 16
Business unit performance before tax
3,682 2,937 4,415 25
KPI’s

Assets under management (CHF billion) 681 671 579 1
Net new money (CHF billion)³
(0.7 ) 0.7
Gross AuM margin (bps) 98 90 9
Cost / income ratio (%)⁴
45 47 36
Cost / income ratio before goodwill (%)^{4, 5}
44 46 36

Additional information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 1,950 1,509 1,269 29
Headcount (full time equivalents) 7,685 7,256 6,546 6

~~2000~~

There were no significant financial events that affected this business unit in ~~1999~~2001 or ~~2000.~~1999.

2001

Key performance indicators

Net new money inflows in 2001, at CHF 22.5 billion, an eight-fold increase over 2000, demonstrate our success this year in re-energizing our asset-gathering performance, and our determined focus on growing this world-leading business.

Over the year from 31 December 2000, invested assets have fallen only 1%, despite the poor performance of securities markets, reflecting strong net new money growth and a relatively conservative asset mix.

The gross margin fell from 99 basis points in 2000 to 92 basis points in 2001, clearly reflecting reduced transaction volumes, especially compared to the exuberant markets of the early part of 2000.

The pre-goodwill cost/income ratio increased by three percentage points from 53% in 2000 to 56% in 2001, reflecting the costs of our invest-

~~Assets under~~ (BAR GRAPH)

(BAR GRAPH)

ments in the European wealth management initiative, and weaker transaction volumes.

European wealth management

Early in 2001 we launched a European wealth management initiative, designed to expand our market share in five key target countries: Germany, the UK, France, Italy and Spain, a scope that covers about 80% of Europe’s investable assets.

Our strategy is focused on wealthy clients, with services designed primarily for those with more than EUR 500,000 of investable assets, and developed within the context of our clear commitment to open architecture and the provision of a full range of “best of breed” investment products to all our clients. The initiative makes full use of UBS PaineWebber’s top-class abilities in marketing, product management and innovation, technology, and training, deployed as a key catalyst for our European businesses.

Initial progress has been very promising, with net new money of CHF 5.6 billion in our target countries in 2001, despite the relatively difficult market conditions. Opening new offices and hiring new staff is a key component of the initia-

(BAR GRAPH)

tive – expanding our physical presence in the target markets. Hiring plans progressed well in 2001, with the number of client advisers in our five target countries rising to 370 at 31 December 2001, an increase of 208 for the year. A further 40 newly hired advisors started on 1 January 2002, bringing our total hiring in 2001 to 248, in line with our intention to recruit around 250 advisors a year.

(BAR GRAPH)

Results

Weaker markets than 2000 and the costs of investing in the European wealth management initiative brought full year pre-tax profits in 2001 down 16% from last year to CHF 2,703 million, despite a continued focus on controlling operating costs.

(BAR GRAPH)

Operating income

Full year operating income was CHF 6,286 million, down 9% from the record CHF 6,902 million in 2000. This was driven by falling transaction based revenues, reflecting the much less active markets in 2001. Asset based revenues fell only very slightly compared to last year, despite lower average assets, reflecting our success in providing added value services to our clients.

Review of Business Group Performance
UBS Switzerland

Operating expenses

At CHF 3,583 million, operating expenses in 2001 were down 3% from 2000, driven by lower personnel expenses, which were down 9% at CHF 1,776 million due to lower performance-related compensation despite a 4% increase in headcount during the year.

General and administrative expenses increased ~~slightly~~3% from CHF 1,561 million in 2000 to CHF 1,609 million in 2001, principally reflecting the cost of investments in new product development, premises and systems in support of the European wealth management initiative.

Depreciation increased from CHF 142 million in 2000 to CHF 157 million in 2001, reflecting increased investment in IT and premises.

Headcount

At 31 December 2001, Private Banking employed 9,266 professionals, a 4% increase compared with year end 2000, driven by recruitment of client advisors and support personnel for the European Wealth Management initiative. At 31 December 2001, client advisors represented 25% of Private Banking’s staff, up from 20% at the end of 2000.

(BAR GRAPH)

2000

Key performance indicators

Invested assets increased by CHF 109 billion, or 1%, from CHF ~~671~~682 billion to CHF ~~681~~691 billion during 2000, primarily reflecting market performance and currency effects. Net new money during the year was disappointing, with a net ~~outflows~~inflow of CHF ~~0.7 billion.~~2.8 billion, with the majority of the net inflow in the domestic European business.

Gross margin for the year, at 9899 basis points, partly reflects the very strong performance in the exceptional markets of the first quarter. The ~~more recent~~ rates for most of 95the year, (95 basis points in second ~~and fourth quarters, and~~quarter, 94 basis points in third quarter, and 96 basis points in fourth quarter) represent a solid improvement over the average of 90 basis points recorded in 1999, as we introduce more value-added products to our client base.

The pre-goodwill cost / income ratio ~~of 44% improved slightly~~was 53% a slight increase from ~~46%~~52% in 1999, ~~principally due to significantly~~as higher ~~revenues.~~revenues were offset by investment in the e-services project and expansion of the domestic business during 1999 and 2000.

Results

Net profit before tax for the year increased significantly, by CHF ~~745~~503 million, or ~~25%~~19%, to CHF ~~3,682~~3,200 million, from CHF ~~2,937~~2,697 million in 1999. This reflects strong markets in the early part of 2000, and the ~~margin-enhancing~~margin enhancing benefits of introducing more added-value products during the year.

Operating income

The increase in gross margin to 9899 basis points resulted in operating income of CHF ~~6,714~~6,902 million, which was ~~21%~~22%, or CHF ~~1,167~~1,232 million, higher than in 1999. Revenue quality ~~has~~ also improved with ~~asset-~~

~~Review of~~

~~Business Group Performance~~

~~UBS Switzerland~~

~~based~~asset-based fees growing faster over the year than transaction-based fees.

Operating expenses

Full year operating expenses were CHF ~~3,032~~3,702 million, CHF ~~422~~729 million or ~~16%~~25% higher than in 1999.

Personnel expenses increased CHF ~~244~~437 million, or ~~18%~~29%, ~~partly~~mainly due to ~~increased hiring~~higher performance related compensation, investment in ~~client-focused areas,~~the e-services project and the transfer of financial planning and wealth management staff from the Private and Corporate Clients ~~unit, as well as higher performance-related compensation.~~unit.

General and administrative expenses increased CHF ~~151~~234 million, or ~~13%~~18%, primarily due to ~~recruitment~~the investment in the e-services project. Recruitment and training expenses, and volume-driven transaction processing costs, also increased, as ~~well as project-related~~did project related technology costs.

Depreciation expense increased by CHF 1351 million, or ~~17%~~56%, principally due to ~~increased~~ investments in ~~both software and~~ the ~~refurbishment of premises.~~e-services project.

Headcount

Headcount at year end 2000 was ~~7,685,~~8,925, representing an increase of ~~429~~794 during the year. This was mainly the result of an increase of 340 employees relating to the e-services project, the transfer of 148 financial planning and wealth management staff from the Private and Corporate Clients business unit and the completion in first quarter 2000 of previous initiatives to strengthen product capabilities.

It is Private Banking’s policy to shift the balance of its staff towards client-facing roles, reducing the number of support staff. During the year there were net increases of 302 staff in client-focused market areas and 127 in product areas, such as financial planning, Active Advisory, and portfolio management.

~~1999~~

~~Operating income~~

Operating income decreased CHF 1,370 million, or 20%, from CHF 6,917 million in 1998 to CHF 5,547 million in 1999. This significant decrease principally reflected lower transaction-based revenues due to lower levels of client transaction activity. CHF 1,058 million gains from the divestitures of Banca della Svizzera Italiana (BSI) and Adler, as well as CHF 268 million of operating income relating to BSI’s operations, are included in operating income for 1998 and did not recur in 1999.

Notwithstanding the decrease in operating income, assets under management increased during 1999 by CHF 92 billion, or 16%. Strong markets, especially in Europe, in the United States, and in the technology sector, as well as the stronger US dollar, led to a performance increase of CHF 80 billion for 1999. In addition, the acquisition of the international private banking operations of Bank of America accounted for an additional CHF 5 billion, while inter-business unit transfers resulted in another CHF 6 billion. This increase was partially offset, however, by decreased volumes from existing clients during the second half of 1999.

~~Operating expenses~~

Operating expenses, adjusted for CHF 125 million in divestiture-related operating expenses, increased 4%, or CHF 108 million, to CHF 2,610 million in 1999, to a large extent as a result of UBS’s expansion in the front-line staff as well as infrastructure related investments.

Personnel, general and administrative expenses increased CHF 102 million, or 4%, from CHF 2,411 million in 1998 to CHF 2,513 million 1999. Personnel costs increased 10%, or CHF 118 million, to CHF 1,328 million in 1999 due to an increase in headcount of 710 from 6,546 at 31 December 1998 to 7,256 at 31 December 1999. Headcount growth resulted from the acquisition in 1999 of Bank of America’s international private banking operations, enhancement of UBS’s logistics capabilities and support for the introduction of new portfolio monitoring and advisory capabilities. Operating expenses in 1998 also included CHF 125 million related to BSI that did not occur in 1999.

As a result of the acquisition of the international private banking operations of Bank of America, goodwill amortization increased to CHF 21 million in 1999. Depreciation decreased CHF 15 million, or 16%, from CHF 91 million in 1998 to CHF 6 million in 1999.

Review of

Business Group Performance
UBS Asset Management

UBS Asset Management

(PHOTO)

“A second straight year of successful relative investment performance provides a strong foundation for continued progress in 2002.”

John Fraser

Business Group Reporting


CHF million, except where indicated									% change from
For the year ended	31.12.01		31.12.00			31.12.99			31.12.00

Institutional fees		1,007		1,119			857			(10	)




Mutual funds fees		1,103		834			512			32

Total operating income		2,110		1,953			1,369			8

Personnel expenses		1,003		880			516			14




General and administrative expenses		564		439			271			28




Depreciation		46		49			32			(6	)




Amortization of goodwill and other intangible assets		266		263			113			1

Total operating expenses		1,879		1,631			932			15

Business Group performance before tax		231		322			437			(28	)

Business Group performance before tax and goodwill¹		497		585			550			(15	)









KPI’s




Cost / income ratio (%)²		89		84			68




Cost / income ratio before goodwill (%)^1,2		76		70			60






Institutional




Invested assets (CHF billion)		328		323			367	³		2




Net new money (CHF billion)⁴		6.2		(70.8	)³		(49.9	)³




Gross margin on invested assets (bps)⁵		32		34			24			(6	)






Mutual funds




Invested assets (CHF billion)		344		319			231	³		8




Net new money (CHF billion)⁴		28.7		2.9	³		(0.3	)³




Gross margin on invested assets (bps)⁵		33		36			25			(8	)


Additional information							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Client assets (CHF billion)		672




Regulatory equity used (average)		1,250		1,250		162		0




Headcount (full time equivalents)		3,281		2,860		2,576		15

¹ Excludes the amortization of goodwill and other intangible assets.
² Operating expenses / operating income.
³ Calculated using the former definition of assets under management.
⁴ Excludes dividend and interest income.
⁵ Income / average invested assets.

Components of Operating Income

UBS Asset Management

~~Business Group Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 1,953 1,369 1,358 43
Credit loss expense 0 0 0
Total operating income
1,953 1,369 1,358 43
Personnel expenses 880 516 515 71
General and administrative expenses 439 271 228 62
Depreciation 49 32 35 53
Amortization of goodwill and other intangible assets 263 113 78 133
Total operating expenses
1,631 932 856 75
Business Group performance before tax
322 437 502 (26 )
Additional information

Assets under management (CHF billion) 522 598 532 (13 )
Cost / income ratio (%)²
84 68 63
Cost / income ratio before goodwill (%)^{2, 3}
70 60 57

% change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 1,250 162 102 672
Headcount (full time equivalents) 2,860 2,576 1,863 11

¹ ~~The 1999~~ generates most of its revenue from the asset management services it provides to institutional clients, and ~~1998 figures have been restated~~from the distribution of investment funds. Fees charged to ~~reflect retroactive~~institutional clients and on investment funds are based on the market value of invested assets and on successful investment performance. As a result, UBS Asset Management’s revenues are affected by changes in ~~accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary~~market levels as well as flows of ~~Significant Accounting Policies).~~² ~~Operating expenses / operating income before credit loss expense.~~³ ~~The amortization of goodwill and other intangible assets is excluded from this calculation.~~client funds.

~~Components of Revenue~~
~~______________________________________________________________________________~~
UBS Asset Management generates most of its revenue from the asset management services it provides to institutional clients, and from the distribution of investment funds. Fees charged to institutional clients and on investment funds are based on the market value of assets under management. As a result, UBS Asset Management’s revenues are affected by changes in market levels as well as flows of client funds.

~~Review of~~

~~Business Group Performance~~

~~UBS Asset Management~~

~~Institutional Asset Management~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Institutional 1,103 906 968 22
Non-institutional 198 193 195 3
Income 1,301 1,099 1,163 18
Credit loss expense 0 0 0
Total operating income
1,301 1,099 1,163 18
Personnel expenses 631 458 465 38
General and administrative expenses 243 178 154 37
Depreciation 27 25 29 8
Amortization of goodwill and other intangible assets 173 113 78 53
Total operating expenses
1,074 774 726 39
Business unit performance before tax
227 325 437 (30 )
KPI’s

Assets under management (CHF billion) 496 574 531 (14 )
Net new money (CHF billion)²
(66.6 ) (50.1 )
Gross AuM margin (bps)³
33 25 32
Cost / income ratio (%)⁴
83 70 62
Cost / income ratio before goodwill (%)^{4, 5}
69 60 56

Additional information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 500 160 100 213
Headcount (full time equivalents) 1,728 1,653 1,497 5

~~2000~~

There were no significant financial events that affected this ~~business unit~~Business Group in ~~1999~~2001, 2000 or ~~2000.~~1999.

2001

Key performance indicators

Invested assets increased 5% during the year from CHF 642 billion at 31 December 2000 to CHF 672 billion at 31 December 2001. Net new money was CHF 34.9 billion for the year, reflecting the recognition of strong relative investment performance and business development efforts. The pre-goodwill cost/income ratio rose from 70% in 2000 to 76% in 2001, principally reflecting the higher cost/income ratio of the Brinson Advisors business transferred from UBS PaineWebber at the start of the year.

~~Assets under~~ (BAR GRAPH)

Institutional

Institutional invested assets increased from CHF 323 billion at 31 December 2000 to CHF 328 billion at 31 December 2001. This 2% increase was due to CHF 6.2 billion net new money and a CHF 34 billion increase in invested assets from the acquisition of RT Capital (now Brinson Canada) which more than offset negative market performance.

Net new money in 2001 was CHF 6.2 billion, a great improvement from net outflows of CHF 70.8 billion in 2000 and CHF 49.9 billion in 1999, as clients start to recognize the success of our integrated global investment management platform, which delivered strong relative investment performance in both 2001 and 2000.

(BAR GRAPH)

Full year gross margin was 32 basis points, a decrease of 2 basis points from 2000, primarily due to lower performance fees in O’Connor and the addition of the lower margin Brinson Advisors business.

Mutual funds

Mutual funds invested assets increased CHF 25 billion, from CHF 319 billion at 31 December 2000 to CHF 344 billion at 31 December 2001, driven by net new money. Market performance was limited to a negative impact on invested assets of less than 1%.

Net new money of CHF 28.7 billion in 2001,

Review of Business Group Performance
UBS Asset Management

compared to CHF 2.9 billion in 2000, reflected much better asset gathering performance in both Europe and the Americas, particularly in fixed income mandates.

(BAR GRAPH)

The gross margin for the year decreased 3 basis points to 33 basis points due to the addition of Brinson Advisors, which has a high proportion of lower margin money market funds, partially offset by the introduction of a new pricing structure for UBS Investment Funds.

Investment capabilities and performance

In 2001, UBS Asset Management experienced one of its best years of relative investment performance, second only to 2000. Individual security selection made a very significant contribution to 2001 performance, owing much to the benefits of our integrated global investment platform, and our improved ability to share research and knowledge across investment teams worldwide. A slowing global economy, continued declines in equity markets, and the ramifications from the terrorist attacks of 11 September were the predominant developments in 2001.

Our Multi Asset Composite had another impressive year exceeding its benchmark by more than 10% and placing it in the top decile for the last two years. It currently sits ahead of its benchmark for all periods since inception. The Multi Asset Composite has only had one down year in twenty and in the challenging equity market of the last two years returned 12.2% and 3.7%, respectively.

Our Global Equity and US Equity composites also had a strong year in very tough markets. The Global Equity Composite outperformed its benchmark by more than 12%, placing it in the top quartile of peers. Its two-year annualized return compares favorably to its benchmark by more than 13% and by more than 6% for three years. Many of our equity portfolios returned positive absolute gains for the year despite considerable declines in their benchmark indices. For example, our US Equity Large/Intermediate and US Value Equity Composite each gained more than 3%, while their benchmarks had losses of 11% and 5.6%. Both of these composites ranked near the top decile for the year. Nearly all of our major equity composites hold a sizable edge when compared to their benchmarks over two-, three- and five-year periods.

Our fixed income composites also fared well during the year. The UK Fixed Interest portfolio gained 5% and the US Bond Composite posted gains of nearly 9% for the year, both beating their benchmark. In addition, the Emerging Markets Debt Composite returned 11% for the year, placing it well ahead of its benchmark.

Our UK Balanced Composite finished in the top five of its peer group, giving up only 5.8% as the average balanced fund in the UK fell nearly 12% for the year. The UK Balanced Composite currently sits ahead of the CAPS median for one-, three-, five- and ten-year periods.

UBS Investment Funds continued their strong relative investment performance with 70% of all funds outperforming their peer group averages for the year. More specifically, the UBS Strategy Funds performed well as a group, with more than 90% outperforming the peer group for the year. In addition, GAM had a successful year benefiting from a defensive stance on equities, excellent security selection and an allocation to alternative investments.

Results

Pre-tax profit of CHF 231 million in 2001 was 28% lower than 2000. Despite market declines and lower performance fees in the O’Connor busi-

ness, income increased as a result of the new investment funds pricing structure introduced in 2001, the acquisition of RT Capital (renamed Brinson Canada) and the inclusion of Brinson Advisors. This was more than offset by higher personnel expenses and general and administrative expenses driven by spending on growth initiatives, the integration of Brinson Advisors and the acquisition of Brinson Canada in third quarter.

Operating income

Operating income increased CHF 157 million, or 8%, from 2000 to CHF 2,110 million in 2001, as a result of the inclusion of Brinson Advisors, the new pricing structure introduced this year for investment funds and the acquisition of Brinson Canada. These effects were partially offset by lower performance fees at O’Connor, our alternative investment business, and the effect on asset based revenues of market declines in 2001 and institutional asset outflows in 2000 which led to lower average assets compared to 2000.

Institutional income fell 10% in 2001 compared to 2000, to CHF 1,007 million, while mutual fund revenue increased 32% from 2000 to CHF 1,103 million in 2001.

Operating expenses

Operating expenses increased 15% to CHF 1,879 million in 2001, driven by the addition of Brinson Advisors and Brinson Canada.

General and administrative expenses increased 28% from CHF 439 million in 2000 to CHF 564 million in 2001, principally reflecting the addition of Brinson Advisors.

Personnel expenses increased 14% from CHF 880 million in 2000 to CHF 1,003 million in 2001, again mostly due to the addition of Brinson Advisors, which more than offset a considerable decline in performance related compensation.

Depreciation decreased 6% from CHF 49 million in 2000 to CHF 46 million in 2001. Amortization of goodwill and other intangible assets increased 1% to CHF 266 million in 2001, reflecting the effect of the acquisition of Brinson Canada.

Headcount

Headcount increased by 421 in 2001, from 2,860 at 31 December 2000 to 3,281 at 31 December 2000, mostly due to the integration of Brinson Advisors and Brinson Canada.

(BAR GRAPH)

2000

Key performance indicators

The cost/income ratio before goodwill increased to 70% in 2000, from 60% in 1999, principally as a result of the inclusion of O’Connor, Global Asset Management (GAM) and UBS Realty Investors (which generate higher gross margins than the rest of the business, but at higher cost), spending on strategic initiatives to expand global reach, and lower asset-based revenues towards the end of the year.

Institutional

Invested assets at 31 December 2000 include CHF 31 billion invested at Brinson Advisors (formerly Mitchell Hutchins), which was purchased as part of the acquisition of Paine Webber Group, Inc. and subsequently transferred to UBS Asset Management.

Invested assets decreased 12%, or CHF 7844 billion, from CHF ~~574~~367 billion at 31 December 1999 to CHF ~~496~~323 billion at 31 December 2000, with the majority of the decline due to client losses in the institutional business, particularly in the earlier part of the year.

Review of Business Group Performance
UBS Asset Management

Net new money for the year saw a net outflow of CHF ~~66.6~~70.8 billion. Net new money outflows moderated as the year progressed, as losses of equity mandates continued to decline. Client losses continued to be concentrated primarily within US and to a lesser degree UK mandates, reflecting past investment performance issues.

The gross margin in 2000 was 3334 basis points, an increase of 810 basis points over 1999. This rise reflects the contributions from two new higher margin businesses: O’Connor, created in June 2000, and UBS Realty Investors (formerly Allegis), purchased in December 1999.

Mutual funds

Invested assets at 31 December 2000 include CHF 90 billion invested at Brinson Advisors (formerly Mitchell Hutchins), which was purchased as part of the acquisition of Paine Webber Group, Inc., and subsequently transferred to UBS Asset Management.

Invested assets increased 38%, from CHF 231 billion at 31 December 1999 to CHF 319 billion at year end 2000. The ~~cost/income ratio before goodwill increased to 69% in 2000 from 60%~~addition of Brinson Advisors assets offset a slight underlying decline. This underlying performance was largely a result of negative currency and market movements, partly offset by net new money of CHF 2.9 billion.

The gross margin for the year, at 36 basis points, is significantly higher than the 25 basis points recorded in 1999, principally ~~as a result of~~due to the ~~inclusion of~~

33contribution from GAM.

~~Review of~~

~~Business Group Performance~~

~~UBS Asset Management~~

O’Connor and UBS Realty Investors (which generate higher gross margins than the rest of the business, but at higher cost), spending on strategic initiatives to expand global reach, and lower asset-based revenues towards the end of the year.

Investment performance in 2000

The return of global equity markets towards fundamental values was the predominant development during 2000. This trend accelerated during the fourth quarter as the US economy began to slow, and many companies within the Technology, Media and Telecommunications (TMT) sector posted disappointing earnings. Within this challenging environment, strategic positions benefiting from the decline in the TMT sector, the associated drop in equity markets, the under-performance of the very largest capitalization equities, and the year-end turnaround in the euro, helped Institutional Asset Management deliver the best relative annual investment performance in its history.

US equity strategies outperformed benchmarks by wide margins. Global, international and UK equity strategies were also significantly positive. Phillips & Drew was ranked the top-performing pension fund manager in Britain for the year 2000 by Combined Actuarial Performance Services (CAPS), the leading UK performance measurement consultancy. Phillips & Drew’s flagship Managed Exempt fund (equities mixed with property) outperformed the average fund manager by more than 10% for the full year. Phillips & Drew’s strong performance in 2000 also benefited their balanced fund’s three and five year records, moving its ranking up from fourth quartile at the end of 1999 to second quartile at the end of 2000.

Results

~~The full year pre-tax~~

Pre-tax profit of CHF ~~227~~322 million was ~~30%~~26% lower than 1999. Despite asset losses in the core institutional business, operating income increased as a result of the launch of the O’Connor business and the acquisition of Allegis; but this was more than offset by higher performance-related personnel expenses, the additional costs of spending on new business initiatives, chiefly targeted at marketing investment funds outside UBS, and goodwill amortization costs relating to Allegis and ~~increased general and administrative expenses.~~GAM.

Operating income

Operating income increased CHF ~~202~~584 million, or ~~18%~~43%, from CHF ~~1,099~~1,369 million in 1999 to CHF ~~1,301~~1,953 million in 2000.

Institutional revenue increased CHF 262 million, or 31%, from CHF 857 million in 1999 to CHF 1,119 million in 2000. Despite the decrease in invested assets, ~~under management,~~ operating income increased as a result of the acquisition of Allegis and the creation of the new O’Connor alternative asset management business, partially offset by lost revenue from client losses.

Mutual fund income increased CHF 322 million, or 63%, from CHF 512 million in 1999 to CHF 834 million in 2000, primarily as a result of the GAM acquisition.

Operating expenses

Full year expenses increased by CHF ~~300~~699 million to CHF ~~1,074~~1,631 million.

Personnel expenses increased ~~38%~~71%, or CHF ~~173~~364 million, from CHF ~~458~~516 million in 1999 to CHF ~~631~~880 million in 2000 and General and

administrative expenses increased ~~37%~~62%, or CHF 65168 million, over 1999 to CHF ~~243~~439 million in 2000. Both categories of expense increased as a result of the ~~acquisition~~acquisitions of GAM and Allegis, the addition of the new O’Connor business and ~~currency movements.~~investments in distribution initiatives.

Depreciation and amortization expense increased CHF 62167 million, or ~~45%~~115%, from CHF ~~138~~145 million in 1999 to CHF ~~200~~312 million in 2000, ~~including CHF 46 million~~principally due to the goodwill amortization resulting from the ~~acquisition~~acquisitions of ~~Allegis.~~Allegis and GAM.

Headcount

Headcount increased 5%11% from ~~1,653~~2,576 at 31 December 1999 to ~~1,728~~2,860 at 31 December 2000, primarily as a result of an increase of staff to support mutual funds distribution initiatives and the creation of the new O’Connor business in June 2000.

~~1999~~

~~Operating income~~

Operating income decreased CHF 64 million, or 6%, from CHF 1,163 million in 1998 to CHF 1,099 million in 1999. Assets under management increased 8%, or CHF 43 billion, to CHF 574 billion at 31 December 1999 from CHF 531 at 31 December 1998, with increases in both institutional and non-institutional categories year-on-year. Despite the 4% increase in institutional assets under management, which primarily resulted from investment performance, the acquisition of Allegis and growth in private client mandates, institu-

~~Review of~~

~~Business Group Performance~~

~~UBS Asset Management~~

tional revenues decreased. This decrease from CHF 968 million in 1998 to CHF 906 million in 1999 reflects a slight decline in average institutional assets under management from 1998 to 1999, as gains from performance and currency were offset by loss of clients and performance issues in certain mandate types. Average non-institutional assets increased by 16% during 1999; however, non-institutional revenues declined slightly to CHF 193 million as a result of new interbusiness unit fee arrangements with UBS Private Banking.

~~Operating expenses~~

Personnel, general and administrative expenses increased CHF 17 million, or 3%, from CHF 619 million in 1998 to CHF 636 million in 1999. Headcount increased from 1,497 as of 31 December 1998 to 1,653 as of 31 December 1999, primarily as a result of the acquisition of Allegis in December 1999. Personnel expenses decreased slightly from CHF 465 million in 1998 to CHF 458 million in 1999 reflecting decreased incentive compensation. General and administrative expenses increased 16% from CHF 154 million in 1998 to CHF 178 million in 1999 as a result of revisions in cost-sharing arrangements between Institutional Asset Management and other business units of UBS.

Depreciation and amortization expense increased CHF 31 million, or 29%, from CHF 107 million in 1998 to CHF 138 million in 1999, reflecting increased goodwill amortization related to the buy-out of UBS’s joint venture with the Long-Term Credit Bank of Japan.

~~Review of~~

~~Business Group Performance~~

~~UBS Asset Management~~

~~Investment Funds/GAM~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 652 270 195 141
Credit loss expense 0 0 0
Total operating income
652 270 195 141
Personnel expenses 249 58 50 329
General and administrative expenses 196 93 74 111
Depreciation 22 7 6 214
Amortization of goodwill and other intangible assets 90 0 0
Total operating expenses
557 158 130 253
Business unit performance before tax
95 112 65 (15 )
KPI’s

Assets under management (CHF billion) 219 225 176 (3 )
Net new money (CHF billion)²
4.4 1.3
Gross AuM margin (bps)³
38 24 58
Cost/ income ratio (%)⁴
85 59 67
Cost/ income ratio before goodwill(%)^4,5
72 59 67
% change
Additional information
As of 31.12.00 31.12.99 31.12.98 from
31.12.99
Regulatory equity used (avg) 750 2 2
Headcount (full time equivalents) 1,132 923 366 23

~~2000~~

~~There were no significant financial events that affected this business unit in 1999 or 2000.~~

~~Key performance indicators~~

Assets under management decreased 3% from CHF 225 billion at 31 December 1999 to CHF 219 billion at year end 2000, largely a result of currency and market movements, partly offset by net new money of CHF 4.4 billion.

The cost/income ratio before goodwill increased from 59% to 72% mainly as a result of the inclusion of Global Asset Management (GAM), but also reflecting spending on new business initiatives, chiefly targeted at marketing investment funds outside UBS’s own client base.

~~The gross margin for the year, at 38 basis points, is significantly higher than the 24 basis points recorded in 1999, principally due to the contribution from GAM.~~

~~Results~~

Net profit for 2000 fell 15%, or CHF 17 million, to CHF 95 million in 2000, reflecting the additional costs of spending on new business initiatives, chiefly targeted at marketing investment funds outside UBS.

~~Operating income~~

~~Operating income increased CHF 382 million, or 141%, from CHF 270 million in 1999 to~~

~~Review of~~

~~Business Group Performance~~

~~UBS Asset Management~~

~~CHF 652 million in 2000, primarily as a result of the GAM acquisition.~~

~~Operating expenses~~

Personnel expenses increased 329%, or CHF 191 million, from CHF 58 million in 1999 to CHF 249 million in 2000 due to the acquisition of GAM, and increased headcount for growth initiatives in the Investment Funds area. General and administrative expenses increased 111%, from CHF 93 million in 1999 to CHF 196 million in 2000, as a result of the acquisition of GAM and marketing and distribution initiatives in the Investment Funds area.

~~Depreciation and amortization expense increased CHF 105 million, from CHF 7 million in 1999 to CHF 112 million in 2000, reflecting goodwill amortization following the acquisition of GAM.~~

~~Headcount~~

~~Headcount increased 23% from 923 at 31 December 1999 to 1,132 at 31 December 2000, primarily a result of an increase of staff to support distribution initiatives in the Investment Funds area.~~

~~1999~~

~~Operating income~~

Operating income increased CHF 75 million, or 38%, from CHF 195 million in 1998 to CHF 270 million in 1999. This was principally due to higher Investment Funds assets and the transfer from Private Banking of some client responsibility and related income. The acquisition of GAM did not significantly impact income or expenses in 1999.

Assets under management increased 28%, or CHF 49 billion, to CHF 225 billion at 31 December 1999 from CHF 176 billion at 31 December 1998. CHF 24 billion of this increase was due to the acquisition of GAM in December 1999. The remainder was mainly due to positive investment performance.

~~Operating expenses~~

Personnel, general and administrative expenses increased CHF 27 million, or 22%, from CHF 124 million in 1998 to CHF 151 million in 1999. Headcount increased from 366 as of 31 December 1998 to 923 as of 31 December 1999, primarily as a result of the acquisition of GAM in December 1999. Excluding GAM, headcount increased by 69, as a result of efforts to build the Investment Funds business, including the launching of new funds and expansion of distribution efforts. Personnel expenses increased 16% from CHF 50 million in 1998 to CHF 58 million in 1999 in line with the increase in headcount. General and administrative expenses increased 26% to CHF 93 million in 1999 reflecting increased investment in international distribution and the costs of launching new funds, offset by synergies from the 1998 merger, including reduced fees for market data systems and the combination of fund valuation and management systems.

Depreciation and amortization expense increased CHF 1 million, or 17%, from CHF 6 million in 1998 to CHF 7 million in 1999, as a result of changes in the holding structure of some of the business unit’s real estate funds.

Review of

Business Group Performance
UBS Warburg

UBS Warburg

(PHOTO)

“We have made excellent strategic progress in 2001, with increased share of fees in corporate finance and the successful merger with UBS PaineWebber.”

Markus Granziol

~~UBS Warburg~~

Business Group Reporting

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 19,779 ⁴ 13,241 7,691 49
Credit loss expense²
(247 ) (333 ) (510 ) (26 )
Total operating income
19,532 12,908 7,181 51
Personnel expenses 11,002 7,278 4,641 51
General and administrative expenses 3,501 2,680 2,625 31
Depreciation 731 659 549 11
Amortization of goodwill and other intangible assets 298 ⁴ 154 173 94
Total operating expenses
15,532 10,771 7,988 44
Business Group performance before tax
4,000 2,137 (807 ) 87
Additional information

Assets under management (CHF billion)⁶
827 36 27
Cost / income ratio (%)⁷
79 81 104
Cost / income ratio before goodwill (%)^{7, 8}
77 80 102

% change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 24,900 10,679 13,779 133
Headcount (full time equivalents) 38,445 14,266 14,638 169


CHF million, except where indicated										% change from
For the year ended	31.12.01			31.12.00¹			31.12.99¹			31.12.00

Income²		21,349			19,590			13,118			9




Credit loss expense³		(130	)		(246	)		(333	)		(47	)

Total operating income		21,219			19,344			12,785			10

Personnel expenses		13,515			10,618			7,087			27




General and administrative expenses		4,260			3,196			2,538			33




Depreciation		580			606			644			(4	)




Amortization of goodwill and other intangible assets²		991			290			139			242

Total operating expenses		19,346			14,710			10,408			32

Business Group performance before tax		1,873			4,634			2,377			(60	)

Business Group performance before tax and goodwill⁶		2,864			4,924			2,516			(42	)









Additional information




Regulatory equity used (average)		26,200			24,850			10,590			5




Cost / income ratio (%)⁷		91			75			79




Cost / income ratio before goodwill (%)^6,7		86			74			78

Business Group Reporting Adjusted for Significant Financial Events


CHF million, except where indicated										% change from												% change from
For the year ended	31.12.00			31.12.99¹			31.12.98¹			31.12.99			31.12.01			31.12.00¹			31.12.99¹			31.12.00


Income		19,779	⁴		13,041	⁵		7,691			52
Credit loss expense²		(247	)		(333	)		(510	)		(26	)
Income²														21,349			19,590			12,918⁴			9




Credit loss expense³														(130	)		(246	)		(333	)		(47	)

Total operating income		19,532			12,708			7,181			54			21,219			19,344			12,585			10

Personnel expenses		10,916	³		7,278			4,641			50			13,515			10,532⁵			7,087			28
General and administrative expenses		3,408	³		2,680			2,625			27			4,260			3,183⁵			2,538			34
Depreciation		652	³		659			549			(1	)		580			599⁵			644			(3	)
Amortization of goodwill and other intangible assets		298	⁴		154			173			94




Amortization of goodwill and other intangible assets²														991			290			139			242

Total operating expenses		15,274			10,771			7,988			42			19,346			14,604			10,408			32

Business Group performance before tax		4,258			1,937			(807	)		120			1,873			4,740			2,177			(60	)

Business Group performance before tax and goodwill⁶														2,864			5,030			2,316			(43	)

Additional information




Cost / income ratio (%)⁷														91			75			81




Cost / income ratio before goodwill (%)^{6, 7}														86			73			79

Cost / income ratio (%)⁷		77			83			104
Cost / income ratio before goodwill (%)^{7, 8}		76			81			102

¹ The 1999 and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). ² ~~In management accounts, statistically derived adjusted expected loss rather than net IAS credit loss (expense) / recovery is reported in the business units (see Note 3a).~~ ³ The year ended 31 December 2000 Personnel, General and administrative expenses and Depreciation were adjusted for the significant financial events in respect of the PaineWebber integration costs by CHF 86 million, CHF 93 million and CHF 79 million, respectively. ⁴ Goodwill funding costs of CHF 132 million and amortization of goodwill and other intangible assets of CHF 138 million in respect of the PaineWebber acquisition are included in UBS Warburg results but are not reflected in any of the individual business units. ⁵ ~~Year ended 31 December 1999 has been adjusted for the Significant Financial Event of CHF 200 million for the sale of the international Global Trade Finance business.~~ ⁶ ~~US Private Clients’ Client Assets at 3 November 2000 were CHF 890 billion.~~ ⁷ ~~Operating expenses / operating income before credit loss expense.~~ ⁸ ~~The amortization of goodwill and other intangible assets is excluded from this calculation.~~

¹		The 2000 and 1999 figures have been restated to reflect the restructuring of the Group on 1 January 2001.




²		Goodwill funding costs of CHF 763 million (2000: CHF 132 million) and amortization of goodwill and other intangible assets of CHF 846 million (2000: CHF 138 million) in respect of the PaineWebber acquisition are included in UBS Warburg results but are not reflected in any of its individual business units.




³		In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).




⁴		Excludes Significant Financial Events: Income, CHF 200 million for the sale of the international Global Trade Finance business.




⁵		Excludes Significant Financial Events: Personnel expenses, CHF 86 million, General and administrative expenses, CHF 13 million and Depreciation, CHF 7 million, for the PaineWebber integration.




⁶		Excludes the amortization of goodwill and other intangible assets.




⁷		Operating expenses / operating income before credit loss expense.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

Goodwill costs

UBS Warburg’s Business Group operating expenses for 2001 include CHF 846 million (2000: CHF 138 ~~million~~million) of amortization of goodwill and intangible assets and CHF 763 million (2000: CHF 132 ~~million~~million) of goodwill funding costs ~~relating to~~which result from the merger with PaineWebber ~~which~~on 3 November 2000. These costs are recorded at the Business Group level, but are not allocated to the individual business units.

In particular, the results of the US Private Clients business unit, which includes the former PaineWebber private client businesses, do not reflect ~~goodwill~~ amortization or funding costs relating to the merger.

Review of Business Group Performance
UBS Warburg

Corporate and Institutional Clients

Business Unit Reporting


CHF million, except where indicated										% change from
For the year ended	31.12.01			31.12.00			31.12.99			31.12.00

Corporate Finance		2,544			2,701			2,054			(6	)




Equities		6,655			10,429			5,724			(36	)




Fixed income and foreign exchange		6,536			4,622			4,269			41




Non-core business		276			281			482	¹		(2	)

Income		16,011			18,033			12,529			(11	)




Credit loss expense²		(112	)		(243	)		(330	)		(54	)

Total operating income		15,899			17,790			12,199			(11	)

Personnel expenses³		8,339			9,284	⁴		6,861			(10	)




General and administrative expenses		2,705			2,779	⁴		2,429			(3	)




Depreciation		454			555	⁴		629			(18	)




Amortization of goodwill and other intangible assets		145			149			134			(3	)

Total operating expenses		11,643			12,767			10,053			(9	)

Business unit performance before tax		4,256			5,023			2,146			(15	)

Business unit performance before tax and goodwill⁵		4,401			5,172			2,280			(15	)









KPI’s




Compensation ratio (%)⁶		52			51			55

Cost / income ratio (%)⁷		73			71			80




Cost / income ratio before goodwill (%)^5,7		72			70			79

Non-performing loans / gross loans outstanding (%)		2.6			2.8			1.6




Impaired loans / gross loans outstanding (%)		5.4			5.6			3.4




Average VaR (10-day 99%)		252			242			213			4


Additional information							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Client assets (CHF billion)		108




Regulatory equity used (average)		9,900		10,000		10,050		(1	)




Headcount (full time equivalents)		15,562		15,262		12,694		2

¹ Excludes Significant Financial Events: Income, CHF 200 million for the sale of the international Global Trade Finance business.

² In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).

³ Includes retention payments in respect of the PaineWebber acquisition. 2001: CHF 46 million. 2000: CHF 11 million.

⁴ Excludes Significant Financial Events: Personnel expenses, CHF 86 million, General and administrative expenses, CHF 13 million and Depreciation, CHF 7 million, for the PaineWebber integration.

⁵ Excludes the amortization of goodwill and other intangible assets.

⁶ Personnel expenses / operating income before credit loss expense.

⁷ Operating expenses / operating income before credit loss expense.

Components of Operating Income
~~The~~~~Corporate and Institutional Clients~~~~unit generates operating income from~~

The Corporate and Institutional Clients unit generates operating income from:

–
– commissions on agency transactions and spreads or markups on principal transactions;

– – fees from debt and equity capital markets transactions, leveraged finance, and the structuring of derivatives and complex transactions;

– – mergers and acquisitions and other advisory fees;

– – interest income on principal transactions and from the loan portfolio; and

– – gains and losses on market making, proprietary, and arbitrage positions.

As a result, Corporate and Institutional Clients’ operating income is affected by movements in market conditions, interest rate swings, the level of trading activity in primary and secondary markets and the extent of merger and acquisition activity. These and other factors have had and may in the future have a significant impact on results of operations from year to year.
~~UBS Capital’s~~primary source of operating income is capital gains from the disposal or sale of its investments, which are recorded at the time of ultimate divestment. As a result, appreciation in fair market value is recognized as operating income only at the time of sale. The level of annual operating income from UBS Capital is directly affected by the level of investment disposals that take place during the year.
~~The private clients business units,~~~~US Private Clients~~~~and~~~~International Private Clients,~~ ~~principally derive their operating income from~~
– ~~fees for financial planning and wealth management services;~~
– ~~fees for discretionary services; and~~
– ~~transaction-related fees.~~

These fees are based on the market value of assets under management and the level of transaction-related activity. As a result, operating income is affected by such factors as fluctuations in assets under management, changes in market conditions, investment performance and inflows and outflows of client funds.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

Corporate and Institutional ~~Clients~~

Clients’ operating income is affected by movements in market conditions, interest rate swings, the level of trading activity in primary and secondary markets and the extent of merger and acquisition activity. These and other factors have had, and may in the future have, a significant impact on results of operations from year to year.

~~Business Unit Reporting~~Significant financial events

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Corporate Finance 2,701 2,054 1,665 31
Equities 10,429 5,724 3,253 82
Fixed income 2,969 2,464 (267 ) 20
Treasury products 1,653 1,805 2,351 (8 )
Non-core business 281 482 ² (96 ) (42 )
Income 18,033 12,529 ² 6,906 44
Credit loss expense³
(243 ) (330 ) (500 ) (26 )
Total operating income
17,790 12,199 6,406 46
Personnel expenses 9,284 ^{4, 5} 6,861 4,333 35
General and administrative expenses 2,779 ⁴ 2,429 2,483 14
Depreciation 555 ⁴ 629 535 (12 )
Amortization of goodwill and other intangible assets 149 134 157 11
Total operating expenses
12,767 10,053 7,508 27
Business unit performance before tax
5,023 2,146 (1,102 ) 134

KPI’s

Compensation / income (%) 51 55 63
Cost / income ratio (%)⁶
71 80 109
Cost / income ratio before goodwill (%)^{6, 7}
70 79 106
Non-performing loans / Gross loans outstanding (%) 3.4 2.2 1.5
Average VaR (10-day 99%) 242 213 295 ⁸

League table rankings⁹
For the year ended 31.12.00 31.12.99
Global Mergers and Acquisitions completed¹⁰

Rank 6 6
Market share 16.7 20.3
International Equity New Issues¹¹

Rank 7 11
Market share 5.1 3.8
International Bonds¹¹

Rank 5 5
Market share 7.9 8.0
Eurobonds¹¹

Rank 1 1
Market share 8.8 8.7

Additional information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 10,000 10,050 13,300 0
Headcount (full time equivalents) 15,262 12,694 13,794 20

¹PaineWebber integration costs were treated as a significant financial event in 2000, and are not reflected in the figures shown in the table. The ~~1999~~amounts involved were: personnel expenses CHF 86 million, general and ~~1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards~~administrative expenses CHF 13 million and ~~changes in presentation (see Note 1: Summary of Significant Accounting Policies).~~ ² ~~Year ended 31 December 1999 income was adjusted for the Significant Financial Event of~~depreciation CHF 7 million.

In addition, a CHF 200 million ~~related to~~gain on the sale of ~~the~~UBS’s international Global Trade Finance ~~business.~~ ³ ~~In management accounts, statistically derived adjusted expected loss rather than net IAS credit loss (expense) / recovery~~business in 1999 was treated as a significant financial event and is ~~reported~~not reflected in the operating income shown in the table.

There were no significant financial events that affected this business ~~units (see Note 3a).~~ ⁴unit in 2001.

2001

Key performance indicators

UBS Warburg measures its expense base primarily in terms of percentage of revenues, looking at both personnel costs and non-personnel costs on this basis.

(BAR GRAPH)

We continue to maintain a tight focus on cost management in light of the current operating environment, and achieved a pre-goodwill cost/income ratio of 72% in 2001, up slightly from 70% in 2000, as a result of the reduced revenues in difficult market conditions. The ~~year ended~~ratio of personnel costs to income was 52% in 2001, only a slight increase on the 51% recorded in 2000, and favorably comparable with our peer group.

(BAR GRAPH)

Average Value at Risk (VaR) for Corporate and Institutional Clients increased only slightly from CHF 242 million in 2000 to CHF 252 million in 2001 and, in general, market risk exposures have stayed within the normal ranges. There was, however, a short term but significant increase in VaR in December 2001 resulting from sizeable client-driven equity transactions. The need for a temporary increase in limits was anticipated and pre-approved by the Group

(BAR GRAPH)

Review of Business Group Performance
UBS Warburg

Executive Board. The trades were successfully executed and the risk reduced to normal levels.

Total loans decreased by 17% from CHF 73.8 billion at 31 December 2000 to CHF 61.2 billion at 31 December 2001, due to a reduction in Japanese government exposures, and repayments from European multinationals, reflecting the continued reduction of our commercial lending risk profile.

(BAR GRAPH)

Continued successful recovery efforts led the ratio of impaired loans to total loans to fall from 5.6% at 31 December 2000 to 5.4% at the end of 2001. The non-performing loans to total loans ratio declined from 2.8% to 2.6% over the same period.

Results

We recorded a strong performance in 2001, relative to the much weaker markets this year. Pre-tax profit in 2001 was CHF 4,256 million, a decline of 15% over 2000, our best year ever. Equities and corporate finance both suffered from the economic downturn and the consequent weakness in their global markets, while the fixed income and foreign exchange business delivered record results, driven by interest rate reductions and increased volatility, and supported by the expansion of businesses acquired from PaineWebber. In corporate

(BAR GRAPH)

finance we continued to outperform 2000 in terms of market share, with full year analysis showing us with a 4.5% share of fees, compared to 3.6% in 2000. Costs fell sharply to their lowest ever total.

Operating income

Operating income of CHF 15,899 million in 2001 was 11% lower than in 2000.

Corporate finance revenues were CHF 2,544 million in 2001, 6% lower than in 2000, as our improved share of fees this year was more than offset by the general contraction experienced in corporate finance in 2001.

Equities revenues for 2001 were also lower than in 2000, down 36% from CHF 10,429 million to CHF 6,655 million in 2000. This decline principally reflects reduced trading revenues, driven by the lack of mergers and acquisitions activity and increased volatility, together with a cautious approach to risk in difficult market conditions. Commission revenues have been broadly consistent with levels in 2000, reflecting the breadth and depth of our client franchise.

(BAR GRAPH)

Fixed income and foreign exchangeperformed very strongly in 2001, with revenues up 41% from 2000, at CHF 6,536 million. This reflects the effect of interest rate reductions during the year, which led to increased issuance and higher volatility, and the inclusion of businesses taken over from PaineWebber.

Non corerevenues in 2001 were 2% lower than in 2000, at CHF 276 million.

Operating expenses

Personnel expenses declined 10%, from CHF 9,284 million in 2000 to CHF 8,339 million in 2001, driven by reductions in incentive compensation in line with labor market conditions and full year results.

General and administrative expenses in 2001 were 3% lower than in 2000, at CHF 2,705 million, reflecting the impact of cost control measures put in place during 2001. (Fourth quarter 2001 general and administrative expenses were 25% lower than in fourth quarter 2000.)

Depreciation ~~were adjusted for the Significant Financial Events~~fell 18% from 2000 to CHF 454 million in ~~respect~~2001, driven by reductions in IT expenditure as a result of ~~the PaineWebber integration by CHF 86 million, CHF 13 million and CHF 7 million, respectively.~~ ⁵ ~~The year ended 31 December 2000 Personnel expenses include CHF 11 million of the CHF 128 million retention payments in respect of the PaineWebber acquisition.~~ ⁶ ~~Operating expenses / operating income before credit loss expense.~~ ⁷ ~~The amortization~~cost control initiatives.

Amortization of goodwill and other ~~intangible assets is excluded from this calculation.~~ ⁸ ~~VaR average for 1998 is from the date of the UBS / SBC merger, 26 June 1998, until~~intangibles was almost unchanged at CHF 145 million in 2001, just CHF 4 million lower than in 2000.

Headcount

Headcount at 31 December ~~1998.~~ ⁹ ~~The league table rankings reflect recent industry consolidation.~~ ¹⁰ ~~Source: Thomson Financial Securities data.~~ ¹¹ ~~Source: Capital Data Bondware.~~

402001 remained little changed, at 15,562 compared to 15,262 at the end of 2000. We have not engaged in widespread headcount reductions that might have long-term detrimental impact on our client franchises, but are upgrading staff quality in selected areas.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

2000

The results for Corporate and Institutional Clients include the costs and revenues for November and December 2000 of the former PaineWebber capital markets businesses, which were integrated into this business unit from the completion of the merger on 3 November 2000.

PaineWebber integration costs were treated as a significant financial event, and are not shown in the table. The amounts involved were: personnel expenses CHF 86 million, general and administrative expenses CHF 13 million and depreciation CHF 7 million.

In addition, a CHF 200 million gain on the sale of UBS’s international Global Trade Finance business in 1999 was treated as a significant financial event and is not reflected in the operating income shown in the table.

Key performance indicators

~~UBS Warburg measures its expense base primarily in terms of percentage of revenues, looking at both personnel costs and non-personnel costs on this basis.~~

Continued strong revenue performance in 2000 and active cost management led to a pre-goodwill ~~cost/~~cost / income ratio of 70%, down from 79% in the previous year, representing the result of significant cost management efforts on both personnel and non-personnel expenses.

Corporate and Institutional Clients’ ratio of personnel cost to income fell to 51% in 2000, from 55% ~~last year.~~in 1999. UBS Warburg continues to invest in top quality professionals to help expand its capabilities and client reach and aims to compensate its employees at similar levels to its global competitors.

Changes in non-personnel costs are less directly related to changes in income than personnel costs.

As a percentage of income, non-personnel costs decreased to 19% in 2000, from 25% in 1999. Improvements in overall cost management were offset by increased expenditure on technology and professional fees and the incremental costs of the PaineWebber capital markets business.

~~The value of~~ Corporate and Institutional Clients’ non-performing loans rose CHF ~~933~~905 million, or ~~59%~~78%, from CHF ~~1,586~~1,163 million at 31 December 1999 to CHF ~~2,519~~2,068 million at 31 December 2000, reflecting the weaker credit environment in the US. At the same time, the gross loans outstanding rose from CHF 72,717 million at 31 December 1999 to CHF ~~74,253~~73,761 million at 31 December 2000. As a result, the ratio of non-performing loans to total loans increased to ~~3.4%~~2.8% at the end of 2000 from ~~2.2%~~1.6% at the end of 1999. ~~UBS Warburg does not believe that extensive lending is critical to the expansion of its client franchise and does not intend to engage in balance sheet led earnings growth.~~

Market risk utilization, as measured by average ~~Value at Risk,~~VaR, continued to remain well within the limit of CHF 450 million, although increasing from an average of CHF 213 million in 1999 to an average of CHF 242 million in 2000, reflecting the exceptional trading opportunities in the early part of 2000.

Results

UBS Warburg’s Corporate and Institutional Clients business unit delivered record financial results in 2000, with each quarter performing significantly above the levels in the comparable quarter of 1999. Pre-tax profit of CHF 5,023 million was more than double the CHF 2,146 million achieved in 1999, itself a good year.

Review of Business Group Performance
UBS Warburg

Operating income

Corporate and Institutional Clients generated revenues of CHF 18,033 million in 2000, an increase of 44% over 1999.

Equitiesrevenues during 2000 were CHF 10,429 million, or 82% higher than 1999’s revenues of CHF 5,724 million reflecting the strength of UBS Warburg’s global client franchise and increased market share in significantly stronger secondary markets, and strong market-making and trading revenues. UBS Warburg’s secondary equity sales business continues to be ranked as one of the global leaders, and the leading non-US equities house.

Fixed Income and Foreign Exchangeexperienced ~~an exceptionally~~a strong 2000, driven by ~~strong~~active fixed income markets, significant principal finance activity and a ~~strong~~good performance by the government bond and derivatives business, contributing to overall revenues for the year 2000 of CHF ~~2,969~~4,622 million, an improvement of ~~20%~~8%, or CHF ~~505~~353 million over 1999’s revenues of CHF ~~2,464~~4,269 million.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~Operating Income Before Credit Loss Expense by Business Area~~

~~Despite commoditization of products and the continuing pressure on margins across its businesses, the~~~~Treasury Products~~business area recorded a slight increase in underlying revenues, reflecting the recovery of euro trading as the currency strengthened, and a growing client franchise. The business area also increased market share through extensive use of e-channels to extend client reach. Revenues for 1999 also included revenues relating to exchange-traded derivatives and alternative asset management, which were transferred to the Equities business area in 2000. ~~Full year performance reflected this transfer, with revenues of CHF 1,653 million in 2000, down 8% on the previous year.~~

Market conditions for mergers and acquisitions, advisory work and primary underwriting continued to be strong, drivingCorporate Finance’sexcellent performance. UBS Warburg’s corporate client franchise continued to develop, with strong performance in critical sectors in 2000, particularly Telecommunications and Consumer Goods. Productivity per head also increased in comparison to prior years. Overall, 2000 was a year of very strong growth in this area for UBS Warburg, with revenues of CHF 2,701 million, 31% ahead of 1999.

The Corporate Finance business area within Corporate and Institutional Clients provides both advisory services and financing services. Financing services include both equity and fixed-income offerings undertaken in cooperation with the Equities and Fixed income business areas. Accordingly, a portion of operating income associated with these services is allocated to those areas.

Non core income

~~Non-core revenues in 2000, which include income from~~In October and November 1998, UBS’s Board of Directors mandated and undertook a review of UBS’s risk profile and risk management and of UBS’s control processes and procedures. Corporate and Institutional Clients used the ~~work-out of~~review to define its core and non-core business areas, and decided to wind down over time the ~~Global Equity Derivatives portfolio~~identified non-core businesses, and the associated loan portfolio. In 2000, non-core ~~loan portfolio (described below)~~revenues fell 42% compared to 1999, to CHF 281 million.

UBS’s non-core loan portfolio decreased approximately CHF 65 billion, or 61%, from approximately CHF 106 billion as of 31 December 1998 to CHF 41 billion as of 31 December 1999. It has further reduced since, to CHF 23 billion at 31 December 2000 and CHF 10 billion at 31 December 2001.

Operating expenses

Corporate and Institutional Clients continues to carefully manage its cost base, with the pre-goodwill cost/income ratio remaining well below 1999 levels at 70%. Personnel expenses increased 35% from 1999, to CHF 9,284 million, reflecting increased headcount and growth in performance-related compensation in line with the excellent results. Personnel expenses include CHF 11 million of retention payments made to former PaineWebber staff.

General and administrative expenses increased 14% compared to 1999, as a result of increased expenditure on technology outsourcing, professional fees and the incremental costs of the PaineWebber capital markets business.

Overall costs grew at a significantly slower rate than revenues, delivering continued strong pre-tax profit growth.

Headcount

Corporate and Institutional Clients headcount rose 20% during the year, to 15,262, mainly due to business growth in the Corporate Finance and Equities areas, including the impact of the integration of 1,628 staff from the PaineWebber capital markets businesses.

UBS Capital

Business Unit Reporting


CHF million, except where indicated								% change from
For the year ended	31.12.01			31.12.00		31.12.99		31.12.00

Total operating income / (loss)		(868	)		368		315

Personnel expenses		96			142		105		(32	)




General and administrative expenses		66			49		46		35




Depreciation		2			2		2		0




Amortization of goodwill and other intangible assets		0			2		5		(100	)

Total operating expenses		164			195		158		(16	)

Business unit performance before tax		(1,032	)		173		157

Business unit performance before tax and goodwill¹		(1,032	)		175		162





KPI’s

Value creation (CHF billion)		(1.4	)		0.6		0.6


							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Investment (CHF billion)²		5.0		5.5		3.0		(9	)


Additional information

Portfolio fair value (CHF billion)		5.6		6.9		4.2		(19	)




Invested assets (CHF billion)		1		1				0




Regulatory equity used (average)		800		600		340		33




Headcount (full time equivalents)		128		129		116		(1	)

¹ Excludes the amortization of goodwill and other intangible assets.
² Historic cost of investments made, less divestments and permanent impairments.

Components of Operating Income

~~Review~~UBS Capital’s primary source of

~~Business Group Performance~~

~~UBS Warburg~~

~~1999~~

In October and November 1998, UBS’s Board of Directors mandated and undertook a review of UBS’s risk profile and risk management as well as UBS’s control processes and procedures. The review placed particular emphasis on operating income is capital gains from the Fixed Income business area, which had experienced losses on credit exposures in certain emerging market assets. Each of the business areas selected for review was assessed as to whether it supported the UBS and UBS Warburg franchises and, if so, whether the expected return as compared to the estimated risk justified a continuation of the business. Corporate and Institutional Clients used the review to define its core and non-core business areas, and decided to wind down over time the identified non-core businesses.

~~The businesses identified as non-core in late 1998 were~~


–	~~Lease Finance;~~
–	~~Commodities Trading (energy, base metals, electricity);~~
–	~~Non-structured Asset-Backed Finance;~~
–	~~Distressed Debt Trading;~~
–	~~Global Trade Finance, with the exception of the Swiss Corporate business;~~
–	~~Conduit Finance;~~
–	Non-core loans – loans and commitments that are not part of UBS’s tradeable asset portfolio, that are not issued in conjunction with UBS’s Leveraged Finance business or that are credit exposures UBS wishes to reduce; and
–	~~Project Finance.~~

~~The identified non-core businesses are being wound down over time and will be disposed of as appropriate. While UBS considers all~~disposal or sale of its non-core businesses to be held for sale (including those listed above), none of these businesses constitutes a segment to be treated as a discontinued operation, as defined by U.S. GAAP. Businesses designated as non-core businesses remain consolidated for purposes of both IAS and U.S. GAAP unless and until such businessesinvestments, which are actually sold or otherwise disposed of. Most of UBS’s international Global Trade Finance business was sold during the first quarter of 1999 and its Conduit Finance business was sold during the third quarter of 1999. UBS’s non-core loan portfolio decreased approximately CHF 65 billion, or 61%, from approximately CHF 106 billion as of 31 December 1998 to CHF 41 billion as of 31 December 1999.

Negotiations for the sale of the Project Finance portfolio and residual Global Trade Finance positions were completed in December 1999 for proceeds approximating their carrying values. As a result, no material losses were realized. Certain aspects of UBS’s Global Equities Derivatives portfolio previously identifiedrecorded at the time of ultimate divestment. As a result, appreciation in fair market value is recognized as operating income only at the ~~1998 merger as inconsistent with UBS’s risk profile were also designated as a non-core business~~time of sale. The level of annual operating income from UBS Capital is directly affected by the level of investment disposals that take place during ~~late 1998~~the year. Similarly, depreciation in ~~order~~fair market value is only recognized against operating income if an investment becomes permanently impaired and has to ~~segregate this activity from~~be written-down. Write-downs of the ~~rest~~value of its ~~Equities business.~~investments can negatively affect UBS ~~accrued CHF 154 million as a restructuring reserve for this portion of the portfolio.~~Capital’s operating income.

~~Operating income~~

In 1999, Corporate and Institutional Clients’ operating income before credit loss expense from core businesses amounted to CHF 12,047 million and its operating income before credit loss expense from non-core businesses was CHF 482 million.

Operating income from Equities increased CHF 2,471 million, or 76%, from CHF 3,253 million in 1998 to CHF 5,724 million in 1999. This increase was primarily due to continued strong growth throughout 1999 compared to weaker results and losses in 1998 that did not recur. Equities performed well during the six months ended 30 June 1998, but experienced a more difficult trading environment in the second half of 1998 as a result of higher volatility levels in equity markets. In 1999, Equities performed strongly in all major markets. Continuing strong secondary cash and derivatives business with institutional and corporate clients contributed significantly to the positive results.

Operating income from Fixed income increased CHF 2,731 million from CHF (267) million in 1998 to CHF 2,464 million in 1999. The improvement in Fixed income largely reflected particularly strong performance in swaps and options and investment grade corporate debt products during 1999. Strong client flows drove both investor and issuer activities, resulting in increased revenues. Weaker than expected results in Fixed income in 1998 were due primarily to signifi-

Review of

Business Group Performance

UBS Warburg

cant losses in the Group’s emerging market portfolio, which were largely attributable to Corporate and Institutional Clients and a write-down of CHF 793 million in the business unit’s Long Term Capital Management trading position.

Operating income from Corporate Finance increased CHF 389 million, or 23%, from CHF 1,665 million in 1998 to CHF 2,054 million in 1999. Strong performance in mergers and acquisitions in 1999, resulting in higher advisory fees, and contributions from UBS’s Equity and Debt Capital Management Groups were the primary drivers of the increase.

Operating income from Treasury Products decreased CHF 546 million, or 23%, from CHF 2,351 million in 1998 to CHF 1,805 million in 1999. Foreign exchange trading, while continuing to be profitable, was adversely affected by diminished volumes in key markets in 1999. The reduced levels of activity resulted from the introduction of the euro and narrowing margins from increased competition in the global markets. Corporate and Institutional Clients’ precious metals business was adversely impacted by the dramatic volatility in the gold market in the fourth quarter of 1999.

Operating income from the non-core businesses identified above increased CHF 578 million, from CHF (96) million in 1998 to CHF 482 million in 1999. In 1998, Equities recognized losses of CHF 762 million from the Global Equity Derivatives portfolio, as compared to 1999, during which this portfolio generated CHF 74 million in positive revenues. The losses recognized in 1998 were partially offset by CHF 498 million in revenues generated by Global Trade Finance. In 1999, the Global Trade Finance business was sold for a CHF 200 gain after generating approximately CHF 160 million in revenues in 1999.

Credit loss expense decreased CHF 170 million, or 34%, from CHF 500 million in 1998 to CHF 330 million in 1999. This reflected a decrease in Expected Losses due primarily to the continued wind-down of the non-core loan portfolio and the sale of the international Global Trade Finance business in mid-1999. The section entitled “UBS Switzerland – Private and Corporate Clients” includes a discussion of the impact of the transfer of UBS’s Swiss Global Trade Finance business to Private and Corporate Clients. The non-core loan portfolio will continue to be wound-down.

~~Operating expenses~~

Personnel, general and administrative expenses increased CHF 2,474 million, or 36%, from CHF 6,816 million in 1998 to CHF 9,290 million in 1999. Despite a reduction in headcount of 1,100, or 8%, from 13,794 at 31 December 1998 to 12,694 at 31 December 1999, personnel expenses increased CHF 2,528 million, or 58%, to CHF 6,861 in 1999, due primarily to performance-related compensation tied directly to the strong business unit results for the year. In addition, in 1998, CHF 1,007 million of accrued payments to personnel was charged against the restructuring reserve relating to the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation. The shortfall in profits in 1998 was aggravated by losses associated with Long Term Capital Management and the Global Equity Derivatives portfolio. After adjusting 1998 for the amount charged to the restructuring reserve, personnel expenses in 1999 increased 28% against the comparative prior period.

~~General and administrative expenses remained relatively flat from 1998 to 1999.~~

Depreciation and amortization increased CHF 71 million, or 10%, from CHF 692 million in 1998 to CHF 763 million in 1999, primarily reflecting accelerated amortization of the goodwill on a Latin-American subsidiary.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~UBS Capital~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 368 315 585 17
Credit loss expense 0 0 0
Total operating income
368 315 585 17
Personnel expenses 142 105 121 35
General and administrative expenses 49 46 35 7
Depreciation 2 2 0 0
Amortization of goodwill and other intangible assets 2 5 1 (60 )
Total operating expenses
195 158 157 23
Business unit performance before tax
173 157 428 10

KPI’s

Value creation (CHF billion) 0.6 0.6 0.8

% change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Portfolio book value (CHF billion) 5.5 3.0 1.8 83

Additional information

Regulatory equity used (avg) 600 340 250 76
Headcount (full time equivalents) 129 116 122 11

~~2000~~

There were no significant financial events that affected this business unit in ~~1999~~2001, 2000 or ~~2000.~~1999.

2001

Full year results for UBS Capital reflect the very challenging market in 2001, with few opportunities for divestments, and write-downs of several investments as a result of the problems caused for some of our investee companies by the deteriorating economic conditions. Pre-tax losses for 2001 of CHF 1,032 million, compared to pre-tax profits of CHF 173 million in 2000.

Following a strategic review of the business, UBS will in future be focused on private equity asset management, with a restricted level of direct investments through UBS Capital, limited to those sectors and regions with a strong performance track record. We expect results in 2002 to show continued volatility, and net losses, unless there is a material improvement in economic conditions.

Key performance indicators

UBS Capital’s private equity investments have decreased to CHF 5.0 billion at 31 December 2001, from CHF 5.5 billion at the end of 2000, with the decline due to write-downs on the book value of investments, as well as a small number of divestments during the year, which more than offset the draw-down of previously committed investments and the small level of other new investments during the year.

The fair value of the portfolio at the end of December 2001 was CHF 5.6 billion, down 19% from CHF 6.9 billion at 31 December 2000. The fair value included net unrealized gains of CHF 0.6 billion. Value reduction during 2001, was CHF 1.4 billion, compared to value creation of CHF 0.6 billion in 2000.

(BAR GRAPH)

Results

UBS Capital recorded an operating loss of CHF 868 million in 2001, compared to income of CHF 368 million in 2000. Challenging markets and the continued slow-down in corporate activity meant that there were few opportunities for significant divestments in 2001, while weak economic conditions led to deteriorating valuations across a range of industry sectors resulting in a high level of write-downs of investments in the portfolio.

(BAR GRAPH)

Personnel expenses were CHF 96 million in 2001, down from CHF 142 million in 2000, reflecting lower incentive compensation which is driven by realized gains on divestments.

General and administrative expenses were CHF 66 million, up from CHF 49 million in 2000 due principally to professional fees relating to our strategic review of the business.

2000

Key performance indicators

The book value of UBS Capital’s private equity investments ~~has grown~~grew from CHF 3.0 billion at the end of 1999 to CHF 5.5 billion at 31 December 2000. New investments of CHF 2.1 billion were made during the full year, including new shareholdings across a diverse range of sectors. In addition, CHF 0.8 billion of investments made by PaineWebber were added to UBS Capital’s private equity portfolio in December 2000. The portfolio value was reduced by certain write-downs in investments in second and fourth quarters 2000.

Until the introduction in 2001 of IAS 39, UBS Capital ~~accounts~~accounted for its private equity investments at cost less permanent ~~impairments, showing only realized gains or losses in the profit and loss statement. The~~impairments. Our regular portfolio review and valuation at 31 December 2000 resulted in an approximate current fair value of CHF 6.9 billion, compared to CHF 4.2 billion at 31 December 1999. This ~~equates~~equated to unrealized gains of approximately CHF ~~1.3~~1.4 billion at 31 December 2000, compared to CHF 1.2 billion at year-end 1999. The value creation during the year 2000, including realized gains since 1 January 2000, and the increase in the portfolio’s unrealized gains, iswas approximately CHF 0.6 billion.

Results

In 2000, net profit was CHF 173 million, up CHF 16 million or 10% from CHF 157 million in 1999.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

Operating income

Operating income increased 17% to CHF 368 million in 2000, from CHF 315 million in 1999. This reflects the realized gains from sales of investments in the year, partially offset by write-downs of the value of several under-performing companies in different sectors of the portfolio.

Operating expenses

Personnel, general and administrative expenses were CHF 191 million in 2000, an increase from the previous year of CHF 40 million, or 26%, driven mainly by bonus expenses. Bonuses are accrued when an investment is successfully exited, so personnel expenses move in line with successful divestments.

~~1999~~

~~Operating income~~

Operating income decreased CHF 270 million, or 46%, from CHF 585 million in 1998 to CHF 315 million in 1999. This reflects a decrease in realized gains resulting from a reduced number of sales of investments in 1999 as compared to 1998.

~~Operating expenses~~

Personnel, general and administrative expenses decreased slightly by CHF 5 million, or 3%, from CHF 156 million in 1998 to CHF 151 million 1999. These expenses remained stable despite the business unit’s expansion into new regions and sectors, the recruitment of new professionals, the high level of investment activity during 1999 and the associated investment costs. As part of the restructuring related to the 1998 merger, one team from UBS Capital moved to Corporate and Institutional Clients unit effective 1 January 1999. This resulted in a lower headcount during most of 1999 when compared to 1998, and therefore personnel costs decreased 13% from CHF 121 million in 1998 to CHF 105 million in 1999. General and administrative expenses increased CHF 11 million, or 31%, to CHF 46 million in 1999 mainly due to deal-related expenses.

~~UBS Capital made approximately CHF 1.4 billion of new investments and add-ons during 1999.~~

Review of

Business Group Performance

UBS Warburg

US Private Clients

Business Unit Reporting


CHF million, except where indicated										% change from
For the year ended	31.12.01²			31.12.00^{1, 2}			31.12.99¹			31.12.00

Income		6,969			1,321			74			428




Credit loss expense³		(18	)		(3	)		(3	)		500

Total operating income		6,951			1,318			71			427

Personnel expenses⁴		5,080			1,106			121			359




General and administrative expenses		1,489			355			63			319




Depreciation		124			42			13			195




Amortization of goodwill and other intangible assets		0			1			0			(100	)

Total operating expenses		6,693			1,504			197			345

Business unit performance before tax		258			(186	)		(126	)

Business unit performance before tax and goodwill⁵		258			(185	)		(126	)




KPI’s




Invested assets (CHF billion)		782			773			25	⁶		1

Net new money (CHF billion)⁷		36.0			15.2	⁶		2.0	⁶




Gross margin on invested assets (bps)⁸		90			72			35			25

Cost / income ratio (%)⁹		96			114			266




Cost / income ratio before goodwill (%)^{5, 9}		96			114			266




Cost / income ratio before goodwill and retention payments (%)^{5, 9}		90			105

Recurring fees¹⁰		2,277			430						430




Financial advisors (full time equivalents)		8,870			8,871						0


Additional information							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Client assets (CHF billion)		854




Regulatory equity used (average)		1,750		2,750		200		(36	)




Headcount (full time equivalents)		20,678		21,814		581		(5	)

~~CHF million, except where indicated~~
~~For~~¹     The 2000 and 1999 figures have been restated to reflect the ~~year ended~~ ~~31.12.00~~^{restructuring of the Group on 1} January 2001.
²     Private Clients results include PaineWebber for 2001 and for 2000 from the date of acquisition, 3 November 2000.
³     In management accounts, statistically derived adjusted expected loss rather than the net IAS actual credit loss is reported in the business units (see Note 2 of the Financial Statements).
~~Income~~
~~1,225~~⁴     Includes retention payments in respect of the PaineWebber acquisition. 2001: CHF 436 million. 2000: CHF 117 million.
~~Credit loss expense~~
0
~~Total operating income~~
~~1,225~~
~~Personnel expenses~~²⁵
~~955~~
~~General and administrative expenses~~ ~~258~~
~~Depreciation~~ 30
~~Amortization~~     Excludes the amortization of goodwill and other intangible ~~assets~~ 1
~~Total operating expenses~~
~~1,244~~
~~Business unit performance before tax~~
~~(19~~ )assets.
~~KPI’s~~
~~Client assets (CHF billion)~~³
~~794~~
~~Net new money (CHF billion)~~⁴
~~8.3~~
~~Gross AuM margin (bps)~~ 86
~~Cost/income ratio (%)~~⁵
~~102~~
~~Cost/income ratio before goodwill (%)~~^{5, 6}
~~101~~
~~Cost/income ratio before goodwill and retention payments (%)~~^{5, 6}
92
~~Recurring fees~~⁷
~~430~~
~~Financial advisors (full time equivalents)~~ ~~8,871~~


~~Additional information~~
As⁶ Calculated using the former definition of		~~31.12.00~~ assets under management.




⁷ Excludes interest and dividend income.




⁸ Income / average invested assets.
~~Regulatory equity used (avg)~~



~~2,450~~⁹ Operating expenses / operating income before credit loss expense.
~~Headcount (full time equivalents)~~



~~21,490~~¹⁰ Asset based and advisory revenues including fees from mutual funds, wrap fee products and insurance products.

^{1 The US Private Clients results cover the period from the dateComponents of acquisition of PaineWebber, 3 November 2000. ² Includes CHF 117 million of the CHF 128 million retention payments in respect of the PaineWebber acquisition. ³ Corresponds to UBS’s current definition of Assets under management. Client assets at 3 November 2000 were CHF 890 billion. ⁴ Excludes interest and dividend income. ⁵Operating expenses/ operating income before credit loss expense. 6 The amortization of goodwill and other intangible assets is excluded from this calculation. ⁷ Asset based and advisory revenues including fees from mutual funds, wrap fee products, insurance products and institutional asset management products.Income}

The merger between UBS and PaineWebber was completed on 3 November 2000 and was accounted for using purchase accounting. Accordingly, the results shown for US Private Clients are for the period from that date until 31 December 2000. Results for prior periods are not shown.

The business unit represents the former PaineWebber businesses, excluding the PaineWebber capital markets business transferred to the Corporate and Institutional Clients business unit. Although the US businesses of the former UBS Warburg Private Clients business unit ~~were integrated into PaineWebber’s management structure soon after completion~~principally derives its operating income from:

– fees for financial planning and wealth management services;
– fees for discretionary management services; and
– transaction-related fees.

These fees are based on the market value of invested assets and the ~~merger, their results are still included~~level of transaction-related activity. As a result, operating income is affected by such factors as fluctuations in ~~the International Private Clients unit for 2000.~~invested assets, changes in market conditions, investment performance and inflows and outflows of client funds.

Significant financial events

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~2000~~

There were no significant financial events that affected this business unit in 2001, 2000 or 1999.

PaineWebber

The Private Clients business unit primarily consists of UBS PaineWebber, the fourth largest private client business in the US, which became part of UBS following the merger between UBS and Paine Webber Group, Inc., which was completed on 3 November 2000.

The merger was accounted for using purchase accounting, so the results shown for Private Clients for 2000 reflect the inclusion of the PaineWebber businesses only for the period from 3 November 2000 until 31 December 2000. Results for 1999 do not include any contribution from UBS PaineWebber, while results for 2001 reflect a full year’s contribution.

2001

Comparisons of full year results reflect the very different scale of the UBS Warburg Private Clients business prior to the acquisition of PaineWebber in November 2000.

Key performance indicators

At the end of ~~the fourth quarter 2000, US~~2001, Private Clients had CHF ~~794~~782 billion of invested assets, compared to CHF 773 billion at 31 December 2000, a change of 1%, with negative market performance during the year more than offset by strong net new money flows.

(BAR GRAPH)

Net new money for the year was CHF 36.0 billion, compared to CHF 15.2 billion in 2000, more than half of which was earned in the last quarter of 2000 after the integration of PaineWebber. Private Clients’ ability to continue to generate high levels of net new money despite the uncertain markets in 2001 reflects the strength of its client ~~assets.~~franchise amongst high net worth individuals in the US.

(BAR GRAPH)

Gross Margin on invested assets increased to 90 basis points, from 72 basis points in 2000, reflecting the addition of UBS PaineWebber. Gross margin in the pre-existing business for the 9 months to 30 September 2000, before the addition of UBS PaineWebber was 36 basis points. The gross margin fell slightly during 2001, reflecting the effect of uncertain markets on transaction volumes.

(BAR GRAPH)

The cost / income ratio before goodwill and retention payments was 90% in 2001 compared to 105% in 2000. Until the addition of UBS PaineWebber, the pre-existing business was loss making, reflecting the relatively early stage of its business development. Cost control has remained a strong focus during the year, with the cost income ratio in fourth quarter 2001 only one percentage point higher than in fourth quarter 2000.

Recurring fees were CHF 2,277 million in 2001. This ~~represents~~metric was not tracked prior to the

Review of Business Group Performance
UBS Warburg

(BAR GRAPH)

integration of UBS PaineWebber in November 2000. During 2001, recurring fees declined 6% to CHF 545 million in fourth quarter 2001 compared to CHF 580 in first quarter 2001, due to the effects of market depreciation on client assets – recurring fees are priced based on the asset level at the end of the prior quarter.

(BAR GRAPH)

At the end of December 2001, Private Clients had 8,870 financial advisors, unchanged from a ~~fall~~year before. Although we have continued to recruit and train new financial advisors during the year, the difficult market conditions have led to higher turnover amongst the least productive advisors.

(BAR GRAPH)

Results

Pre-tax profits were CHF 258 million, a strong result relative to our peers, achieved against a particularly poor market environment, with two successive years of market declines in the US for the first time since the late 1970s leading to much lower transaction volumes. In 2000, Private Clients incurred a loss of CHF ~~96 billion~~186 million.

(BAR GRAPH)

Operating income

Operating income for the year was CHF 6,951 million, compared to CHF 1,318 million in 2000. Revenues were resilient during 2001, declining just 11% from first quarter to fourth quarter, despite recession and market uncertainty in the ~~level~~US.

Operating expenses

Total operating expenses were CHF 6,693 million in 2001 compared to CHF 1,504 million in 2000, reflecting the addition of UBS PaineWebber.

Private Clients implemented a number of cost control initiatives during the year, aimed at ~~completion~~reducing discretionary expenditure and support costs, while protecting the business’s ability to serve its clients to the highest standards.

Personnel expenses were CHF 5,080 million in 2001, compared to CHF 1,106 million in 2000, reflecting the completely different scale of the business. Expenses in 2001 included CHF 436 million of retention payments for key UBS PaineWebber staff, compared to CHF 117 million in 2000. Through 2001 personnel expenses reduced, from CHF 1,311 million in first quarter to CHF 1,216 million in fourth quarter, reflecting lower performance related and variable compensation and a reduction of support headcount.

General and administrative expenses were CHF 1,489 million in 2001, compared to CHF

355 million in 2000, reflecting the addition of UBS PaineWebber. Cost control efforts drove expenses down during 2001, with fourth quarter general and administrative expenses 4% lower than in first quarter.

Depreciation expenses were CHF 124 million in 2001, compared to CHF 42 million in 2000, reflecting the addition of UBS PaineWebber.

Headcount

Headcount decreased 5% during the year from 21,814 at 31 December 2000 to 20,678 at 31 December 2001. We continue to monitor market conditions, but prudent cost control in previous years means that we have not needed to make franchise threatening cuts to our headcount. Financial advisor headcount is almost unchanged over the year, but we continue to implement efficiency measures to help manage support headcount downwards.

(BAR GRAPH)

2000

Results for 2000 reflect the inclusion of UBS PaineWebber only for the period from the merger, on 3 November 2000, ~~reflecting~~until 31 December 2000.

Key performance indicators

At 31 December 2000, Private Clients had CHF 773 billion of invested assets.

Net new money for the ~~decline in equity markets, particularly in the US, and the effect of the fall of the US dollar against the Swiss franc.~~

~~PaineWebber’s~~year was significant, at CHF 15.2 billion. Private Clients’ asset gathering ~~continues~~continued successfully after the merger, with net new money flows averaging CHF 202.3 million ~~(USD 119.0 million)~~ per day in November and December 2000, ~~comparing~~and totaling CHF 8.3 billion between the merger and the end of the quarter. This compared very favorably to the average pre-merger rate ~~for~~in the third quarter of 2000 of CHF 172.5 million ~~(USD 103.3 million)~~ per day, despite the effects of the holiday season.

Results

Private Clients recorded a net loss for ~~November and December~~ 2000 of CHF 19186 million, compared to a net loss in 1999 of CHF 126 million. Adjusting for the ~~effect~~addition of ~~retention payments~~UBS PaineWebber, the previously existing businesses made a loss of CHF ~~117~~167 million ~~this represents a pre-tax operating profit~~in 2000, partly due to restructuring costs incurred in first quarter 2000.

Operating income

Operating income was CHF 1,318 million in 2000, an increase of CHF 981,247 million ~~for~~from the ~~two months.~~

~~PaineWebber’s strong asset gathering performance during~~CHF 71 million achieved in 1999. This change was mainly due to CHF 1,225 million income of UBS PaineWebber in November and December was in contrast to the seasonal slow down in transactional business, compounded this year by the delay in the results of the US Presidential election, which had a negative effect on client confidence and investment activity. As a result, net profit per month was about 39% lower than the rate in PaineWebber’s individual client segment in third quarter 2000, after adjusting for the benefit of PaineWebber’s invested equity. (Within UBS’s management accounts, the net benefit of invested equity is reflected in Corporate Center.)2000.

~~Operating income~~

Total revenues for November and December were CHF 1,225 million, including approximately CHF 430 million of recurring fee revenue. This represents an overall decline of 2% from the run-rate recorded in PaineWebber’s individual client business in the third quarter, reflecting the effects of the seasonal slow-down.

Operating expenses

~~Total expenses for November and December were CHF 1,244 million. Personnel~~Operating expenses were CHF 1,504 million in 2000, up from CHF 197 in 1999 including CHF 1,244 million at UBS PaineWebber in November and December.

Personnel expenses in 2000 were CHF 1,106 million, an increase of CHF 985 million from 1999. CHF 955 million ~~including~~of this increase resulted from UBS PaineWebber, and included CHF 117 million of retention payments ~~for~~to staff under the terms of the PaineWebber ~~staff. Excluding these payments, overall~~merger agreement.

General and administrative expenses ~~rose slightly~~in 2000 were CHF 355 million, an increase of CHF 292 million from ~~prior levels, reflecting investments in the development of wrap fee products and the new Corporate Employee Financial Services business.~~1999, including CHF 258 million from UBS PaineWebber.

Headcount

Total headcount at 31 December 2000 was ~~21,490, including 8,871 financial advisors,~~21,814, up from ~~8,688 financial advisors at 30 September 2000.~~

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~International Private Clients~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Income 286 197 200 45
Credit loss expense²
(4 ) (3 ) (10 ) 33
Total operating income
282 194 190 45
Personnel expenses 385 294 187 31
General and administrative expenses 188 187 107 1
Depreciation 30 25 14 20
Amortization of goodwill and other intangible assets 7 15 15 (53 )
Total operating expenses
610 521 323 17
Business unit performance before tax
(328 ) (327 ) (133 ) 0

KPI’s

Assets under management (CHF billion) 33 36 27 (8 )
Net new money (CHF billion)³
10.4 3.6
Gross AuM margin (bps) 75 67 12

Additional information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 350 289 229 21
Headcount (full time equivalents) 1,154 1,386 722 (17 )

~~2000~~

~~There were no significant financial events that affected this business unit in 1999 or 2000.~~

~~Key performance indicators~~

~~Assets under management decreased from CHF 36 billion at the end of 1999 to CHF 33 billion~~581 at 31 December ~~2000, reflecting poor performance in world equity markets during~~1999, with the ~~year, particularly in~~vast majority of the ~~technology sector.~~

~~Net new money of CHF 10.4 billion and the increase in the gross margin from 67 bps in 1999 to 75 bps in 2000 reflect the successful efforts to build International Private Clients client franchise.~~

~~Results~~

~~Operating income~~

Operating income increased CHF 88 million, or 45%, from CHF 194 million in 1999 to CHF 282 million in 2000. Revenues have increased as average assets under management have grown, a wider range of products and services has been offered to clients and new staff and offices have built their client franchises. International Private Clients’ businesses are generally in a relatively early stage of development and its client relationships will continue to build towards their full revenue potential.

~~Operating expenses~~

~~Operating expenses increased 17%, or CHF 89 million, from CHF 521 million in 1999 to CHF 610 million in 2000, mainly~~change due to the ~~expansion~~addition of ~~offices early in 2000. This total included restructuring costs of CHF 93 million related to integration of the International Private Clients businesses into~~ UBS ~~Warburg in February 2000.~~

~~Excluding this restructuring charge, expenses fell 1% compared to 1999.~~

49PaineWebber.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~Headcount~~

~~Headcount fell from 1,386 to 1,154, as a result of the restructuring undertaken in 2000, matching staffing levels more exactly to market opportunities.~~

~~1999~~

~~Operating income~~

Results for the year ended 31 December 1998 were driven by a business that consisted primarily of the private banking operations of Schroder Munchmeyer Hengst, a German private bank acquired by the former Union Bank of Switzerland in August 1997, domestic private banking activities in Australia, and limited onshore private banking activities conducted in the United States and Italy, established by the former Union Bank of Switzerland.

~~Operating income increased CHF 4 million, or 2%, from CHF 190 million in 1998 to CHF 194 million in 1999.~~

~~Assets under management increased during 1999 by CHF 9 billion, or 33%.~~

~~Operating expenses~~

Operating expenses increased 61%, or CHF 198 million, to CHF 521 million in 1999 from CHF 323 million in 1998, as a result of expansion in front-line and support staff, office locations, and infrastructure related investments.

Personnel, general and administrative expenses increased CHF 187 million, or 64%, from CHF 294 million in 1998 to CHF 481 million in 1999. Personnel costs increased 57%, or CHF 107 million, to CHF 294 million in 1999 due to an increase in headcount of 664, or 92%, from 722 at 31 December 1998 to 1,386 at 31 December 1999. General and administrative expenses increased CHF 80 million, or 75%, from 1998 to CHF 187 million in 1999, due to increases in information technology, property and other infrastructure costs to support the new offices and increased headcount.

~~Review of~~

~~Business Group Performance~~

~~UBS Warburg~~

~~e-services~~

~~Business Unit Reporting~~

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99 31.12.99
Income (1 ) 0
Credit loss expense 0 0
Total operating income
(1 ) 0
Personnel expenses 150 18 733
General and administrative expenses 134 ¹ 18 644
Depreciation 35 ¹ 3
Amortization of goodwill and other intangible assets 1 0
Total operating expenses
320 39 721
Business unit performance before tax
(321 ) (39 ) (723 )

Additional Information % change from
As of 31.12.00 31.12.99 31.12.99
Headcount (full time equivalents) 410 70 486

¹ The year ended 31 December 2000 General and administrative expenses and Depreciation were adjusted for Significant Financial Events in respect of the PaineWebber integration by CHF 80 million and CHF 72 million, respectively.

~~2000~~

UBS Group established the e-services project in the third quarter of 1999. Following the merger with PaineWebber, the e-services strategy was re-assessed and focus shifted to more upscale clients than those originally targeted.

~~The multi-currency and multi-entity core banking systems developed by the e-services initiative will be integrated into the core of UBS’s new wealth management strategy in Europe.~~

Those parts of the infrastructure that were relevant to the mass affluent market, such as telephone call-centers, have been closed and the investment in them has been written off. This has resulted in a charge of CHF 80 million to General and administrative expenses. In addition, capitalized software costs relating to parts of the systems which will not now be used have been written off, resulting in a CHF 72 million charge to depreciation. These two amounts form part of the PaineWebber integration costs, treated as a significant financial event, and as a result these costs do not appear in the adjusted business unit results above.

~~Operating expenses~~

Operating expenses were CHF 320 million in 2000, mainly related to infrastructure-related investments in core technologies. Personnel expenses were CHF 150 million in 2000 and CHF 18 million in 1999. General and administrative expenses were CHF 134 million in 2000 and CHF 18 million in 1999.

~~These increases were primarily the result of the establishment of operations infrastructure, the installation and testing of systems platforms, and the testing of marketing concepts.~~

~~As explained above, the restructuring costs associated with the end of the e-services initiative were treated as a significant financial event and are therefore not included in these figures.~~

Review of

Business Group Performance
Corporate Center

Corporate Center

~~Corporate Center~~

Business Group Reporting


CHF million, except where indicated								% change from										% change from
For the year ended	31.12.00		31.12.99²		31.12.98²			31.12.99			31.12.01			31.12.00		31.12.99		31.12.00


Income		358		2,010		191			(82	)		678			358		2,010		89
Credit loss recovery³		1,161		448		745			159




Credit loss recovery¹												236			1,161		448		(80	)

Total operating income		1,519		2,458		936			(38	)		914			1,519		2,458		(40	)

Personnel expenses		522		92		212			467			546			522		92		5
General and administrative expenses		431		839		1,656			(49	)		207			431		839		(52	)
Depreciation		320		366		128			(13	)		372			320		366		16
Amortization of goodwill and other intangible assets		44		50		87			(12	)		25			44		50		(43	)

Total operating expenses		1,317		1,347		2,083			(2	)		1,150			1,317		1,347		(13	)

Business Group performance before tax		202		1,111		(1,147	)		(82	)		(236	)		202		1,111

Business Group performance before tax and goodwill²												(211	)		246		1,161

Additional Information % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Regulatory equity used (avg) 8,450 7,850 6,350 8
Headcount (full time equivalents) 986 862 921 14


Additional information							% change from
As at	31.12.01		31.12.00		31.12.99		31.12.00

Regulatory equity used (average)		6,200		8,450		7,850		(27	)




Headcount (full time equivalents)		1,132		986		862		15

Business Group Reporting Adjusted for Significant Financial Events³


CHF million, except where indicated									% change from
For the year ended	31.12.01			31.12.00		31.12.99			31.12.00

Income		678			358		372			89




Credit loss recovery¹		236			1,161		448			(80	)

Total operating income		914			1,519		820			(40	)

Personnel expenses		546			490		548			11




General and administrative expenses		207			281		385			(26	)




Depreciation		372			320		366			16




Amortization of goodwill and other intangible assets		25			44		50			(43	)

Total operating expenses		1,150			1,135		1,349			1

Business Group performance before tax		(236	)		384		(529	)

Business Group performance before tax and goodwill²		(211	)		428		(479	)

CHF million, except where indicated % change from
For the year ended 31.12.00 31.12.99² 31.12.98² 31.12.99
Income 358 372 191 (4 )
Credit loss recovery³
1,161 448 745 159
Total operating income
1,519 820 936 85
Personnel expenses 490 548 212 (11 )
General and administrative expenses 281 385 1,656 (27 )
Depreciation 320 366 128 (13 )
Amortization of goodwill and other intangible assets 44 50 87 (12 )
Total operating expenses
1,135 1,349 2,083 (16 )
Business Group performance before tax
384 (529 ) (1,147 )

¹ ~~Figures have been~~   In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the net IAS actual credit loss expenses are reported for all business units. The statistically derived adjusted expected losses reflect the ~~significant financial events. Year~~inherent counterparty and country risks in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the net IAS actual credit loss expenses recorded at Group level is reported in the Corporate Center (see Note 2 to the Financial Statements).

²   Excludes the amortization of goodwill and other intangible assets.

³   Excludes Significant Financial Events: Income, year ended 31 December 1999, ~~income has been adjusted for the~~ CHF 38 million ~~income~~ from the Long Term Capital Management (LTCM) fund, CHF 1,490 million for the sale of our 25% stake in Swiss Life / Rentenanstalt and CHF 110 million for the sale of Julius Baer registered shares. ~~Year~~Personnel expenses, year ended 31 December 2000, ~~Personnel expenses were adjusted~~CHF 32 million for the PaineWebber ~~integration costs of CHF 32 million. Year~~integration. General and administrative expenses, year ended 31 December 2000, ~~General and administrative expenses have been adjusted for the net additional~~ CHF 150 million net additional provision relating to the US Global Settlement. ~~Year~~Personnel expenses, year ended 31 December 1999, ~~Personnel expenses have been adjusted for~~ CHF 456 million for the Pension Fund Accounting Credit. ~~Year~~General and administrative expenses, year ended 31 December 1999, ~~General and administrative expenses have been adjusted for~~ CHF 300 million for the ~~UBS/~~UBS / SBC Restructuring Provision and CHF 154 million for the increase in the provision for the US Global Settlement.² The 1999 and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). ³ ~~In management accounts, statistically derived adjusted expected loss rather than net IAS credit loss (expense) / recovery is reported in the business units (see Note 3a).~~

Significant financial events

~~Review of~~

~~Business Group Performance~~

There were no significant financial events in Corporate Center in 2001.

~~2000~~

Significant financial events booked in Corporate Center in 2000 and 1999 ~~and 2000~~ were:

–
– Personnel expenses of CHF 32 million relating to the integration of PaineWebber into UBS in 2000.
– Operating income of CHF 1,490 million from the sale of UBS’s 25% stake in Swiss Life/ Rentenanstalt, CHF 110 million from the sale of Julius Baer registered shares, and CHF 38 million from UBS’s residual holding in Long Term Capital Management L.P., all in 1999.
– ~~A credit to Personnel expenses in 1999 of CHF 456 million in connection with excess pension fund employer pre-payments.~~
– Costs of CHF 154 million in 1999 and CHF 150 million in 2000 in General and administrative expenses in connection with the US Global Settlement of World War II related claims.
– Operating income of CHF 1,490 million from the sale of UBS’s 25% stake in Swiss Life/Rentenanstalt, CHF 110 million from the sale of Julius Baer registered shares, and CHF 38 million from UBS’s residual holding in Long Term Capital Management L.P., all in 1999.
– A credit to Personnel expenses in 1999 of CHF 456 million in connection with excess pension fund employer pre-payments.
– Costs of CHF 300 million in General and administrative expenses in 1999 in respect of an additional restructuring charge relating to the 1998 merger between UBS and SBC.

2001

Results

Corporate Center recorded a pre-tax loss of CHF 236 million in 2001, compared to a pre-tax profit of CHF 384 million in 2000, adjusted for significant financial events.

Operating income

The credit loss expense or recovery booked in Corporate Center represents the difference between the adjusted statistically expected losses charged to the business units and the actual credit loss recognized in the Group income statement. UBS Group’s credit loss expense increased to CHF 498 million in 2001, compared to a recovery of CHF 130 million in 2000. For both 2000 and 2001, actual credit loss was less than the charge to the business units, resulting in a credit loss recovery in Corporate Center of CHF 236 million in 2001, compared to a recovery of CHF 1,161 million in 2000.

Operating income decreased by CHF 605 million from 2000 to CHF 914 million in 2001, principally reflecting the swing in the credit loss results, offset by higher income from treasury activities.

Operating expenses

Total operating expenses were CHF 1,150 million in 2001, 1% higher than in 2000.

General and administrative expenses for 2001 were CHF 74 million lower than in 2000, at CHF 207 million. This was due to lower corporate real estate costs and lower professional fees connected to the US global settlement of World War II related claims, offset by higher IT costs and one-off charges relating to the bankruptcy of SAir Group.

In 2001 personnel expenses were CHF 546 million, an increase of 11% compared to 2000, driven by severance payments and the full year cost of senior management and other additional personnel added through the PaineWebber merger.

Headcount

Headcount increased 15% during 2001 to 1,132 at 31 December 2001, driven by the transfer of International Mobility Program participants to Corporate Center headcount and the transfer of human resources staff from UBS Warburg. The International Mobility Program provides outstanding young employees of UBS with opportunities for work experience overseas.

2000

Results

Operating income

Adjusted for significant financial events, operating income before credit loss expense decreased CHF 14 million, or 4%, from CHF 372 million in 1999 to CHF 358 million in 2000. Gains and losses attributable to Corporate Center arise from funding, capital and balance sheet management, the management of corporate real estate and the management of foreign currency activities.

Credit loss expense in Corporate Center reconciles the difference between management accounting and financial accounting, that is between the adjusted statistically calculated expected losses charged to the business units and the actual credit loss expense recognized in the Group ~~financial accounts.~~income statement. The Swiss ~~economy has been~~econ-

Review of Business Group Performance
Corporate Center

omy was strong in 2000, leading to credit loss expenses below the statistically calculated expected level, and to a net write back of credit loss provisions of CHF 695 million, resulting in a credit of CHF 130 million at the Group level. Corporate Center’s credit loss ~~expense~~recovery of CHF 1,161 million reflects the balancing item between this amount and the CHF 1,031 million ~~Expected Loss~~expected loss charged to the business units.

Operating expenses

Operating expenses decreased from CHF 1,349 million in 1999 to CHF 1,135 ~~million.~~million in 2000.

Headcount

Headcount in Corporate Center increased 124 during ~~the year,~~2000, reflecting the addition of staff from ~~PaineWebber, and expansion in our Corporate Language Services subsidiary.~~

PaineWebber.

~~1999~~

~~Operating income~~

~~Operating income before credit loss expense increased CHF 1,819 million, or 952%, from CHF 191 million in 1998 to CHF 2,010 million in 1999, primarily due to the following:~~


–	~~Gains on the divestments of UBS’s 25% interest in Swiss Life/ Rentenanstalt of CHF 1,490 million and of UBS’s interest in Julius Baer registered shares of CHF 110 million included in 1999.~~
–	~~Approximately CHF 380 million due to the consolidation of Klinik Hirslanden AG for the first time in 1999.~~
–	~~The negative impact on 1998 operating income due to the loss of CHF 367 million from Long Term Capital Management.~~

In addition, revenues attributable to Corporate Center arise from funding, capital and balance sheet management, and the management of foreign currency earnings activities undertaken by Group Treasury.

~~Operating expenses~~

~~Personnel, general and administrative expenses decreased CHF 937 million, or 50%,~~

~~Review of~~

~~Business Group Performance~~

~~Corporate Center~~

~~from CHF 1,868 million in 1998 to CHF 931 million in 1999.~~

Personnel costs decreased 57% to CHF 92 million in 1999 from CHF 212 million in 1998, primarily as a result of the recognition in 1999 of pre-paid employer pension contributions of CHF 456 million. This represents the difference between previously recorded and actuarially determined pension expenses and was recognized in 1999 after the resolution of certain legal and regulatory issues. Excluding the recognition of this benefit, personnel expenses increased from 1998 to 1999 despite a slight decrease in headcount from 921 in 1998 to 862 in 1999. This increase year-on-year is largely attributable to the consolidation of Klinik Hirslanden AG for the first time in 1999.

General and administrative expenses decreased CHF 817 million, or 49%, to CHF 839 million in 1999 from CHF 1,656 million in 1998, primarily as a result of a charge of CHF 842 million for the US global settlement of World War II-related claims in 1998. In addition, the following items were included in general and administrative expenses for 1999:


–	~~An additional charge of CHF 154 million related to the settlement of World War II-related claims in the United States.~~
–	~~An additional pre-tax restructuring charge of CHF 300 million in respect of the 1998 merger.~~
–	~~Expenses of Klinik Hirslanden AG as a result of the consolidation of this entity for the first time in 1999.~~

~~In addition, total operating expenses in Corporate Center were reduced from 1998 to 1999 mainly due to a further refinement of service level agreements with the Business Groups.~~

Depreciation and amortization increased CHF 201 million, or 93%, from CHF 215 million in 1998 to CHF 416 million in 1999, principally as a result of a reclassification of certain items which appeared in General and administrative expenses in 1998.

~~UBS Group~~

~~Financial Statements~~

~~UBS Group Financial Statements~~

~~Table of Contents~~

~~Financial Statements~~

~~Table of Contents~~

Financial Statements
58
UBS Group Income Statement 58
UBS Group Balance Sheet 59
UBS Group Statement of Changes in Equity 60
UBS Group Statement of Cash Flows 61

Notes to the Financial Statements
63
1 Summary of Significant Accounting Policies 63
2 Acquisition of PaineWebber Group, Inc. 69
3a Segment Reporting by Business Group 70
3b Segment Reporting by Geographic Location 73
Income Statement 74
4 Net Interest Income 74
5 Net Fee and Commission Income 74
6 Net Trading Income 75
7 Net Gains from Disposal of Associates and Subsidiaries 75
8 Other Income 76
9 Operating Expenses 76
10 Earnings per Share 77
Balance Sheet: Assets 78
11 Money Market Paper 78
12a Due from Banks and Loans to Customers 78
12b Allowance and Provision for Credit Losses 79
12c Impaired Loans 79
12d Non-Performing Loans 80
13 Securities Borrowing, Securities Lending, Repurchase, Reverse Repurchase and Other Collateralized Transactions 81
14 Trading Portfolio 82
15 Financial Investments 83
16 Investments in Associates 83
17 Property and Equipment 84
18 Goodwill and other Intangible Assets 84
19 Other Assets 85

~~UBS Group Financial Statements~~

~~Table of Contents~~

Balance Sheet: Liabilities 86
20 Due to Banks and Customers 86
21 Long-Term Debt 86
22 Other Liabilities 93
23 Provisions, including Restructuring Provision 93
24 Income Taxes 95
25 Minority Interests 96
26 Derivative Instruments 97
Off-Balance Sheet and other Information 102
27 Pledged Assets 102
28 Fiduciary Transactions 102
29 Commitments and Contingent Liabilities 103
30 Operating Lease Commitments 104
31 Litigation 104
32 Financial Instruments Risk Position 105
a)  Interest Rate Risk 105
b) Credit Risk 107
    (b)(i)  On-balance sheet assets 107
    (b)(ii)  Off-balance sheet financial instruments 108
    (b)(iii) Credit risk mitigation techniques 108
c)  Currency Risk 109
d)  Liquidity Risk 110
e)  Capital Adequacy 111
33 Fair Value of Financial Instruments 112
34 Retirement Benefit Plans and other Employee Benefits 115
35 Equity Participation Plans 119
36 Related Parties 122
37 Post-Balance Sheet Events 122
38 Significant Subsidiaries and Associates 123
39 Significant Currency Translation Rates 126
40 Swiss Banking Law Requirements 126
41 Reconciliation to U.S. GAAP 128
42 Additional U.S. GAAP Disclosures 141
Selected Financial Data 143
Report of the Group Auditors 144

~~UBS Group Financial Statements~~

~~Financial Statements~~

~~UBS Group Income Statement~~

CHF million, except where indicated % change from
For the year ended Note 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Operating income

Interest income 4 51,745 35,604 37,442 45
Interest expense 4 (43,615 ) (29,695 ) (32,424 ) 47
Net interest income 8,130 5,909 5,018 38
Credit loss recovery / (expense) 130 (956 ) (951 )
Net interest income after credit loss recovery / (expense) 8,260 4,953 4,067 67
Net fee and commission income 5 16,703 12,607 12,626 32
Net trading income 6 9,953 7,719 3,313 29
Net gains from disposal of associates and subsidiaries 7 83 1,821 1,119 (95 )
Other income 8 1,403 1,325 1,122 6
Total operating income 36,402 28,425 22,247 28
Operating expenses Personnel
9 17,163 12,577 9,816 36
General and administrative 9 6,765 6,098 6,735 11
Depreciation and amortization 9 2,275 1,857 1,825 23
Total operating expenses 26,203 20,532 18,376 28
Operating profit before tax and minority interests 10,199 7,893 3,871 29
Tax expense 24 2,320 1,686 904 38
Net profit before minority interests
7,879 6,207 2,967 27
Minority interests 25 (87 ) (54 ) 5 61
Net profit
7,792 6,153 2,972 27
Basic earnings per share (CHF) ³
10 19.33 15.20 7.33 27
Basic earnings per share before goodwill (CHF) ^2,3 10 20.99 16.04 8.18 31
Diluted earnings per share (CHF) ³
10 19.04 15.07 7.20 26
Diluted earnings per share before goodwill (CHF) ^2,3 10 20.67 15.90 8.03 30

UBS Group Financial Statements
Table of Contents

Financial Statements
Table of Contents


Financial Statements		78

UBS Group Income Statement		78




UBS Group Balance Sheet		79




UBS Group Statement of Changes in Equity		80




UBS Group Statement of Cash Flows		82

Notes to the Financial Statements		83

1	Summary of Significant Accounting Policies	83




2a	Segment Reporting by Business Group	92




2b	Segment Reporting by Geographic Location	95

Income Statement		96

3	Net Interest Income	96




4	Net Fee and Commission Income	96




5	Net Trading Income	97




6	Other Income	97




7	Personnel Expenses	97




8	General and Administrative Expenses	98




9	Earnings per Share (EPS) and Outstanding Shares	98

Balance Sheet: Assets		99




10a	Due from Banks and Loans to Customers	99




10b	Allowances and Provisions for Credit Losses	100




10c	Impaired Loans	100




10d	Non-Performing Loans	101




11	Securities Borrowing, Securities Lending, Repurchase and Reverse Repurchase Agreements and Other Collateralized Transactions	102




12	Trading Portfolio	103




13	Financial Investments	104




14	Investments in Associates	106




15	Property and Equipment	106




16	Goodwill and Other Intangible Assets	107




17	Other Assets	107

Balance Sheet: Liabilities		108




18	Due to Banks and Customers	108




19	Debt Issued	108




20	Other Liabilities	114




21	Provisions, including Restructuring Provision	114




22	Income Taxes	116




23	Minority Interests	118




24	Derivative Instruments	118






Off-Balance Sheet and other Information		123












25	Pledged Assets	123




26	Fiduciary Transactions	123




27	Commitments and Contingent Liabilities	124




28	Operating Lease Commitments	125




29	Litigation	126




30	Financial Instruments Risk Position	127




	a) Interest Rate Risk	127




	b) Credit Risk	129




	(b)(i) On-balance sheet assets	129




	(b)(ii) Off-balance sheet financial instruments	130




	(b)(iii) Credit risk mitigation techniques	130




	c) Currency Risk	131




	d) Liquidity Risk	132




	e) Capital Adequacy	133




31	Fair Value of Financial Instruments	135




32	Retirement Benefit Plans and Other Employee Benefits	137




33	Equity Participation Plans	141




	a) Equity Participation Plans Offered	141




	b) UBS Share Awards	143




	c) UBS Option Awards	144




	d) Compensation Expense	145




	e) Pro-Forma Net Income	145




34	Related Parties	146




35	Post–Balance Sheet Events	147




36	Significant Subsidiaries and Associates	147




37	Acquisition of Paine Webber Group, Inc.	151




38	Currency Translation Rates	151




39	Swiss Banking Law Requirements	151




40	Reconciliation to US GAAP	154




41	Additional Disclosures Required under US GAAP and SEC Rules	164

Report of the Group Auditors		169

UBS Group ~~Balance Sheet~~Financial Statements
Financial Statements

Financial Statements

UBS Group Income Statement

% change from
CHF million Note 31.12.00 31.12.99¹ 31.12.99
Assets

Cash and balances with central banks 2,979 5,073 (41 )
Money market paper 11 66,454 69,717 (5 )
Due from banks 12 29,147 29,907 (3 )
Cash collateral on securities borrowed 13 177,857 113,162 57
Reverse repurchase agreements 13 193,801 132,391 46
Trading portfolio assets 14 253,296 211,932 20
Positive replacement values 26 57,875 62,957 (8 )
Loans, net of allowance for credit losses 12 244,842 234,858 4
Financial investments 15 16,405 7,039 133
Accrued income and prepaid expenses 7,062 5,167 37
Investments in associates 16 880 1,102 (20 )
Property and equipment 17 8,910 8,701 �� 2
Goodwill and other intangible assets 18 19,537 3,543 451
Other assets 19 8,507 11,007 (23 )
Total assets
1,087,552 896,556 21
Total subordinated assets
475 600 (21 )

Liabilities

Money market paper issued 74,780 64,655 16
Due to banks 20 82,240 76,365 8
Cash collateral on securities lent 13 23,418 12,832 82
Repurchase agreements 13 295,513 196,914 50
Trading portfolio liabilities 14 82,632 54,638 51
Negative replacement values 26 75,923 95,786 (21 )
Due to customers 20 310,679 279,960 11
Accrued expenses and deferred income 21,038 12,040 75
Long-term debt 21 54,855 56,332 (3 )
Other liabilities 22, 23, 24 18,756 15,992 17
Total liabilities
1,039,834 865,514 20
Minority interests 25 2,885 434 565

Shareholders’ equity

Share capital 4,444 4,309 3
Share premium account 20,885 14,437 45
Foreign currency translation (687 ) (442 ) (55 )
Retained earnings 24,191 20,327 19
Treasury shares (4,000 ) (8,023 ) (50 )
Total shareholders’ equity
44,833 30,608 46
Total liabilities, minority interests and shareholders’ equity 1,087,552 896,556 21
Total subordinated liabilities
14,508 14,801 (2 )


CHF million, except per share data												% change from
For the year ended	Note		31.12.01			31.12.00			31.12.99			31.12.00


Operating income




Interest income		3		52,277			51,745			35,604			1




Interest expense		3		(44,236	)		(43,615	)		(29,695	)		1

Net interest income				8,041			8,130			5,909			(1	)




Credit loss expense / recovery				(498	)		130			(956	)

Net interest income after credit loss expense / recovery				7,543			8,260			4,953			(9	)

Net fee and commission income		4		20,211			16,703			12,607			21




Net trading income		5		8,802			9,953			7,719			(12	)




Other income		6		558			1,486			3,146			(62	)

Total operating income				37,114			36,402			28,425			2


Operating expenses




Personnel expenses		7		19,828			17,163			12,577			16




General and administrative expenses		8		7,631			6,765			6,098			13




Depreciation of property and equipment		15		1,614			1,608			1,517			0




Amortization of goodwill and other intangible assets		16		1,323			667			340			98

Total operating expenses				30,396			26,203			20,532			16

Operating profit before tax and minority interests				6,718			10,199			7,893			(34	)

Tax expense		22		1,401			2,320			1,686			(40	)

Net profit before minority interests				5,317			7,879			6,207			(33	)

Minority interests		23		(344	)		(87	)		(54	)		295

Net profit				4,973			7,792			6,153			(36	)

Basic earnings per share (CHF)¹		9		3.93			6.44			5.07			(39	)




Basic earnings per share before goodwill (CHF)^{1, 2}		9		4.97			7.00			5.35			(29	)




Diluted earnings per share (CHF)¹		9		3.78			6.35			5.02			(40	)




Diluted earnings per share before goodwill (CHF)^{1, 2}		9		4.81			6.89			5.30			(30	)

¹ All earnings per share figures have been restated for the 3 for 1 share split which took place on 16 July 2001.
² Excludes the amortization of goodwill and other intangible assets.

UBS Group ~~Financial Statements~~Balance Sheet

~~Financial Statements~~


									% change from
CHF million	Note		31.12.01			31.12.00¹			31.12.00


Assets




Cash and balances with central banks				20,990			2,979			605




Due from banks		10		27,526			29,147			(6	)




Cash collateral on securities borrowed		11		162,938			177,857			(8	)




Reverse repurchase agreements		11		269,256			193,801			39




Trading portfolio assets		12		397,886			315,588			26




Positive replacement values		24		73,447			57,875			27




Loans, net of allowance for credit losses		10		226,545			244,842			(7	)




Financial investments		13		28,803			19,583			47




Accrued income and prepaid expenses				7,554			7,062			7




Investments in associates		14		697			880			(21	)




Property and equipment		15		8,695			8,910			(2	)




Goodwill and other intangible assets		16		19,085			19,537			(2	)




Other assets		17,22		9,875			9,491			4

Total assets				1,253,297			1,087,552			15

Total subordinated assets				*407*			475			(14	)


Liabilities




Due to banks		18		106,531			82,240			30




Cash collateral on securities lent		11		30,317			23,418			29




Repurchase agreements		11		368,620			295,513			25




Trading portfolio liabilities		12		105,798			82,632			28




Negative replacement values		24		71,443			75,923			(6	)




Due to customers		18		333,781			310,679			7




Accrued expenses and deferred income				17,289			21,038			(18	)




Debt issued		19		156,218			129,635			21




Other liabilities		20,21,22		15,658			18,756			(17	)

Total liabilities				1,205,655			1,039,834			16

Minority interests		23		4,112			2,885			43


Shareholders’ equity




Share capital				3,589			4,444			(19	)




Share premium account				14,408			20,885			(31	)




Gains / (losses) not recognized in the income statement				(193	)		(687	)		(72	)




Retained earnings				29,103			24,191			20




Treasury shares				(3,377	)		(4,000	)		(16	)

Total shareholders’ equity				43,530			44,833			(3	)

Total liabilities, minority interests and shareholders’ equity				1,253,297			1,087,552			15

Total subordinated liabilities				*13,818*			13,996			(1	)

¹
¹	~~The 1999 and 1998 figures~~Changes have been ~~restated~~made to ~~reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in~~prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies).
²	Comprising 444,379,729 ordinary shares as of 31 December 2000, 430,893,162 ordinary shares as of 31 December 1999 and 429,952,612 ordinary shares as of 31 December 1998, at CHF 10 each, fully paid.
³	In prior periods, a portion of income on own equity derivative contract activity was included in Premium / (discount) on treasury shares issued and treasury share contract activity. This amount is now included in Net premium / (discount) on treasury share and own equity derivative activity for all periods.
⁴	~~In January 2001, all remaining shares borrowed to complete the acquisition of PaineWebber were settled resulting in a net CHF 103 million decrease in share premium.~~
⁵	~~Includes interim dividend paid in respect of the period from 1 January 2000 to 30 September 2000 of CHF 1,764 million.~~
⁶	The Board of Directors is proposing to repay CHF 1.60 of the par value of each CHF 10.00 share, instead of distributing a final dividend in respect of the period from 1 October 2000 to 31 December 2000.
⁷	~~Comprising 18,421,783 ordinary shares as of 31 December 2000, 36,873,714 ordinary shares as of 31 December 1999 and 24,456,698 ordinary shares as of 31 December 1998.~~
⁸	~~Includes shares issued for employee option plans.~~

UBS Group Financial Statements
Financial Statements

UBS Group Statement of Changes in Equity


CHF million
For the year ended	31.12.00			31.12.99¹			31.12.98¹				31.12.01			31.12.00			31.12.99


Issued and paid up share capital
Balance at the beginning of the year		4,309			4,300			4,296				4,444			4,309			4,300
Issue of share capital		135			9			4				12			135			9




Capital repayment by par value reduction³												(683	)




Cancellation of second trading line treasury shares (2000 Program)												(184	)

Balance at the end of the year²		4,444			4,309			4,300
Balance at the end of the year												3,589			4,444			4,309

Share premium
Balance at the beginning of the year		13,929			13,740			13,260				20,885			14,437			13,617
Change in accounting policy		508			(123	)		1,406
Balance at the beginning of the year (restated)		14,437			13,617			14,666
Premium on shares issued and warrants exercised³		139			45			111
Net premium / (discount) on treasury share and own equity derivative activity³		(391	)		775			(1,160	)




Premium on shares issued and warrants exercised												80			139			45




Net premium / (discount) on treasury share and own equity derivative activity												(239	)		(391	)		775
Share premium increase due to PaineWebber acquisition		4,198													4,198
Borrow of own shares to be delivered⁴		5,895




Borrow of own shares to be delivered															5,895
Settlement of own shares to be delivered		(3,393	)									(2,502	)		(3,393	)




Cancellation of second trading line treasury shares (2000 Program)												(3,816	)

Balance at the end of the year		20,885			14,437			13,617				14,408			20,885			14,437

Foreign currency translation
Gains / (losses) not recognized in the income statement Foreign currency translation										Gains / (losses) not recognized in the income statement Foreign currency translation
Balance at the beginning of the year		(442	)		(456	)		(111	)			(687	)		(442	)		(456	)
Movements during the year		(245	)		14			(345	)			(82	)		(245	)		14

Subtotal – balance at the end of the year												(769	)		(687	)		(442	)

Unrealized gains / (losses) on available for sale investments, net of taxes										Unrealized gains / (losses) on available for sale investments, net of taxes




Balance at the beginning of the year												0




Change in accounting policy¹												1,577




Net unrealized gains / (losses) on available for sale investments												(92	)




Gains reclassified to the income statement												(461	)




Losses reclassified to the income statement												11

Subtotal – balance at the end of the year												1,035

Change in fair value of derivative instruments designated as cash flow hedges, net of taxes										Change in fair value of derivative instruments designated as cash flow hedges, net of taxes




Balance at the beginning of the year												0




Change in accounting policy¹												(380	)




Net unrealized gains / (losses) on the revaluation of cash flow hedges												(316	)




Net losses reclassified to the income statement												237

Subtotal – balance at the end of the year												(459	)

Balance at the end of the year		(687	)		(442	)		(456	)			(193	)		(687	)		(442	)

Retained earnings
Balance at the beginning of the year		20,501			16,293			15,464				24,191			20,327			16,224
Change in accounting policy		(174	)		(69	)		0




Change in accounting policy¹												(61	)
Balance at the beginning of the year (restated)		20,327			16,224			15,464				24,130			20,327			16,224
Net profit for the year		7,792			6,153			2,972				4,973			7,792			6,153
Dividends paid^{5, 6}		(3,928	)		(2,050	)		(2,212	)




Dividends paid^{2, 3}															(3,928	)		(2,050	)

Balance at the end of the year		24,191			20,327			16,224				29,103			24,191			20,327

Treasury shares, at cost
Balance at the beginning of the year		(3,462	)		(1,482	)		(1,982	)			(4,000	)		(8,023	)		(4,891	)
Change in accounting policy		(4,561	)		(3,409	)		(2,345	)
Balance at the beginning of the year (restated)		(8,023	)		(4,891	)		(4,327	)
Acquisitions		(16,330	)		(6,595	)		(3,860	)			(13,506	)		(16,330	)		(6,595	)
Disposals		20,353			3,463			3,296				10,129			20,353			3,463




Cancellation of second trading line treasury shares (2000 Program)												4,000

Balance at the end of the year⁷		(4,000	)		(8,023	)		(4,891	)
Balance at the end of the year												(3,377	)		(4,000	)		(8,023	)

Total shareholders’ equity		44,833			30,608			28,794				43,530			44,833			30,608

¹ Opening adjustments to reflect the adoption of IAS 39 (see Note 1: Summary of Significant Accounting Policies).
² Dividends declared per share were CHF 1.50 in 2000 and CHF 1.83 in 1999, both paid in the year 2000.
³ On 16 July 2001, UBS made a distribution to shareholders of CHF 1.60 per share, paid in the form of a reduction in the par value of its shares, from CHF 10.00 to CHF 8.40. At the same time, UBS split its share 3 for 1, resulting in a new par value of CHF 2.80 per share.

~~Reconciliation~~UBS Group Statement of ~~shares~~Changes in Equity (continued)

Shares issued

Number of shares % change from
As of 31.12.00 31.12.99 31.12.98 31.12.99
Balance at the beginning of the year
430,893,162 429,952,612 428,724,700 0
Issue of share capital 804,502 940,550 1,227,912 (14 )
Issue of share capital due to PaineWebber⁸
12,682,065
Total ordinary shares issued, at the end of the year 444,379,729 430,893,162 429,952,612 3


	Number of shares							% change from

For the year ended	31.12.01			31.12.00		31.12.99		31.12.00

Balance at the beginning of the year		1,333,139,187			1,292,679,486		1,289,857,836		3




Issue of share capital		3,843,661			4,459,701		2,821,650		(14	)




Issue of share capital due to PaineWebber acquisition					36,000,000




Cancellation of second trading line treasury shares (2000 Program)		(55,265,349	)

Balance at the end of the year		1,281,717,499			1,333,139,187		1,292,679,486		(4	)

~~In addition to treasury~~Treasury shares


	Number of shares									% change from

For the year ended	31.12.01			31.12.00			31.12.99			31.12.00

Balance at the beginning of the year		55,265,349			110,621,142			73,370,094			(50	)




Acquisitions		162,818,045			16,824,039			87,659,019			868




Disposals		(121,563,094	)		(72,179,832	)		(50,407,971	)		68




Cancellation of second trading line treasury shares (2000 Program)		(55,265,349	)

Balance at the end of the year		41,254,951			55,265,349			110,621,142			(25	)

During the year a total of 55,265,349 shares acquired under the second trading line buyback program 2000 were cancelled. At 31 December 2001, a maximum of ~~42,571,341~~13,017,716 shares ~~(1,057,908 at 31 December 1999 and 1,998,458 at 31 December 1998)~~ can be issued without further approval of the shareholders. The amount of shares consists of 26,000,000 authorized shares contingently issuable by the Board of Directors in reference to the PaineWebber share exchange until February 2001 at the latest. The option to issue authorized shares expired unused. Additionally 16,571,341 shares out of conditional capital had been set aside by the Extraordinary General Meeting on 7 September 2000. Those shares are issuable against the ~~exercise~~excercise of options from former PaineWebber employee option plans. Out of the total number of 41,254,951 treasury shares, 23,064,356 shares (CHF 1,834 million) were acquired under the second trading line buyback program 2001 and are earmarked for cancellation. The Board of Directors will propose to the ~~shareholders at the~~ Annual General Meeting on 2618 April ~~2001 a reduction~~2002 to reduce the outstanding number of shares and the ~~issuable amount to 5,643,205 shares which is~~share capital by the number of shares ~~required to settle the outstanding PaineWebber employee options at year end.~~

purchased for cancellation.

UBS Group Financial Statements

Financial Statements

UBS Group Statement of Cash Flows


CHF million	CHF million											CHF million
For the year ended	For the year ended		31.12.00			31.12.99¹			31.12.98¹			For the year ended	31.12.01			31.12.00			31.12.99


Cash flow from / (used in) operating activities	Cash flow from / (used in) operating activities											Cash flow from / (used in) operating activities
Net profit	Net profit			7,792			6,153			2,972		Net profit		4,973			7,792			6,153




Adjustments to reconcile to cash flow from / (used in) operating activities




Adjustments to reconcile net profit to cash flow from / (used in) operating activities												Adjustments to reconcile net profit to cash flow from / (used in) operating activities




Non-cash items included in net profit and other adjustments:	Non-cash items included in net profit and other adjustments:											Non-cash items included in net profit and other adjustments:
		Depreciation and amortization		2,275			1,857			1,825		Depreciation of property and equipment		1,614			1,608			1,517
		Provision for credit losses		(130	)		956			951		Amortization of goodwill and other intangible assets		1,323			667			340
		Income from associates		(58	)		(211	)		(377	)	Credit loss expense / (recovery)		498			(130	)		956
		Deferred tax expense		544			479			491		Equity in income of associates		(72	)		(58	)		(211	)
		Net gain from investing activities		(730	)		(2,282	)		(1,803	)	Deferred tax expense		292			544			479




	Net increase / (decrease) in operating assets:											Net loss / (gain) from investing activities		513			(730	)		(2,282	)




Net (increase) / decrease in operating assets:												Net (increase) / decrease in operating assets:
		Net due from / to banks		(915	)		(5,298	)		(65,172	)	Net due from / to banks		27,306			(915	)		(5,298	)
		Reverse repurchase agreements, cash collateral on securities borrowed		(81,054	)		(12,656	)		66,031		Reverse repurchase agreements, cash collateral on securities borrowed		(60,536	)		(81,054	)		(12,656	)
		Trading portfolio including net replacement values		11,553			(49,956	)		45,089		Trading portfolio including net replacement values and securities pledged as collateral		(78,456	)		11,553			(49,956	)
		Loans due to / from customers		12,381			17,222			(5,626	)	Loans / due to customers		42,813			12,381			17,222
		Accrued income, prepaid expenses and other assets		6,923			2,545			2,107		Accrued income, prepaid expenses and other assets		(424	)		6,923			2,545




	Net increase / (decrease) in operating liabilities:




Net increase / (decrease) in operating liabilities:												Net increase / (decrease) in operating liabilities:
		Repurchase agreements, cash collateral on securities lent		50,762			52,958			(49,145	)	Repurchase agreements, cash collateral on securities lent		80,006			50,762			52,958
		Accrued expenses and other liabilities		3,313			(7,366	)		1,686		Accrued expenses and other liabilities		(5,235	)		3,313			(7,366	)
Income taxes paid	Income taxes paid			(959	)		(1,063	)		(733	)	Income taxes paid		(1,742	)		(959	)		(1,063	)

Net cash flow from / (used in) operating activities	Net cash flow from / (used in) operating activities			11,697			3,338			(1,704	)	Net cash flow from / (used in) operating activities		12,873			11,697			3,338


Cash flow (used in) / from investing activities
Cash flow from / (used in) investing activities												Cash flow from / (used in) investing activities
Investments in subsidiaries and associates	Investments in subsidiaries and associates			(9,729	)		(1,720	)		(1,563	)	Investments in subsidiaries and associates		(467	)		(9,729	)		(1,720	)
Disposal of subsidiaries and associates	Disposal of subsidiaries and associates			669			3,782			1,858		Disposal of subsidiaries and associates		95			669			3,782
Purchase of property and equipment	Purchase of property and equipment			(1,640	)		(2,820	)		(1,813	)	Purchase of property and equipment		(2,021	)		(1,640	)		(2,820	)
Disposal of property and equipment	Disposal of property and equipment			335			1,880			1,134		Disposal of property and equipment		380			335			1,880
Net (investment) / divestment in financial investments	Net (investment) / divestment in financial investments			(8,770	)		356			6,134		Net (investment) / divestment in financial investments		(5,770	)		(8,770	)		356

Net cash flow (used in) / from investing activities				(19,135	)		1,478			5,750
Net cash flow from / (used in) investing activities												Net cash flow from / (used in) investing activities		(7,783	)		(19,135	)		1,478


Cash flow (used in) / from financing activities
Money market paper issued				10,125			13,128			(4,073	)
Cash flow from / (used in) financing activities												Cash flow from / (used in) financing activities




Net money market paper issued												Net money market paper issued		24,226			10,125			13,128
Net movements in treasury shares and treasury share contract activity	Net movements in treasury shares and treasury share contract activity			(647	)		(2,312	)		(2,552	)	Net movements in treasury shares and treasury share contract activity		(6,038	)		(647	)		(2,312	)
Capital issuance	Capital issuance			15			9			4		Capital issuance		12			15			9




Capital repayment by par value reduction												Capital repayment by par value reduction		(683	)
Dividends paid	Dividends paid			(3,928	)		(2,050	)		(2,212	)	Dividends paid					(3,928	)		(2,050	)
Issuance of long-term debt	Issuance of long-term debt			14,884			12,661			5,566		Issuance of long-term debt		18,233			14,884			12,661
Repayment of long-term debt	Repayment of long-term debt			(24,640	)		(7,112	)		(9,068	)	Repayment of long-term debt		(18,477	)		(24,640	)		(7,112	)
Issuance of minority interests				2,683
Repayment of minority interests				(73	)		(689	)		0




Issuance of trust preferred securities												Issuance of trust preferred securities		1,291			2,683




Dividend payments to / and purchase from minority interests												Dividend payments to / and purchase from minority interests		(461	)		(73	)		(689	)

Net cash flow (used in) / from financing activities				(1,581	)		13,635			(12,335	)
Net cash flow from / (used in) financing activities												Net cash flow from / (used in) financing activities		18,103			(1,581	)		13,635
Effects of exchange rate differences	Effects of exchange rate differences			112			148			(386	)	Effects of exchange rate differences		(304	)		112			148

Net increase / (decrease) in cash equivalents	Net increase / (decrease) in cash equivalents			(8,907	)		18,599			(8,675	)	Net increase / (decrease) in cash equivalents		22,889			(8,907	)		18,599
Cash and cash equivalents, beginning of the year	Cash and cash equivalents, beginning of the year			102,277			83,678			92,353		Cash and cash equivalents, beginning of the year		93,370			102,277			83,678

Cash and cash equivalents, end of the year	Cash and cash equivalents, end of the year			93,370			102,277			83,678		Cash and cash equivalents, end of the year		116,259			93,370			102,277

Cash and cash equivalents comprise:	Cash and cash equivalents comprise:											Cash and cash equivalents comprise:
Cash and balances with central banks	Cash and balances with central banks			2,979			5,073			3,267		Cash and balances with central banks		20,990			2,979			5,073
Money market paper				66,454			69,717			18,390




Money market paper¹												Money market paper¹		69,938			66,454			69,717
Due from banks maturing in less than three months	Due from banks maturing in less than three months			23,937			27,487			62,021		Due from banks maturing in less than three months		25,331			23,937			27,487

Total	Total			93,370			102,277			83,678		Total		116,259			93,370			102,277

~~UBS Group Financial Statements~~

~~Financial Statements~~

~~Additional Information on the Cash Flow Statement~~

~~Cash and cash equivalents increased by CHF 1,311 million as a result of acquisitions and disposals of subsidiaries in 2000 (see Note 38).~~

~~The principal assets and liabilities of PaineWebber upon consolidation are made up as follows:~~

¹
~~CHF billion~~	~~03.11.00~~


~~Loans, net of allowances for credit losses~~		20
Money market paper is included in the Balance sheet under Trading portfolio assets		42
~~Cash collateral on securities borrowed / reverse repurchase agreements~~		45
~~Cash collateral on securities lent / repurchase agreements~~		58
~~Due to customers~~		26
~~Long-term debt~~		9
and Financial investments.

~~For more information relating to the PaineWebber acquisition please see Note 2: Acquisition of Paine Webber Group, Inc.~~

UBS Group Financial Statements
Notes to the Financial Statements

Notes to the Financial Statements

~~Notes to the~~

~~Financial Statements~~

Note 1 Summary of Significant Accounting Policies

a) Basis of accounting

UBS AG and subsidiaries ~~(the~~(“UBS” or the “Group”) ~~provides~~provide a broad range of financial services ~~such as~~including advisory services, underwriting, financing, market making, asset management, brokerage, and retail banking on a global level. The Group was formed on 29 June 1998 when Swiss Bank Corporation and Union Bank of Switzerland merged. The merger was accounted for using the ~~pooling~~uniting of interests method of accounting.

The consolidated financial statements of the Group (the “Financial Statements”) are prepared in accordance with International Accounting Standards and stated in Swiss francs (CHF), the currency of the country in which UBS AG is incorporated. ~~They are prepared~~On 12 February 2002 the Board of Directors approved them for issue.

b) Use of estimates in ~~accordance with International Accounting Standards.~~ the preparation of Financial Statements

In preparing the ~~consolidated~~ Financial ~~statements,~~Statements, management is required to make estimates and assumptions that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities. Use of available information and application of judgement are inherent in the ~~amounts reported.~~formation of estimates. Actual results in the future could differ from such estimates and the differences may be material to the ~~consolidated financial statements.~~Financial Statements.

b)c) Consolidation

The ~~consolidated financial statements~~Financial Statements comprise those of the parent company (UBS AG), its subsidiaries and certain special purpose entities, presented as a single economic entity. The effects of intra-group transactions are eliminated in preparing the Financial Statements. Subsidiaries and special purpose entities which are directly or indirectly controlled by the Group are consolidated. Subsidiaries acquired are consolidated from the date control ~~passes.~~is transferred to the Group. Subsidiaries ~~where control is temporary because they~~to be divested are consolidated up to the date of disposal. Temporarily controlled entities that are acquired and held with a view to their subsequent disposal, are recorded as Financial investments.

~~The effects~~Assets held in an agency or fiduciary capacity are not assets of ~~intra-group transactions are eliminated in preparing~~ the Group ~~financial statements.~~and are not reported in the Financial Statements.

Equity and net income attributable to minority interests are shown separately in the Balance sheet and Income statement, respectively.

~~c) Trade date/settlement date accounting~~

~~When~~ Investments in associates in which the Group ~~becomes party~~has a significant influence are accounted for under the equity method of accounting. Significant influence is normally evidenced when UBS owns 20% or more of a company’s voting rights. Investments in associates are initially recorded at cost and the carrying amount is increased or decreased to ~~a contract in~~recognize the Group’s share of the investee’s profits or losses after the date of acquisition.

The Group sponsors the formation of companies, which may or may not be directly or indirectly owned subsidiaries, for the purpose of asset securitization transactions and to accomplish certain narrow and well defined objectives. These companies may acquire assets directly or indirectly from UBS or its ~~trading activities it recognizes from that date (trade date)~~affiliates. Some of these companies are bankruptcy-remote entities whose assets are not available to satisfy the claims of creditors of the Group or any ~~unrealized profits and losses arising from revaluing that contract to fair value. These unrealized profits and losses~~of its subsidiaries. Such companies are ~~recognized~~consolidated in the ~~income statement.~~

OnGroup’s Financial Statements when the substance of the relationship between the Group and the company indicate that the company is controlled by the Group. Certain transactions of consolidated entities meet the criteria for derecognition of financial assets. Derecognition of a ~~date subsequent~~financial asset takes place when the Group loses control of the contractual rights that comprise the financial asset. These transactions do not affect the consolidation status of an entity.

UBS Group Financial Statements
Notes to the trade date, the terms of spot and forward trading transactions are fulfilled (settlement date) and a resulting financial asset or liability is recognized on the balance sheet at the fair value of the consideration given or received.

Financial Statements

d) Foreign currency translation

Foreign currency transactions are recorded at the rate of exchange on the date of the transaction. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are reported using the closing exchange rate. Exchange differences arising on the settlement of transactions at rates different from those at the date of the transaction, and unrealized foreign exchange differences on unsettled foreign currency monetary assets and liabilities, are recognized in the income statement.

Exchange differences on non-monetary financial assets are a component of the change in their fair value. Depending on the classification of a non-monetary financial asset, exchange differences are either recognized in the income statement (applicable for example for equity securities held for trading), or within Shareholder’s equity if non-monetary financial assets are classified as available-for-sale financial investments.

Assets and liabilities of foreign entities are translated at the exchange rates at the balance sheet date, while income statement items and cash flows are translated at average rates over the year. Differences resulting from the use of these different exchange rates are recognized directly in ~~foreign~~Foreign currency translation within Shareholders’ equity.

e) Business and geographical segments

The Group is organized on a worldwide basis into ~~three major~~ Business Groups and the Corporate Center. This organizational structure is the basis upon which the Group reports its primary segment information.

Segment ~~revenue,~~income, segment expenses and segment performance include transfers between business segments and between geographical segments. Such transfers are accounted for at ~~competitive~~ prices in line with charges to unaffiliated customers for similar services.

f) Cash and cash equivalents

Cash and cash equivalents consist of Cash and balances with central banks, balances included in Due from banks that mature in less than three months, and Money market paper included in Trading portfolio assets and Financial investments.

g) Fee income

Brokerage fees earned from executing securities transactions are recorded when the service has been provided. Portfolio and other management, advisory and other service fees are recognized based on the terms of the applicable service contracts. Asset management fees related to investment funds are recognized ratably over the period the service is provided. The same principle is applied for fees earned for wealth management, financial planning and custody services that are continuously provided over an extended period of time. Transaction-related fees earned from merger and acquisition and other advisory services, securities underwriting, fund raising, and from other investment banking and similar services that have a non-recurring character, are recognized at the time the service has been completed.

h) Securities borrowing and lending

Securities borrowed and securities lent ~~that~~ are ~~collateralized by~~recorded at the amount of cash ~~are included in the balance~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~sheet at amounts equal to the~~ collateral advanced or received.

~~Income arising from~~ The Group monitors the market value of the securities ~~lending~~borrowed and ~~borrowing business is recognized in the~~lent on a daily basis and calls for additional collateral when appropriate.

Fees and interest received or paid are recorded as interest income ~~statement~~or interest expense, on an accrual basis.

g)i) Repurchase and reverse repurchase transactions

~~The Group enters into purchases of securities~~Securities purchased under agreements to resell (reverse repurchase agreements) and ~~sales of~~ securities sold under agreements to repurchase ~~substantially identical securities. Securities which have been sold subject to repurchase agreements continue to be recognized in the balance sheet~~(repurchase agreements) are generally treated as collateralized financing transactions and are ~~measured in accordance with~~carried at the ~~accounting policy for trading balances~~amounts at which the securities were acquired or ~~financial investments as~~sold, plus accrued interest. The Group monitors the market value of the underlying securities, (which collateralize the related receivables) on a daily basis and requests additional collateral when appropriate. ~~The proceeds from sale of these securities are treated as liabilities and included in repurchase agreements.~~

~~Securities purchased subject to commitments to resell at a future date are treated as loans collateralized by the security and are included in reverse repurchase agreements.~~

Interest earned on reverse repurchase agreements and interest incurred on repurchase agreements is recognized as interest income and interest expense, ~~respectively~~ over the life of each agreement.

The Group offsets reverse repurchase agreements and repurchase agreements with the same counterparty for transactions covered by legally enforceable master netting agreements when net or simultaneous settlement is intended.

h)j) Trading portfolio

~~The trading~~Trading portfolio ~~consists~~assets consist of money market paper, other debt instruments and equity ~~securities~~instru-

ments as well as traded loans and precious metals which are owned by the Group (“long” positions). Obligations to deliver trading securities sold but not yet purchased are reported as Trading portfolio liabilities. Trading portfolio liabilities consist of ~~precious metals.~~money market paper, other debt instruments and equity instruments which the Group has sold to third parties but does not own (“short” positions).

The trading portfolio is carried at fair value, which includes valuation allowances for instruments, for which liquid markets do not exist, to adjust primarily for credit and ~~marked to market daily. Short positions in securities are reported as Trading portfolio liabilities. Realized~~settlement risks. Gains and losses realized on disposal or redemption and unrealized gains and losses ~~net~~from changes in the fair value of ~~related transaction expenses,~~trading portfolio assets or liabilities are ~~recognized~~reported as Net trading income. Interest and dividend income and expense on trading portfolio assets or liabilities are included in Interest and dividend income or Interest and dividend expense, respectively.

When the Group becomes party to a contract classified in its trading portfolio, it recognizes from that date (trade date) in the income statement any unrealized profits and losses arising from revaluing that contract to fair value. On a date subsequent to the trade date, the terms of spot and forward trading transactions are fulfilled (settlement date) and a resulting financial asset or liability is recognized on the balance sheet at the fair value of the consideration given or received plus the change in fair value of the contract since the trade date.

The determination of fair values of trading portfolio assets or liabilities is based on quoted market prices in active markets or dealer price quotations, pricing models (using assumptions based on market and economic conditions), or management’s estimates, as applicable.

i)k) Loans originated by the Group

Loans originated by the Group include loans where money is provided directly to the borrower, other than those that are originated with the intent to be sold immediately or in the short term, which are recorded as Trading portfolio assets. A participation in a loan from another lender is considered to be originated by the Group, provided it is funded on the date the loan is originated by the lender. Purchased loans are either classified as Financial investments available-for-sale, or as Trading portfolio assets, as appropriate.

Loans originated by the Group are recognized when cash is advanced to borrowers. They are initially recorded at cost, which is the fair value of the cash given to originate the loan, including any transaction costs, and are subsequently measured at amortized cost using the effective interest rate method.

l) Allowance and provision for credit losses

An allowance for credit losses

~~Loans are initially recorded at cost. For loans originated by~~ is established if there is objective evidence that the Group ~~the cost is the amount lent~~will be unable to ~~the borrower. For loans acquired from a third party the cost is the fair value at the time of acquisition.~~

~~Interest income on performing loans, including amortization of premiums and discounts, is recognized on an accrual basis.~~

~~Loans are stated at their principal amount net of any allowance for credit losses.~~collect all amounts due. The allowance and ~~provisions~~provision for credit losses ~~provides for~~represents management’s estimate of probable losses inherent in the ~~credit~~loan portfolio ~~including loans~~ and other lending-related commitments. Such commitments normally include letters of credit, guarantees and commitments to extend credit. However, credit risk exposures are also inherent in other instruments.

The ~~carrying amounts~~allowance for credit losses is reported as a reduction of ~~impaired~~ loans ~~are reduced to their estimated realizable value through allowances. Increases or decreases~~whereas the provision for credit losses for lending related commitments is reported in allowances are charged or credited, respectively, to the income statement. A write-off is made when all or part of a loan is deemed uncollectible or in the case of debt forgiveness. Write-offs are charged against previously established allowances and reduce the principal amount of a loan. Recoveries are creditedOther liabilities. Additions to the allowances and provisions for credit ~~losses.~~

~~A loan is considered impaired when it becomes probable that~~losses are made through the ~~bank will not be able to collect all amounts due according to the contractual terms. The reason~~credit loss expense account. Allowance and provision for ~~impairment includes both~~credit exposures are evaluated at a counterparty-specific ~~and~~and/or country-specific ~~elements. The evaluation is~~level based on ~~the~~ following principles:

Counterparty-specific: Individual credit exposures are evaluated based upon the borrower’s character, overall financial condition, resources and payment record; the prospects for support from any financially responsible guarantors; and, if appropriate, the realizable value of any collateral. Impairment is measured and allowances for credit losses are established for the difference between the carrying amount and its estimated recoverable amount.

A loan is considered impaired when management determines that it is probable that the Group will not be able to collect all amounts due according to the original contractual terms, unless such loans are secured, in process of collection, or other factors exist which make the Group expect that all future cash flows according to the original terms of the contract will be received. An impaired loan is classified as non-performing when the contractual payments of principal and/or interest are in arrears for 90 days or more.

UBS Group Financial Statements
Notes to the Financial Statements

When a loan has been identified as impaired, the carrying amount of the loan is reduced by recording specific allowances for credit losses to its estimated recoverable amount, which is the present value of expected future cash flows discounted at the original effective interest rate of the loan. Upon impairment the accrual of interest income based on ~~discounted~~the original terms of the loan is discontinued. The increase of the present value of impaired loans due to the passage of time is reported as interest income.

All impaired loans are reviewed and analyzed at least annually. Any subsequent changes to the amounts and timing of the expected future cash ~~flows.~~flows compared to the prior estimates will result in a change in the allowance for credit losses and be charged to credit loss expense. If there are indications of significant probable losses in the portfolio that have not been specifically identified, allowances for credit losses would also be provided for on a portfolio basis.

An allowance for an impairment is reversed only when the credit quality has improved such that there is reasonable assurance of timely collection of principal and interest in accordance with the original contractual terms of the loan agreement.

A write-off is made when all or part of a loan is deemed uncollectible or in the case of debt forgiveness. Write-offs are charged against previously established allowances for credit losses and reduce the principal amount of a loan. Recoveries in part or in full of amounts previously written off are credited to credit loss expense.

Country-specific: Probable losses resulting from exposures in countries experiencing political and transfer risk, countrywide economic distress, or problems regarding the legal enforceability of contracts are assessed using country specific scenarios and taking into consideration the nature of the individual ~~exposures and their importance for the economy.~~exposures. Specific country allowances are established based on this assessment, and exclude exposures addressed in counterparty-specific allowances.

m) Securitizations

The Group securitizes various consumer and commercial financial assets, which generally results in the sale of these assets to special-purpose vehicles which, in turn issue securities to investors. Financial assets are partially or wholly derecognized when the Group gives up control of the contractual rights that comprise the financial asset.

~~All impaired loans~~Interests in the securitized financial assets may be retained in the form of senior or subordinated tranches, interest-only strips or other residual interests (“retained interests”). Retained interests are ~~periodically reviewed~~primarily recorded in Trading portfolio assets and ~~analyzed~~carried at fair value. The determination of fair values of retained interest is generally based on listed market prices or by determining the present value of expected future cash flows using pricing models that incorporate management’s best estimates of critical assumptions which may include credit losses, discount rates, yield curves and other factors.

Gains or losses on securitization depend in part on the carrying amount of the transferred financial assets, allocated between the financial assets derecognized and the ~~allowance for credit~~retained interests based on their relative fair values at the date of the transfer. Gains or losses ~~is reassessed~~on securitization are recorded in Net trading income.

n) Financial investments

Financial investments are classified as available-for-sale and recorded on a ~~loan-by-loan basis~~settlement date basis. Management determines the appropriate classification of its investments at ~~least annually~~the time of the purchase. Financial investments consist of money market paper, other debt instruments and equity instruments, including private equity investments.

Available-for-sale financial investments may be sold in response to needs for liquidity or changes in interest rates, foreign exchange rates or equity prices.

Available-for-sale financial investments are carried at fair value. Unrealized gains or losses on available-for-sale investments are reported in Shareholders’ equity, net of applicable taxes, until such investment is sold, collected or otherwise disposed of, or until such investment is determined to be impaired. If an available-for-sale investment is determined to be impaired, the cumulative unrealized gain or loss previously recognized in Shareholders’ equity is included in net profit or loss for the period and reported in Other income. A financial investment is considered impaired if ~~necessary adjusted for further impairments identified. If there~~its carrying value exceeds the recoverable amount. For non-quoted investments, the recoverable amount is determined by applying recognized valuation techniques. Quoted financial investments are ~~indications that there are significant probable losses in the portfolio that have not been spe-~~considered impaired

if the decline in market price below cost is of such a magnitude that recovery of the cost value cannot be reasonably expected within the foreseeable future.

~~UBS Group Financial Statements~~

~~Notes~~On disposal of an available-for-sale investment, the accumulated unrealized gain or loss included in Shareholders’ equity is transferred to ~~the Financial Statements~~

~~cifically identified, allowances would also be provided for on a portfolio basis.~~

~~A loan is classified as non-performing when the contractual payments of principal and/~~net profit or ~~interest are in arrears for 90 days or more. After the 90-day period the recognition of interest income ceases and a charge is recognized~~loss for the ~~unpaid and accrued interest receivable.~~

~~j) Financial investments~~

Financial investments are debt and equity securities held for the accretion of wealth through distributions, such as interest and dividends, and for capital appreciation. Financial investments also include real estate held for sale.

Debt securities held to maturity are carried at amortized cost. If necessary, the carrying amount is reduced to its estimated realizable value. Interest income on debt securities, including amortization of premiums and discounts, is recognized on an accrual basisperiod and reported ~~as Net interest~~in Other income.

~~Financial investments held for sale are carried at the lower of cost or market value. Reductions to market value and reversals of such reductions as well as gains~~ Gains and losses on disposal are determined using the average cost method.

The determination of fair values of available-for-sale financial investments is generally based on quoted market prices in active markets, dealer price quotations, discounted expected cash flows using market rates commensurate with the credit quality and maturity of the investment or based upon review of the investee’s financial results, condition and prospects including comparisons to similar companies for which quoted market prices are available.

Interest and dividend income on available-for-sale financial investments is included in ~~Other income.~~ Interest ~~earned~~ and ~~dividends received are included in Net interest income.~~dividend income from financial investments.

Private equity investments are carried at cost less write-downs for impairments in value. Reductions of the carrying amount and reversals of such reductions as well as gains and losses on disposal are included in Other income.

~~k) Investments in associates~~

Investments in associates in which the Group has a significant influence are accounted for by the equity method. Investments in which the Group has a temporary significant influence because they are acquired and held with a view to their subsequent disposal, are included in Financial investments (see private equity above).

~~Investments in companies in which the Group does not hold a significant influence are recorded at cost less value adjustments for other than temporary declines in value.~~

l)o) Property and equipment

Property and equipment includes bank occupied properties, investment properties, software, IT and communication and other machines and equipment.

Bank-occupied property is defined as property held by the Group for use in the supply of services or for administrative purposes whereas investment property is defined as property held by the Group to earn rentals and/or for capital appreciation. If a property of the Group includes a portion that is bank occupied and another portion that is held to earn rentals or for capital appreciation, the classification is based on whether or not these portions can be sold separately. If both portions of the property can be sold separately these portions are accounted for as bank-occupied property and investment property, respectively. If the portions can not be sold separately, the whole property is classified as bank-occupied property unless the portion used by the bank is minor. The classification of property is reviewed on a regular basis to account for major changes in its usage. In 2001, investment properties with a carrying value of CHF 350 million (cost CHF 447 million less accumulated depreciation of CHF 97 million) have been reclassified to Bank occupied property. Assets with a value of CHF 144 million related to the PaineWebber acquisition were transferred from Other machines and equipment to IT, software and communication, and CHF 30 million for leasehold improvements were reclassified from Investment properties to Other machines and equipment.

Software development costs are capitalized when they meet certain criteria relating to identifiability, it is probable that future economic benefits will flow to the enterprise, and the cost can be measured reliably. Internally developed software meeting these criteria is classified in Property and equipment on the balance sheet.

Property and equipment is carried at cost less accumulated depreciation and accumulated impairment losses. Property and equipment is periodically reviewed for impairment.

Property and equipment is depreciated on a straight-line basis over its estimated useful life as follows:


Properties		Not exceeding 50 years

Other machines and equipment		Not exceeding 10 years

IT, software and communication		Not exceeding 3 years

~~Other machines and equipment~~		~~Not exceeding 5 years~~

Property formerly bank-occupied or leased to third parties under an operating lease, which the Group has decided to dispose of and foreclosed property are defined as Properties held for resale and disclosed in Other assets. They are carried at the lower of cost or recoverable value. During 2001, properties with a carrying value of CHF 293 million (cost CHF 482 million less accumulated depreciation of CHF 189 million) have been reclassified from Investment property to Property held for resale.

m)p) Goodwill and other intangible assets

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets of the acquired entity at the date of acquisition.

Other intangible assets are comprised of separately identifiable intangible items arising from acquisitions and certain purchased trademarks and similar items.

Goodwill and other intangible assets are recognized as assets and are amortized using the straight-line basis over their estimated useful economic life, not exceeding 20 years. At each balance sheet date, goodwill and other intangible assets are reviewed for indications of ~~impairment.~~impair-

UBS Group Financial Statements
Notes to the Financial Statements

ment. If such indications exist an analysis is performed to assess ~~if a~~whether the carrying amount of goodwill or other intangible assets is fully recoverable. A write-down is ~~necessary.~~

~~Goodwill and fair value adjustments arising on~~made if the ~~acquisition of foreign subsidiaries are treated as local currency balances and are translated into Swiss francs at~~carrying amount exceeds the closing rate at subsequent balance sheet dates. Software development costs are capitalized when they meet certain criteria relating to identifiability and future economic benefits can be reasonably estimated. Internally developed software is classified in Property and equipment in the balance sheet.

recoverable amount.

n)q) Income taxes

Income tax payable on profits, based on the applicable tax laws in each jurisdiction, is recognized as an expense in the period in which profits arise. The tax effects of income tax losses available for carry-forward are ~~recog-~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~nized~~recognized as an asset when it is probable that future taxable profit will be available against which those losses can be utilized.

Deferred tax liabilities are recognized for temporary differences between the carrying amounts of assets and liabilities in the Group balance sheet and their amounts as measured for tax purposes, which will result in taxable amounts in future periods. Deferred tax assets are recognized for temporary differences which will result in deductible amounts in future periods, but only to the extent it is probable that sufficient taxable profits will be available against which these differences can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply toin the period in which the asset will be realized or the liability will be settled based on enacted rates.

Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting group and relate to the same tax authority and when the legal right to offset exists.

Current and deferred taxes are recognized as income tax ~~income~~benefit or expense except for deferred taxes recognized or disposed of onupon the acquisition or disposal of a subsidiary.

o)r) Debt issued

Debt issued is initially measured at cost, which is the fair value of the consideration received, net of transaction costs incurred. Subsequent measurement is at amortized cost, using the effective interest rate method to amortize cost at inception to the redemption value over the life of the debt.

Combined debt instruments that are related to non-UBS AG equity instruments, foreign exchange or credit instruments or indices are considered structured instruments. The embedded derivative is separated from the host contract and accounted for as a stand alone derivative if the criteria for separation are met. The host contract is subsequently measured at amortized cost.

Debt instruments with embedded derivatives that are related to UBS AG shares or to a derivative instrument that has UBS AG shares as underlying are separated into a liability and an equity component at issue date, if they will be physically settled. Initially, a portion of the net proceeds from issuing the combined debt instrument are allocated to the equity component based on its fair value and reported in Share premium account. The determination of fair values is generally based on listed market prices or option pricing models. Subsequent changes in fair value of the separated equity component are not recognized. The remaining amount is allocated to the liability component and reported as Debt issued. The liability component is subsequently measured at amortized cost.

However, if the combined instrument or the embedded derivative related to UBS AG shares is cash settled or the holder of the hybrid instrument has the right to require cash settlement, then the separated derivative is accounted for as a trading instrument with changes in fair value recorded in income.

It is the Group’s policy to hedge the fixed interest rate risk on debt issues (except for certain subordinated long-term notes issues, see Note 30a) and apply fair value hedge accounting. The effect is such that when hedge accounting is applied to fixed rate debt instruments, the carrying value of debt issues are adjusted for changes in fair value related to the hedged exposure rather than carried at amortized cost. See v) Derivative instruments for further discussion.

Interest expense on debt instruments is included in Interest on debt issued.

s) Treasury shares

UBS AG shares held by the Group are classified in ~~the~~ Shareholders’ equity as Treasury shares and accounted for at weighted average cost. The difference between the proceeds from sales of treasury shares and their cost (net of ~~tax)~~tax, if any) is classified as Share premium.

Contracts that require physical settlement or net share settlement in UBS AG shares or provide the Group with a choice to physically settle are classified as Shareholders’ equity and reported as Share premium. ~~The difference between~~Upon settlement of such con-

tracts the proceeds ~~from the settlement of the contract and its~~received less cost (net of ~~tax)~~tax, if any), are reported as Share premium.

p)t) Retirement benefits

The Group sponsors a number of retirement benefit plans for its employees worldwide. These plans include both defined benefit and defined contribution plans and various other retirement benefits such as post-employment medical benefits. Group contributions to defined contribution plans are expensed when employees have rendered services in exchange for such contributions, generally in the year of contribution.

The Group uses the projected unit credit actuarial method to determine the present value of its defined benefit obligations and the related current service cost and, where applicable, past service cost.

The principal actuarial assumptions used by the actuary are set out in Note ~~34.~~32.

The Group recognizes a portion of its actuarial gains and losses as income or expenses if the net cumulative unrecognized actuarial gains and losses at the end of the previous reporting period exceeded the greater of:



a)		10% of present value of the defined benefit obligation at that date (before deducting plan assets); and

b)		10% of the fair value of any plan assets at that date.

The unrecognized actuarial gains and losses exceeding the greater of the two values are recognized in the income statement over the expected average remaining working lives of the employees participating in the plans.

u) Equity participation plans

The Group provides various equity participation plans in the form of stock plans and stock option plans. UBS generally uses the intrinsic value based method of accounting for such awards. Consequently, compensation expense is measured as the difference between the quoted market price of the stock at the measurement date less the amount, if any, that the employee is required to pay, or by the excess of stock price over option strike price, if any. The Group’s policy is to recognize compensation expense for equity awards at the date of grant.

q)v) Derivative instruments

~~Derivative~~All derivative instruments of the Group are carried at fair ~~value.~~value on the balance sheet and are reported as Positive or Negative replacement values. Fair values are obtained from quoted market prices, dealer price quotations, discounted cash flow models and option pricing models, ~~as appropriate. The fair values of derivative instruments are shown in the balance sheet as Positive~~which consider current market and ~~Negative replacement values. Realized and unrealized gains and losses are recognized in Net trading income.~~

~~Transactions in derivative instruments entered into~~contractual prices for ~~hedging of non-trading positions are recognized in the income statement on the same basis as to~~ the underlying ~~item being hedged.~~

instrument, as well as time value of money, yield curve and volatility of the underlying. The Group offsets positive and negative replacement values with the same counterparty for transactions covered by legally enforceable master netting agreements.

~~r) Comparability~~

~~Certain amounts have been reclassified from previous years to conform to the 2000 presentation.~~

~~The prior year financial statements reflect the requirements of the following revised or new International Accounting Standards or~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~changes in accounting policies which~~Where the Group ~~implemented in 2000:~~



~~IAS 10 (revised)~~		~~Events after the balance sheet date~~

~~IAS 37~~		~~Provisions, contingent liabilities and contingent assets~~

~~IAS 38~~		~~Intangible assets~~

~~Interpretation SIC 12~~		~~Consolidation – special purpose entities~~

~~Interpretation SIC 16~~		~~Share capital – reacquired own equity instruments (treasury shares)~~

~~Interpretation SIC 24~~		~~Earnings per share – financial instruments and other contracts that may be settled in shares~~

		~~Offsetting of amounts related to certain contracts~~

		~~Interest and dividend income on trading assets~~

~~The implementation of the above standards or accounting policies had no material impact for the Group except for the following:~~

~~IAS 38 Intangible assets~~

In July 1998, the IASC issued IAS 38 Intangible Assets, which the Group adopted prospectively as of 1 January 2000. The standard requires the capitalization and amortization of certain intangible assets, if it is probable that the future economic benefits that are attributable to the assets will flow to the enterprise and the cost can be measured reliably.

Capitalized costs relating to internally developed software amounted to CHF 248 million as of 31 December 2000 and are reported within Note 17 Property and equipment as IT, software and communication, and operating expenses were reduced accordingly.

~~Interpretation SIC 16, Share Capital – Reacquired Own Equity Instruments (Treasury Shares)~~

In May 1999, the IASC issued Interpretation SIC 16, Share Capital – Reacquired Own Equity Instruments (Treasury Shares), which the Group adopted as of 1 January 2000. The interpretation provides guidance for the recognition, presentation and disclosure of treasury shares. SIC 16 applies to own shares andenters into derivatives ~~on own shares held~~ for trading purposes, realized and ~~non-trading purposes. SIC 16 requires own shares and derivatives on own shares to be presented as Treasury shares and deducted from Shareholders’ equity. Gains~~unrealized gains and losses ~~relating to the sale of own shares~~ are recognized ~~as a change in shareholders’ equity.~~

As a result of the adoption of Interpretation SIC 16, financial information has been retroactively restated. Net trading income was reduced by CHF 196 million for the year ended 31 December 1999. Shareholders’ equity and Total assets were reduced by CHF 4,227 million as of 31 December 1999 and CHF 3,601 million as of 31 December 1998.

~~Offsetting of amounts related to certain contracts~~

In order to improve comparability with its competitors, the Group has decided to offset positive and negative replacement values and reverse repurchase agreements and repurchase agreements with the same counterparty for transactions covered by legally enforceable master netting agreements. This change became effective as of 1 January 2000 and all prior periods represented have been restated. Positive and negative replacement values have been reduced by CHF 66,136 million for the year ended 31 December 1999. Reverse repurchase and repurchase agreements have been reduced by CHF 12,322 million for the year ended 31 December 1999.

~~Interest and dividend income and expense on trading assets~~

~~In prior periods, interest and dividend income and expense on trading assets and liabilities were included~~ in Net trading income. ~~In order~~

The Group also uses derivative instruments as part of its asset and liability management activities to ~~improve comparability with its competitors,~~manage exposures to interest rate risks, credit risks and foreign currency risks. The Group applies either fair value or cash flow hedge accounting when it meets the specified criteria to obtain hedge accounting treatment. Derivative instruments not qualifying for hedge accounting are treated as derivative instruments used for trading purposes. The Group has entered into economic hedges of credit risk within the loan portfolio using credit default swaps to which it does not apply hedge accounting. However, in the event the Group has included interest and dividend income and expense on trading assets and liabilities in interest income and interest expense respectively. This change in presentation became effective 1 January 2000. The comparative financial information for 1999 has been restated to comply with this change. Interest income was increased by CHF 17,281 million for the year ended 31 December 1999. Interest expense was increased by CHF 17,728 million for the year ended 31 December 1999. In addition, Net trading income was increased by CHF 447 million for the year ended 31 December 1999.

~~In addition to the above, other changes have been made to prior years to conform to current presentation.~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~s) Recent accounting standards not yet adopted~~



~~IAS 12~~		~~Revised, income taxes~~

~~IAS 39~~		~~Recognition and measurement of financial instruments~~

~~IAS 40~~		~~Investment property~~

~~The implementation of the above standards will have no material impact for the Group except for the following:~~

~~IAS 39, Recognition and measurement of financial instruments~~

~~In December 1998, the IASC issued IAS 39, Recognition and Measurement of Financial Instruments, which is required to be adopted for the Group’s financial statements as of 1 January 2001~~recognizes an impairment on a ~~prospective basis.~~

~~The Standard provides comprehensive guidance on accounting for financial instruments. Financial instruments include conventional financial assets and liabilities and derivatives. IAS 39 requires~~loan that ~~all financial instruments should be recognized~~is economically hedged in this way, the gain on the ~~balance sheet. The Group will disclose its financial assets either as loans originated by the bank and not held~~credit default swap is offset against Credit loss expense/recovery. See Note 24 for ~~trading, financial assets held for trading, investments held to maturity or financial assets available for sale.~~

Loans originated by the bank are initially measured at cost, which is the fair value of the consideration given to originate the loan, including any transaction costs. Loans will subsequently be measured at amortized cost minus any write-down for impairment or uncollectibility.

~~Financial assets held for trading are valued at fair value and changes in the fair value are recognized in trading income.~~

~~Held-to-maturity investments are recognized at cost and interest is accrued using the effective interest method. Held-to-maturity investments are subject to review for impairment.~~

Financial assets available for sale are recognized at fair value on the balance sheet. Changes in fair value are booked to equity and disclosed in the statement of changes in equity until the financial asset is sold, collected or otherwise disposed of, or until the financial asset is determined to be impaired, at which time the cumulative profit or loss previously recognized in equity should be included in net profit or loss for the period.additional information.

In a qualifying hedge of exposures to changes in fair value, the change in fair value of the hedging ~~instrument~~derivative is recognized ~~as an adjustment to its carrying amount and~~ in net profit and loss. The change in fair value of the hedged item attributable to the hedged risks adjusts the carrying value of the hedged item and is also recognized in net profit or loss.

If the hedge relationship is terminated, the unamortized fair value adjustment of the hedged item is amortized to net profit or loss over the original hedge term or recognized in income if the hedged item is derecognized. In a qualifying cash flow hedge, the effective portion of the gain or loss on the hedging ~~instrument~~derivative is recognized ~~as an adjustment to its carrying amount and~~ in ~~equity. The~~Shareholders’ equity while the ineffective portion ofis reported in net profit or loss. When the hedged firm commitment or forecasted transaction results in income or expense, then the associated gain or loss on the hedging derivative is removed from Shareholders’ equity and included in net profit

UBS Group Financial Statements
Notes to the Financial Statements

or loss in the same period during which the forecasted transaction ~~also adjusts the hedging instrument’s carrying amount, but is reported in~~affects net profit or loss. If the forecasted transaction is no longer expected to occur, the cumulative gain or loss on the hedging ~~instrument~~derivative is recognized immediately in net profit or loss.

~~A qualifying~~ If the hedge ~~of a net investment in a foreign entity~~relationship is ~~accounted for similar to a cash flow hedge. The~~terminated, the cumulative gain or loss on the hedging derivative that initially had been reported in Shareholders’ equity when the hedge was effective, remains in Shareholders’ equity until the committed or forecasted transaction occurs, at which point it is reported in net profit or loss.

In some cases, a derivative may be part of a hybrid instrument ~~relating~~that includes both a derivative and a host contract. This is known as an embedded derivative. An embedded derivative is separated from the host contract and accounted for as a stand alone derivative instrument if and only if the following conditions are met: the economic characteristics and risks of the embedded derivative are not closely related to the ~~effective portion~~economic characteristics and risks of the ~~hedge~~host contract, the host contract is ~~classified~~not carried at fair value with changes in fair value reported in net profit or loss, and the embedded derivative meets the definition of a derivative.

w) Comparability

Certain amounts have been reclassified from previous years to conform to the 2001 presentation.

The Group adopted the following revised or new International Accounting Standards and Interpretations of the Standing Interpretation Committee (SIC) in 2001:



IAS 12 (Revised)		Income Taxes

IAS 39		Financial Instruments: Recognition and Measurement

IAS 40		Investment Property

Interpretation SIC 17		Equity – Costs of an Equity Transaction

Interpretation SIC 18		Consistency – Alternative Methods

Interpretation SIC 19		Reporting Currency – Measurement and Presentation of Financial Statements under IAS 21 and IAS 29

Interpretation SIC 22		Business Combinations – Subsequent Adjustment of Fair Values and Goodwill Initially Reported

Interpretation SIC 24		Earnings Per Share – Financial Instruments and Other Contracts that May Be Settled in Shares

Additional SIC interpretations became effective during 2001, which are not applicable to the Group. The implementation of the above standards and interpretations had no material impact on the Group’s Financial Statements in 2001 except for the following:

IAS 39, Recognition and measurement of financial instruments

The Group adopted IAS 39 prospectively as at 1 January 2001. The Standard provides comprehensive guidance on accounting for financial instruments.

Upon adoption, the Group decided to record unrealized gains and losses arising from changes in the ~~same manner as the foreign currency translation gain~~fair value of available-for-sale financial investments directly in Shareholders’ equity until such investment is disposed of or ~~loss.~~until such investment is determined to be impaired.

~~The~~As a result of the adoption of IAS 39, the following adjustments or changes in classification occurred:

Gains/losses not recognized in the income statement is ~~expected to have~~ a ~~material impact on certain financial assets and liabilities including long-term debt. An opening adjustment to Other comprehensive income will also be required, representing~~new component of Shareholders’ equity as at 1 January 2001. It includes unrealized gains and losses on available for sale financial ~~assets~~investments and on derivatives designated as cash flow hedges as well as Foreign currency translation. The opening adjustment as at 1 January 2001 to financial investments recorded as available for sale was a net unrealized gain of CHF 1,769 million (CHF 1,577 million net of taxes), and for derivatives designated as cash flow ~~hedges.~~hedges an unrealized net loss of CHF 506 million (CHF 380 million net of taxes).

~~IAS 40 Investment property~~

~~In April 2000,~~ Available-for-sale financial investments were previously carried at the ~~IASC issued IAS 40 Investment property, which is required to be adopted for the Group’s financial statements as~~lower of ~~1 January 2001. The Standard prescribes the accounting treatment~~cost or market value and ~~disclosure requirements for investment property. Investment properties are measured~~private equity investments were carried at cost less ~~accumulated depreciation~~write-downs for impairments in value. Reductions of the carrying amount of available-for-sale financial investments and ~~any accumulated impairment losses.~~private equity investments and reversals of such reductions as well as gains and losses on disposal are included in Other income. As ofat 1 January 2001 these financial investments are now classified as available-for-sale financial investments and carried at fair value. Changes in fair value are reported in Gains/losses not recognized in the income statement within Shareholders’ equity until these investments are disposed of. At the time an available-for-sale financial investment ~~properties amounted to CHF 1,280 million.~~is

determined to be impaired, the cumulative unrealized loss previously recognized in Shareholders’ equity is included in net profit or loss for the period.

The opening adjustment to Retained earnings, a net debit of CHF 61 million as at 1 January 2001, consisted of CHF 19 million reflecting the impact of adopting the new hedge accounting rules and CHF 42 million reflecting the impact of remeasuring assets to either amortized cost or fair value as required under the Standard.

Properties held for resale include properties formerly bank-occupied or leased to third parties under an operating lease, which the Group has decided to dispose of, and foreclosed properties which the Group received in satisfaction of a secured loan and which it does not intend to occupy. As at 1 January 2001, Properties held for resale in the amount of CHF 984 million were reclassified from Financial investments to Other assets. Comparative amounts have been reclassified accordingly.

Money market paper and Money market paper issued

Money market paper held for trading is now disclosed within Trading portfolio assets and Money market paper held as available-for-sale is now disclosed within Financial investments. Money market paper issued is disclosed within Debt issued. Interest income on Money market paper held as available-for-sale is disclosed as Interest and dividend income from financial investments. These changes became effective as at 1 January 2001 and all prior periods presented have been reclassified.

The reclassification of Money market paper in the amount of CHF 66,454 million as at 31 December 2000 resulted in an increase of Trading portfolio assets by CHF 62,292 million and Financial investments by CHF 4,162 million for the year ended 31 December 2000. Money market paper issued in the amount of CHF 74,780 million as at 31 December 2000 was reclassified to Debt issued.

UBS Group Financial Statements

Notes to the Financial Statements

~~Note 2 Acquisition of Paine Webber Group, Inc.~~

On 3 November 2000, UBS completed its acquisition of 100% of the outstanding common stock of the Paine Webber Group, Inc., a full-service broker-dealer and one of the largest securities and commodities firms in the United States servicing both individual and institutional clients. The transaction was accounted for using the purchase method of accounting, making PaineWebber a wholly owned subsidiary of UBS. Results of operations of PaineWebber are included in the consolidated results beginning on the date of acquisition. Under International Accounting Standards, the valuation of shares and options issued is measured as of the date the acquisition was completed, 3 November 2000. Purchase consideration of CHF 22.0 billion (USD 12.5 billion) consists of the following:

CHF USD
million million
Value of shares issued (40,580,570 shares issued) 10,246 5,817
Value of options issued (options on 6,325,270 shares issued) 992 563
Cash consideration 10,607 6,021
Direct costs of the acquisition 115 65
Total purchase price 21,960 12,466
Fair value of net assets acquired (5,630 ) (3,196 )
Total intangible assets ¹ 16,330 9,270
Intangible assets other than goodwill (4,695 ) (2,665 )
Goodwill arising from acquisition 11,635 6,605
Purchased goodwill 1,202 682
Total goodwill at 3 November 2000 12,837 7,287
Effect of translation adjustments (898 )
Amortization from 3 November 2000 (103 ) (61 )
Balance of goodwill at 31 December 2000 11,836 7,226

¹ ~~Excluding purchased goodwill.~~

~~The resulting goodwill and intangible assets will be amortized using the straight-line method over their estimated useful lives of 20 years.~~

In addition, UBS has entered into employee retention agreements that provide for payments to key PaineWebber employees which are subject to the employee’s continued employment and other restrictions. The estimated cost to the Group for the agreements is approximately CHF 1.5 billion (USD 875 million) over a four-year period.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3a2a Segment Reporting by Business Group

UBS is organized into three Business Groups: UBS Switzerland, UBS Warburg and UBS Asset Management, and our Corporate Center.

UBS Switzerland

UBS Switzerland ~~encompasses~~is the leading bank in Switzerland. It is made up of two business ~~units, Private Banking and Private and Corporate Clients.~~units.

The Private Banking business unit offers a comprehensive ~~wealth management~~range of products and services individually tailored for wealthy clients, from offices around the world. It is the world’s largest private ~~clients globally, who bank in Switzerland and other financial centers worldwide.~~banking business.

The two business units share technological and physical infrastructure, and have joint departments supporting major functions such as e-commerce, financial planning and wealth management, and investment policy and strategy.

UBS Asset Management

UBS Asset Management is ~~organized into two business units, Institutional Asset Management~~a leading institutional asset manager and ~~Investment Funds / GAM.~~

~~Institutional Asset Management offers~~mutual fund provider, offering a ~~diverse~~broad range of ~~institutional investment management capabilities, in every major asset class, from the traditional to the alternative.~~

Investment Funds provides retail investment fund products, marketed principally through UBS Switzerland. Investment management for these funds is generally undertaken by Institutional Asset Management, with the Investment Funds unit concentrating on product development and distribution.

~~Global Asset Management (GAM), acquired in late 1999, is a diversified~~ asset management ~~group, offering a wide range of investment styles. Dedicated to giving its~~services and products for institutional and individual clients ~~access to~~across the world’s best investment talent, GAM’s funds are managed by its own staff and by about 80 carefully selected external managers. GAM products are marketed both independently and through Private Banking.world.

UBS Warburg

UBS Warburg isoperates globally as a client-driven securities, investment banking and wealth management firm. It is made up of ~~five~~three business units.

~~The~~ Corporate and Institutional Clients ~~business unit is one of~~provides innovative products, top-quality research and advice, and comprehensive access to the ~~leading global investment banking and securities firms. For~~world’s capital markets, for both its own corporate and institutional clients and for the other parts of the UBS ~~Group, UBS Warburg provides product innovation, top-quality research and advice, and complete access to the world’s capital markets.~~Group.

UBS Capital is the private equity business unit of UBS Warburg, investing UBS and ~~third-party~~third party funds, primarily in unlisted companies.

~~US Private Clients, operating under the brand of~~ UBS PaineWebber, ~~provides a full range~~one of the top US wealth ~~management services.~~

The International Private Clients business unit provides private banking products and services for high net worth clients outside the US and Switzerland who bank in their country of residence. During 2001 the European part of this business will becomemanagers, became part of UBS ~~Switzerland’s Private Banking business unit~~Warburg in November 2000. On 1 January 2002, UBS PaineWebber was separated from UBS Warburg and ~~the Asia-Pacific part~~in future years will be ~~merged with US Private Clients.~~

~~The e-services business unit was created in fourth quarter 1999. During 2000, e-services progressed successfully towards its goal of creating~~reported as a new business providing wealth management for affluent European clients, through internet, call centers and investment centers. Following the merger with PaineWebber, UBS’s European wealth management strategy has evolved. As a result, key components of the e-services business unit’s infrastructure will become part of Private Banking’s new European wealth management strategy and e-services will no longer be reported separately.separate Business Group within UBS.

Corporate Center

UBS’s Business Groups are accountable for their results and enjoy considerable autonomy in pursuing their business objectives. The Corporate Center ~~encompasses Group level functions which cannot be devolved to the operating divisions, and~~ ensures that the Business Groups operate as a coherent and effective whole with a common set of values and principles. Corporate Center’s remit covers areas such as risk management, financial reporting, marketing and communications, funding, capital and balance sheet management and management of foreign currency earnings.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3a2a Segment Reporting by Business Group (continued)

The Business Group results ~~have been~~are presented on a management reporting basis. Consequently, internal charges and transfer pricing adjustments have been reflected in the performance of each business. ~~The basis of the reporting reflects the management of the business within the Group.~~ Revenue sharing agreements are used to allocate external customer revenues to a Business Group on a reasonable basis. Transactions between Business Groups are conducted at ~~arms~~arm’s length. The segment reporting for all periods presented reflects the changes in business unit structure implemented 1 January 2001.

For the year ended 31 December ~~2000~~2001


	UBS			UBS Asset		UBS			Corporate			UBS				UBS			UBS Asset		UBS			Corporate
CHF million	Switzerland			Management		Warburg			Center			Group				Switzerland			Management		Warburg			Center			UBS Group


Income		14,182			1,953		19,779			358			36,272				13,475			2,110		21,349			678			37,612
Credit loss recovery / (expense)¹		(784	)		0		(247	)		1,161			130




Credit loss expense¹																	(604	)		0		(130	)		236			(498	)

Total operating income		13,398			1,953		19,532			1,519			36,402				12,871			2,110		21,219			914			37,114

Personnel expenses		4,759			880		11,002			522			17,163				4,764			1,003		13,515			546			19,828
General and administrative expenses		2,394			439		3,501			431			6,765				2,600			564		4,260			207			7,631
Depreciation		508			49		731			320			1,608				616			46		580			372			1,614
Amortization of goodwill and other intangible assets		62			263		298			44			667				41			266		991			25			1,323

Total operating expenses		7,723			1,631		15,532			1,317			26,203				8,021			1,879		19,346			1,150			30,396

Business Group performance before tax		5,675			322		4,000			202			10,199				4,850			231		1,873			(236	)		6,718
Tax expense													2,320															1,401

Net profit before minority interests													7,879															5,317
Minority interests													(87	)														(344	)

Net profit													7,792															4,973





Other information as of 31 December 2000²
Other information as at 31 December 2001²															Other information as at 31 December 2001²
Total assets		281,780			6,727		870,608			(71,563	)		1,087,552				313,389			5,988		1,045,297			(111,377	)		1,253,297
Total liabilities		272,134			5,513		846,451			(81,379	)		1,042,719




Total liabilities and minority interests																	304,875			4,638		1,022,907			(122,653	)		1,209,767




Capital expenditure																	540			37		633			811			2,021

¹In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss expense ~~/ recovery~~ are reported for ~~all~~each Business ~~Groups.~~Group. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the IAS actual net ~~IAS~~ credit loss ~~expenses~~expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The ~~divisional~~Business Group breakdown of the net credit ~~recovery / (expense)~~loss expense for financial reporting purposes of CHF ~~130~~498 million for the year ended 31 December ~~2000~~2001 is as follows: UBS Switzerland CHF ~~695~~123 million, UBS Warburg CHF ~~(565)~~375 million.

²The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.

UBS Group Financial Statements

Notes to the Financial Statements

Note 3a2a Segment Reporting by Business Group (continued)

For the year ended 31 December ~~1999~~ 2000

UBS UBS Asset UBS Corporate
CHF million Switzerland Management Warburg Center UBS Group
Income 14,371 1,953 19,590 358 36,272
Credit loss recovery¹
(785 ) 0 (246 ) 1,161 130
Total operating income 13,586 1,953 19,344 1,519 36,402
Personnel expenses 5,143 880 10,618 522 17,163
General and administrative expenses 2,699 439 3,196 431 6,765
Depreciation 633 49 606 320 1,608
Amortization of goodwill and other intangible assets 70 263 290 44 667
Total operating expenses 8,545 1,631 14,710 1,317 26,203
Business Group performance before tax
5,041 322 4,634 202 10,199
Tax expense 2,320
Net profit before minority interests
7,879
Minority interests (87 )
Net profit
7,792
Other information as at 31 December 2000²

Total assets 281,780 6,727 870,608 (71,563 ) 1,087,552
Total liabilities and minority interests 272,134 5,513 846,451 (81,379 ) 1,042,719

UBS UBS Asset UBS Corporate UBS
CHF million Switzerland Management Warburg Center Group
Income 12,761 1,369 13,241 2,010 29,381
Credit loss recovery / (expense) ² (1,071 ) 0 (333 ) 448 (956 )
Total operating income 11,690 1,369 12,908 2,458 28,425
Personnel expenses 4,691 516 7,278 92 12,577
General and administrative expenses 2,308 271 2,680 839 6,098
Depreciation 460 32 659 366 1,517
Amortization of goodwill and other intangible assets 23 113 154 50 340
Total operating expenses 7,482 932 10,771 1,347 20,532
Business Group performance before tax 4,208 437 2,137 1,111 7,893
Tax expense 1,686
Net profit before minority interests 6,207
Minority interests (54 )
Net profit 6,153
Other information as of 31 December 1999 ³
Total assets 254,577 10,451 719,568 (88,040 ) 896,556
Total liabilities 270,137 4,614 693,633 (102,436 ) 865,948

¹ The 1999 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). ² In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss expense are reported for ~~all~~each Business ~~Groups.~~Group. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the IAS actual net credit loss ~~expenses~~expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The ~~divisional~~Business Group breakdown of the net credit loss recovery ~~/ (expense)~~ for financial reporting purposes of CHF ~~(956)~~130 million for the year ended 31 December ~~1999~~2000 is as follows: UBS Switzerland CHF ~~(965)~~695 million ~~Corporate Center~~recovery, UBS Warburg CHF ~~9 million.~~ 565 million expense.
³² The funding surplus /or requirement is reflected in each Business Group and adjusted in Corporate Center.

For the year ended 31 December ~~1998~~ 1999

UBS UBS Asset UBS Corporate
CHF million Switzerland Management Warburg Center UBS Group
Income 12,884 1,369 13,118 2,010 29,381
Credit loss expense¹
(1,071 ) 0 (333 ) 448 (956 )
Total operating income 11,813 1,369 12,785 2,458 28,425
Personnel expenses 4,882 516 7,087 92 12,577
General and administrative expenses 2,450 271 2,538 839 6,098
Depreciation 475 32 644 366 1,517
Amortization of goodwill and other intangible assets 38 113 139 50 340
Total operating expenses 7,845 932 10,408 1,347 20,532
Business Group performance before tax
3,968 437 2,377 1,111 7,893
Tax expense 1,686
Net profit before minority interests
6,207
Minority interests (54 )
Net profit
6,153
Other information as at 31 December 1999²

Total assets 254,577 10,451 719,568 (88,040 ) 896,556
Total liabilities and minority interests 270,137 4,614 693,633 (102,436 ) 865,948

UBS UBS Asset UBS Corporate UBS
CHF million Switzerland Management Warburg Center Group
Income 13,958 1,358 7,691 191 23,198
Credit loss recovery / (expense) ² (1,186 ) 0 (510 ) 745 (951 )
Total operating income 12,772 1,358 7,181 936 22,247
Personnel expenses 4,448 515 4,641 212 9,816
General and administrative expenses 2,226 228 2,625 1,656 6,735
Depreciation 771 35 549 128 1,483
Amortization of goodwill and other intangible assets 4 78 173 87 342
Total operating expenses 7,449 856 7,988 2,083 18,376
Business Group performance before tax 5,323 502 (807 ) (1,147 ) 3,871
Tax expense 904
Net profit before minority interests 2,967
Minority interests 5
Net profit 2,972

¹ The 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). 2 In order to show the relevant Business Group performance over time, adjusted expected loss figures rather than the IAS actual net credit loss expense are reported for ~~all~~each Business ~~Groups.~~Group. The statistically derived adjusted expected losses reflect the inherent counterparty and country risks in the respective portfolios. The difference between the statistically derived adjusted expected loss figures and the IAS actual net credit loss ~~expenses~~expense recorded at Group level for financial reporting purposes is reported in the Corporate Center. The ~~divisional~~Business Group breakdown of the net credit loss ~~recovery / (expense)~~expense for financial reporting purposes of CHF ~~(951)~~956 million for the year ended 31 December ~~1998~~1999 is as follows: UBS Switzerland CHF ~~(445)~~965 million expense and ~~UBS Warburg~~Corporate Center CHF ~~(506) million.~~9 million recovery.
² The funding surplus or requirement is reflected in each Business Group and adjusted in Corporate Center.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3b2b Segment Reporting by Geographic Location

The geographic analysis of total assets is based on customer domicile whereas operating income and capital ~~investment~~expenditure is based on the location of the office in which the transactions and assets are recorded. Because of the global nature of financial markets the Group’s business is managed on an integrated basis worldwide, with a view to profitability by product line. The geographical analysis of operating income, total assets, and capital ~~investment~~expenditure is provided in order to comply with International Accounting Standards, and does not reflect the way the Group is managed. Management believes that analysis by Business Group, as shown in Note 3a2a to these ~~financial statements,~~Financial Statements, is a more meaningful representation of the way in which the Group is managed.

For the year ended 31 December 2001

Total operating income Total assets Capital expenditure

CHF million Share % CHF million Share % CHF million Share %
Switzerland 14,223 38 195,321 16 1,039 52
Rest of Europe 7,411 20 236,775 19 303 15
Americas 13,587 37 691,157 55 630 31
Asia / Pacific 1,859 5 126,725 10 48 2
Africa / Middle East 34 0 3,319 0 1 0
Total
37,114 100 1,253,297 100 2,021 100

For the year ended 31 December 2000



	Total operating income				Total assets				Capital investment
													Total operating income				Total assets				Capital expenditure
	CHF million		Share %		CHF million		Share %		CHF million		Share %
													CHF million		Share %		CHF million		Share %		CHF million		Share %

Switzerland		15,836		44		211,851		19		1,135		43		15,836		44		211,851		19		1,135		43
Rest of Europe		10,907		30		305,342		28		311		12		10,907		30		305,342		28		311		12
Americas		6,976		19		474,617		44		1,169		44		6,976		19		474,617		44		1,169		44
Asia / Pacific		2,626		7		87,831		8		36		1		2,626		7		87,831		8		36		1
Africa / Middle East		57		0		7,911		1		8		0		57		0		7,911		1		8		0

Total		36,402		100		1,087,552		100		2,659		100		36,402		100		1,087,552		100		2,659		100

For the year ended 31 December 1999

Total operating income Total assets Capital expenditure

CHF million Share % CHF million Share % CHF million Share %
Switzerland 14,976 52 207,702 23 1,990 70
Rest of Europe 7,626 27 303,365 34 356 13
Americas 3,861 14 281,974 31 386 14
Asia / Pacific 1,945 7 96,469 11 87 3
Africa / Middle East 17 0 7,046 1 1 0
Total
28,425 100 896,556 100 2,820 100

UBS Group Financial Statements
Notes to the Financial Statements

Income Statement

Note 3 Net Interest Income

CHF million % change from
For the year ended 31.12.01 31.12.00 31.12.99 31.12.00
Interest income

Interest earned on loans and advances¹
16,955 20,413 18,340 (17 )
Interest earned on securities borrowed and reverse repurchase agreements 18,337 19,088 11,422 (4 )
Interest and dividend income from financial investments²
453 402 244 13
Interest and dividend income from trading portfolio 16,532 11,842 5,598 40
Total 52,277 51,745 35,604 1
Interest expense

Interest on amounts due to banks and customers 14,088 15,660 13,845 (10 )
Interest on securities lent and repurchase agreements 14,517 14,915 8,446 (3 )
Interest and dividend expense from trading portfolio 7,815 5,309 2,070 47
Interest on debt issued 7,816 7,731 5,334 1
Total 44,236 43,615 29,695 1
Net interest income
8,041 8,130 5,909 (1 )

Total operating income Total assets Capital investment
CHF million Share % CHF million Share % CHF million Share %
Switzerland 14,976 52 207,702 23 1,990 70
Rest of Europe 7,626 27 303,365 34 356 13
Americas 3,861 14 281,974 31 386 14
Asia / Pacific 1,945 7 96,469 11 87 3
Africa / Middle East 17 0 7,046 1 1 0
Total 28,425 100 896,556 100 2,820 100

~~For the~~ Includes interest income from finance leasing and other interest income. All prior year ~~ended 31 December 1998~~¹

Total operating income
CHF million Share %
Switzerland 16,757 75
Rest of Europe 1,655 8
Americas 2,548 11
Asia / Pacific 1,251 6
Africa / Middle East 36 0

Total 22,247 100

¹ ~~The 1999 and 1998~~ figures have been restated ~~to reflect retroactive changes in accounting policy arising~~accordingly.

² Includes interest income from ~~newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies).~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Income Statement~~

~~Note 4 Net Interest Income~~

CHF million % change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Interest income

Interest earned on loans and advances to banks 5,615 6,105 7,687 (8 )
Interest earned on loans and advances to customers 14,692 12,077 14,111 22
Interest from finance leasing 36 49 60 (27 )
Interest earned on securities borrowed and reverse repurchase agreements 19,088 11,422 10,380 67
Interest and dividend income from financial investments 202 160 372 26
Interest and dividend income from trading portfolio 11,842 5,598 3,901 112
Other 270 193 931 40
Total 51,745 35,604 37,442 45
Interest expense

Interest on amounts due to banks 6,155 5,515 8,205 12
Interest on amounts due to customers 9,505 8,330 9,890 14
Interest on securities lent and repurchase agreements 14,915 8,446 7,543 77
Interest and dividend expense from trading portfolio 5,309 2,070 1,741 156
Interest on medium and long-term debt 7,731 5,334 5,045 45
Total 43,615 29,695 32,424 47
Net interest income
8,130 5,909 5,018 38

¹ ~~The 1999 and 1998~~money market paper available for sale which was previously disclosed as other interest income. All prior year figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies).accordingly.

Note 54 Net Fee and Commission Income


CHF million				% change from									% change from
For the year ended	31.12.00	31.12.99	31.12.98	31.12.99			31.12.01		31.12.00		31.12.99		31.12.00


Credit-related fees and commissions	310	372	559		(17	)





Security trading and investment activity fees
Underwriting fees¹	1,434	905	1,122		58
Corporate finance fees¹	1,772	1,298	1,016		37
Brokerage fees	5,792	3,934	3,670		47
Underwriting fees								2,158		1,434		905		50




Corporate finance fees								1,339		1,772		1,298		(24	)




Brokerage fees¹								6,445		5,742		3,934		12
Investment fund fees	2,821	1,915	1,778		47			4,276		2,821		1,915		52
Fiduciary fees	351	317	349		11			355		351		317		1
Custodian fees	1,439	1,583	1,386		(9	)		1,356		1,439		1,583		(6	)
Portfolio and other management and advisory fees¹	3,677	2,612	2,891		41			4,650		3,666		2,612		27
Other	50	57	110		(12	)




Insurance-related and other fees¹								538		111		57		385

Total	17,336	12,621	12,322		37
Total Security trading and investment activity fees								21,117		17,336		12,621		22

Credit-related fees and commissions								307		310		372		(1	)
Commission income from other services	802	765	776		5			946		802		765		18

Total fee and commission income	18,448	13,758	13,657		34			22,370		18,448		13,758		21

Fee and commission expense
Brokerage fees paid	1,084	795	704		36			1,281		1,084		795		18
Other	661	356	327		86			878		661		356		33

Total	1,745	1,151	1,031		52
Total fee and commission expense								2,159		1,745		1,151		24

Net fee and commission income	16,703	12,607	12,626		32			20,211		16,703		12,607		21

¹ ~~In prior periods, Corporate finance related advisory~~ Fee and commission income from insurance products now reported in Insurance-related and other fees ~~were included~~was previously reported in Brokerage fees and in Portfolio and other management and advisory fees. ~~These fees are now reported in the new disclosure line Corporate finance fees together with merger and acquisition fees which were previously reported in Underwriting and corporate finance fees.~~ All ~~previous periods~~prior year figures have been restated accordingly.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 65 Net Trading Income

Foreign exchange net trading income include gains and losses from spot and forward contracts, options, futures, and translation of foreign currency assets and liabilities, bank notes, precious metals, and commodities. Fixed income net trading income includes the results of making markets in instruments of both developed and emerging countries in government securities, corporate debt securities, money market instruments, interest rate and currency swaps, options, and other derivatives. Equities net trading income includes the results of making markets globally in equity securities and equity derivatives such as swaps, options, futures, and forward contracts.


CHF million				% change from									% change from
For the year ended	31.12.00	31.12.99¹	31.12.98¹	31.12.99			31.12.01		31.12.00		31.12.99		31.12.00


Foreign exchange	1,287	1,108	1,992		16
Foreign exchange¹								2,045		1,287		1,108		59
Fixed income	912	2,603	162		(65	)		2,731		912		2,603		199
Equities	7,754	4,008	1,159		93			4,026		7,754		4,008		(48	)

Net trading income	9,953	7,719	3,313		29			8,802		9,953		7,719		(12	)

¹ Includes other trading income such as banknotes, precious metals and commodities.

Note 6 Other Income

CHF million % change from
For the year ended 31.12.01 31.12.00 31.12.99 31.12.00
Gains / losses from disposal of associates and subsidiaries

Net gain from disposal of:
Consolidated subsidiaries 3 57 8 (95 )
Investments in associates 0 26 1,813 (100 )
Total 3 83 1,821 (96 )
Financial Investments available for sale

Net gain from disposal of:
Private equity investments 454 919 374 (51 )
Other financial investments 256 162 180 58
Impairment charges on private equity investments and other financial investments (1,294 ) (507 ) (102 ) 155
Total (584 ) 574 452
Net income from investments in property 68 96 (20 ) (29 )
Equity in income of associates 72 58 211 24
Other¹
999 675 682 48
Total other income
558 1,486 3,146 (62 )

¹ Includes income from properties held for disposal.

Note 7 ~~Net Gains from Disposal of Associates and Subsidiaries~~Personnel Expenses

CHF million % change from
For the year ended 31.12.00 31.12.99 31.12.98 31.12.99
Net gains from disposal of consolidated subsidiaries 57 8 1,149 613
Net gains/(losses) from disposal of investments in associates 26 1,813 (30) (99 )
Net gains from disposal of associates and subsidiaries 83 1,821 1,119 (95 )


CHF million							% change from
For the year ended	31.12.01		31.12.00		31.12.99		31.12.00

Salaries and bonuses		15,238		13,523		9,872		13




Contractors		729		725		886		1




Insurance and social contributions		984		959		717		3




Contribution to retirement plans		603		475		8		27




Employee share plans		103		97		151		6




Other personnel expenses		2,171		1,384		943		57

Total personnel expenses		19,828		17,163		12,577		16

While the 1999 figure represents mainly the disposal gains from our investments in Swiss Life/ Rentenanstalt and Julius Baer registered shares, the 1998 figure is mainly attributable to the disposal of the BSI — Banca della Svizzera Italiana.

UBS Group Financial Statements

Notes to the Financial Statements

Note 8 ~~Other Income~~General and Administrative Expenses

CHF million % change from
For the year ended 31.12.00 31.12.99 31.12.98 31.12.99
Investments in financial assets (debt and equity)
Net gain from disposal of private equity investments 919 374 587 146
Net gain from disposal of other financial assets 162 180 398 (10 )
Impairment charges in private equity investments and other financial assets (507 ) (102 ) (556 ) 397
Total
574 452 429 27
Investments in property
Net gain from disposal of properties held for resale 85 78 33 9
Net loss from revaluation of properties held for resale (108 ) (49 ) (106 ) 120
Net income from other properties 96 (20 ) 328
Total
73 9 255 711
Equity income from investments in associates
58 211 377 (73 )
Other
698 653 61 7
Total other income
1,403 1,325 1,122 6


CHF million							% change from
For the year ended	31.12.01		31.12.00		31.12.99		31.12.00

Occupancy		1,314		979		847		34




Rent and maintenance of machines and equipment		632		520		410		22




Telecommunications and postage		1,213		914		756		33




Administration		906		750		784		21




Marketing and public relations		574		480		335		20




Travel and entertainment		700		656		552		7




Professional fees		667		660		526		1




IT and other outsourcing		1,224		1,246		1,289		(2	)




Other		401		560		599		(28	)

Total general and administrative expenses		7,631		6,765		6,098		13

Note 9 ~~Operating Expenses~~

CHF million % change from
For the year ended 31.12.00 31.12.99 31.12.98 31.12.99
Personnel expenses

Salaries and bonuses 13,523 9,872 7,082 37
Contractors 725 886 535 (18 )
Insurance and social contributions 959 717 542 34
Contribution to retirement benefit plans 475 8 614
Employee share plans 97 151 201 (36 )
Other personnel expenses 1,384 943 842 47
Total
17,163 12,577 9,816 36
General and administrative expenses

Occupancy 979 847 822 16
Rent and maintenance of machines and equipment 520 410 390 27
Telecommunications and postage 914 756 820 21
Administration 750 784 759 (4 )
Marketing and public relations 480 335 262 43
Travel and entertainment 656 552 537 19
Professional fees 660 526 532 25
IT and other outsourcing 1,246 1,289 1,260 (3 )
Other 560 599 1,353 (7 )
Total
6,765 6,098 6,735 11
Depreciation and amortization

Property, equipment and software 1,608 1,517 1,483 6
Goodwill and other intangible assets 667 340 342 96
Total
2,275 1,857 1,825 23
Total operating expenses
26,203 20,532 18,376 28

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 10~~ Earnings per Share

% change from
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.99
Basic earnings per share calculation
Net profit for the period (CHF million) 7,792 6,153 2,972 27
Net profit for the period before goodwill amortization (CHF million)² 8,459 6,493 3,314 30
Weighted average shares outstanding:
Registered ordinary shares 433,486,003 430,497,026 429,710,128 1
Own shares to be delivered 2,058,212
Treasury shares (32,514,906 ) (25,754,544 )³ (24,487,833 )³ 26
Weighted average shares for basic earnings per share 403,029,309 404,742,482 405,222,295 0
Basic earnings per share (CHF)
19.33 15.20 7.33 27
Basic earnings per share before goodwill amortization (CHF)² 20.99 16.04 8.18 31
Diluted earnings per share calculation
Net profit for the period (CHF million) 7,778⁵ 6,153 2,972 26
Net profit for the period before goodwill amortization (CHF million)² 8,445⁵ 6,493 3,314 30
Weighted average shares for basic earnings per share 403,029,309 404,742,482 405,222,295 0
Potential dilutive ordinary shares resulting from outstanding options, warrants and convertible debt securities⁶ 5,496,591 3,632,670⁴ 7,658,746⁴ 51
Weighted average shares for diluted earnings per share 408,525,900 408,375,152 412,881,041 0
Diluted earnings per share (CHF) 19.04 15.07 7.20 26
Diluted earnings per share before goodwill amortization (CHF)² 20.67 15.90 8.03 30

¹ ~~The 1999~~ (EPS) and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). Outstanding Shares


CHF million									% change from
For the year ended	31.12.01			31.12.00			31.12.99		31.12.00

Earnings (CHF million)




Net profit		4,973			7,792			6,153		(36	)




Net profit before goodwill amortization¹		6,296			8,459			6,493		(26	)




Net profit for diluted EPS		4,874	²		7,778	²		6,153		(37	)




Net profit before goodwill amortization for diluted EPS¹		6,197	²		8,445	²		6,493		(27	)









Weighted average shares outstanding

Weighted average shares outstanding		1,266,038,193			1,209,087,927			1,214,227,446		5




Potentially dilutive ordinary shares resulting from outstanding options, warrants and convertible debt securities³		22,539,745			16,489,773			10,898,010		37

Weighted average shares outstanding for diluted EPS		1,288,577,938			1,225,577,700			1,225,125,456		5









Earnings per share (CHF)

Basic EPS		3.93			6.44			5.07		(39	)




Basic EPS before goodwill amortization¹		4.97			7.00			5.35		(29	)




Diluted EPS		3.78			6.35			5.02		(40	)




Diluted EPS before goodwill amortization¹		4.81			6.89			5.30		(30	)

²¹ ~~The~~Excludes amortization of goodwill and other intangible ~~assets is excluded from this calculation.~~ assets.

³ Treasury shares have increased by 11,371,720 and by 18,372,661 for the periods ended 31 December 1999 and 31 December 1998, due to a change in accounting policy (see Note 1: Summary of Significant Accounting Policies). ⁴ Share amount has been adjusted by 1,414,114 and by 5,371,922 representing other potentially dilutive instruments for the periods ended 31 December 1999 and 31 December 1998, due to a change in accounting policy (see Note 1: Summary of Significant Accounting Policies). ⁵² Net profit has been adjusted for the dilutive impact of own equity derivative ~~activity in accordance with International Accounting Standards.~~ activity.

⁶³ Total equivalent shares outstanding on options that were not dilutive for the respective periods but could potentially dilute earnings per share in the future were ~~9,174,760, 24,045,261~~28,741,886, 27,524,280 and ~~11,367,184~~72,135,783 for the years ended 31 December 2001, 31 December 2000 and 31 December 1999, ~~and 31 December 1998,~~ respectively.

~~1999~~


Shares outstanding								% change from
As at		31.12.01		31.12.00		31.12.99		31.12.00

Total ordinary shares issued			1,281,717,499		1,333,139,187		1,292,679,486		(4	)




Own shares to be delivered					28,444,788




Second trading line treasury shares




	(2000 program)				55,265,349




	(2001 program)		23,064,356




Other treasury shares			18,190,595		0		110,621,142

Total treasury shares			41,254,951		55,265,349		110,621,142		(25	)

Outstanding shares			1,240,462,548		1,306,318,626		1,182,058,344		(5	)

All shares and ~~1998~~earnings per share figures ~~are~~have been restated for the ~~two-for-one~~3 for 1 share split ~~effective 8 May 2000.~~

which took place on 16 July 2001.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Balance Sheet: Assets

Note ~~11 Money Market Paper~~

CHF million 31.12.00 31.12.99
Government treasury notes and bills 22,551 32,724
Money market placements 43,477 36,540
Other bills and cheques 426 453
Total money market paper
66,454 69,717
thereof eligible for discount at central banks
60,689 64,671

~~Note 12a~~10a Due from Banks and Loans to Customers

~~The composition of Due from banks, the Loan portfolio and the Allowance for credit losses by~~By type of exposure ~~at the end of the year was as follows:~~


CHF million	CHF million	31.12.00			31.12.99			CHF million	31.12.01			31.12.00


Banks	Banks		30,064			30,785		Banks		28,261			30,064
Allowance for credit losses	Allowance for credit losses		(917	)		(878	)	Allowance for credit losses		(735	)		(917	)

Net due from banks	Net due from banks		29,147			29,907		Net due from banks		27,526			29,147

Loans to customers	Loans to customers							Loans to customers
	Mortgages		120,554			127,987		Mortgages		126,211			120,554
	Other loans		133,898			119,242		Other loans		107,512			133,898

Subtotal	Subtotal		254,452			247,229		Subtotal		233,723			254,452
Allowance for credit losses	Allowance for credit losses		(9,610	)		(12,371	)	Allowance for credit losses		(7,178	)		(9,610	)

Net loans to customers	Net loans to customers		244,842			234,858		Net loans to customers		226,545			244,842

Net due from banks and loans to customers	Net due from banks and loans to customers		273,989			264,765		Net due from banks and loans to customers		254,071			273,989

thereof subordinated	thereof subordinated		393			86		thereof subordinated		*249*			393

~~The composition of Due from banks and Loans to customers by~~By geographical region ~~based~~ (based on the location of the ~~borrower at the end of the year was as follows:~~borrower)


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Switzerland		164,645			183,944			158,996			164,645
Rest of Europe		46,882			44,796			42,279			46,882
Americas		52,939			31,285			42,809			52,939
Asia / Pacific		16,504			13,451			15,986			16,504
Africa / Middle East		3,546			4,538			1,914			3,546

Subtotal		284,516			278,014			261,984			284,516
Allowance for credit losses		(10,527	)		(13,249	)		(7,913	)		(10,527	)

Net due from banks and loans to customers		273,989			264,765			254,071			273,989

~~The composition of Due from banks and Loans to customers by~~By type of collateral ~~at the end of the year was as follows:~~


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Secured by real estate		122,898			130,835			128,259			122,898
Collateralized by securities		37,714			19,061			30,635			37,714
Guarantees and other collateral		28,373			28,725			20,217			28,373
Unsecured		95,531			99,393			82,873			95,531

Subtotal		284,516			278,014			261,984			284,516
Allowance for credit losses		(10,527	)		(13,249	)		(7,913	)		(10,527	)

Net due from banks and loans to customers		273,989			264,765			254,071			273,989

UBS Group Financial Statements

Notes to the Financial Statements

Note ~~12b Allowance~~10b Allowances and ~~Provision~~Provisions for Credit Losses


				Country risk
	Specific			allowances			Total			Total
CHF million	allowances			and provisions			31.12.01			31.12.00

Balance at the beginning of the year		9,289			1,292			10,581			13,398




Write-offs		(2,967	)		(41	)		(3,008	)		(2,995	)




Recoveries		81			0			81			163




Increase / (decrease) in credit loss allowance and provision		756			(258	)		498			(130	)




Foreign currency translation and other adjustments		53			13			66			145

Balance at the end of the year		7,212			1,006			8,218			10,581

CHF million								31.12.01			31.12.00

As a reduction of Due from banks								735			917




As a reduction of Loans to customers								7,178			9,610

Subtotal								7,913			10,527




Included in other liabilities related to commitments and contingent liabilities								305			54

Total allowances and provisions for credit losses								8,218			10,581

~~The allowance and provision for credit losses developed~~Note 10c Impaired Loans

A loan is classified as ~~follows:~~

��
Country risk
Specific allowance and Total Total
CHF million allowance provision 31.12.00 31.12.99
Balance at the beginning of the year 12,022 1,376 13,398 14,978
Write-offs (2,963 ) (32 ) (2,995 ) (3,275 )
Recoveries 150 13 163 65
Increase / (decrease) in credit loss allowance and provision (49 ) (81 ) (130 ) 956
Net foreign exchange and other adjustments 129 16 145 674
Balance at the end of the year
9,289 1,292 10,581 13,398

Atimpaired if the ~~end~~book value of the ~~year~~claim exceeds the ~~aggregate allowances~~present value of the cash flows actually expected in future periods – interest payments, scheduled principal repayments and ~~provisions were apportioned~~including liquidation of collateral. Impaired obligations are thus obligations where losses are probable and ~~displayed as follows:~~

CHF million 31.12.00 31.12.99
As a reduction of Due from banks 917 878
As a reduction of Loans to customers 9,610 12,371
Subtotal 10,527 13,249
Included in other liabilities related to commitments and contingent liabilities 54 149
Total allowance and provision for credit losses
10,581 13,398

~~Note 12c Impaired Loans~~

~~UBS classifies a loan as impaired when there is a probability of incurring a partial or full loss.~~estimable. A provision is then made with respect to the loan in question.


CHF million	31.12.01		31.12.00

Impaired loans^{1, 2}		14,629		18,494




Amount of allowance for credit losses related to impaired loans		7,294		9,685




Average impaired loans³		16,555		20,804

~~The impaired loans were as follows:~~

CHF million 31.12.99 31.12.00
Impaired loans ^{1, 2}
18,494 22,456
Amount of allowance for credit losses related to impaired loans 9,685 12,471
Average impaired loans ³
20,804 24,467

¹ ~~All impaired loans have a specific allowance for credit losses.~~ ² ~~Interest income on impaired loans is immaterial.~~ ³ ~~Average balances were calculated from quarterly data.~~

¹		All impaired loans have a specific allowance for credit losses.




²		Interest income on impaired loans was CHF 504 million for 2001.




³		Average balances were calculated from quarterly data.

100

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note ~~12d~~10d Non-Performing Loans

When principal, interest or commission are overdue by 90 days, loans are classified as non-performing, the recognition of interest or commission income ceases ~~and a charge is recognized against income for~~according to the ~~unpaid interest or commission receivable.~~original terms of the loan agreement. Allowances are provided for non-performing loans to reflect their net estimated recoverable amount. ~~Unrecognized interest related to such loans totalled CHF 182 million for the year ended 31 December 2000 and CHF 409 million for the year ended 31 December 1999.~~


CHF million	31.12.01		31.12.00

Non-performing loans		8,639		10,452




Amount of allowance for credit losses related to non-performing loans		5,374		6,329	¹

Average non-performing loans²		9,648		11,884

~~The non-performing loans were as follows:~~

CHF million 31.12.00 31.12.99
Non-performing loans 10,452 13,073
Amount of allowance for credit losses related to non-performing loans 6,850 8,661
Average non-performing loans ¹
11,884 14,615

¹ ~~Average balances were calculated from quarterly data.~~

¹		31 December 2000 figure has been restated to account for an overallocation of allowances to non-performing loans.




²		Average balances are calculated from quarterly data.

~~An analysis of changes in non-performing loans is presented in the following table:~~


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Non-performing loans at the beginning of the year		13,073			16,113
Net reductions		(290	)		(638	)
Non-performing loans at beginning of year								10,452			13,073




Net additions / (reductions)								1,111			(290	)
Write-offs and disposals		(2,331	)		(2,402	)		(2,924	)		(2,331	)

Non-performing loans at the end of the year		10,452			13,073			8,639			10,452

~~The non-performing loans by~~By type of exposure ~~were as follows:~~


CHF million	CHF million	31.12.00		31.12.99		CHF million	31.12.01		31.12.00


Banks	Banks		172		499	Banks		386		172

Loans to customers	Loans to customers					Loans to customers
	Mortgages		4,586		7,105	Mortgages		2,659		4,586
	Other		5,694		5,469	Other		5,594		5,694

Total loans to customers	Total loans to customers		10,280		12,574	Total loans to customers		8,253		10,280

Total non-performing loans	Total non-performing loans		10,452		13,073	Total non-performing loans		8,639		10,452

~~The non-performing loans by~~By geographical region ~~based~~ (based on the location of the ~~borrower were as follows:~~borrower)


CHF million	31.12.00		31.12.99		31.12.01		31.12.00


Switzerland		7,588		11,435		6,531		7,588
Rest of Europe		342		223		466		342
Americas		1,865		697		737		1,865
Asia / Pacific		307		373		653		307
Africa / Middle East		350		345		252		350

Total non-performing loans		10,452		13,073		8,639		10,452

101

UBS Group Financial Statements

Notes to the Financial Statements

Note 1311 Securities Borrowing, Securities Lending, Repurchase

and Reverse Repurchase Agreements and Other Collateralized Transactions

The Group enters into collateralized reverse repurchase and repurchase agreements and securities borrowing and securities lending transactions that may result in credit exposure in the event that the counterparty to the transaction is unable to fulfill its contractual obligations. The Group minimizes credit risk associated with these activities by monitoring counterparty credit exposure and collateral values on a daily basis and requiring additional collateral to be deposited with or returned to the Group when deemed necessary.

~~The following table presents cash collateral received and paid under securities lending, repurchase agreements, securities borrowing and reverse repurchase agreements.~~


	Securities		Securities		Securities		Securities		Securities		Securities		Securities		Securities
	borrowed		lent		borrowed		lent		borrowed		lent		borrowed		lent
CHF million	31.12.00		31.12.00		31.12.99		31.12.99		31.12.01		31.12.01		31.12.00		31.12.00


Cash collateral by counterparties
Cash collateral by counterparty
Banks		159,619		18,291		99,810		8,926		155,214		27,640		159,619		18,291
Customers		18,238		5,127		13,352		3,906		7,724		2,677		18,238		5,127

Total cash collateral on securities borrowed and lent		177,857		23,418		113,162		12,832		162,938		30,317		177,857		23,418


	Reverse				Reverse				Reverse				Reverse
	repurchase		Repurchase		repurchase		Repurchase		repurchase		Repurchase		repurchase		Repurchase
	agreements		agreements		agreements		agreements		agreements		agreements		agreements		agreements
CHF million	31.12.00		31.12.00		31.12.99¹		31.12.99¹		31.12.01		31.12.01		31.12.00		31.12.00


Agreements by counterparties
Agreements by counterparty
Banks		144,505		175,421		93,104		125,054		197,902		213,942		144,505		175,421
Customers		49,296		120,092		39,287		71,860		71,354		154,678		49,296		120,092

Total repurchase and reverse repurchase agreements		193,801		295,513		132,391		196,914		269,256		368,620		193,801		295,513

Under reverse repurchase, securities borrowing, and other collateralized arrangements, the Group obtains securities on terms which permit it to repledge or resell the securities to others. At 31 December ~~2000,~~2001, the Group held CHF 593 billion (CHF 478 billion at 31 December 2000) of securities on such terms, CHF 475 billion (CHF 407 billion at 31 December 2000) of which have been either pledged or otherwise transferred to others in connection with its financing activities or to satisfy its commitments under short sale transactions.

102

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 14 Trading Portfolio~~

~~Trading assets and liabilities are carried at fair value. The following table presents the carrying value of trading assets and liabilities at the end of the reporting period.~~

CHF million 31.12.00 31.12.99¹
Trading portfolio assets

Debt instruments

Swiss government and government agencies 1,104 7,391
US Treasury and government agencies 19,769 21,816
Other government 33,222 65,804
Corporate listed instruments 64,514 13,420
Other unlisted instruments 26,583 8,322
Total
145,192 116,753
Equity instruments

Listed instruments 102,571 87,089
Unlisted instruments 2,320 2,963
Total
104,891 90,052
Precious metals
3,213 5,127
Total trading portfolio assets
253,296 211,932
Trading portfolio liabilities

Debt instruments

Swiss government and government agencies 439 0
US Treasury and government agencies 13,645 24,535
Other government 5,070 11,917
Corporate listed instruments 31,905 6,502
Other unlisted instruments 192 9
Total
51,251 42,963
Listed equity instruments
31,381 11,675
Total trading portfolio liabilities
82,632 54,638

Note 12 Trading Portfolio


CHF million	31.12.01		31.12.00

Trading portfolio assets




Money market paper¹		63,164		62,292





Debt instruments




Swiss government and government agencies		1,246		1,104




US Treasury and government agencies		95,203		19,769




Other government		18,811		33,222




Corporate listed instruments		108,114		64,514




Other unlisted instruments²		32,781		26,583

Total		256,155		145,192

thereof pledged as collateral		*153,464*		63,071




thereof can be repledged or resold by the counterparty		*101,517*		49,687

Equity instruments




Listed instruments		67,772		102,571




Unlisted instruments		6,367		2,320

thereof pledged as collateral		*21,264*		8,683




thereof can be repledged or resold by the counterparty		*19,939*		9,761

Total		74,139		104,891

Precious metals		4,428		3,213

Total trading portfolio assets		397,886		315,588

Trading portfolio liabilities




Debt instruments




Swiss government and government agencies		565		439




US Treasury and government agencies		25,117		13,645




Other government		12,187		5,070




Corporate listed instruments		10,868		31,905




Other unlisted instruments		30,793		192

Total		79,530		51,251

Equity instruments		26,268		31,381

Total trading portfolio liabilities		105,798		82,632

¹ CHF 29,895 million is pledged with central banks (CHF 28,395 million at 31 December 2000).
² Includes CHF 6,139 million of traded loans reclassified to trading portfolio assets at 31 December 2001, upon the adoption of IAS 39. The amounts at 31 December 2000
have not been restated.

The Group trades money market paper, debt, equity, precious metals, foreign currency and derivatives to meet the financial needs of its customers and to generate revenue through its trading activities. Note 2624 provides a description of the various classes of derivatives together with the related ~~volumes used in the Group’s trading activities,~~notional amounts, whereas ~~Note 13~~Note11 provides further details about cash collateral on securities borrowed and lent and repurchase and reverse repurchase agreements.

Included in total trading portfolio assets above are CHF 59 billion of securities pledged to others under terms which permit the counterparty to sell or repledge and CHF 12 billion of securities pledged to others under terms which do not permit the counterparty to resell or repledge.

103

UBS Group Financial Statements

Notes to the Financial Statements

Note 1513 Financial Investments

Due to the adoption of IAS 39, Financial investments, available for sale, are reported at fair value from 1 January 2001. 31 December 2000 amounts have not been restated.

CHF million

31.12.00

31.12.99

31.12.01

31.12.00

Money market paper

6,774

4,162

Debt instruments

Listed

1,403

1,357

1,194

1,403

Unlisted

4,803

609

10,348

4,803

Total

6,206

1,966

11,542

6,206

Equity investments

Listed

1,119

356

1,949

1,119

Unlisted

1,438

557

1,819

1,438

Total

2,557

913

3,768

2,557

Private equity investments

6,658

3,001

6,719

6,658

Properties held for resale

984

1,159

Total financial investments

16,405

7,039

28,803

19,583

thereof eligible for discount at central banks

381

563

10,370

381

The following table gives additional disclosure in respect of the valuation methods ~~used.~~used in 2000.


	Book value		Fair value		Book value		Fair value		Book Value		Fair Value
CHF million	31.12.00		31.12.00		31.12.99		31.12.99		31.12.00		31.12.00¹

Valued at fair value




Money market paper										4,162		4,162

Valued at amortized cost
Debt instruments		5,851		5,853		677		687		5,851		5,853

Valued at the lower of cost or market value
Debt instruments		355		367		1,289		1,314		355		367
Equity instruments		2,557		3,031		913		939		2,557		3,031
Properties held for resale		984		1,150		1,159		1,194

Total		3,896		4,548		3,361		3,447		2,912		3,398

Valued at cost less adjustments for impairments
Private equity investments		6,658		7,940		3,001		4,146		6,658		7,940

Total financial investments		16,405		18,341		7,039		8,280		19,583		21,353

¹ This column is presented for comparison purposes only and does not reflect amounts recorded in the Financial Statements.

104

Note 1613 Financial Investments (continued)

Unrealized gains Unrealized losses
not recognized not recognized
in the income statement in the income statement

CHF million Fair value Gross Tax effect Net Gross Tax effect Net
31 December 2001

Money market paper 6,774 1 0 1 0 0 0
Debt securities issued by the Swiss national government and agencies 36 1 0 1 0 0 0
Debt securities issued by Swiss local governments 45 1 0 1 0 0 0
Debt securities issued by US Treasury and agencies 32 2 1 1 0 0 0
Debt securities issued by foreign governments and official institutions 10,089 31 11 20 1 0 1
Corporate debt securities 1,218 4 1 3 2 1 1
Mortgage-backed securities 5 0 0 0 0 0 0
Other debt securities 117 0 0 0 0 0 0
Equity securities 3,768 627 206 421 65 19 46
Private equity investments 6,719 1,189 28 1,161 539 13 526
Total
28,803 1,856 247 1,609 607 33 574

Contractual maturities of the investments in ~~Associates~~debt instruments

Carrying Carrying
amount amount
at Change in at
31.12.99 Additions Disposal¹ Income Write-offs equity 31.12.00
CHF million
Total investments in associates
1,102 65 (287 ) 62 (4 ) (58 ) 880


	Within 1 year				1–5 years				5–10 years				Over 10 years

CHF million, except percentages	Amount		Yield (%)		Amount		Yield (%)		Amount		Yield (%)		Amount		Yield (%)

31 December 2001




Swiss national government and agencies		9		5.26		10		4.50		16		3.43		1		4.00




Swiss local governments		3		4.36		38		3.90		4		3.59		0		0.00




US Treasury and agencies		0		0.00		24		4.38		8		5.15		0		0.00




Foreign governments and official institutions		5,014		0.97		5,048		1.01		27		2.88		0		0.00




Corporate debt securities		63		4.53		1,102		4.59		30		3.22		23		15.37	¹




Mortgage-backed securities		0		0.00		5		5.41		0		0.00		0		0.00




Other debt securities		2		4.77		87		3.91		28		3.56		0		0.00

Total fair value		5,091				6,314				113				24

¹ The ~~figure~~yield presented is the current contractual yield based on current market rates at 31 December 2001, but may not represent the yield through maturity since this is a floating rate debt instrument.

Proceeds from sales and maturities of ~~CHF 287 million~~investment securities available for ~~disposals for~~sale during the year ended 31 December ~~2000 primarily consists~~2001 were CHF 27,910 million. Gross gains of ~~disposal~~CHF 223 million and gross losses of ~~a stake~~CHF 28 million were realized on those sales in ~~National Versicherung AG.~~

2001.

105

UBS Group Financial Statements

Notes to the Financial Statements

Note 14 Investments in Associates


CHF million	31.12.01			31.12.00

Carrying amount at the beginning of the year		880			1,102




Additions		11			65




Disposals		(216	)²		(287	)¹




Income		74			62




Write-offs		(2	)		(4	)




Change in equity		(50	)		(58	)

Carrying amount at the end of the year		697			880

¹ Primarily consists of disposal of an investment in National Versicherung AG.
² Includes a transfer of CHF 172 million to Financial Investments following a review of the level of influence by the bank over certain investees. The impact of this reclassification on net profit is immaterial.

Note 1715 Property and Equipment


							IT, soft-			Other															IT, soft-			Other
	Bank						ware and			machines									Bank						ware and			machines
	occupied			Investment			communi-			and									occupied			Investment			communi-			and
CHF million	properties			properties			cation			equipment			31.12.00			31.12.99			properties			properties5			cation			equipment			31.12.01			31.12.00


Historical cost
Balance at the beginning of the year		9,085			2,006			3,321			2,798			17,210			18,505			8,807			1,830			4,257			3,737			18,631			17,210
Additions		233			138			1,032			237			1,640			1,813			222			148			919			728			2,017			1,640
Additions from acquired companies		0			0			201			818			1,019			755			0			0			4			0			4			1,019
Disposals		(224	)		(176	)		(279	)		(90	)		(769	)		(4,333	)
Reclassifications ¹		(287	)		(145	)		0			0			(432	)		0




Disposals¹																				(179	)		(132	)		(184	)		(220	)		(715	)		(769	)




Reclassifications²																				447			(959	)		144			(114	)		(482	)		(432	)
Foreign currency translation		0			7			(18	)		(26	)		(37	)		470			0			6			6			12			24			(37	)
Balance at the end of the year		8,807			1,830			4,257			3,737			18,631			17,210			9,297			893			5,146			4,143			19,479			18,631

Accumulated depreciation
Balance at the beginning of the year		3,625			539			2,416			1,929			8,509			8,619			3,840			550			3,074			2,257			9,721			8,509
Depreciation ²		395			119			952			419			1,885			2,105
Disposals		(84	)		(31	)		(268	)		(70	)		(453	)		(2,500	)
Reclassifications ¹		(97	)		(79	)		0			0			(176	)		0




Depreciation³																				262			13			933			446			1,654			1,885




Disposals¹																				(162	)		(40	)		(76	)		(125	)		(403	)		(453	)




Reclassifications²																				97			(286	)		0			0			(189	)		(176	)
Foreign currency translation		1			2			(26	)		(21	)		(44	)		285			2			2			1			(4	)		1			(44	)
Balance at the end of the year		3,840			550			3,074			2,257			9,721			8,509			4,039			239			3,932			2,574			10,784			9,721

Net book value at the end of the year ³		4,967			1,280			1,183			1,480			8,910			8,701
Net book value at the end of the year⁴																				5,258			654			1,214			1,569			8,695			8,910

¹ ~~Properties held for sale of CHF 256 million (CHF 432 million acquisition costs and CHF 176 million accumulated depreciation) have been reclassified to Note 15 Financial Investments.~~ ² ~~Depreciation of CHF 1,885 million includes CHF 277 million that was charged against the restructuring provision.~~ ³ ~~Fire insurance value of property and equipment is CHF 14,570 million (1999: CHF 15,004 million).~~

~~Note 18 Goodwill and other Intangible Assets~~

Other
intangible
CHF million Goodwill assets 31.12.00 31.12.99
Historical cost

Balance at the beginning of the year 4,229 305 4,534 3,000
Additions 12,939 4,902 17,841 1,467
Write-offs (16 ) 0 (16 ) (192 )
Reclassifications (41 ) 41 0 (88 )
Foreign currency translation (839 ) (354 ) (1,193 ) 347
Balance at the end of the year 16,272 4,894 21,166 4,534
Accumulated amortization

Balance at the beginning of the year 951 40 991 790
Amortization 533 134 667 340
Write-offs (16 ) 0 (16 ) (183 )
Reclassifications (16 ) 16 0 (2 )
Foreign currency translation (7 ) (6 ) (13 ) 46
Balance at the end of the year 1,445 184 1,629 991
Net book value at the end of the year
14,827 4,710 19,537 3,543

¹		Includes write-offs of fully depreciated assets.




²		Properties held for resale and foreclosed properties have been reclassified (see Note1: Summary of significant accounting policies).




³		Depreciation of CHF 1,654 million at 31 December 2001 and CHF 1,885 million at 31 December 2000 includes CHF 40 million in 2001 and CHF 277 million in 2000 which were charged against the UBS / SBC restructuring provision.




⁴		Fire insurance value of property and equipment is CHF 15,531 million (2000: CHF 14,570 million).




⁵		At 31 December 2001 the fair value of Investment properties was CHF 990 million.

106

Note 16 Goodwill and Other Intangible Assets


				Other
				intangible
CHF million	Goodwill			assets			31.12.01			31.12.00

Historical cost




Balance at the beginning of the year		16,272			4,894			21,166			4,534




Additions		454			2			456			17,841




Write-offs¹		(232	)		(15	)		(247	)		(16	)




Foreign currency translation		325			92			417			(1,193	)




Balance at the end of the year		16,819			4,973			21,792			21,166

Accumulated amortization




Balance at the beginning of the year		1,445			184			1,629			991




Amortization		1,025			298			1,323			667




Write-offs¹		(232	)		(15	)		(247	)		(16	)




Foreign currency translation		3			(1	)		2			(13	)




Balance at the end of the year		2,241			466			2,707			1,629

Net book value at the end of the year		14,578			4,507			19,085			19,537

¹ Represents write-offs of fully amortized goodwill and other intangible assets.

A significant portion of the Goodwill and other intangible assets relates to the acquisition of Paine Webber Group, Inc. For more information, please refer to Note 37.

Note 17 Other Assets


CHF million	Note		31.12.01		31.12.00

Deferred tax assets		22		3,449		2,208




Settlement and clearing accounts				1,431		3,153




VAT and other tax receivables				452		419




Prepaid pension costs				567		405




Properties held for resale				844		984




Other receivables				3,132		2,322

Total other assets				9,875		9,491

107

UBS Group Financial Statements

Notes to the Financial Statements

~~Note 19 Other Assets~~

CHF million Note 31.12.00 31.12.99
Deferred tax assets 24 2,208 742
Settlement and clearing accounts 3,153 4,911
VAT and other tax receivables 419 702
Prepaid pension costs 405 456
Other receivables 2,322 4,196
Total other assets
8,507 11,007

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Balance Sheet: Liabilities

Note 2018 Due to Banks and Customers


CHF million	31.12.00	31.12.99	31.12.01		31.12.00


Due to banks	82,240	76,365		106,531		82,240

Due to customers in savings and investment accounts	68,213	78,640		67,782		68,213
Amounts due to customers on demand and time	242,466	201,320




Other amounts due to customers				265,999		242,466

Total due to customers	310,679	279,960		333,781		310,679

Total due to banks and customers	392,919	356,325		440,312		392,919

Note ~~21 Long-Term~~19 Debt Issued

The Group issues both CHF and non-CHF denominated fixed and floating rate debt. ~~Publicly placed fixed rate debt pays interest at rates up to 21.5% including structured note issues.~~ Floating rate debt pays interest based on the three-month or six-month London Interbank Offered Rate ~~“LIBOR”~~(LIBOR).

Subordinated debt securities are unsecured obligations of the Group and are subordinated in right of payment to all present and future senior indebtedness and certain other obligations of the Group. At 31 December ~~2000~~2001 and 31 December ~~1999,~~2000, the Group had CHF ~~13,018~~14,598 million and CHF ~~13,106~~14,233 million, respectively, in subordinated ~~debt excluding convertible and exchangeable debt and notes with warrants which have been included in the following paragraph.~~debt. Subordinated debt usually pays interest annually and provides for single principal payments upon maturity. At 31 December ~~2000~~2001 and 31 December ~~1999,~~2000, the Group had CHF ~~40,428~~42,613 million and CHF ~~41,093~~40,622 million, respectively, in unsubordinated ~~debt.~~debt (excluding money market paper).

The Group issues debt with returns linked to equity, foreign exchange and credit instruments or indices. As described in Note 1r), derivatives embedded in these instruments are separated from the host debt contract and reported as stand alone derivatives. The amount recorded within Debt issued represents the host contract after the separation of the embedded derivative. At 31 December 2001 and 31 December 2000, the Group had CHF 1,397 million and CHF 1,380 million, respectively, in convertible ~~obligations that can be exchanged for common stock of~~and exchangeable debt on UBS AGshares and notes with warrants attached on UBS ~~AG shares. Furthermore,~~shares outstanding.

In addition the Group ~~issues notes exchangeable into common stock or preferred stock~~uses interest rate and foreign exchange derivatives to manage the risk inherent in certain debt issues. In the case of ~~other companies, or repaid~~interest rate risk management, the Group applies hedge accounting as discussed in Note 1 – Summary of Significant Accounting Policies and Note 24 – Derivative Instruments. As a result of applying hedge accounting, the carrying value of Debt issued has increased by CHF 220 million to reflect changes in fair value due to interest rate risk.


CHF million	31.12.01		31.12.00

Money market paper issued		99,006		74,780




Total bond issues		51,061		48,179




Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions		934		1,305




Medium-term notes		5,217		5,371

Total debt issued		156,218		129,635

108

Note 19 Debt Issued (continued)

Contractual maturity date


	UBS AG (Parent Bank)				Subsidiaries

	Fixed		Floating		Fixed		Floating		Total
CHF million	rate		rate		rate		rate		31.12.01

2002		64,596		1,503		48,161		1,779		116,039




2003		6,287		887		1,461		125		8,760




2004		2,661		778		1,451		1,164		6,054




2005		3,119		1,041		700		227		5,087




2006		3,343		1,833		1,242		635		7,053




2007–2009		2,930		592		2,353		1,708		7,583




Thereafter		2,581		984		1,387		690		5,642

Total		85,517		7,618		56,755		6,328		156,218

The table above shows the split between fixed and floating rate debt issues based on the ~~performance of an index or group of securities. At 31 December 2000 and 31 December 1999,~~contractual terms. However, it should be noted that the Group ~~had CHF 1,409 million~~uses interest rate swaps to hedge many of the fixed rate debt issues, which changes their re-pricing characteristics into that of floating rate debt.

The table below shows the notional amount and ~~CHF 2,133 million, respectively, in convertible and exchangeable~~stated interest rate on the Group’s publicly placed bonds prior to the separation of any embedded derivatives or the application of hedge accounting. As a result, the notional amount shown does not necessarily correspond to the carrying amount of the debt and ~~notes with warrants attached outstanding.~~

~~The~~the stated interest rate on the debt does not necessarily refelect the effective interest rate the Group ~~as part~~is paying to service its debt after the separation of ~~its interest-rate risk management process, utilizes derivative instruments to modify~~embedded derivatives and the ~~repricing characteristics~~application of ~~the notes/ bonds issued. The Group also utilizes other derivative instruments to manage the foreign exchange impact of certain long-term debt obligations.~~

The Group issues credit-linked notes generally through private placements. The credit-linked notes are usually senior unsecured obligations of UBS AG, acting through one of its branches, and can be subject to early redemption in the event of a defined credit event. Payment of interest and/ or principal is dependent upon the performance of a reference entity or security. The rate of interest on each credit-linked note is either floating and determined by reference to LIBOR plus a spread or fixed. Medium-term and credit-linked notes have been included in the amounts disclosed above as unsubordinated debt.

CHF million 31.12.00 31.12.99
Total bond issues 48,179 48,305
Shares in bond issues of the Swiss Regional or Cantonal Banks’ Central Bond Institutions 1,305 2,055
Medium-term notes 5,371 5,972
Total long-term debt
54,855 56,332

hedge accounting.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 21 Long-Term Debt (continued)~~

~~Contractual maturity date~~
UBS AG (parent) Subsidiaries
Fixed Floating Fixed
CHF million rate rate rate
2001 13,021 251 2,033
2002 7,645 153 2,407
2003 4,232 135 1,275
2004 1,327 8 1,261
2005 3,463 81 664
2006 – 2010 5,888 107 1,923
Thereafter 3,150 55 1,214
Total
38,726 790 10,777

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

bsidia ries
Floating Total
CHF million rate 31.12.00
2001 373 15,678
2002 889 11,094
2003 19 5,661
2004 1,836 4,432
2005 249 4,457
2006 – 2010 1,173 9,091
Thereafter 23 4,442

Total
4,562 54,855

Publicly placed bond issues of UBS AG ~~(parent company)~~(Parent Bank) outstanding as at ~~31.12.2000~~31.12.2001¹
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
1999 10.250 12.01.2001 EUR
1996 3.000 07.02.2001 USD
1999 10.000 12.02.2001 CHF
1999 12.250 15.02.2001 GBP
1999 14.100 27.02.2001 SEK
1999 12.000 29.03.2001 GBP
1999 11.000 30.03.2001 USD
1996 3.625 10.04.2001 CHF
1991 5.000 15.04.2001 CHF
1998 7.500 11.05.2001 CHF
1998 7.500 11.05.2001 CHF
1998 7.000 18.05.2001 CHF
1999 12.500 06.06.2001 GBP
1999 5.250 14.06.2001 CHF
1999 10.750 15.06.2001 EUR
2000 17.750 05.07.2001 EUR
1999 11.000 06.07.2001 EUR
1998 7.500 10.07.2001 CHF
1998 7.500 10.07.2001 CHF
2000 21.500 12.07.2001 EUR
1993 5.125 15.07.2001 CHF
1997 1.750 25.07.2001 USD
2000 17.000 30.07.2001 EUR
1998 8.000 03.08.2001 CHF
2000 15.500 06.08.2001 EUR
2000 14.250 10.08.2001 USD
1998 8.000 17.08.2001 CHF
1998 8.000 17.08.2001 CHF
2000 15.500 24.08.2001 EUR
2000 17.500 24.08.2001 EUR
2000 15.750 03.09.2001 EUR
1991 7.000 subordinated 04.09.2001 CHF
2000 15.000 06.09.2001 USD
1994 5.375 07.09.2001 CHF
2000 17.000 10.09.2001 EUR
2000 16.500 25.09.2001 EUR
2000 16.250 04.10.2001 EUR
1999 8.500 05.10.2001 CHF
2000 14.500 11.10.2001 EUR
2000 8.750 11.10.2001 CHF
2000 15.000 19.10.2001 USD

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
1999 160 ¹
1996 100
1999 375 ²
1999 20 ³
1999 193 ⁴
1999 10 ⁵
1999 10 ⁶
1996 400
1991 60
1998 60 ⁷
1998 801 ⁷
1998 738 ⁸
1999 10 ⁹
1999 410 ¹⁰
1999 50 ¹¹
2000 100 ¹²
1999 40 ¹³
1998 372 ¹⁰
1998 40 ¹⁰
2000 45 ¹⁴
1993 30
1997 96 ¹⁵
2000 80 ¹⁶
1998 920 ¹⁷
2000 60 ¹⁸
2000 25 ¹⁹
1998 50 ²⁰
1998 450 ²⁰
2000 145 ²¹
2000 95 ²²
2000 105 ²³
1991 250
2000 45 ²⁴
1994 200
2000 10 ²⁵
2000 15 ²⁶
2000 15 ²⁷
1999 120 ²⁸
2000 135 ²⁹
2000 50 ¹⁰
2000 20 ³⁰

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 21 Long-Term Debt (continued)~~

~~Publicly placed bond issues of UBS AG (parent company) outstanding at 31.12.2000~~
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
2000 16.500 29.10.2001 EUR
2000 16.000 02.11.2001 USD
2000 11.750 09.11.2001 CHF
2000 18.750 19.11.2001 USD
2000 20.250 27.11.2001 USD
1999 11.625 06.12.2001 GBP
2000 16.500 21.12.2001 USD
2000 14.250 28.12.2001 USD
2000 12.250 11.01.2002 EUR
2000 13.250 18.01.2002 EUR
2000 12.500 18.01.2002 EUR
2000 0.100 28.01.2002 JPY
1992 7.000 subordinated 06.02.2002 CHF
2000 9.000 14.03.2002 CHF
1998 5.750 18.03.2002 USD
2000 10.000 10.04.2002 CHF
1996 4.000 18.04.2002 CHF
2000 18.500 28.05.2002 USD
1999 11.000 06.06.2002 GBP
1990 7.500 subordinated 07.06.2002 CHF
2000 18.250 27.06.2002 USD
2000 6.500 28.06.2002 CHF
1992 7.500 subordinated 10.07.2002 CHF
1997 6.500 18.07.2002 USD
1997 1.000 07.08.2002 DEM
2000 8.375 07.08.2002 EUR
1996 2.000 23.08.2002 CHF
2000 9.000 02.10.2002 CHF
1992 7.000 subordinated 16.10.2002 CHF
1996 6.750 18.10.2002 USD
1995 4.375 07.11.2002 CHF
1996 3.250 20.12.2002 CHF
2000 8.000 11.02.2003 USD
1991 7.500 subordinated 15.02.2003 15.02.2001 CHF
1998 1.000 25.02.2003 EUR
1993 4.875 subordinated 03.03.2003 CHF
1997 1.500 14.03.2003 DEM
1998 1.000 20.03.2003 NLG
1993 4.000 subordinated 31.03.2003 CHF
1993 3.500 subordinated 31.03.2003 CHF
1999 1.000 05.05.2003 USD
1998 1.625 14.05.2003 USD
1991 7.000 subordinated 16.05.2003 16.05.2001 CHF
1995 5.250 subordinated 20.06.2003 CHF
2000 0.000 14.07.2003 USD
2000 0.000 14.07.2003 USD
2000 5.200 28.08.2003 CHF
1996 1.500 20.11.2003 CHF
2000 1.850 25.11.2003 CHF
1993 3.000 26.11.2003 CHF
1994 6.250 subordinated 06.01.2004 USD
1992 7.250 subordinated 10.01.2004 10.01.2002 CHF
2000 0.500 10.02.2004 USD
2000 1.000 07.06.2004 USD
1991 4.250 subordinated 25.06.2004 CHF
1999 3.500 01.07.2004 EUR
1997 7.375 subordinated 26.11.2004 GBP

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
2000 75 ³¹
2000 40 ³²
2000 110 ⁷
2000 30 ³³
2000 20 ³⁴
1999 10 ³⁵
2000 20 ³⁶
2000 10 ³⁷
2000 30 ³⁸
2000 20 ³⁹
2000 20 ⁴⁰
2000 10,000 ¹⁵
1992 200
2000 256 ²⁸
1998 250
2000 100 ¹⁷
1996 200
2000 75 ⁴¹
1999 15 ⁴²
1990 300
2000 50 ³²
2000 50 ⁴³
1992 200
1997 300
1997 19 ⁴⁴
2000 45 ⁴⁵
1996 301
2000 220 ¹⁷
1992 200
1996 250
1995 250
1996 350
2000 15
1991 300
1998 60 ⁴⁶
1993 200
1997 80 ⁴⁷
1998 125 ⁴⁸
1993 200
1993 200
1999 80 ⁴⁹
1998 100 ⁵⁰
1991 200
1995 200
2000 10 ⁵¹
2000 10 ⁵¹
2000 26
1996 27 ⁵²
2000 13
1993 200
1994 300
1992 150
2000 75 ⁵³
2000 25 ⁵⁴
1991 300
1999 250
1997 250

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 21 Long-Term Debt (continued)~~

~~Publicly placed bond issues of UBS AG (parent company) outstanding at 31.12.2000~~
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
1993 4.750 subordinated 08.01.2005 08.01.2003 CHF
1995 4.000 subordinated 07.02.2005 CHF
1995 5.500 10.02.2005 CHF
2000 1.000 18.02.2005 USD
2000 1.000 21.03.2005 EUR
1995 5.625 subordinated 13.04.2005 CHF
2000 0.000 31.05.2005 JPY
1995 8.750 subordinated 20.06.2005 GBP
2000 0.000 14.07.2005 USD
1995 6.750 subordinated 15.07.2005 USD
1995 5.250 subordinated 18.07.2005 CHF
1995 5.000 subordinated 24.08.2005 CHF
2000 7.300 06.09.2005 HKD
1995 4.500 21.11.2005 CHF
1999 0.000 08.12.2005 USD
1999 3.500 26.01.2006 EUR
1996 4.250 subordinated 06.02.2006 CHF
1996 4.000 14.02.2006 CHF
1999 2.500 29.03.2006 CHF
1999 1.500 12.07.2006 USD
1996 7.250 subordinated 17.07.2006 USD
1996 7.250 subordinated 01.09.2006 USD
1995 5.000 subordinated 07.11.2006 CHF
1996 6.250 subordinated 06.12.2006 DEM
1997 8.000 subordinated 08.01.2007 GBP
1997 5.750 subordinated 12.03.2007 DEM
1998 3.500 27.08.2008 CHF
1997 5.875 subordinated 18.08.2009 FRF
1986 5.000 subordinated 10.02.2011 10.02.2001 CHF
1995 7.375 subordinated 15.07.2015 USD
1995 7.000 subordinated 15.10.2015 USD
1997 7.375 subordinated 15.06.2017 USD
1990 0.000 31.03.2020 CHF
1995 7.500 subordinated 15.07.2025 USD
1995 8.750 subordinated 18.12.2025 GBP
1996 7.750 subordinated 01.09.2026 USD

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
1993 200
1995 150
1995 150
2000 30 ⁵⁵
2000 50 ⁵⁶
1995 150
2000 5,000 ¹⁵
1995 250
2000 10 ⁵¹
1995 200
1995 200
1995 250
2000 200
1995 300
1999 50 ⁵⁷
1999 650
1996 250
1996 200
1999 250
1999 100 ⁵⁸
1996 500
1996 150
1995 250
1996 500
1997 450
1997 350
1998 300
1997 2,000
1986 250
1995 150
1995 300
1997 300
1990 59
1995 350
1995 150
1996 300

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 21 Long-Term Debt (continued)~~

~~Publicly placed bond issues of UBS subsidiaries outstanding at 31.12.2000~~
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
UBS Americas Inc. (former PaineWebber)
1999 7.460 11.01.2001 USD
1999 5.830 25.01.2001 USD
2000 6.924 26.01.2001 USD
2000 6.820 05.04.2001 USD
1999 7.060 16.05.2001 USD
2000 7.500 17.05.2001 USD
1998 6.185 21.05.2001 USD
1999 5.810 08.06.2001 USD
2000 7.540 18.06.2001 USD
1999 7.060 20.06.2001 USD
1998 6.870 26.06.2001 USD
1997 6.585 23.07.2001 USD
1997 6.520 26.09.2001 USD
1997 6.440 28.09.2001 USD
1999 7.090 19.11.2001 USD
1997 6.580 14.12.2001 USD
1991 9.250 17.12.2001 USD
2000 6.910 19.02.2002 USD
1997 6.990 18.03.2002 USD
1999 6.015 28.03.2002 USD
1999 6.020 22.04.2002 USD
1995 8.250 01.05.2002 USD
2000 7.590 02.05.2002 USD
1999 7.060 14.05.2002 USD
1999 7.030 20.05.2002 USD
2000 1.010 01.07.2002 JPY
2000 7.358 15.07.2002 USD
1992 8.390 subordinated 24.07.2002 USD
1997 7.035 14.08.2002 USD
1997 7.010 27.08.2002 USD
1992 7.750 02.09.2002 USD
1997 7.010 19.09.2002 USD
1997 6.650 15.10.2002 USD
1999 7.210 30.10.2002 USD
1999 7.259 18.11.2002 USD
1999 7.160 18.12.2002 USD
1998 7.140 03.02.2003 USD
1998 6.250 04.02.2003 USD
2000 7.020 14.02.2003 USD
1993 7.875 17.02.2003 USD
1998 7.110 13.03.2003 USD
2000 1.270 13.03.2003 JPY
1998 6.320 18.03.2003 USD
1998 6.331 20.05.2003 USD
1998 6.980 23.06.2003 USD
1993 6.785 01.07.2003 USD
1999 1.340 01.07.2003 JPY
1993 7.130 subordinated 02.07.2003 USD
2000 7.250 23.07.2003 USD
1994 6.900 subordinated 15.08.2003 USD
1994 6.930 subordinated 15.08.2003 USD
1996 7.300 15.10.2003 USD
1998 6.450 01.12.2003 USD
1998 8.010 01.12.2003 USD
1994 6.730 20.01.2004 USD
2000 6.730 26.01.2004 USD

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
UB

1999 15
1999 20
2000 50
2000 30
1999 8
2000 49
1998 25
1999 10
2000 49
1999 8
1998 7
1997 25
1997 22
1997 22
1999 12
1997 10
1991 154
2000 20
1997 10
1999 20
1999 45
1995 128
2000 25
1999 25
1999 12
2000 900
2000 101
1992 6
1997 25
1997 15
1992 178
1997 25
1997 25
1999 10
1999 40
1999 11
1998 12
1998 25
2000 12
1993 103
1998 10
2000 900
1998 45
1998 25
1998 10
1993 30
1999 900
1993 7
2000 7
1994 10
1994 28
1996 20
1998 340
1998 26
1994 21
2000 20

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 21 Long-Term Debt (continued)~~

~~Publicly placed bond issues of UBS subsidiaries outstanding at 31.12.2000~~
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
USB Americas Inc. (former PaineWebber) (continued)
1999 7.580 28.01.2004 USD
1997 6.900 subordinated 09.02.2004 USD
1994 6.680 10.02.2004 USD
1999 7.510 10.02.2004 USD
1999 7.015 10.02.2004 USD
2000 7.660 12.02.2004 USD
1999 7.360 11.05.2004 USD
1999 6.375 17.05.2004 USD
1999 7.280 27.05.2004 USD
1997 7.060 18.08.2004 USD
1996 7.550 04.10.2004 USD
1997 6.790 04.10.2004 USD
1999 7.260 13.10.2004 USD
1996 7.490 15.10.2004 USD
1997 7.010 25.10.2004 USD
2000 7.410 27.01.2005 USD
2000 7.410 11.02.2005 USD
1995 8.875 15.03.2005 USD
1999 7.380 15.03.2005 USD
1998 6.520 06.04.2005 USD
2000 7.678 15.07.2005 USD
1993 6.500 01.11.2005 USD
1999 7.460 14.11.2005 USD
1996 6.750 01.02.2006 USD
1999 7.330 01.05.2006 USD
1999 7.330 01.05.2006 USD
1997 7.220 20.02.2007 USD
1997 7.110 22.10.2007 USD
1998 6.720 01.04.2008 USD
1998 6.730 03.04.2008 USD
1998 6.550 15.04.2008 USD
1998 6.520 21.04.2008 USD
1998 7.180 31.07.2008 USD
1996 7.625 15.10.2008 USD
1999 6.640 05.02.2009 USD
1999 7.625 01.12.2009 USD
1998 6.650 13.04.2010 USD
1998 6.640 14.04.2010 USD
1999 6.760 16.05.2011 USD
1997 7.740 30.01.2012 USD
1994 7.625 17.02.2014 USD
1997 8.060 17.01.2017 USD
1997 7.930 06.02.2017 USD
1997 7.810 13.02.2017 USD
1997 7.910 17.03.2017 USD
1997 7.990 09.06.2017 USD
1997 7.605 17.07.2017 USD
1997 7.633 11.09.2017 USD
1997 7.390 16.10.2017 USD
1998 7.310 07.05.2018 USD
1996 8.300 subordinated 12.01.2036 12.03.2001 USD
1997 8.080 subordinated 03.01.2037 03.01.2002 USD

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
US

1999 10
1997 15
1994 21
1999 13
1999 14
2000 11
1999 46
1999 534
1999 12
1997 25
1996 25
1997 14
1999 31
1996 12
1997 20
2000 26
2000 12
1995 125
1999 57
1998 31
2000 26
1993 208
1999 32
1996 102
1999 10
1999 11
1997 10
1997 26
1998 36
1998 44
1998 257
1998 10
1998 10
1996 157
1999 27
1999 290
1998 26
1998 31
1999 11
1997 21
1994 212
1997 28
1997 11
1997 17
1997 22
1997 11
1997 21
1997 11
1997 27
1998 14
1996 198
1997 203

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Footnotes~~


								Notional
								amount
						Early		in millions
Year of	Interest					redemption		in local
issue	rate in %		Remarks	Maturity		option	Currency	currency

1992		7.250			10.01.2002		CHF		150




2000		13.250	GOAL on Carrefour shares		18.01.2002		EUR		45




2000		12.500	GOAL on Bayer shares		18.01.2002		EUR		85




2000		0.100	Convertible into Nikkei 225 Index		28.01.2002		JPY		13,000




1992		7.000	subordinated		06.02.2002		CHF		200




2001	FRN		Resettable Daily Accrual Note		08.02.2002		USD		200




1986		5.000			10.02.2002		CHF		250




2000		3.300			12.02.2002		JPY		3,807




2001		1.980			28.02.2002		USD		130




2001		16.000	GOAL on JP Morgan Chase shares		01.03.2002		USD		30




2001		20.750	GOAL on Nokia shares		01.03.2002		EUR		135




			GOAL on




2001		11.250	Royal Dutch Petroleum shares		08.03.2002		EUR		85




2001		11.250	GOAL on Allianz shares		08.03.2002		EUR		50




2000		9.010	GOAL on ABB shares		14.03.2002		CHF		366




1998		5.750			18.03.2002		USD		250




2001		18.000	GOAL on Alcatel shares		22.03.2002		EUR		75




2000		10.010	GOAL on UBS shares		10.04.2002		CHF		100




1996		4.000			18.04.2002		CHF		200




2000		18.500	GOAL on Motorola shares		28.05.2002		USD		75




2001		23.125	GOAL on EMC Corp shares		31.05.2002		USD		45




1990		7.500	subordinated		07.06.2002		CHF		300


¹	~~GOAL on Royal Dutch shares~~
²	~~GOAL on Swisscom shares~~
³	~~GOAL on Lloyds TSB shares~~
⁴	~~Convertible into Omvand Konvertible Svensk Basportfolj~~
⁵	~~GOAL on British Telecom shares~~
⁶	~~GOAL on S&P Index~~
⁷	~~GOAL on Credit Suisse shares~~
⁸	~~GOAL on Novartis shares~~
⁹	~~GOAL on BP Amoco shares~~


¹⁰	~~GOAL on Roche GS~~
¹¹	~~GOAL on SAP shares~~
¹²	~~GOAL on Philips shares~~
¹³	~~GOAL on Bank Austria shares~~
¹⁴	~~GOAL on Sonera shares~~
¹⁵	~~Convertible into Nikkei 225 Index~~
¹⁶	~~GOAL on Sony ADR’s~~
¹⁷	~~GOAL on UBS AG shares~~
¹⁸	~~GOAL on Telefonica shares~~
¹⁹	~~GOAL on Cisco shares~~
²⁰	~~GOAL on Zurich Fin. Services shares~~
²¹	~~GOAL on Nokia shares~~
²²	~~GOAL on Vivendi shares~~
²³	~~GOAL on Ericsson shares~~
²⁴	~~GOAL on Lucent shares~~
²⁵	~~GOAL on Kyocera shares~~
²⁶	~~GOAL on Telecom Italia Mobile shares~~
²⁷	~~GOAL on ICI shares~~
²⁸	~~GOAL on ABB shares~~
²⁹	~~GOAL on Siemens shares~~
³⁰	~~GOAL on Telmex shares~~
³¹	~~GOAL on Deutsche Telekom shares~~
³²	~~GOAL on Intel shares~~
³³	~~GOAL on Texas Instruments shares~~
³⁴	~~GOAL on Nortel shares~~
³⁵	~~GOAL on Granada Group shares~~
³⁶	~~GOAL on IBM shares~~
³⁷	~~GOAL on Nasdaq 100 Index~~
³⁸	~~GOAL on Banco Bilbao shares~~
³⁹	~~GOAL on Carrefour shares~~
⁴⁰	~~GOAL on Bayer shares~~
⁴¹	~~GOAL on Motorola shares~~
⁴²	~~GOAL on Glaxo shares~~
⁴³	~~GOAL on Swiss Re shares~~
⁴⁴	~~Convertible into European Insurance Shares Basket~~
⁴⁵	~~GOAL on Daimler Chrysler shares~~
⁴⁶	~~Convertible into FTSE Index~~
⁴⁷	~~Indexed to UBS Currency Portfolio~~
⁴⁸	~~Convertible into UBS Dutch Corporate Basket~~
⁴⁹	~~Convertible into Sony shares~~
⁵⁰	~~Convertible into UBS Oil Basket~~
⁵¹	~~Convertible into UBS Global Equity Arbitrage~~
⁵²	~~Convertible into SMI Index~~
⁵³	~~Convertible into NTT shares~~
⁵⁴	~~Convertible into Blue Chip Basket~~
⁵⁵	~~Convertible into Nasdaq 100 Index~~
⁵⁶	~~Convertible into STOXX 50 Index~~
⁵⁷	~~PEP on Internet Perf. Basket~~
⁵⁸	~~Convertible into AT&T shares~~
⁵⁹	~~PIP on Worldbasket~~


PIP		Protected Index Participation




PEP		Protected Equity Participation





GOAL		Geld- oder Aktien-Lieferung (cash or share delivery)




BULS		Bullish Underlying Linked Securities




GROI		Guaranteed Return On Investment




FRN		Floating Rate Note

109

UBS Group Financial Statements
Notes to the Financial Statements

Note ~~21 Long-Term~~19 Debt Issued (continued)

Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.2001¹


									Notional
									amount
						Early			in millions
Year of	Interest					redemption			in local
issue	rate in %		Remarks	Maturity		option		Currency	currency

2000		18.250	GOAL on Intel shares		27.06.2002			USD		50




1997		6.500			08.07.2002			USD		300




2001		19.500	GOAL on Deutsche Telecom shares		08.07.2002			EUR		45




1992		7.500	subordinated		10.07.2002			CHF		200




2001		19.250	GOAL on SAP shares		15.07.2002			EUR		45




2001		19.500	GOAL on Cisco Systems shares		23.07.2002			USD		60




2001		8.000	GOAL on Nestlé shares		25.07.2002			CHF		325




2001		12.250	GOAL on Deutsche Post shares		25.07.2002			EUR		45




2001		18.250	GOAL on UBS shares		31.07.2002			USD		45




2000		8.375	GOAL on DaimlerChrysler shares		07.08.2002			EUR		70




2001		14.125	GOAL on Home Depot shares		15.08.2002			USD		30




2001		14.000	GOAL on Deutsche Bank shares		19.08.2002			EUR		70




1996		2.002			23.08.2002			CHF		299




2001		26.000	GOAL on Uniphase Corporaton shares		12.09.2002			USD		51




2000		9.000	GOAL on UBS shares		02.10.2002			CHF		345




1992		7.000	subordinated		16.10.2002			CHF		200




1996		6.750			18.10.2002			USD		250




2001		12.500	GOAL on AOL Time Warner shares		01.11.2002			USD		48




1995		4.375			07.11.2002			CHF		250




2001		10.000	GOAL on Credit Suisse shares		15.11.2002			CHF		325




2001		7.375	GOAL on Novartis shares		22.11.2002			CHF		100




2001		8.125	GOAL on Roche shares		06.12.2002			CHF		325




1996		3.250			20.12.2002			CHF		350




2001		8.000	GOAL on UBS shares		26.02.2003			CHF		220




1993		4.875	subordinated		03.03.2003			CHF		200




2001		8.750	GOAL on General Electric shares		07.03.2003			USD		105




1997		1.500	Indexed to UBS Currency Portfolio		14.03.2003			EUR		51




			Convertible into




1998		1.000	UBS Dutch Corporate Basket		20.03.2003			EUR		57




2001		8.500	GOAL on PepsiCo shares		28.03.2003			USD		30




1993		3.500	subordinated		31.03.2003			CHF		200




1993		4.000	subordinated		31.03.2003			CHF		200




2001	FRN		BULS on technology stock basket		10.04.2003			USD		80




2001		0.000	BULS on Celestica and others		28.04.2003			USD		40




2001		0.000	BULS on Biotech shares		16.05.2003			USD		32




2001		7.250	GOAL on Aventis shares		05.06.2003			EUR		55




1995	FRN		subordinated		20.06.2003			CHF		200




2001		8.250	GOAL on Pfizer shares		16.07.2003			USD		45




1993		3.000			26.11.2003			CHF		200




1994	FRN		subordinated		06.01.2004			USD		300




2000		0.500	Convertible into NTT shares		10.02.2004			USD		40




2001		0.000			14.04.2004			USD		46




2001		0.000	Cliquet GROI on NASDAQ 100 Index		27.05.2004			USD		40




1991		4.250	subordinated		25.06.2004			CHF		300




1999		3.500			01.07.2004			EUR		250




2001		1.750	Exchangeable bonds on Yukos		31.08.2004			USD		310




1997		7.375	subordinated		26.11.2004			GBP		265




1993		4.750	subordinated		08.01.2005		08.01.2003	CHF		200




1995		4.000	subordinated		07.02.2005			CHF		150




1995		5.500			10.02.2005			CHF		150




2000		1.000	Convertible into Nasdaq 100 Index		18.02.2005			USD		50




2000		1.000	Convertible into STOXX 50 Index		21.03.2005			EUR		50


PIP		Protected Index Participation




PEP		Protected Equity Participation




GOAL		Geld- oder Aktien-Lieferung (cash or share delivery)




BULS		Bullish Underlying Linked Securities




GROI		Guaranteed Return On Investment




FRN		Floating Rate Note

110

Note 19 Debt Issued (continued)

Publicly placed bond issues of UBS AG (Parent Bank) outstanding as at 31.12.2001¹


								Notional
								amount
						Early		in millions
Year of	Interest					redemption		in local
issue	rate in %		Remarks	Maturity		option	Currency	currency

1995		5.625	subordinated		15.04.2005		CHF		150




2000		0.000	Convertible into Nikkei 225 Index		31.05.2005		JPY		5,000




1995	FRN		subordinated		20.06.2005		GBP		249




1995		6.750	subordinated		15.07.2005		USD		200




1995		5.250	subordinated		18.07.2005		CHF		200




1995		5.000	subordinated		24.08.2005		CHF		250




2001		0.000			18.10.2005		USD		288




1995		4.500			21.11.2005		CHF		300




1999		0.000	PEP on Internet Perf. Basket		08.12.2005		USD		50




1999		3.500			26.01.2006		EUR		650




			Equity Exchangeables into




2001		1.000	Euro. Insurance Basket		01.02.2006		EUR		100




1996		4.250	subordinated		06.02.2006		CHF		250




1996		4.000			14.02.2006		CHF		200




2000		2.500			29.03.2006		CHF		250




			Bermuda Callable




2001	FRN		Daily Accrual Range Note		29.06.2006		USD		98




1996		7.250	subordinated		17.07.2006		USD		500




2001		7.500	Bermuda Callable Daily Accrual Note		26.07.2006		USD		39




2001	FRN		Callable Reverse Floater		17.08.2006		USD		30




1996		7.250	subordinated		01.09.2006		USD		150




2001		0.000	BULS on S&P 500		01.09.2006		USD		54




2001		5.500	GOAL on UBS shares		02.10.2006		CHF		66




1995		5.000	subordinated		07.11.2006		CHF		250




1996	FRN		subordinated		06.12.2006		EUR		254




2001		0.000	Zero-rate Note O'Connor Fund		29.12.2006		EUR		40




1997		8.000	subordinated		08.01.2007		GBP		237




1997		8.000	subordinated		08.01.2007		GBP		296




1997		5.750	subordinated		12.03.2007		EUR		197




2001	FRN		Fixed/Reverse Floating Note		02.11.2007		USD		59




2001		1.000	Notes on World Index Basket		11.12.2007		EUR		50




1998		3.500			27.08.2008		CHF		300




1997		5.875	subordinated		18.08.2009		EUR		329




1995		7.375	subordinated		15.07.2015		USD		150




1995		7.000	subordinated		15.10.2015		USD		300




1997		7.375	subordinated		15.06.2017		USD		300




1995		7.500	subordinated		15.07.2025		USD		350




1995	FRN		subordinated		18.12.2025		GBP		149




1996		7.750	subordinated		01.09.2026		USD		300


PIP		Protected Index Participation




PEP		Protected Equity Participation




GOAL		Geld- oder Aktien-Lieferung (cash or share delivery)




BULS		Bullish Underlying Linked Securities




GROI		Guaranteed Return On Investment




FRN		Floating Rate Note

111

UBS Group Financial Statements
Notes to the Financial Statements

Note 19 Debt Issued (continued)

Publicly placed bond issues of UBS subsidiaries outstanding as at ~~31.12.2000~~31.12.2001¹
Premature
Year of Interest redemption
issue rate in % Remarks Maturity possible Currency
UBS Finance (Curaçao) N.V.
1996 2.500 30.10.2001 DEM
1996 2.500 30.10.2001 DEM
1997 2.500 30.10.2001 DEM
1990 9.125 08.02.2002 USD
1992 FRN 13.11.2002 USD
1997 0.000 29.01.2027 LIT
1998 0.000 03.03.2028 03.03.2003 DEM
UBS Australia Ltd.
1997 3.250 02.10.2001 USD
1999 5.000 25.02.2002 AUD
1999 5.000 25.02.2004 AUD
S.G.W. Finance plc
1991 13.250 30.03.2001 AUD
S.G. Warburg Group plc
1994 9.000 subordinated perpetual GBP
UBS Finance (Cayman Islands) Ltd.
1991 0.000 28.02.2001 STG
2000 0.000 10.02.2005 USD


									Notional
									amount
						Early			in millions
Year of	Interest					redemption			in local
issue	rate in %		Remarks	Maturity		option		Currency	currency

Brooklands Euro Referenced Linked Notes 2001-1 Ltd




2001	FRN				20.12.2003		20.12.2003	EUR		50




2001	FRN				20.12.2013		20.12.2013	EUR		50

Alpine Partners L.P.




2000	FRN				08.10.2009		08.01.2003	USD		709

North Street




2000	FRN				28.04.2011			USD		31




2000	FRN				28.04.2011			USD		40




2000	FRN				28.04.2011			USD		36




2000		20.000			28.04.2011			USD		43




2000		9.490			30.10.2011			USD		36




2000		18.000			30.10.2011			USD		43




2000	FRN				30.10.2011			USD		61




2000	FRN				30.10.2011			USD		33




2001	FRN				30.04.2031			USD		100




2001	FRN				30.04.2031			USD		60




2001	FRN				30.07.2031			USD		100




2001	FRN				30.07.2031			USD		60

UBS Americas Inc. (former PaineWebber)




1999		6.020			22.04.2002			USD		45




1995		8.250			01.05.2002			USD		125




2000	FRN				15.07.2002			USD		100




1992		7.750			02.09.2002			USD		175




1999	FRN				18.11.2002			USD		40




1993		7.875			17.02.2003			USD		100




2000		1.270			13.03.2003			JPY		9,000




1998		6.320			18.03.2003			USD		45




1993		6.785			01.07.2003			USD		30




1998		6.450			01.12.2003			USD		340




1999	FRN				11.05.2004			USD		45




1999		6.375			17.05.2004			USD		525




1999		2.580			13.10.2004			USD		30




1999		2.670			15.03.2005			USD		45




1995		8.875			15.03.2005			USD		125




1998		6.520			06.04.2005			USD		30




1993		6.500			01.11.2005			USD		200




1996		6.750			01.02.2006			USD		100




1998		6.720			01.04.2008			USD		35




1998		6.730			03.04.2008			USD		43




1998		6.550			15.04.2008			USD		250




1996		7.625			15.10.2008			USD		150




1999		7.625			01.12.2009			USD		275




1998		6.640			14.04.2010			USD		30




1994		7.625			17.02.2014			USD		200




1997		8.060			17.01.2017			USD		25




1997		8.080	subordinated		01.03.2037		01.03.2002	USD		199

UBS Principal Finance LLC




2000		8.670			20.01.2009		20.01.2002	USD		102


PIP		Protected Index Participation




PEP		Protected Equity Participation




GOAL		Geld- oder Aktien-Lieferung (cash or share delivery)




BULS		Bullish Underlying Linked Securities




GROI		Guaranteed Return On Investment




FRN		Floating Rate Note

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Year of Amount
issue in millions
UB

1996 100
1996 150
1997 100
1990 225
1992 250
1997 226’955
1998 136

UB

1997 101
1999 104
1999 104

S.

1991 60

S.

1994 12

UB

1991 200
2000 22 ⁵⁹

112

Note 19 Debt Issued (continued)

Publicly placed bond issues of UBS subsidiaries outstanding as at 31.12.2001¹


									Notional
									amount
						Early			in millions
Year of	Interest					redemption			in local
issue	rate in %		Remarks	Maturity		option		Currency	currency

Eisberg Finance Ltd.




1998	FRN				15.06.2004		10.10.2003	USD		41




1998	FRN				15.06.2004		10.10.2003	USD		65




1998	FRN				15.06.2004		10.10.2003	USD		83

UBS Finance N.V., Curaçao




1990		9.125			08.02.2002			USD		225




1992	FRN				13.11.2002			USD		250




1997		0.000			29.01.2027			EUR		210




1998		0.000			03.03.2028		03.03.2003	EUR		77

UBS Australia Holdings Ltd.




1999		5.000			25.02.2002			AUD		104




1999		5.000			25.02.2004			AUD		104

SBC Glacier Finance Ltd.




1997	FRN				10.09.2004		10.09.2002	USD		36




1997	FRN				10.09.2004		10.03.2002	USD		798




1997	FRN				10.09.2006		10.03.2002	USD		798

UBS Warburg AG




1998		0.000			19.12.2005			EUR		56




2001		0.000			30.06.2006			USD		202




2001		0.000			30.06.2006			EUR		505




2001		0.000			31.07.2006			EUR		500




2001		0.000			30.09.2006			CHF		200




2001		0.000			30.09.2006			USD		200




2001		0.000			02.01.2007			EUR		100




2001		0.000			02.01.2007			EUR		100




2001		0.000			02.01.2007			EUR		100




2001		0.000			30.09.2011			EUR		50

¹ In this table only bonds with a carrying value exceeding CHF 50 million have been disclosed. The total notional amount of the bonds disclosed in this table is CHF 40,859 million. The total notional amount of publicly placed bonds of UBS Group is CHF 48,646 million of the total bond issues.


PIP		Protected Index Participation




PEP		Protected Equity Participation




GOAL		Geld- oder Aktien-Lieferung (cash or share delivery)




BULS		Bullish Underlying Linked Securities




GROI		Guaranteed Return On Investment




FRN		Floating Rate Note

113

UBS Group Financial Statements

Notes to the Financial Statements

Note 2220 Other Liabilities


CHF million	Note	31.12.00	31.12.99	Note		31.12.01		31.12.00


Provisions, including restructuring provision	23	3,024	3,611		21		1,748		3,024
Provisions for commitments and contingent liabilities		54	149




Provision for commitments and contingent liabilities					10b		305		54
Current tax liabilities		2,423	1,747				1,799		2,423
Deferred tax liabilities	24	1,565	994		22		2,827		1,565
VAT and other tax payables		1,071	888				622		1,071
Settlement and clearing accounts		4,906	4,789				4,473		4,906
Other payables		5,713	3,814				3,884		5,713

Total other liabilities		18,756	15,992				15,658		18,756

Note 2321 Provisions, including Restructuring Provision

~~Business risk provisions~~

Business risk provisions ~~consist mainly of provisions for operational risks and reserves for litigation.~~


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Balance at the beginning of the year		2,182			4,121			2,294			2,182
New provisions charged to income		746			539			384			746
Provisions applied		(1,316	)		(705	)		(1,020	)		(1,316	)
Recoveries and adjustments		682			(1,773	)¹		90			682

Balance at the end of the year		2,294			2,182			1,748			2,294

¹ ~~Includes reclassification of valuation adjustments of CHF 2,384 million to related trading assets and liabilities.~~


CHF million	31.12.01		31.12.00

Litigation		712		598




Operational		240		374




Other		796		1,322

Total		1,748		2,294

~~UBS/~~UBS / SBC merger restructuring provision

CHF million 31.12.01 31.12.00
Balance at the beginning of the year 730 1,429
Addition 0 0
Applied¹

Personnel (370 ) (188 )
IT (23 ) (63 )
Premises (302 ) (399 )
Other (14 ) (49 )
Total utilized during the year (709 ) (699 )
Released to the Income Statement (21 ) 0
Balance at the end of the year
0 730
Total provisions, including restructuring provision
1,748 3,024

¹ The expense categories refer to the nature of the expense rather than the income statement expense line.

114

Note 21 Provisions, including Restructuring Provision (continued)

Cumulative utilization, since establishment of UBS/SBC merger restructuring
provision through 31 December 2001

CHF million Personnel IT Premises Other Total
UBS Switzerland 837 1,109 219 220 2,385
Private and Corporate Clients 707 974 209 217 2,107
Private Banking 130 135 10 3 278
UBS Asset Management 34 9 0 3 46
UBS Warburg 1,983 373 1 413 2,770
Corporate Center 106 34 1,421 517 2,078
Group total
2,960 1,525 1,641 1,153 7,279
Released to the Income Statement 21
Total
7,300

At the announcement of the ~~UBS/~~UBS / SBC merger in December 1997, it was communicated that the merged firm’s operations in various locations would be combined, resulting in vacant properties, reductions in personnel, elimination of redundancies in the information technology platforms, exit costs and other costs. As a result, a restructuring provision of CHF 7,300 million (of which CHF 7,000 million was recognized as a restructuring expense in 1997 and CHF 300 million was recognized as a component of general and administrative expense in the fourth quarter of 1999) was established, to be used over a period of four years. ~~At 31 December 2000, the Group had utilized CHF 6,570 million of the provisions.~~

The restructuring provision included approximately CHF 3,000 million for employee termination benefits, CHF 1,500 million for sale and lease breakage costs associated with the closure of premises, CHF 1,650 million for IT integration projects and write-offs orof equipment which management had committed to dispose of and CHF 1,150 million for other costs classified as Personal expenses, General and administrative expense or Other income.

The employee terminations affected all functional levels and all operating Business Groups. CHF 2,000 million of the provision related to employee termination benefits reflects the costs of eliminating approximately 7,800 positions, after considering attrition and redeployment within the Company. CHF 1,000 million of the provision related to payments to maintain stability in the workforce during the integration period. As of 31 December ~~2000,~~2001, approximately ~~6,200~~7,100 employees had been made redundant or retired ~~early and~~early.

At 31 December 2001, the restructuring plan was completed, substantially in accordance with the above-mentioned plans. The remaining ~~personnel~~balance of the restructuring provision ~~balance~~of CHF 21 million was ~~CHF 410 million.~~recognized in the income statement.

115

UBS Group Financial Statements

Notes to the Financial Statements

Note ~~23 Provisions, including Restructuring Provision (continued)~~

CHF million 31.12.00 31.12.99
Balance at the beginning of the year 1,429 2,973
Addition 0 300
Applied ¹

Personnel (188 ) (378 )
IT (63 ) (642 )
Premises (399 ) (673 )
Other (49 ) (151 )
Total utilized during the year (699 ) (1,844 )
Balance at the end of the year
730 1,429
Total provisions, including restructuring provision
3,024 3,611

¹ ~~The expense categories refer to the nature of the expense rather than the income statement expense line.~~

~~Cumulative utilization, since establishment of UBS/SBC merger restructuring provision through 31 December 2000~~

CHF million Personnel IT Premises Other Total
UBS Switzerland 476 1,086 184 220 1,966
UBS Asset Management 32 9 3 44
UBS Warburg 1,983 373 1 413 2,770
Corporate Center 99 34 1,154 503 1,790
Group total
2,590 1,502 1,339 1,139 6,570
Total provision
7,300
Future utilization
730

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 24~~22 Income Taxes


CHF million	CHF million						CHF million
For the year ended	For the year ended	31.12.00	31.12.99			31.12.98	For the year ended	31.12.01		31.12.00		31.12.99


Federal and cantonal
Domestic							Domestic
	Current payable	1,325		849		213	Current payable		563		1,325		849
	Deferred	233		511		463	Deferred		231		233		511




Foreign	Foreign						Foreign
	Current payable	451		359		200	Current payable		546		451		359
	Deferred	311		(33	)	28	Deferred		61		311		(33	)

Total income tax expense	Total income tax expense	2,320		1,686		904	Total income tax expense		1,401		2,320		1,686

The Group made net tax payments, including domestic ~~federal, cantonal~~ and foreign taxes, of CHF ~~959~~1,742 million, CHF ~~1,063~~959 million and CHF ~~733~~1,063 million for the full years of 2001, 2000 ~~1999~~ and ~~1998,~~1999, respectively.

The components of operating profit before tax, and the differences between income tax expense reflected in the financial statements and the amounts calculated at the Swiss statutory rate of 25% are as follows:


CHF million	CHF million										CHF million
For the year ended	For the year ended	31.12.00			31.12.99			31.12.98			For the year ended	31.12.01			31.12.00			31.12.99


Operating profit before tax	Operating profit before tax		10,199			7,893			3,871		Operating profit before tax		6,718			10,199			7,893
	Domestic		7,079			6,957			10,287		Domestic		5,565			7,079			6,957
	Foreign		3,120			936			(6,416	)	Foreign		1,153			3,120			936

Income taxes at Swiss statutory rate of 25%	Income taxes at Swiss statutory rate of 25%		2,550			1,973			968		Income taxes at Swiss statutory rate of 25%		1,680			2,550			1,973




Increase/(decrease) resulting from:









Increase / (decrease) resulting from:											Increase / (decrease) resulting from:
Applicable tax rates differing from Swiss statutory rate	Applicable tax rates differing from Swiss statutory rate		(336	)		55			88		Applicable tax rates differing from Swiss statutory rate		(239	)		(336	)		55
Tax losses not recognized	Tax losses not recognized		164			39			1,436		Tax losses not recognized		77			164			39
Previously unrecorded tax losses now recognized	Previously unrecorded tax losses now recognized		(655	)		(215	)		(142	)	Previously unrecorded tax losses now recognized		(630	)		(655	)		(215	)
Lower taxed income	Lower taxed income		(401	)		(278	)		(1,849	)	Lower taxed income		(499	)		(401	)		(278	)
Non-deductible goodwill amortization	Non-deductible goodwill amortization		159			98			117		Non-deductible goodwill amortization		429			159			98
Other non-deductible expenses	Other non-deductible expenses		432			34			55		Other non-deductible expenses		134			432			34
Adjustments related to prior years	Adjustments related to prior years		245			(112	)		7		Adjustments related to prior years		371			245			(112	)
Change in deferred tax valuation allowance	Change in deferred tax valuation allowance		162			92			224		Change in deferred tax valuation allowance		78			162			92

Income tax expense	Income tax expense		2,320			1,686			904		Income tax expense		1,401			2,320			1,686

As of 31 December 2000 the Group had accumulated unremitted earnings from foreign subsidiaries on which deferred taxes had not been provided as the undistributed earnings of these foreign subsidiaries are indefinitely reinvested.

116

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 2422 Income Taxes (continued)

Significant components of the Group’s deferred income tax assets and liabilities (gross) are as follows:


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Deferred tax assets
Compensation and benefits		1,705			316			1,778			1,705
Restructuring provision		160			316			0			160
Allowance for credit losses		148			138			122			148
Net operating loss carry forwards		1,690			2,194			2,902			1,690
Others		1,069			237




Trading assets								259			24




Other								1,365			1,045

Total		4,772			3,201			6,426			4,772
Valuation allowance		(2,564	)		(2,459	)		(2,977	)		(2,564	)

Net deferred tax assets		2,208			742			3,449			2,208

Deferred tax liabilities
Property and equipment		457			342			449			457
Investment in associates		86			153




Investments								464			86
Other provisions		133			142			571			133
Unrealized gains on investment securities		306			93
Others		583			264




Trading assets								298			306




Other								1,045			583

Total		1,565			994
Total deferred tax liabilities								2,827			1,565

The change in the balance of ~~the~~ net deferred tax assets and deferred tax liabilities does not equal the deferred tax ~~expense.~~expense in those years. This is due to the effect of foreign currency rate changes on tax assets and liabilities denominated in currencies other than CHF and also due to the ~~integration~~acquisition of PaineWebber.

Certain foreign branches and subsidiaries of the Group have deferred tax assets related to net operating loss carry forwards and other items. Because ~~recognition~~realization of these assets is uncertain, the Group has established valuation allowances of CHF ~~2,564~~2,977 million ~~and CHF 2,459~~(CHF 2,564 million at 31 December ~~2000 and~~2000). For companies that suffered tax losses in either the current or preceding year an amount of CHF 965 million (CHF 59 million at 31 December ~~1999, respectively.~~2000) has been recognized as deferred tax assets based on expectations that sufficient taxable income will be generated in future years to utilize the tax loss carry forwards.

~~Net~~The company provides deferred income taxes on undistributed earnings of non-Swiss subsidiaries except to the extent that such earnings are indefinitely invested. In the event these earnings were distributed, additional taxes of approximately CHF 22 million would be due.

At 31 December 2001 net operating loss carry forwards ~~totalling~~totaling CHF ~~6,520~~7,462 million ~~at 31 December 2000~~ are available to reduce future taxable income of certain branches and subsidiaries.


The carry forwards ~~have lives~~expire as follows:	31.12.01	~~31.12.00~~


~~One~~Within 1 year	5123




From 2 to 4 years	~~170~~148
~~More than~~



After 4 years	~~6,345~~7,191

Total	~~6,520~~7,462

~~Note 25 Minority Interests~~

CHF million 31.12.00 31.12.99
Balance at the beginning of the year 434 990
Issuances and increases ¹
2,596 17
Decreases and dividend payments (73 ) (689 )
Foreign currency translation (159 ) 62
Minority interest in profit 87 54
Balance at the end of the year 2,885 434

¹ ~~Thereof issuance of Trust Preferred securities USD 1,500 million (CHF 2,594 million at issuance) in connection with the PaineWebber acquisition.~~

117

UBS Group Financial Statements

Notes to the Financial Statements

Note 23 Minority Interests


CHF million	31.12.01			31.12.00

Balance at the beginning of the year		2,885			434




Issuance of trust preferred securities		1,291			2,594




Increases		0			2




Decreases and dividend payments		(461	)		(73	)




Foreign currency translation		53			(159	)




Minority interest in net profit		344			87

Balance at the end of the year		4,112			2,885

Note 2624 Derivative Instruments

Type of derivatives

The Group uses the following derivative financial instruments for both trading and hedging purposes:

Swaps

Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period. The major types of swaps transactions undertaken by the Group are described below.

Interest rate swap contracts generally represent the contractual exchange of fixed and floating rate payments of a single currency, based on a notional amount and an interest reference rate.

Foreign currency swaps generally involve the exchange of two different currency principal balances at inception and re-exchanged at an agreed upon rate at a specified future date. In addition, foreign currency interest rate swaps include the exchange of interest payments based on the two different currency principal balances and interest reference rates.

Credit default swaps (CDS) are instruments where the seller of the CDS promises to pay the buyer an amount equal to the loss that would be incurred on holding an underlying reference asset as a result of a defined credit event. The buyer is not required to hold the underlying reference asset. The buyer pays the seller a credit protection fee expressed in basis points, the amount of which is dependent on the credit spread of the reference asset.

Forwards and futures

Forwards and futures are contractual obligations to buy or sell a financial instrument on a future date at a specified price. Forward contracts are effectively tailor-made agreements that are transacted between counterparties in the over-the-counter market (OTC), whereas futures are standardized contracts that are transacted on regulated exchanges.

Options

Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation, either to buy (call option) or sell (put option) by or at a set date, a specified amount of a financial instrument at a predetermined price. The seller receives a premium from the purchaser for this right.

Derivatives held or issued for trading purposes

Most of the Group’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative products to customers at competitive prices to enable them to transfer, modify or reduce current or expected risks. Trading involves market-making, positioning and arbitrage activities. Market-making involves quoting bid and offer prices to other market participants with the intention of generating revenues based on spread and volume. Positioning involves managing market risk positions with the expectation of profiting from ~~favourable~~favorable movements in prices, rates or indices. Arbitrage activities involve identifying and profiting from price differentials between markets and products.

Derivatives held or issued for ~~non-trading~~hedging purposes

The Group enters into various derivative financial instruments which are designated and qualify

118

as either fair value or cash flow hedges. The Group also ~~uses derivatives as part~~enters into derivative transactions to hedge against economic risk exposures that do not receive hedge accounting treatment. As stated in Note 1 Summary of ~~its asset and liability management activities.~~

~~The majority of derivative positions used in UBS’s asset and liability management activities are established via intercompany transactions with independently managed units within the Group. When~~Significant Accounting Policies, the Group ~~purchases assets~~uses CDS to economically hedge credit risk exposures in the loan portfolio to which it does not apply hedge accounting. Gains on CDS used as economic hedges have been offset against Credit loss expense/recovery.

Derivatives designated and ~~issues liabilities at fixed interest rates it subjects itself to fair value fluctuations~~accounted for as ~~market interest rates change. These fluctuations in fair value are managed by entering into interest rate contracts, mainly interest rate swaps which change the fixed rate instrument into~~hedging instruments

At inception of a ~~variable rate instrument.~~

~~When~~hedge, the Group purchases foreign currency denominated assets, issues foreign currency denominated debt or has foreign net investments, it subjects itself to changes in value as exchange rates move. These fluctuations are managed by entering into currency swapsformally documents the relationship between hedging instruments and ~~forwards.~~

~~Type of derivatives~~

~~The Group uses~~hedged items. This includes its risk management objectives and strategies for undertaking the ~~following derivative financial instruments for both trading and non-trading purposes:~~

~~Swaps:~~ ~~Swaps are transactions in which two parties exchange cash flows on a specified notional amount for a predetermined period.~~

~~Interest rate swap contracts generally represent the contractual exchange of fixed and floating rate payments of a single currency, based on a notional amount and an interest reference rate.~~

~~Cross currency interest rate swaps generally involve the exchange of payments~~hedge transaction, which are ~~based on~~in accordance with the ~~interest reference rates available~~Group’s risk management policies, together with the methods that will be used to assess the effectiveness of the hedging relationship. In accordance with this, the Group formally assesses, both at the inception of the ~~contract~~hedge and on ~~two different currency principal balances~~an ongoing basis, whether the derivatives used in its hedging transactions have been highly effective in offsetting changes in the fair value or cash flows of the hedged item. In the case of hedging a forecasted transaction, the transaction must be highly probable and present an exposure to variations in cash flows that could ultimately affect reported net profit or loss. A hedge is normally regarded as highly effective if, at inception and throughout the life of the hedge, the Group can expect changes in the fair value or cash flows of the hedged item to be almost fully offset by the changes in the fair value or cash flows of the hedging instrument, and actual results are within a range of 80% to 125%. The Group discontinues hedge accounting when it is determined that a derivative is not, or has ceased to be, highly effective as a hedge, or if the derivative expires, or is sold, terminated, or exercised.

A highly effective hedging relationship is one in which the Group achieves offsetting changes in fair value or cash flows for the risk being hedged. Hedge ineffectiveness (which represents the amount by which the changes in the fair value of the derivative differ from changes in the fair value of the hedged item or where changes in the cash flow of the derivative differ from expected changes in the cash flow of the hedged item) and gains and losses on components of a derivative that are ~~exchanged.~~ excluded from assessing hedge effectiveness are recorded in current period earnings.

Fair value hedges

The ~~principal balances are re-exchanged at an agreed upon~~Group’s fair value hedges principally consist of interest rate ~~at a specified future date.~~

~~Forwards and futures:~~ ~~Forwards and futures are contractual obligations to buy or sell a financial instrument on a future date at a specified price. Forward contracts are effectively tailor-made agreements~~swaps that are ~~transacted between counterparties~~used to protect against changes in the ~~over-the-counter~~fair value of fixed-rate long-term debt due to changes in market ~~(OTC)~~interest rates.

For the year ended 31 December 2001, the Group recognized a net loss of CHF 12 million (reported as Net trading income in the Financial Statements), ~~whereas futures~~which represents the ineffective portion of fair value hedges. Foreign currency interest rate swaps are ~~standardized~~also used as hedging instruments but only the interest rate element is designated against the interest rate risk exposure of the underlying hedged debt instruments. Therefore, when measuring hedge effectiveness, we consider only changes in fair value due to market interest rates. For the year ended 31 December 2001, CHF 275 million of foreign currency transaction net gains associated with foreign currency interest rate swaps used as fair value hedges were excluded from the assessment of hedge effectiveness. These foreign currency transaction gains were recorded as Net trading income. As of 31 December 2001, the fair values of outstanding derivatives designated as fair value hedges was a CHF 895 million net unrealized gain.

Cash flow hedges of individual variable rate assets and liabilities

The Group also uses interest rate swaps to protect against changes in cash flows of certain variable rate debt issues. For the year ended 31 December 2001, there has been no material gain or loss associated with ineffective portions of cash flow hedges. Gains and losses on derivative contracts that are ~~transacted~~reclassified from accumulated Gains/losses not recognized in the income statement to current period earnings are included in Net interest income. As of 31 December 2001, CHF 14 million of the deferred net gains on ~~regulated exchanges.~~derivative instruments accumulated in shareholders’ equity is expected to be reclassified into earnings during the next twelve months at the time the hedged cash flows occur. As of 31 December 2001, the

119

UBS Group Financial Statements
Notes to the Financial Statements

~~Options:~~Note 24 Derivative Instruments (continued)

fair value of outstanding derivatives designated as cash flow hedges was a CHF 16 million net unrealized gain recorded in shareholders’ equity.

~~Options~~Cash flow hedges of forecasted transactions

The Group applies hedge accounting for its non-trading interest rate risk in major currencies by analyzing expected cash flows on an enterprise basis. The objective is to protect against changes in future interest cash flows relating to the forecasted reinvestment or re-borrowing of cash flows due to changes in market interest rates. The Group accumulates information about financial assets and liabilities that it uses to estimate and aggregate cash flows and to schedule such estimated cash flows into applicable future periods in which they are expected to be paid or received. The forecasted cash flows include the expected future reinvestment or re-borrowing of financial assets and liabilities and are extended over a twenty-four year period. The Group has hedges that extend over this twenty-four year period. These cash flows are based on the contractual ~~agreements under which~~terms of the ~~seller (writer) grants~~instruments and other factors, including estimates of prepayments and defaults. The aggregate cash flows form the ~~purchaser~~basis for identifying the ~~right, but~~non-trading interest rate risk of the Group. Interest rate swaps are designated as hedges of these forecasted cash inflows and outflows.

The schedule of forecasted cash flows as of 31 December 2001 is as follows.


CHF million	<1 year			1–3 years			3–5 years			5–10 years			over 10 years

Cash in flows (Assets)		92,483			154,733			81,015			92,027			11,253




Cash out flows (Liabilities)		183,482			299,566			229,368			401,674			352,707

Net cash flows		(90,999	)		(144,833	)		(148,353	)		(309,647	)		(341,454	)

Gains and losses on derivative contracts that are reclassified from accumulated Gains/losses not recognized in the ~~obligation, either~~income statement to ~~buy (call option) or sell (put option) by or at~~current period earnings are included in Net interest income. As of 31 December 2001, the fair value of outstanding derivatives designated as cash flow hedges of forecasted transactions was a ~~set date, a specified amount~~CHF 554 million unrealized loss. Amounts reclassified from Gains/losses not recognized in the income statement to the Income statement due to discontinued hedges of ~~a financial instrument at a predetermined price. The seller receives a premium from the purchaser for this right.~~forecasted transactions were immaterial.

Notional amounts and replacement values

The following table provides the notional amounts and the positive and negative replacement values of the Group’s derivative transactions.

The notional amount is the amount of a derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. It provides an indication of the volume of business transacted by the Group but does not provide any measure of risk.

Some derivatives are standardized in terms of their ~~nominal~~notional amounts and settlement dates, and these are designed to be bought and sold in active markets (exchange traded). Others are packaged specifically for individual customers and are not exchange traded, although they may be bought and sold between

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 26 Derivative Instruments (continued)~~

counterparties at negotiated prices (OTC instruments).

Positive replacement value represents the cost to the Group of replacing all transactions with a receivable amount if all the Group’s

counterparties were to default. This measure is the industry standard for the calculation of current credit exposure. Negative replacement value is the cost to the Group’s counterparties of replacing all the Group’s transactions with a commitment if the Group were to default. The total positive and negative replacement values ~~after netting~~ are included in the balance sheet separately.

120

Note 24 Derivative Instruments (continued)

As at 31 December 2001


																						Total
		Term to maturity																				notional
		Within 3 months				3–12 months				1–5 years				over 5 years				Total		Total		amount
CHF million		PRV¹		NRV²		PRV		NRV		PRV		NRV		PRV		NRV		PRV		NRV		CHF bn

Interest rate contracts




Over the counter (OTC) contracts




	Forward contracts		2,844		3,260		114		530		108		245		48		134		3,114		4,169		1,768.7




	Swaps		2,807		4,322		5,724		6,393		49,043		45,029		25,232		22,866		82,806		78,610		4,552.4




	Options		388		950		670		2,095		3,037		4,048		2,830		3,336		6,925		10,429		784.9

Exchange-traded contracts³




	Futures																		0		0		83.6




	Options		3						24										3		24		63.2

Total			6,042		8,532		6,508		9,042		52,188		49,322		28,110		26,336		92,848		93,232		7,252.8

Credit derivative contracts




Over the counter (OTC) contracts




	Credit default swaps		6		18		707		1,104		1,020		1,490		773		1,184		2,506		3,796		75.7




	Total rate of return swaps						84		621				636		12		0		96		1,257		3.6

Total			6		18		791		1,725		1,020		2,126		785		1,184		2,602		5,053		79.3

Foreign exchange contracts




Over the counter (OTC) contracts




	Forward contracts		3,615		3,163		1,639		1,899		755		428		20				6,029		5,490		279.7




	Interest and currency swaps		19,344		11,224		8,991		7,763		7,463		7,673		3,465		2,312		39,263		28,972		1,699.3




	Options		2,138		1,942		2,148		1,888		445		433		23		1		4,754		4,264		1,033.7

Exchange-traded contracts³




	Futures																		0		0		0.0




	Options						1		2										1		2		0.8

Total			25,097		16,329		12,779		11,552		8,663		8,534		3,508		2,313		50,047		38,728		3,013.5

Precious metals contracts




Over the counter (OTC) contracts




	Forward contracts		242		223		210		198		195		179		6				653		600		17.0




	Options		177		164		535		507		740		805		90		81		1,542		1,557		54.1

Exchange-traded contracts³




	Futures																						0.0




	Options				2		3		1										3		3		0.9

Total			419		389		748		706		935		984		96		81		2,198		2,160		72.0

Equity / Index contracts




Over the counter (OTC) contracts




	Forward contracts		1,402		1,422		445		1,713		1,461		1,464		111		85		3,419		4,684		35.3




	Options		6,140		6,222		4,294		5,105		4,076		6,991		1,087		2,844		15,597		21,162		238.0

Exchange-traded contracts³




	Futures																		0		0		12.4




	Options		1,497		1,080		1,187		1,431		601		463		21		14		3,306		2,988		440.3

Total			9,039		8,724		5,926		8,249		6,138		8,918		1,219		2,943		22,322		28,834		726.0

Commodity contracts




Over the counter (OTC) contracts




	Forward contracts		8		14		1		1										9		15		6.4




	Options																		0		0		0.0

Total			8		14		1		1		0		0		0		0		9		15		6.4

Total derivative instruments			40,611		34,006		26,753		31,275		68,944		69,884		33,718		32,857		170,026		168,022




Replacement value netting																			96,579	��	96,579

Replacement values after netting																			73,447		71,443

¹ PRV: Positive replacement value.
² NRV: Negative replacement value.
³ Exchange-traded products include proprietary trades only.

121

UBS Group Financial Statements

Notes to the Financial Statements

Note 2624 Derivative Instruments (continued)

As at 31 December 2000


																																		Total
As at 31 December 2000					Term to maturity							Total
												notional		Term to maturity																				notional
		Within 3 months		3-12 months		1-5 years		Over 5 years		Total	Total	amount		Within 3 months				3–12 months				1–5 years				over 5 years				Total		Total		amount
CHF million	CHF million	PRV¹	NRV²	PRV	NRV	PRV	NRV	PRV	NRV	PRV	NRV	CHF bn	CHF million	PRV¹		NRV²		PRV		NRV		PRV		NRV		PRV		NRV		PRV		NRV		CHF bn


Interest rate contracts	Interest rate contracts												Interest rate contracts
Over the counter (OTC) contracts	Over the counter (OTC) contracts												Over the counter (OTC) contracts
	Forward contracts	517	791	167	360	284	256			968	1,407	1,066.3	Forward contracts		517		791		167		360		284		256						968		1,407		1,066.3
	Swaps	1,879	4,231	5,398	1,785	16,846	9,246	28,248	20,993	52,371	36,255	3,033.2	Swaps		1,566		4,231		5,398		1,694		15,759		7,793		27,892		20,872		50,615		34,590		3,030.2
	Options	542	541	865	2,969	1,512	6,862	701	4,541	3,620	14,913	864.6	Options		542		453		865		2,882		623		5,162		625		2,044		2,655		10,541		829.1

Exchange-traded contracts³	Exchange-traded contracts³												Exchange-traded contracts³




													Futures																		0		0		454.6




													Options				6				10										0		16		24.1

Total													Total		2,625		5,481		6,430		4,946		16,666		13,211		28,517		22,916		54,238		46,554		5,404.3

Credit derivative contracts													Credit derivative contracts




Over the counter (OTC) contracts													Over the counter (OTC) contracts
	Futures											454.6	Credit default swaps				88				87		889		1,700		76		2,497		965		4,372		35.5
	Options	0	6		10					0	16	24.1	Total rate of return swaps		313						91		1,087		1,453		356		121		1,756		1,665		3.0

Total	Total	2,938	5,569	6,430	5,124	18,642	16,364	28,949	25,534	56,959	52,591	5,442.8	Total		313		88		0		178		1,976		3,153		432		2,618		2,721		6,037		38.5

Foreign exchange contracts	Foreign exchange contracts												Foreign exchange contracts
Over the counter (OTC) contracts	Over the counter (OTC) contracts												Over the counter (OTC) contracts
	Forward contracts	22,652	20,140	8,098	9,410	939	1,084	35	27	31,724	30,661	1,250.3	Forward contracts		22,652		20,140		8,098		9,410		939		1,084		35		27		31,724		30,661		1,250.3
	Interest and currency swaps	2,563	1,621	2,921	2,507	8,715	7,031	3,019	2,098	17,218	13,257	345.9	Interest and currency swaps		2,563		1,621		2,921		2,507		8,715		7,031		3,019		2,098		17,218		13,257		345.9
	Options	2,958	2,726	2,896	3,031	821	438	28	35	6,703	6,230	786.8	Options		2,958		2,726		2,896		3,031		821		438		28		35		6,703		6,230		786.8

Exchange-traded contracts³	Exchange-traded contracts³												Exchange-traded contracts³
	Futures											1.0	Futures																		0		0		1.0
	Options	4	1	21	4					25	5	1.2	Options		4		1		21		4										25		5		1.2

Total	Total	28,177	24,488	13,936	14,952	10,475	8,553	3,082	2,160	55,670	50,153	2,385.2	Total		28,177		24,488		13,936		14,952		10,475		8,553		3,082		2,160		55,670		50,153		2,385.2

Precious metals contracts	Precious metals contracts												Precious metals contracts
Over the counter (OTC) contracts	Over the counter (OTC) contracts												Over the counter (OTC) contracts
	Forward contracts	176	187	211	181	369	394	2	17	758	779	15.3	Forward contracts		176		187		211		181		369		394		2		17		758		779		15.3
	Options	128	80	206	201	934	936	85	119	1,353	1,336	75.2	Options		128		80		206		201		934		936		85		119		1,353		1,336		75.2

Exchange-traded contracts³	Exchange-traded contracts³												Exchange-traded contracts³
	Futures											0.7	Futures																						0.7
	Options	1	2	6	12					7	14	1.3	Options		1		2		6		12										7		14		1.3

Total	Total	305	269	423	394	1,303	1,330	87	136	2,118	2,129	92.5	Total		305		269		423		394		1,303		1,330		87		136		2,118		2,129		92.5

Equity / Index contracts	Equity / Index contracts												Equity / Index contracts
Over the counter (OTC) contracts	Over the counter (OTC) contracts												Over the counter (OTC) contracts
	Forward contracts	1,417	3,186	1,170	2,271	2,424	3,019	1,715	2,948	6,726	11,424	32.2	Forward contracts		1,417		3,186		1,170		2,271		2,424		3,019		1,715		2,948		6,726		11,424		32.2
	Options	1,751	3,867	6,977	12,358	4,752	17,985	311	2,648	13,791	36,858	283.8	Options		1,751		3,867		6,977		12,358		4,752		17,985		311		2,648		13,791		36,858		283.8

Exchange-traded contracts³	Exchange-traded contracts³												Exchange-traded contracts³
	Futures											15.3	Futures																		0		0		15.3
	Options	1,771	1,647	819	1,051	400	446	2	3	2,992	3,147	45.2	Options		1,771		1,647		819		1,051		400		446		2		3		2,992		3,147		45.2

Total	Total	4,939	8,700	8,966	15,680	7,576	21,450	2,028	5,599	23,509	51,429	376.5	Total		4,939		8,700		8,966		15,680		7,576		21,450		2,028		5,599		23,509		51,429		376.5

Commodity contracts	Commodity contracts												Commodity contracts
Over the counter (OTC) contracts	Over the counter (OTC) contracts												Over the counter (OTC) contracts
	Forward contracts		1				1			0	2	0.0	Forward contracts				1														0		2		0.0
	Options		1	1		3	3			4	4	0.0	Options				1		3				3		3						4		4		0.0

Total	Total		2	1		3	4			4	6	0.0	Total		0		2		1		0		3		4		0		0		4		6		0.0

Total derivative instruments	Total derivative instruments	36,359	39,028	29,756	36,150	37,999	47,701	34,146	33,429	138,260	156,30	8	Total derivative instruments		36,359		39,028		29,756		36,150		37,999		47,701		34,146		33,429		138,260		156,308
Replacement value netting	Replacement value netting									80,385	80,385		Replacement value netting																		80,385		80,385

Replacement values after netting	Replacement values after netting									57,875	75,923		Replacement values after netting																		57,875		75,923

¹ ~~PRV: Positive replacement value.~~ ² ~~NRV: Negative replacement value.~~ ³ ~~Exchange-traded products include proprietary trades only.~~

¹ PRV: Positive replacement value.
² NRV: Negative replacement value.
³ Exchange-traded products include proprietary trades only.

122

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 26 Derivative Instruments (continued)~~

As at 31 December 1999¹ Term to maturity
Within 3 months 3-12 months 1-5 years Over 5 years Total
CHF million PRV² NRV³ PRV NRV PRV NRV PRV NRV PRV
Interest rate contracts

Over the counter (OTC) contracts
Forward contracts 34 55 68 19 6 1 108
Swaps 5,248 2,100 3,125 2,871 22,565 24,168 35,557 30,301 66,495
Options 108 27 47 742 268 12 4 2,018 427
Exchange-traded contracts⁴

Futures
Options
Total
5,390 2,182 3,240 3,632 22,839 24,181 35,561 32,319 67,030
Foreign exchange contracts

Over the counter (OTC) contracts
Forward contracts 9,657 14,264 3,628 7,008 411 851 13 37 13,709
Interest and currency swaps 622 520 2,036 1,826 529 6,076 2,567 1,518 5,754
Options 3,344 2,708 3,934 3,138 8,883 411 30 10 16,191
Exchange-traded contracts⁴

Futures 0 1 0
Options 0 1 4 1 4
Total
13,623 17,494 9,602 11,973 9,823 7,338 2,610 1,565 35,658
Precious metals contracts

Over the counter (OTC) contracts
Forward contracts 1,092 1,047 44 62 70 60 0 0 1,206
Options 277 215 594 466 1,168 1,059 117 130 2,156
Exchange-traded contracts⁴

Futures
Options 5 5 8 10 5
Total
1,369 1,267 643 536 1,238 1,129 117 130 3,367
Equity / Index contracts

Over the counter (OTC) contracts
Forward contracts 526 1,721 1,148 2,044 503 5,325 1,762 2,787 3,939
Options 1,840 1,611 3,814 10,021 9,766 27,182 350 2,985 15,770
Exchange-traded contracts⁴

Futures 74 46 74
Options 1,395 304 1,744 4,047 72 63 3,211
Total
3,835 3,682 6,706 16,112 10,341 32,570 2,112 5,772 22,994
Commodity contracts

Over the counter (OTC) contracts
Forward contracts 29 25 29
Options 15 15 15
Total
44 40 44
Total derivative instruments
24,261 24,665 20,191 32,253 44,241 65,218 40,400 39,786 129,093
Replacement value netting 66,136
Replacement values after netting
62,957

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

As at 31 December 1999¹ Total
notional
Total amount
CHF million NRV CHF bn
Interest rate contracts

Over the counter (OTC) contracts
Forward contracts 75 554.0
Swaps 59,440 2,650.9
Options 2,799 1,877.0

Exchange-traded contracts⁴

Futures 774.1
Options 54.4

Total
62,314 5,910.4

Foreign exchange contracts

Over the counter (OTC) contracts
Forward contracts 22,160 1,077.1
Interest and currency swaps 9,940 252.3
Options 6,267 813.5

Exchange-traded contracts⁴

Futures 1 3.5
Options 2 3.7

Total
38,370 2,150.1

Precious metals contracts

Over the counter (OTC) contracts
Forward contracts 1,169 30.0
Options 1,870 82.9

Exchange-traded contracts⁴

Futures 0.8
Options 23 4.9

Total
3,062 118.6

Equity / Index contracts

Over the counter (OTC) contracts
Forward contracts 11,877 149.4
Options 41,799 264.7

Exchange-traded contracts⁴

Futures 46 25.1
Options 4,414 79.8

Total
58,136 519.0

Commodity contracts

Over the counter (OTC) contracts
Forward contracts 25 0.2
Options 15 0.1

Total
40 0.2

Total derivative instruments
161,922
Replacement value netting 66,136

Replacement values after netting
95,786

¹The 1999 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1: Summary of Significant Accounting Policies). ²~~PRV: Positive replacement value.~~ ³~~NRV: Negative replacement value.~~ ⁴~~Exchange-traded products include proprietary trades only.~~

~~100~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 26 Derivative Instruments (continued)~~

The Group uses derivative instruments for trading and non-trading purposes as explained in the previous paragraphs. All derivatives instruments held or issued for trading or used to hedge another financial instrument carried at fair value are accounted for at fair value with changes in fair value recorded in Net trading income. The Group uses interest rate swaps in its asset / liability management. These interest rate swaps are accounted for on the accrual basis of accounting as an adjustment of Net interest income. They are disclosed under “non-trading” in the table below. Gains and losses on terminations of non-trading interest rate swaps are deferred and amortized to Net interest income over the remaining original maturity of the contract. All other derivatives used in asset/liability management are accounted for on a fair value basis of accounting due to the short term nature of these derivatives.

The following table presents the fair value, average fair value and notional amounts for each class of derivative financial instrument, before netting, for the years ended 31 December 2000 and 31 December 1999 distinguished between held or issued for trading purposes and held or issued for non-trading purposes. Average balances for the years ended 31 December 2000 and 31 December 1999 are calculated from quarterly data.

31 December 2000 31 December 1999¹
total total
total average total average notional total average total average notional
CHF million PRV PRV NRV NRV CHF bn PRV PRV NRV NRV CHF bn
Trading

Interest Rate contracts 52,626 55,447 49,202 54,803 5,244 62,082 75,923 58,107 75,129 5,775
Foreign Exchange contracts 55,299 42,820 49,314 37,138 2,374 34,632 35,843 37,479 37,075 2,137
Precious Metal contracts 2,118 2,809 2,129 2,659 92 3,367 4,630 3,062 4,501 119
Equity/ Index contracts 23,509 22,224 51,429 46,591 377 22,994 18,366 58,136 42,984 519
Commodity contracts 4 18 6 18 0 44 383 40 213 0
Total
133,556 123,318 152,080 141,209 123,119 135,145 156,824 159,902
Non-Trading

Interest Rate contracts 4,333 3,997 3,389 3,400 199 4,948 5,014 4,207 4,212 135
Foreign Exchange contracts 371 364 839 1,057 11 1,026 669 891 622 13
Precious Metal contracts 0 0 0 0 0 0 0 0 0 0
Equity/ Index contracts 0 0 0 0 0 0 0 0 0 0
Commodity contracts 0 0 0 0 0 0 0 0 0 0
Total
4,704 4,361 4,228 4,457 5,974 5,683 5,098 4,834
Total Trading and Non-Trading

Interest Rate contracts 56,959 59,444 52,591 58,203 5,443 67,030 80,937 62,314 79,341 5,910
Foreign Exchange contracts 55,670 43,184 50,153 38,195 2,385 35,658 36,512 38,370 37,697 2,150
Precious Metal contracts 2,118 2,809 2,129 2,659 92 3,367 4,630 3,062 4,501 119
Equity/ Index contracts 23,509 22,224 51,429 46,591 377 22,994 18,366 58,136 42,984 519
Commodity contracts 4 18 6 18 0 44 383 40 213 0
Total
138,260 127,679 156,308 145,666 129,093 140,828 161,922 164,736

¹~~The 1999 figures have been restated to reflect retroactive changes in presentation.~~

~~101~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Off-Balance Sheet and other Information

Note 2725 Pledged Assets

Assets pledged or assigned as security for liabilities and assets subject to reservation of title


	Carrying		Related		Carrying		Related		Carrying		Related		Carrying		Related
	amount		liability		amount		liability		amount		liability		amount		liability
CHF million	31.12.00		31.12.00		31.12.99		31.12.99		31.12.01		31.12.01		31.12.00		31.12.00


Money market paper		28,395		5		35,578		707
Mortgage loans		1,639		1,121		2,536		1,736		1,311		873		1,639		1,121
Securities¹		87,871		62,611		23,837		585		204,623		163,134		116,266		62,616
Property and equipment		137		66		170		91		160		89		137		66
Other		1		0		2,110		0		2		0		1		0

Total pledged assets		118,043		63,803		64,231		3,119		206,096		164,096		118,043		63,803

^{1 For the year ended 31 December 2000 includes Includes securities pledged in respect of securities lending and repurchase agreements.}

Assets are pledged as collateral for collateralized credit lines with central banks, loans from central mortgage institutions, deposit guarantees for savings banks, security deposits relating to stock exchange membership and mortgages on the Group’s property.

Note 2826 Fiduciary Transactions


CHF million	31.12.01		31.12.00

Placements with third parties		58,466		69,300




Fiduciary credits and other fiduciary financial transactions		1,136		1,234

Total fiduciary transactions		59,602		70,534

Fiduciary placement represents funds which customers have instructed the Group to place in foreign banks. The Group is not liable to the customer for any default by the foreign bank nor do creditors of the Group have a claim on the assets placed.

CHF million 31.12.00 31.12.99
Placements with third parties 69,300 60,221
Fiduciary credits and other fiduciary financial transactions 1,234 1,438
Total fiduciary transactions
70,534 61,659

~~102~~

123

UBS Group Financial Statements

Notes to the Financial Statements

Note 2927 Commitments and Contingent Liabilities

~~Commitments~~The Group utilizes various lending-related financial instruments in order to meet the financial needs of its customers. The Group issues commitments to extend credit, standby and ~~contingencies~~other letters of credit, guarantees, commitments to enter into repurchase agreements, note issuance facilities and revolving underwriting facilities. Guarantees represent ~~potential future liabilities~~irrevocable assurances, subject to the satisfaction of certain conditions, that the Group ~~resulting from~~will make payment in the event that the customer fails to fulfill its obligation to third parties. The Group also enters into commitments to extend credit ~~facilities~~in the form of credit lines which are available to ~~clients,~~secure the liquidity needs of our customers, but not yet drawn upon by ~~them. They are subject~~them, the majority of which range in maturity from 1 month to ~~expiration~~5 years.

The contractual amount of these instruments is the maximum amount at ~~fixed dates.~~risk for the Group if the customer fails to meet its obligations. The risk is similar to the risk involved in extending loan facilities and is monitored with the same risk control processes and specific credit risk policies. For the years ended 31 December 2001, 2000 and 1999 the Group recognized expense in the income statement related to obligations incurred for contingencies and commitments of CHF 25 million, CHF 1 million and CHF 2 million, respectively.

The Group ~~engages~~generally enters into sub-participations to mitigate the risks from the Group’s commitments and contingencies. A sub-participation is an agreement with another party to fund a portion of the credit facility and to take a share of the loss in ~~providing open credit facilities~~the event that the borrower fails to ~~allow clients quick access to funds required to meet their short-term obligations as well as their long-term financing needs.~~fulfill its obligations. The ~~credit facilities can take~~Group retains the ~~form of guarantees, whereby~~contractual relationship with the borrower and the sub-participant has only an indirect relationship with the borrower. The Group might guarantee repayment of a loan taken out by a client with a third party; standby letters of credit, which are credit enhancement facilities enabling the client to engage in trade finance at lower cost; documentary letters of credit, which are trade finance-related payments made on behalf of a client; commitments towill only enter into ~~repurchase agreements; note issuance facilities and revolving underwriting facilities, which allow clients~~sub-participation agreements with banks whose rating is at least equal to ~~issue money market paper~~ or ~~medium-term notes when needed without engaging in the normal underwriting process each time.~~

~~The figures disclosed in the accompanying tables represent the amounts at risk should clients draw fully on all facilities and then default, and there is no collateral. Determination~~higher than that of the ~~creditworthiness of the clients is part of the normal credit risk management process, and the fees charged for maintenance of the facilities reflect the various credit risks.~~borrower.


CHF million	31.12.00			31.12.99			31.12.01			31.12.00


Contingent liabilities
Credit guarantees and similar instruments¹		18,651			18,822			18,566			18,651
Sub-participations		(5,669	)		(3,665	)		(4,944	)		(5,669	)

Total		12,982			15,157			13,622			12,982

Performance guarantees and similar instruments²		6,337			6,782			4,865			6,337
Sub-participations		(62	)		(42	)		(4	)		(62	)

Total		6,275			6,740			4,861			6,275

Irrevocable commitments under documentary credits		2,798			2,704			2,056			2,798




Sub-participations								0			0

Total								2,056			2,798

Gross contingent liabilities		27,786			28,308			25,487			27,786




Sub-participations		(5,731	)		(3,707	)		(4,948	)		(5,731	)

Net contingent liabilities		22,055			24,601			20,539			22,055

Irrevocable commitments
Undrawn irrevocable credit facilities		53,510			65,693			50,608			53,510
Sub-participations		(788	)		(1,836	)		(532	)		(788	)

Total		52,722			63,857			50,076			52,722

Liabilities for calls on shares and other equities		133			57			98			133

Gross irrevocable commitments		53,643			65,750			50,706			53,643




Sub-participations		(788	)		(1,836	)		(532	)		(788	)

Net irrevocable commitments		52,855			63,914			50,174			52,855

Gross commitments and contingent liabilities		81,429			94,058			76,193			81,429




Sub-participations		(6,519	)		(5,543	)		(5,480	)		(6,519	)

Net commitments and contingent liabilities		74,910			88,515			70,713			74,910

¹ Credit guarantees in the form of bill of exchange and other guarantees, including guarantees in the form of irrevocable letters of credit, endorsement liabilities from bills rediscounted, advance payment guarantees and similar facilities. ² ~~Bid bonds, performance bonds, builders’ guarantees, letters of indemnity, other performance guarantees in the form of irrevocable letters of credit and similar facilities.~~

Mortgage Other
CHF million collateral collateral Unsecured Total
Overview of collateral
Gross contingent liabilities 154 12,703 14,929 27,786
Gross irrevocable commitments 1,124 7,455 44,931 53,510
Liabilities for calls on shares and other equities 0 0 133 133
Total 31.12.2000
1,278 20,158 59,993 81,429
Total 31.12.1999 577 20,130 73,351 94,058

~~103~~


¹		Credit guarantees in the form of bill of exchange and other guarantees, including guarantees in the form of irrevocable letters of credit, endorsement liabilities from bills rediscounted, advance payment guarantees and similar facilities.
²		Bid bonds, performance bonds, builders’ guarantees, letters of indemnity, other performance guarantees in the form of irrevocable letters of credit and similar facilities.

124

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 27 Commitments and Contingent Liabilities (continued)


	Mortgage		Other
CHF million	collateral		collateral		Unsecured		Total

Overview of collateral




Gross contingent liabilities		293		14,243		10,951		25,487




Gross irrevocable commitments		1,418		11,382		37,808		50,608




Liabilities for calls on shares and other equities						98		98

Total 31.12.2001		1,711		25,625		48,857		76,193

Total 31.12.2000		1,278		20,158		59,993		81,429

Other commitments

The Group enters into commitments to fund external private equity funds and investments, which typically expire within five years. These commitments do not involve credit or market risk as the funds purchase investments at market value at the time the commitments are drawn. The maximum amount available to fund these investments at 31 December 2001 and 31 December 2000 was CHF 3,548 million and CHF 3,276 million, respectively.

Note 3028 Operating Lease Commitments

Our minimum commitments for non-cancellable leases of premises and equipment are presented as follows:


CHF million	31.12.00	31.12.01


Operating leases due2001	686
Operating leases due
2002	652		1,200
2003	634		1,081
2004	580		965
2005	503		823
2006 and thereafter	3,958




2006			742




2007 and thereafter			5,953

Total commitments for minimum payments under operating leases	7,013		10,764

Operating expenses include CHF 1,092 million, CHF 816 million and CHF 742 million in respect of operating lease rentals for the year ended 31 December 2001, 31 December 2000 and 31 December 1999, respectively.

125

UBS Group Financial Statements
Notes to the Financial Statements

Note 3129 Litigation

In the United States, several class actions in relation to the business activities of Swiss Companies during World War II, have been brought against the bank (as legal successor to Swiss Bank Corporation and Union Bank of Switzerland) in the United States District Court for the Eastern District of New York (Brooklyn). These lawsuits were initially filed in October 1996. Another Swiss bank was designated as a defendant alongside us. On 12 August 1998, however, a settlement was reached between the parties. This settlement provides for a payment by the defendant banks to the plaintiffs, under certain terms and conditions, of an aggregate amount of USD 1.25 billion. UBS agreed to contribute up to two-thirds of this amount. As a result of contributions by Swiss industrial companies to the settlement, UBS’ share was reduced by CHF 50 million. A number of persons have elected to opt out of the settlement and not to participate in the class action. Based on our estimates of forthcoming contributions, we provided USD 610 million in 1998, an additional USD 95 million in 1999 and USD 123 million in 2000. Several payments have been made approximating the reserved amount. The settlement agreement was approved by the ~~competent judge~~court on 26 July 2000, and on 22 November 2000 the distribution plan ~~was~~has been approved. ~~Appeals against these decisions are still pending, but we do not believe they should~~By 23 November 2000 the banks have atransferred the last instalment of the settlement amount to the court for distribution. The approval of the Settlement became final by 30 May 2001. There is one appeal by the banks regarding the interpretation of the Settlement Agreement which has yet to be decided. However, this appeal is without financial impact onto the ~~Group.~~bank.

In addition, ~~UBS AG~~the bank and other companies within the UBS Group are subject to various claims, disputes and legal proceedings, as part of the normal course of business. The Group makes provision for such matters when, in the opinion of management and its professional advisors, it is probable that a payment will be made by the Group, and the amount can be reasonably estimated. All litigation provisions are included within Business risk provisions.

In respect of the further claims asserted against the Group of which management is aware ~~(which,~~(and which, according to the principles outlined above, have not been provided for), it is the opinion of management that such claims are either without merit, can be successfully defended or will result in exposure to the Group which is immaterial to both financial position and results of operations.

~~104~~

126

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3230 Financial Instruments Risk Position

Overall risk position

The Group manages risk in a number of ways, including the use of a Value-at-Risk (VaR) model combined with a system of trading limits.

This section presents information about ~~the results of the~~ Group’s exposure to and its management of the risks associated with the use of financial instruments.

a) Interest Rate Risk

Interest rate risk is the potential impact offrom changes in market interest rates on the fair values of assets and liabilities on the balance sheet and on the annual interest income and expense in the income statement.

Interest rate sensitivity

One commonly used method to present the potential impact of the market movements is to show the effect of a one basis point (0.01%) change in interest rates on the fair values of assets and liabilities, analyzed by time bands within which the Group is committed. This type of presentation, described as a sensitivity analysis, is set out below. Interest rate sensitivity is one of the inputs to the ~~Value-at-Risk (VaR)~~VaR model used by the Group to manage its overall market risk, of which interest rate risk is a part.

The following table sets out the extent to which the Group was exposed to interest rate risk at 31 December 2001 and 2000. The table shows the potential net impact of a one basis point (0.01%) increase in market interest rates ~~which would influence~~on the fair values of both assets and liabilities that are subject to fixed interest rates. The impact of such an increase in rates depends on the net asset or net liability position of the Group in each category, currency and time band in the table. A negative amount in the table reflects a potential loss to the Group due to the changes in fair values as a result of an increase in interest rates. A positive amount reflects a potential gain as a result of an increase in interest rates. Both primary and derivative instruments in trading and non-trading activities, as well as off-balance-sheet commitments are included in the table.

~~105~~ The information presented below distinguishes between trading and non-trading portfolios. This distinction follows the classification used by the business for VaR purposes, which differs somewhat from the accounting classification of trading and non-trading assets and liabilities. For purposes of this table, trading includes all assets and liabilities that are kept in the Group’s trading book and which receive a valuation-at-risk treatment for capital adequacy purposes. Non-trading includes all other assets and liabilities that are kept on the banking book including derivatives designated as hedging instruments for hedge accounting purposes.

127

UBS Group Financial Statements
Notes to the Financial Statements

Note 3230 Financial Instruments Risk Position (continued)

a) Interest Rate Risk (continued)

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Interest rate sensitivity position
Interest sensitivity by time bands as of 31.12.2000
CHF thousand Within 1 1 to 3 3 to 12 1 to 5
per basis point month months months years
CHF Trading 41 (471 ) 854 63
Non-trading (39 ) 49 (49 ) (6,802 )
USD Trading (493 ) 2,007 293 (2,293 )
Non-trading 13 58 11 (342 )
EUR Trading (82 ) (152 ) 114 1,190
Non-trading 0 9 1 82
GBP Trading (227 ) 152 145 (229 )
Non-trading 0 0 (36 ) 270
JPY Trading 293 (1,532 ) 1,088 62
Non-trading 0 0 0 (1 )
Others Trading (2 ) (41 ) 124 (50 )
Non-trading 0 0 0 0


		Interest sensitivity by time bands as of 31.12.2001

CHF thousand		Within 1			1 to 3			3 to 12			1 to 5			Over 5
per basis point increase		month			months			months			years			years			Total

CHF	Trading		22			(121	)		(35	)		(297	)		(314	)		(745	)




	Non-trading		3			(24	)		(366	)		(7,656	)		(6,030	)		(14,073	)

USD	Trading		(299	)		35			96			(960	)		(2,115	)		(3,243	)




	Non-trading		35			(113	)		(157	)		(274	)		(15	)		(524	)

EUR	Trading		(129	)		73			(269	)		(308	)		(806	)		(1,439	)




	Non-trading		(2	)		(6	)		(38	)		182			0			136

GBP	Trading		(89	)		27			(520	)		65			172			(345	)




	Non-trading		0			(7	)		(57	)		175			624			735

JPY	Trading		175			695			(98	)		(1,386	)		246			(368	)




	Non-trading		1			0			(3	)		1			(4	)		(5	)

Others	Trading		(51	)		167			126			(404	)		369			207




	Non-trading		0			(1	)		0			(1	)		(4	)		(6	)


		Interest sensitivity by time bands as of 31.12.2000

CHF thousand		Within 1			1 to 3			3 to 12			1 to 5			Over 5
per basis point increase		month			months			months			years			years			Total

CHF	Trading		41			(471	)		854			63			(478	)		9




	Non-trading		(39	)		49			(49	)		(6,802	)		(3,018	)		(9,859	)

USD	Trading		(493	)		2,007			293			(2,293	)		380			(106	)




	Non-trading		13			58			11			(342	)		(183	)		(443	)

EUR	Trading		(82	)		(152	)		114			1,190			(1,801	)		(731	)




	Non-trading		0			9			1			82			177			269

GBP	Trading		(227	)		152			145			(229	)		521			362




	Non-trading		0			0			(36	)		270			585			819

JPY	Trading		293			(1,532	)		1,088			62			(450	)		(539	)




	Non-trading		0			0			0			(1	)		(4	)		(5	)

Others	Trading		(2	)		(41	)		124			(50	)		(44	)		(13	)




	Non-trading		0			0			0			0			0			0

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

In terest sensitivity by time bands as of 31.12.2000
CHF thousand Over 5
per basis point years Total
CHF (478 ) 9
(3,018 ) (9,859 )

USD 380 (106 )
(183 ) (443 )

EUR (1,801 ) (731 )
177 269

GBP 521 362
585 819

JPY (450 ) (539 )
(4 ) (5 )

Others (44 ) (13 )
0 0

Interest sensitivity by time bands as of 31.12.1999
CHF thousand Within 1 1 to 3 3 to 12 1 to 5
per basis point month months months years
CHF Trading 171 (902 ) 466 506
Non-trading (30 ) (8 ) (398 ) (6,204 )
USD Trading (411 ) 1,018 386 (109 )
Non-trading 3 (33 ) (10 ) 83
EUR Trading (39 ) (239 ) 113 600
Non-trading 0 (3 ) 3 30
GBP Trading 1 43 10 (34 )
Non-trading 0 5 (39 ) 77
JPY Trading 484 (1,708 ) 927 (101 )
Non-trading 0 0 0 (1 )
Others Trading (34 ) 46 50 (195 )
Non-trading 0 0 0 0

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

In terest sensitivity by time bands as of 31.12.1999
CHF thousand Over 5
per basis point years Total
CHF (417 ) (176 )
(1,220 ) (7,860 )

USD (908 ) (24 )
1,207 1,250

EUR (1,406 ) (971 )
210 240

GBP (77 ) (57 )
815 858

JPY 135 (263 )
(4 ) (5 )

Others 24 (109 )
0 0

Trading

The major part of ~~trading-related~~the trading related interest rate risk is generated in fixed income securities trading, fixed income derivatives trading, trading in currency forward contracts and money market trading and is managed within the ~~Value at Risk~~VaR model. Interest rate sensitivity arising from trading activities is quite sizeable in USD, EUR, GBP and JPY as these are still the predominantly traded currencies in the global interest rate markets. It should be noted that it is management’s view that an interest sensitivity analysis at a particular point in time has limited relevance with respect to trading positions, which can vary significantly on a daily basis.

~~106~~

128

Note 3230 Financial Instruments Risk Position (continued)

a) Interest Rate Risk (continued)

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Non-trading

The management of the non-trading interest rate risk is primarily done within the Corporate Center. The interest rate risk of UBS Switzerland, related to client business with undefined maturities and ~~non-interest bearing business including~~of CHF transactions with maturities above 1 year, is transferred to the Corporate Center where the strategic interest rate risk management of the overall balance sheet ~~interest rate exposure~~ is ~~managed by~~performed centrally.

The most significant part of the ~~Corporate Center. Significant contributors to the overall USD and GBP~~ interest rate sensitivity were strategic long-term subordinated notes issues which are intentionally unhedged since they are regarded as constituting a part of the Group’s equity for asset and liability management purposes as well as funding transactions related to the acquisition of PaineWebber. At 31 December 2000, the Group’s equity was invested in a portfolio of fixed rate CHF deposits with an average duration of 2.5 years. As this equity investment is the most significant component of the CHF book ~~this results in the entire book having an interest rate sensitivity~~ of CHF ~~(9.9)~~(14.1) million ~~which~~relates to the investment of the Group’s equity. This is ~~reflected in the table above. This is~~invested – in line with the duration and sensitivity targets set by the ~~Group Executive Board.~~Board of Directors – in a portfolio of fixed rate CHF loans with an average duration of 3.0 years (previously 2.5 years). Investing in shorter-term or variable rate instruments would mean exposing the earnings stream (interest income) to higher fluctuations. For the currencies EUR and GBP the interest rate sensitivity arises mainly from subordinated notes issues which are intentionally unhedged as they are regarded as constituting a part of the Group’s equity for asset and liability management purposes. The interest rate sensitivity in USD can be attributed predominantly to the short-term refinancing of financial investments.

b) Credit Risk

Credit risk represents the loss which ~~UBS~~the Group would suffer if a counterparty or issuer failed to perform its contractual obligations in all forms. ItCredit risk is inherent in traditional banking products – loans, commitments to lend, and contracts to support counterparties’ obligations to third parties such as letters of credit – and in foreign exchange and derivatives contracts, such as swaps and options (“traded products”). Positions in ~~tradeable~~tradable assets such as bonds and equities, including both direct holdings and synthetic positions through derivatives, also carry credit risk.

This risk is managed primarily based on ~~reviews~~the review of the financial status of each specific counterparty, which ~~are~~is rated on a 14 point rating scale, based on probability of default. Credit risk is higher when counterparties are concentrated in a single industry or geographical region. This is because a group of otherwise unrelated counterparties could be adversely affected in their ability to honor their obligations because of economic developments affecting their common industry or region.default for products other than tradeable assets.

Concentrations of credit risk exist if ~~a number of~~ clients are engaged in similar activities, or are located in the same geographic region or have comparable economic characteristics such that their ability to meet contractual obligations would be similarly affected by changes in economic, political or other conditions. ~~Concentrations of credit risk indicate the relative sensitivity of the bank’s performance to developments affecting a particular industry or geographic location.~~

(b)(i) On-balance sheet assets

As of 31 December ~~2000,~~2001, due from banks and loans to customers amounted to CHF ~~285~~262 billion. ~~57.9%~~60.7% of the ~~gross~~ loans were with clients domiciled in Switzerland. Please refer to Note 1210 for a breakdown by region.

The issuer default risk of securities positions reported at fair value in the trading portfolio assets amounted to CHF ~~253~~398 billion as of 31 December ~~2000.~~2001. Please refer to Note 1412 for a further breakdown by type of issuer.

~~107~~

~~Note 32 Financial Instruments Risk Position (continued)~~

~~a) Interest Rate Risk (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~(b)(ii) Off-balance sheet financial instruments~~

~~Credit commitments and contingent liabilities~~

~~Of the CHF 81 billion in credit commitment and contingent liabilities as at 31 December 2000, 15% related to clients domiciled in Switzerland, 30% Europe (excluding Switzerland) and 45% North America.~~

Derivatives

Credit risk represents the current replacement value of all outstanding derivative contracts ~~with an unrealized~~in a gain position by taking into consideration legally enforceable master netting agreements. Positive replacement values amounted to CHF 5873 billion as at 31 December ~~2000.~~2001. Based on the location of the ultimate counterparty, 6%10% of this credit risk amount related to Switzerland, ~~45%~~47% to Europe (excluding Switzerland) and ~~32%~~29% to North America. ~~42%~~50% of the positive replacement values are with other banks.

129

UBS Group Financial Statements
Notes to the Financial Statements

Note 30 Financial Instruments Risk Position (continued)
b) Credit Risk (continued)

(b)(ii) Off-balance sheet financial instruments

Credit commitments and contingent liabilities

Of the CHF 76 billion in credit commitment and contingent liabilities as at 31 December 2001, 13% related to clients domiciled in Switzerland, 24% in Europe (excluding Switzerland) and 55% in North America.

(b)(iii) Credit risk mitigation techniques

Credit risk associated with derivative instruments is mitigated by the use of master netting agreements. A further method of reducing credit exposure arising from derivative transactions is to use collateralization arrangements.

Master netting agreements eliminate risk to the extent that only the net claim is due to be settled in the case of a default of the counterparty. The impact of master netting agreements as at 31 December ~~2000~~2001 is to mitigate credit risk on derivative instruments by approximately CHF 8097 billion. The impact can change substantially over short periods of time, because the exposure is affected by each transaction subject to the arrangement.

The Group subjects its derivative-related credit risks to the same credit approval, limit and monitoring standards that it uses for managing other transactions that create credit exposure. This includes evaluation of counterparties as to creditworthiness and suitability, and managing the size, diversification and maturity structure of the portfolio. Credit utilization for all products is compared against established limits on a continual basis and is subject to a standard exception reporting process.

~~108~~

130

Note 3230 Financial Instruments Risk Position (continued)

~~b) Credit Risk (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

c) Currency Risk

The ~~Group views itself as a Swiss entity, with the~~ Swiss franc ~~as its~~is the Group’s reporting currency. Hedging transactions are used to manage foreign currency risks ~~in other currencies.~~(see Note 24: Derivative Instruments).

Breakdown of assets and liabilities by currencies
31.12.00 31.12.99
CHF billion CHF USD EUR Other CHF USD
Assets
Cash and balances with central banks 1.9 0.2 0.5 0.4 3.4 0.2
Money market paper 0.5 51.5 11.1 3.4 1.5 38.6
Due from banks 5.8 10.4 8.0 4.9 7.5 7.7
Cash collateral on securities borrowed 0.5 169.2 2.4 5.8 0.1 106.4
Reverse repurchase agreements 5.3 83.7 37.4 67.4 2.0 42.5
Trading portfolio assets 16.0 134.5 27.3 75.5 29.4 77.1
Positive replacement values 11.7 6.9 0.6 38.7 7.7 5.2
Loans, net of allowance for credit losses 154.2 52.3 7.1 31.2 166.4 35.0
Financial investments 7.1 6.4 0.7 2.2 2.5 2.9
Accrued income and prepaid expenses 1.6 4.4 0.2 0.9 1.7 1.8
Investments in associates 0.7 0.0 0.1 0.1 0.9 0.1
Property and equipment 6.9 1.4 0.0 0.6 7.4 0.5
Goodwill and other intangible assets 0.3 19.1 0.0 0.1 1.2 2.2
Other assets 2.2 3.3 0.6 2.4 3.1 1.9
Total assets 214.7 543.3 96.0 233.6 234.8 322.1
Liabilities
Money market paper issued 0.2 67.2 0.5 6.8 1.0 55.7
Due to banks 6.5 46.5 10.6 18.6 8.1 36.3
Cash collateral on securities 0.1 12.6 5.0 5.7 0.1 6.5
Repurchase agreements 10.0 194.6 16.1 74.9 16.5 91.3
Trading portfolio liabilities 2.0 52.4 11.4 16.8 0.0 38.2
Negative replacement values 8.6 6.3 2.0 59.0 12.8 7.0
Due to customers 118.8 129.7 29.9 32.4 127.5 93.8
Accrued expenses and deferred income 3.0 11.8 1.7 4.5 3.1 4.8
Long-term debt 18.1 23.5 3.9 9.4 23.7 17.6
Other liabilities 9.9 3.6 2.5 2.8 8.5 3.2
Minority interests 0.2 2.5 0.1 0.1 0.3 0.0
Shareholders’ equity 44.8 0.0 0.0 0.0 30.6 0.0
Total liabilities, minority interests and shareholders’ equity 222.2 550.7 83.7 231.0 232.2 354.4


	31.12.01								31.12.00

CHF billion	CHF		USD		EUR		Other		CHF		USD		EUR		Other

Assets




Cash and balances with central banks		3.0		0.3		0.6		17.1		1.9		0.2		0.5		0.4




Due from banks		5.0		8.6		5.2		8.7		5.8		10.4		8.0		4.9




Cash collateral on securities borrowed		0.1		156.4		2.5		3.9		0.5		169.2		2.4		5.8




Reverse repurchase agreements		5.1		142.9		40.2		81.1		5.3		83.7		37.4		67.4




Trading portfolio assets		9.6		265.2		47.2		75.9		16.1		184.1		38.2		77.2




Positive replacement values		30.6		11.4		1.2		30.2		11.7		6.9		0.6		38.7




Loans, net of allowance for credit losses		151.4		43.1		11.9		20.1		154.2		52.3		7.1		31.2




Financial investments		2.9		7.4		1.5		17.0		6.5		8.3		0.9		3.9




Accrued income and prepaid expenses		0.7		4.9		0.8		1.2		1.6		4.4		0.2		0.9




Investments in associates		0.7		0.0		0.0		0.0		0.7		0.0		0.1		0.1




Property and equipment		6.3		1.5		0.1		0.8		6.9		1.4		0.0		0.6




Goodwill and other intangible assets		0.2		18.5		0.0		0.4		0.3		19.1		0.0		0.1




Other assets		2.1		5.6		0.8		1.4		3.2		3.3		0.6		2.4

Total assets		217.7		665.8		112.0		257.8		214.7		543.3		96.0		233.6

Liabilities




Due to banks		8.0		68.6		12.9		17.0		6.5		46.5		10.6		18.6




Cash collateral on securities lent		0.0		24.3		3.2		2.8		0.1		12.6		5.0		5.7




Repurchase agreements		12.8		271.1		30.7		54.0		10.0		194.6		16.1		74.9




Trading portfolio liabilities		2.8		65.2		12.5		25.3		2.0		52.4		11.4		16.8




Negative replacement values		25.7		6.5		1.6		37.7		8.6		6.3		2.0		59.0




Due to customers		123.3		138.8		41.5		30.2		118.8		129.7		29.9		32.4




Accrued expenses and deferred income		2.4		10.0		0.9		4.0		3.0		11.8		1.7		4.5




Debt issued		15.7		120.0		8.8		11.7		18.3		90.7		4.4		16.2




Other liabilities		7.2		6.1		0.9		1.5		9.9		3.6		2.5		2.8




Minority interests		0.1		3.9		0.0		0.1		0.2		2.5		0.1		0.1




Shareholders’ equity		43.5		0.0		0.0		0.0		44.8		0.0		0.0		0.0

Total liabilities, minority interests and shareholders’ equity		241.5		714.5		113.0		184.3		222.2		550.7		83.7		231.0

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

31.12.99
CHF billion EUR Other
Assets
Cash and balances with central banks 0.5 1.0
Money market paper 0.7 28.9
Due from banks 5.3 9.4
Cash collateral on securities borrowed 1.1 5.6
Reverse repurchase agreements 37.8 50.1
Trading portfolio assets 26.9 78.5
Positive replacement values 0.5 49.6
Loans, net of allowance for credit losses 5.3 28.2
Financial investments 0.7 0.9
Accrued income and prepaid expenses 0.5 1.2
Investments in associates 0.0 0.1
Property and equipment 0.1 0.7
Goodwill and other intangible assets 0.0 0.1
Other assets 2.5 3.5

Total assets 81.9 257.8

Liabilities
Money market paper issued 0.3 7.7
Due to banks 14.5 17.5
Cash collateral on securities 1.0 5.2
Repurchase agreements 27.8 61.3
Trading portfolio liabilities 5.4 11.0
Negative replacement values 2.0 74.0
Due to customers 23.7 35.0
Accrued expenses and deferred income 0.5 3.6
Long-term debt 3.1 11.9
Other liabilities 0.7 3.7
Minority interests 0.0 0.1
Shareholders’ equity 0.0 0.0

Total liabilities, minority interests and shareholders’ equity 79.0 231.0

~~109~~

131

UBS Group Financial Statements
Notes to the Financial Statements

Note 3230 Financial Instruments Risk Position (continued)

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

d) Liquidity Risk

Maturity analysis of assets and liabilities


							Due		Due												Due		Due
					Due		between		between		Due								Due		between		between		Due
	On		Subject		within		3 and		1 and		after				On		Subject		within		3 and		1 and		after
CHF billion	demand		to notice ¹		3 mths		12 mths		5 years		5 years		Total		demand		to notice¹		3 mths		12 mths		5 years		5 years		Total


Assets
Cash and balances with central banks		3.0												3.0		21.0												21.0
Money market paper		0.0		0.0		42.4		24.0		0.0		0.0		66.4
Due from banks		12.0		1.5		12.0		2.3		1.1		0.3		29.2		10.6		0.0		14.7		1.5		0.4		0.3		27.5
Cash collateral on securities borrowed		0.0		0.5		177.0		0.0		0.4		0.0		177.9		0.0		0.0		162.5		0.0		0.4		0.0		162.9
Reverse repurchase agreements		0.0		0.0		164.6		21.1		0.3		7.9		193.9		0.0		0.0		236.9		31.4		1.0		0.0		269.3
Trading portfolio assets		253.3		0.0		0.0		0.0		0.0		0.0		253.3		397.9		0.0		0.0		0.0		0.0		0.0		397.9
Positive replacement values		57.9		0.0		0.0		0.0		0.0		0.0		57.9		73.4		0.0		0.0		0.0		0.0		0.0		73.4
Loans, net of allowance for credit losses		0.0		36.8		106.2		37.5		56.7		7.6		244.8		0.0		29.7		96.0		36.5		54.7		9.6		226.5
Financial investments		10.1		0.0		0.1		2.4		2.3		1.5		16.4		9.3		0.3		3.3		4.8		7.1		4.0		28.8
Accrued income and prepaid expenses		7.0		0.0		0.0		0.0		0.0		0.0		7.0		7.6		0.0		0.0		0.0		0.0		0.0		7.6
Investments in associates		0.0		0.0		0.0		0.0		0.0		0.9		0.9		0.0		0.0		0.0		0.0		0.0		0.7		0.7
Property and equipment		0.0		0.0		0.0		0.0		0.0		8.9		8.9		0.0		0.0		0.0		0.0		0.0		8.7		8.7
Goodwill and other intangible assets		0.0		0.0		0.0		0.0		0.0		19.5		19.5		0.0		0.0		0.0		0.0		0.0		19.1		19.1
Other assets		8.5		0.0		0.0		0.0		0.0		0.0		8.5		9.9		0.0		0.0		0.0		0.0		0.0		9.9

Total 31.12.00		351.8		38.8		502.3		87.3		60.8		46.6		1,087.6
Total 31.12.2001																529.7		30.0		513.4		74.2		63.6		42.4		1,253.3

Total 31.12.99		309.5		53.4		395.2		44.8		72.7		21.0		896.6
Total 31.12.2000																351.8		38.8		502.3		87.3		60.8		46.6		1,087.6

Liabilities
Money market paper issued		0.0		0.0		48.7		26.1		0.0		0.0		74.8
Due to banks		8.6		4.7		59.3		3.7		5.5		0.4		82.2		11.1		2.7		87.9		4.2		0.5		0.1		106.5
Cash collateral on securities lent		0.0		0.1		23.3		0.0		0.0		0.0		23.4		0.0		0.0		30.3		0.0		0.0		0.0		30.3
Repurchase agreements		0.0		0.0		251.3		32.7		0.4		11.1		295.5		0.0		0.0		336.9		31.7		0.0		0.0		368.6
Trading portfolio liabilities		82.6		0.0		0.0		0.0		0.0		0.0		82.6		105.8		0.0		0.0		0.0		0.0		0.0		105.8
Negative replacement values		75.9		0.0		0.0		0.0		0.0		0.0		75.9		71.5		0.0		0.0		0.0		0.0		0.0		71.5
Due to customers		76.2		72.3		150.1		10.0		1.7		0.4		310.7		141.4		3.7		178.9		7.7		1.2		0.9		333.8
Accrued expenses and deferred income		21.0		0.0		0.0		0.0		0.0		0.0		21.0		17.3		0.0		0.0		0.0		0.0		0.0		17.3
Long-term debt		0.0		0.1		3.8		11.8		25.7		13.5		54.9




Debt issued																0.0		0.0		66.0		50.3		27.6		12.3		156.2
Other liabilities		18.8		0.0		0.0		0.0		0.0		0.0		18.8		15.7		0.0		0.0		0.0		0.0		0.0		15.7

Total 31.12.00		283.1		77.2		536.5		84.3		33.3		25.4		1,039.8
Total 31.12.2001																362.8		6.4		700.0		93.9		29.3		13.3		1,205.7

Total 31.12.99		247.1		83.6		416.2		72.6		30.0		16.0		865.5
Total 31.12.2000																283.1		77.2		536.5		84.3		33.3		25.4		1,039.8

¹ Deposits without a fixed term, on which notice of withdrawal or termination has not been given. (Such funds may be withdrawn by the depositor or repaid by the borrower subject to an agreed period of notice.)

~~110~~


¹		Deposits without a fixed term, on which notice of withdrawal or termination has not been given (such funds may be withdrawn by the depositor or repaid by the borrower subject to an agreed period of notice).

132

Note 3230 Financial Instruments Risk Position (continued)

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

e) Capital Adequacy

Risk-weighted assets (BIS)


	Balance				Balance				Balance				Balance
	sheet /	Risk-			sheet /	Risk-			sheet /		Risk-		sheet /		Risk-
	notional	weighted			notional	weighted			notional		weighted		notional		weighted
	amount	amount			amount	amount			amount		amount		amount¹		amount¹
CHF million	31.12.00	31.12.00			31.12.99	31.12.99			31.12.01		31.12.01		31.12.00		31.12.00


Balance sheet assets
Due from banks and other collateralized lendings	333,270		7,409		229,737		9,486			380,641		7,640		333,270		7,409
Net positions on securities ¹	83,739		10,979		77,858		5,806




Net positions on securities²										29,500		10,992		20,463		10,979
Positive replacement values	57,875		18,763		62,957		18,175			73,447		19,556		57,875		18,763
Loans, net of allowances for credit losses and other collateralized lendings	312,376		162,539		292,902		159,835			305,624		154,908		312,376		162,539
Accrued income and prepaid expenses	7,062		4,653		5,167		3,164			7,554		3,679		7,062		4,653
Property and equipment ²	13,620		14,604	²	8,701		9,860	²




Property and equipment										13,202		13,202		13,620		13,620
Other assets	8,507		4,581		11,007		7,686			9,875		4,504		9,491		5,565

Off-balance sheet and other positions
Contingent liabilities	27,786		12,548		28,308		14,459			25,487		9,868		27,786		12,548
Irrevocable commitments	53,643		12,599		65,693		17,787			50,705		5,034		53,643		12,599
Forward and swap contracts ³	5,743,239		10,933		4,881,483		13,213			8,362,374		9,256		5,743,239		10,933
Purchased options ³	380,411		2,922		406,208		2,823			365,100		1,777		380,411		2,922

Market risk positions ⁴			10,760				10,813					13,319				10,760

Total risk-weighted assets			273,290				273,107					253,735				273,290

¹ ~~Excluding positions in the trading book, included in market risk positions.~~ ² Including for the year 2000, intangible assets of CHF 4,710 million. The risk-weighted amount includes CHF 984 million (1999: CHF 1,159 million) foreclosed properties and properties held for disposal, which are recorded in the balance sheet under financial investments. ³ ~~The risk-weighted amount corresponds to the security margin (add-on) of the contracts.~~ ⁴ ~~Value at Risk according to the internal model multiplied by a factor of 12.5 to create the risk-weighted amount of the market risk positions in the trading book.~~

¹ Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies).
² Excluding positions in the trading book, these are included in market risk positions.
³ The risk-weighted amount corresponds to the security margin (add-on) of the contracts.
⁴ Value at Risk according to the internal model multiplied by a factor of 12.5 to create the risk-weighted amount of the market risk positions in the trading book.

BIS capital ratios


	Capital	Ratio	Capital	Ratio	Capital		Ratio		Capital		Ratio
	CHF million	%	CHF million	%	CHF million		%		CHF million		%
	31.12.00	31.12.00	31.12.99	31.12.99	31.12.01		31.12.01		31.12.00		31.12.00


Tier 1¹	31,892	11.7	28,952	10.6
Tier 1						29,322		11.6		31,892		11.7




of which hybrid Tier 1						3,638		1.4		2,456		0.9
Tier 2	10,968		10,730			8,149		3.2		10,968		4.0

Total BIS	42,860	15.7	39,682	14.5		37,471		14.8		42,860		15.7

The Tier 1 capital includes ~~USD~~CHF 3,638 million (USD 2,175 million) trust preferred securities at 31 December 2001 and CHF 2,456 million (USD 1,500 ~~million (CHF 2,456~~ million) ~~Trust Preferred securities issued in connection with the PaineWebber acquisition.~~

at 31 December 2000.

Among other measures ~~UBS~~the Group monitors the adequacy of its capital using ratios established by the Bank for International Settlements (BIS). The BIS ratio is required to be at least 8%. The Group has complied with all BIS and Swiss capital adequacy rules for all periods presented. These ratios measure capital adequacy by comparing the Group’s eligible capital with its risk weighted positions which include balance sheet assets, net positions in securities not held in the trading book, off-balance sheet transactions converted into their credit equivalents and market risk positions at a weighted amount to reflect their relative risk.

The capital adequacy rules require a minimum amount of capital to cover credit and market risk exposures. For the calculation of the capital required for credit risk the balance sheet assets are weighted according to broad categories of notional credit risk, being assigned a

133

UBS Group Financial Statements
Notes to the Financial Statements

Note 30 Financial Instruments Risk Position (continued)
e) Capital Adequacy (continued)

risk weighting according to the amount of capital deemed to be necessary to support them. Four categories of risk weights (0%, 20%, 50%, 100%) are applied; for example cash, claims collateralized by cash or claims collateralized by OECD central-government securities have a zero risk weighting which means that no capital is required to be held in respect of these assets.

~~111~~

~~Note 32 Financial Instruments Risk Position (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~e) Capital adequacy (continued)~~

Uncollateralized loans granted to corporate or private customers carry a 100% risk weighting, meaning that they must be supported by capital equal to 8% of the carrying amount. Other asset categories have weightings of 20% or 50% which require 1.6% or 4% capital.

The net positions in securities not held in the trading book reflect the Group’s exposure to an issuer of securities arising from its physical holdings and other related transactions in that security.

For contingent liabilities and irrevocable facilities granted, the credit equivalent is calculated by multiplying the nominal value of each transaction by its corresponding credit conversion factor. The resulting amounts are then weighted for credit risk using the same percentage as for balance sheet assets. In the case of OTC forward contracts and purchased options, the credit equivalent is computed on the basis of the current replacement value of the respective contract plus a security margin (add-on) to cover the future potential credit risk during the remaining duration of the contract.

~~UBS~~The Group calculates its capital requirement for market risk positions, which includes interest-rate instruments and equity securities in the trading book as well as positions in foreign exchange ~~and commodities~~ throughout the Group, using an internal ~~Value at Risk~~Value-at-Risk (VaR) model. This approach was introduced in the BIS 1996 market risk amendment to the Basel Accord of July 1988 and incorporated in the Swiss capital adequacy rules of the Swiss Banking Ordinance.

The BIS proposal requires that the regulators perform tests of the bank internal models before giving permission for these models to be used to calculate the market risk capital. Based on extensive checks, the use of the Group internal models was accepted by the Swiss Federal Banking Commission in July 1999.

Tier 1 capital consists of ~~permanent shareholders’ equity, trust preferred securities and~~share capital, share premium, retained earnings including current year profit, foreign currency translation and minority interest less ~~goodwill~~accrued dividends, net long positions in own shares and ~~investments in unconsolidated subsidiaries.~~goodwill. Tier 2 capital includes the Group’s subordinated long-term debt.

134

Note 3331 Fair Value of Financial Instruments

The following table presents the fair value of ~~on- and off-balance sheet~~ financial instruments based on ~~certain~~the following valuation methods and assumptions. It is presented because not all financial instruments are reflected in the financial statements at fair value.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s-length transaction. AWe use market price to determine fair value, where an active market (such as a recognized stock exchange) exists, as it is the best evidence of the fair value of a financial instrument. However, market prices are not available for a significant number of the financial assets and liabilities held and issued by the Group. Therefore, for financial instruments where no market price is available, the fair values presented in the following table have been estimated using present value or other estimation and valuation techniques based on market conditions existing at balance sheet ~~date.~~dates.

The values derived ~~using~~from applying these techniques are significantly affected by the underlying assumptions used concerning both the amounts and timing of future cash flows and the discount ~~rates used.~~rates. The following methods and assumptions have been used:

(a)
~~(a)~~ trading assets, derivatives and other transactions undertaken for trading purposes are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models, or discounted cash flows. Fair value is equal to the carrying amount for these items;

~~112~~

~~Note 33 Fair Value of Financial Instruments (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

(b) financial investments classified as available-for-sale are measured at fair value by reference to quoted market prices when available. If quoted market prices are not available, then fair values are estimated on the basis of pricing models or other recognized valuation techniques. Prior to the adoption of IAS 39 in 2001, financial investments were carried at cost or if considered held for sale, at the lower of cost or market. Upon the adoption of the standard, all financial investments are carried at fair value. Unrealized gains and unrealized losses, excluding impairment write-downs, are recorded in shareholders’ equity until an asset is sold, collected or otherwise disposed of;
(c) the fair value of liquid assets and other assets maturing within 12 months is assumed to approximate their carrying amount. This assumption is applied to liquid assets and the short-term elements of all other financial assets and financial liabilities;
~~(c)~~
(d) the fair value of demand deposits and savings accounts with no specific maturity is assumed to be the amount payable on demand at the balance sheet date;
~~(d)~~
(e) the fair value of variable rate financial instruments is assumed to approximate their carrying amounts;
~~(e)~~
(f) the fair value of fixed rate loans and mortgages is estimated by comparing market interest rates when the loans were granted with current market rates offered on similar loans. Changes in the credit quality of loans within the portfolio are not taken into account in determining gross fair values as the impact of credit risk is recognized separately by deducting the amount of the allowance for credit losses from both book and fair values.

The assumptions and techniques have been developed to provide a consistent measurement of fair value for the Group’s assets and ~~liabilities.~~liabilities in the following table. However, because other institutions may use different methods and assumptions, such fair value disclosures in this note cannot necessarily be compared from one financial institution to another.
Carrying Fair Unrealized Carrying Fair Unrealized
value value gain/(loss) value value gain/(loss)
CHF billion 31.12.00 31.12.00 31.12.00 31.12.99 31.12.99 31.12.99
Assets

Cash and balances with central banks 3.0 3.0 0.0 5.0 5.0 0.0
Money market paper 66.5 66.5 0.0 69.7 69.7 0.0
Due from banks 29.1 29.1 0.0 30.0 30.0 0.0
Cash collateral on securities borrowed 177.9 177.9 0.0 113.2 113.2 0.0
Reverse repurchase agreements 193.8 193.8 0.0 132.4 132.4 0.0
Trading portfolio assets 253.3 253.3 0.0 211.9 211.9 0.0
Positive replacement values 57.9 57.9 0.0 62.9 62.9 0.0
Loans, net of allowance for credit losses 245.1 244.9 (0.2 ) 235.1 235.3 0.2
Financial investments 15.4 17.2 1.8 5.9 7.1 1.2

Liabilities

Money market paper issued 74.8 74.8 0.0 64.7 64.7 0.0
Due to banks 82.8 82.8 0.0 76.9 76.9 0.0
Cash collateral on securities lent 23.4 23.4 0.0 12.8 12.8 0.0
Repurchase agreements 295.5 295.5 0.0 196.9 196.9 0.0
Trading portfolio liabilities 82.6 82.6 0.0 54.6 54.6 0.0
Negative replacement values 75.9 75.9 0.0 95.8 95.8 0.0
Due to customers 311.2 311.2 0.0 280.1 280.1 0.0
Long-term debt 55.7 56.6 (0.9 ) 56.4 57.6 (1.2 )
Fair value effect on income of hedging derivatives recorded on the accrual basis (0.5 ) 0.5
Net difference between carrying value and fair value 0.2 0.7

~~113~~

135

UBS Group Financial Statements
Notes to the Financial Statements

Note 3331 Fair Value of Financial Instruments (continued)


	Carrying		Fair		Unrealized			Carrying		Fair		Unrealized
	value		value		gain / (loss)			value		value		gain / (loss)
CHF billion	31.12.01		31.12.01		31.12.01			31.12.00		31.12.00		31.12.00

Assets




Cash and balances with central banks		21.0		21.0		0.0			3.0		3.0		0.0




Due from banks		27.7		27.7		0.0			29.1		29.1		0.0




Cash collateral on securities borrowed		162.9		162.9		0.0			177.9		177.9		0.0




Reverse repurchase agreements		269.3		269.3		0.0			193.8		193.8		0.0




Trading portfolio assets		397.9		397.9		0.0			315.6		315.6		0.0




Positive replacement values		73.4		73.4		0.0			57.9		57.9		0.0




Loans, net of allowance for credit losses		226.7		227.0		0.3			245.1		244.9		(0.2	)




Financial investments		28.8		28.8		0.0			19.6		21.4		1.8

Liabilities




Due to banks		107.2		107.2		0.0			82.8		82.8		0.0




Cash collateral on securities lent		30.3		30.3		0.0			23.4		23.4		0.0




Repurchase agreements		368.6		368.6		0.0			295.5		295.5		0.0




Trading portfolio liabilities		105.8		105.8		0.0			82.6		82.6		0.0




Negative replacement values		71.4		71.4		0.0			75.9		75.9		0.0




Due to customers		334.0		334.0		0.0			311.2		311.2		0.0




Debt issued		157.5		158.6		(1.1	)		130.5		131.4		(0.9	)

Subtotal						(0.8	)						0.7

Unrealized gains and losses recorded in shareholders’ equity before tax on:




Financial investments						1.2




Derivative instruments designated as cash flow hedges						(0.6	)						(0.5)	¹




Net unrealized gains and losses




not recognized in the income statement						(0.2	)						0.2

¹ Relates to the cash flow hedge opening adjustment for IAS 39 at 1 January 2001 (see Note1 Summary of Significant Accounting Policies for more information on the adoption of IAS 39).

136

~~UBS Group~~Note 31 Fair Value of Financial ~~Statements~~Instruments (continued)

~~Notes to the Financial Statements~~

The table does not reflect the fair values of non-financial assets and liabilities such as property, equipment, goodwill, ~~intangible assets,~~ prepayments and non-interest accruals. The interest amounts accrued to date for respective financial instruments are included, for purposes of the above fair value disclosure, in the carrying value of the ~~respective~~ financial instruments.

Substantially all of the Group’s commitments to extend credit are at variable rates. Accordingly, the Group has no significant exposure to fair value fluctuations related to these commitments.

Changes in the fair value of the Group’s fixed rate loans, long- and medium-term notes and bonds issued are predominantly hedged by derivative instruments, mainly interest rate swaps. The interest rate risk inherent in the balance sheet positions with no specific maturity is also hedged with derivative instruments based on the management view on the economic maturity of the products.

The hedging derivative instruments are carried at fair value on the balance sheet and are part of the replacement values in the above table. ~~The~~When fixed rate financial instruments are hedged with derivatives in a fair value hedge, they are reflected in the above table at fair value related to the hedged exposure with fair value changes recorded in net profit. When derivative instruments are designated as cash flow hedges, the difference between the total amount of valuation gains and losses and the amortized amount of the derivatives is deferred and shown net in the table as ~~Fair value effect~~unrealized gains and losses on ~~income~~derivative instruments designated as cash flow hedges.

The decrease in the Net unrealized gains and losses during 2001 of ~~hedging derivatives recorded on~~CHF 0.4 billion is mainly attributable to the ~~accrual basis.~~

~~During 2000, the interest rate level of leading economies continued to increase. The moves in rates had a direct impact on the~~lower unrealized fair value ~~calculation of fixed term transactions.~~

Asgain from financial investments (down CHF 0.6 billion to CHF 1.2 billion). The change in the ~~bank has an excess volume~~unrealized gains and losses of fixed rate long-term assets ~~over~~has increased by CHF 0.5 billion from the prior year as a result of declining interest rates during 2001. This was partially offset by an increase in fair value loss from fixed rate long-term liabilities, the net fair value unrealized gain reduced substantially. In addition to fixed rate balance sheet positions, the bank has a number of retail products traditionally offered in Switzerland, such as variable rate mortgage loansdebt issues and ~~customer savings and deposits. These instruments have no maturity or have a contractual repricing maturity of less than one year. Based on the assumptions and the guidance under IAS, they are excluded~~ from ~~the fair value calculations of the table above.~~

The exclusion of the above traditional banking products from the fair value calculation leads to certain fair value swings. If the calculation took into account the fair value differences based on the economic maturity of the non-maturity liabilities, such as savings and deposits, in an environment of rising interest rates, they would generate fair value gains which may offset most of the fair value loss reported for fixed term transactions and for hedging ~~derivative transactions.~~

~~114~~derivatives.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3432 Retirement Benefit Plans and ~~other~~Other Employee Benefits

The Group has established various pension plans inside and outside of Switzerland. The major plans are located in Switzerland, the UK, the US and Germany. Independent actuarial valuations are performed for the plans in these locations.

Swiss pension plans until 30 June 1999

The pension funds of the Group were set up as trusts, domiciled in Basel and Zurich. All domestic employees were covered. The pension funds were defined benefit plans. The pension plan benefits exceeded the minimum benefits required under Swiss law.

Contributions were paid for by the Group and ~~the~~its employees. The employee contributions were calculated as a percentage of the insured annual salary and were deducted monthly. The percentages deducted from salary were dependent on age and varied between 8% and 12%. The Group contributions were variable and amount to 125% to 250% of the employees contributions depending on the financial situation of the pension fund.

The pension plan formula was based on years of contributions and final covered salary. The benefits covered included retirement benefits, disability, death and survivor pension.

Swiss pension plans starting 1 July 1999

The pension plans of both former banks in Switzerland are in the process of being liquidated and a new foundation with domicile in Zurich was created as of 21 January 1999. The new pension scheme became operational as of 1 July 1999.

As a result of the merger of the plans of the former banks in Switzerland, on 1 July 1999 there was an increase of vested plan benefits for the beneficiaries of such plans due to the allocation of the excess of the fair value of plan assets over the benefit obligation. This had the effect of increasing the Defined benefit obligation by

137

UBS Group Financial Statements
Notes to the Financial Statements

Note 32 Retirement Benefit Plans and Other Employee Benefits (continued)

CHF 3,525 million. In accordance with IAS 19 (revised ~~1998)~~2000) this resulted in a one-time charge to income which was offset by the recognition of assets previously unrecognized due to the paragraph ~~58(b)~~58 (b) limitation of IAS 19 (revised ~~1998)~~2000) used to fund this increase in benefits.

The pension plan covers practically all employees in Switzerland and exceeds the minimum benefit requirements under Swiss law. Contributions to the pension plan are paid for by employees and the Group. The employee contributions are calculated as a percentage of insured annual salary and are deducted monthly. The percentages deducted from salary for full benefit coverage (including risk benefits) depend on age and vary between 7% and 10%. The Group pays a variable contribution that ranges between 150% and 220% of the sum of employees’ contributions.

The pension plan formula is based on years of contributions and final covered salary. The benefits covered include retirement benefits, disability, death and survivor pension.

In 1999, the Group recognized a prepaid pension asset of CHF 456 million representing excess employer contributions. In 2000, CHF 100 million of this asset was used to satisfy the benefit obligation. There was no asset used in 2001.

Foreign pension plans

The foreign locations of UBS operate various pension schemes in accordance with local regulations and practices. Among these schemes are defined contribution plans as well as defined benefit plans. The locations with defined benefit plans of a material nature are in the UK, the US and Germany. These locations together with Switzerland cover nearly 90% of the active ~~work-force.~~workforce. Certain of these schemes permit employees to make contributions and earn matching or other contributions from the Group.

The retirement plans provide benefits in the event of retirement, death, disability or employment termination. The plans’ retirement benefits depend on age, contributions and level of compensation. The principal plans are financed in full by the Group. The funding policy for these plans is consistent with local government and tax requirements.

The assumptions used in foreign plans take into account local economic conditions.

The amounts shown for foreign plans reflect the net funded positions of the major foreign plans.

~~115~~

~~Note 34 Retirement Benefit Plans and other Employee Benefits (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

CHF million 31.12.00 31.12.99 31.12.98
Swiss pension plans

Defined benefit obligation at the beginning of the year (17,011 ) (14,944 ) (14,431 )
Service cost (545 ) (464 ) (535 )
Interest cost (666 ) (636 ) (726 )
Plan amendments 0 (3,517 ) (119 )
Special termination benefits (211 ) 1,000 0
Actuarial gain (loss) 0 571 (6 )
Benefits paid 721 979 873
Defined benefit obligation at the end of the year
(17,712 ) (17,011 ) (14,944 )
Fair value of plan assets at the beginning of the year 18,565 17,885 17,224
Actual return on plan assets 535 2,136 856
Employer contributions 490 515 493
Plan participant contributions 205 180 185
Benefits paid (721 ) (979 ) (873 )
Special termination benefits 0 (1,172 ) 0
Fair value of plan assets at the end of the year
19,074 18,565 17,885
Plan assets in excess of benefit obligation
1,362 1,554 2,941
Unrecognized net actuarial gains (331 ) (724 ) (385 )
Unrecognized assets (675 ) (374 ) (2,556 )
Prepaid pension cost
356 456 0
Additional details to fair value of plan assets

Own financial instruments and securities lent to UBS included in plan assets 4,643 6,785 2,761
Any assets used by UBS included in plan assets 179 187 176

Retirement benefits expense

Current service cost 545 464 535
Interest cost 666 636 726
Expected return on plan assets (928 ) (883 ) (856 )
Adjustment to limit prepaid pension cost 301 (150 ) 148
Amortization of unrecognized prior service costs 211 172 6
Employee contributions (204 ) (180 ) (185 )
Actuarially determined net periodic pension cost
591 59 374
Actual return on plan assets (%) 2.9 11.9 6.7
Principal actuarial assumptions used (%)

Discount rate 4.0 4.0 5.0
Expected rate of return on plan assets 5.0 5.0 5.0
Expected rate of salary increase 2.5 2.5 4.5
Rate of pension increase 1.5 1.5 2.0

~~116~~

~~Note 34 Retirement Benefit Plans and other Employee Benefits (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

CHF million 31.12.00 31.12.99 31.12.98
Pension plans abroad

Defined benefit obligation at the beginning of the year (2,444 ) (2,009 ) (1,950 )
Service cost (165 ) (118 ) (116 )
Interest cost (162 ) (123 ) (140 )
Plan amendments 0 (2 ) (7 )
Special termination benefits (3 ) 0 40
Actuarial gain / (loss) (99 ) 2 32
Benefits paid 84 133 60
Acquisition of PaineWebber (740 ) 0 0
Currency adjustment 123 (269 ) 5
Other 0 (58 ) 67
Defined benefit obligation at the end of the year
(3,406 ) (2,444 ) (2,009 )
Fair value of plan assets at the beginning of the year 2,880 2,173 2,188
Actual return on plan assets 0 352 267
Employer contributions 13 22 43
Plan participant contributions 23 15 9
Benefits paid (84 ) (133 ) (60 )
Acquisition of PaineWebber 676 0 0
Currency adjustment (130 ) 333 0
Other 0 118 (274 )
Fair value of plan assets at the end of the year
3,378 2,880 2,173
Plan assets in excess of benefit obligation
(28 ) 436 164
Unrecognized net actuarial gains (81 ) (474 ) (63 )
Unrecognized transition amount 1 1 2
Unrecognized past service cost 2 2 0
Unrecognized assets (47 ) (28 ) (60 )
(Unfunded accrued) / prepaid pension cost (153 ) (63 ) 43
Movement of net (liability) or asset

(Unfunded accrued) / prepaid pension cost at the beginning of the year (63 ) 43 36
Net periodic pension cost (55 ) (123 ) (33 )
Employer contributions 13 22 43
Acquisition of PaineWebber (63 ) 0 0
Currency adjustment 15 (5 ) (3 )
(Unfunded accrued) / prepaid pension cost at the end of the year (153 ) (63 ) 43
Retirement benefits expense

Current service cost 165 118 116
Interest cost 162 123 140
Expected return on plan assets (243 ) (195 ) (191 )
Amortization of net transition liability 0 0 2
Adjustment to limit prepaid pension cost 0 21 2
Immediate recognition of transition assets under IAS 8 0 0 (23 )
Amortization of unrecognized prior service costs 3 77 7
Amortization of unrecognized net (gain) / losses (9 ) (6 ) (3 )
Effect of any curtailment or settlement 0 0 (8 )
Employee contributions (23 ) (15 ) (9 )
Actuarially determined net periodic pension cost
55 123 33
Actual return on plan assets (%) (0.9 ) 15.3 5.2
Principal actuarial assumptions used (weighted average %)

Discount rate 6.3 6.0 7.3
Expected rates of return on plan assets 8.1 8.1 8.6
Expected rate of salary increase 4.4 4.6 6.8
Rate of pension increase 1.6 2.2 3.3

~~117~~

~~Note 34 Retirement Benefit Plans and other Employee Benefits (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Postretirement medical and life plans

In the US and the UK the Group offers retiree medical benefits that contribute to the health care coverage of employees and beneficiaries after retirement. In addition to retiree medical benefits, the Group in the US also provides retiree life insurance benefits.

The benefit obligation in excess of plan assets for those plans amounts to CHF ~~111~~142 million as of 31 December ~~2000 (1999~~2001 (2000 CHF ~~113~~111 million, ~~1998~~1999 CHF 93113 million) and the total unfunded accrued postretirement liabilities to CHF ~~108~~130 million as of 31 December ~~2000 (1999~~2001 (2000 CHF 83108 million, ~~1998~~1999 CHF 6283 million). The actuarially determined net postretirement cost amounts to CHF 2224 million as of 31 December ~~2000 (1999~~2001 (2000 CHF 1722 million, ~~1998~~1999 CHF 17 million).

138

Note 32 Retirement Benefit Plans and Other Employee Benefits (continued)


				Swiss									Foreign

CHF million	31.12.01			31.12.00			31.12.99			31.12.01			31.12.00			31.12.99

Reconciliation of benefit obligation




Defined benefit obligation at beginning of the year		(17,712	)		(17,011	)		(14,944	)		(3,406	)		(2,444	)		(2,009	)




Service cost		(541	)		(545	)		(464	)		(121	)		(165	)		(118	)




Interest cost		(674	)		(666	)		(636	)		(204	)		(162	)		(123	)




Plan amendments								(3,517	)		(1	)					(2	)




Special termination benefits		(262	)		(211	)		1,000						(3	)




Actuarial gain/(loss)		421						571			(345	)		(99	)		2




Benefits paid		889			721			979			107			84			133




Acquisition of PaineWebber														(740	)




Currency adjustment											(12	)		123			(269	)




Other											429						(58	)

Defined benefit obligation




at the end of the year		(17,879	)		(17,712	)		(17,011	)		(3,553	)		(3,406	)		(2,444	)


Reconciliation of fair value of plan assets




Fair value of plan assets at the beginning of the year		19,074			18,565			17,885			3,378			2,880			2,173




Actual return on plan assets		(765	)		535			2,136			(220	)					352




Employer contributions		656			490			515			258			13			22




Plan participant contributions		213			205			180						23			15




Benefits paid		(889	)		(721	)		(979	)		(107	)		(84	)		(133	)




Special termination benefits								(1,172	)




Acquisition of PaineWebber														676




Currency adjustments											7			(130	)		333




Other											(429	)					118

Fair value of plan assets




at the end of the year		18,289			19,074			18,565			2,887			3,378			2,880


Funded status




Plan assets in excess of benefit obligation		410			1,362			1,554			(666	)		(28	)		436




Unrecognized net actuarial gains		961			(331	)		(724	)		673			(81	)		(474	)




Unrecognized transition amount														1			1




Unrecognized past service cost											2			2			2




Unrecognized assets		(1,015	)		(675	)		(374	)					(47	)		(28	)

(Unfunded accrued) / prepaid pension cost		356			356			456			9			(153	)		(63	)


Movement in the net (liability) or asset




(Unfunded accrued) / prepaid pension cost




at the beginning of the year		356			456			0			(153	)		(63	)		43




Net periodic pension cost		(656	)		(590	)		(59	)		(97	)		(55	)		(123	)




Employer contributions		656			490			515			258			13			22




Acquisition of PaineWebber														(63	)




Currency adjustments											1			15			(5	)

(Unfunded accrued) / prepaid pension cost		356			356			456			9			(153	)		(63	)


Amounts recognized in the balance sheet




Prepaid pension cost		356			356			456			185			53			49




Accrued pension liability											(176	)		(206	)		(112	)

(Unfunded accrued) / prepaid pension cost		356			356			456			9			(153	)		(63	)

139

UBS Group Financial Statements
Notes to the Financial Statements

~~Postretirement~~Note 32 Retirement Benefit Plans and Other Employee Benefits (continued)


				Swiss									Foreign

CHF million	31.12.01			31.12.00			31.12.99			31.12.01			31.12.00			31.12.99

Amounts recognized




in the Income Statement




Current service cost		541			545			464			121			165			118




Interest cost		674			666			636			204			162			123




Expected return on plan assets		(947	)		(927	)		(883	)		(228	)		(243	)		(195	)




Adjustment to limit prepaid pension cost		339			300			(150	)								21




Amortization of unrecognized prior service costs		262			211			172						3			77




Amortization of unrecognized net (gains)/losses														(9	)		(6	)




Employee contributions		(213	)		(205	)		(180	)					(23	)		(15	)

Actuarially determined




net periodic pension cost		656			590			59			97			55			123

Actual return on plan assets (%)		(4.0	)		2.9			11.9			(7.3	)		(0.9	)		15.3





Principal actuarial assumptions used (%)

Discount rate		4.0			4.0			4.0			6.2			6.3			6.0




Expected rate of return on plan assets		5.0			5.0			5.0			7.9			8.1			8.1




Expected rate of salary increase		2.5			2.5			2.5			4.4			4.4			4.6




Rate of pension increase		1.5			1.5			1.5			1.5			1.6			2.2

				Swiss
Additional details to fair value
of plan assets	31.12.01			31.12.00			31.12.99

Own financial instruments		781			1,211			846




Securities lent to UBS included in plan assets		824			3,432			5,939




Other assets used by UBS included in plan assets		104			179			187

140

Note 32 Retirement Benefit Plans and Other Employee Benefits (continued)

Foreign post-retirement medical and life plans


CHF million	31.12.00			31.12.99			31.12.98			31.12.01			31.12.00			31.12.99


Postretirement benefit obligation at the beginning of the year		(117	)		(96	)		(103	)
Post-retirement benefit obligation at beginning of the year											(115	)		(117	)		(96	)
Service cost		(6	)		(2	)		(7	)		(7	)		(6	)		(2	)
Interest cost		(8	)		(6	)		(8	)		(9	)		(8	)		(6	)
Plan amendments		(7	)		0			(5	)		(10	)		(7	)		0
Actuarial gain / (loss)		27			0			(9	)




Actuarial gain/(loss)											(6	)		27			0
Benefits paid		5			4			4			4			5			4
Acquisition of PaineWebber		(9	)		0			0						(9	)		0
Currency adjustment		0			(16	)		5			(2	)		0			(16	)
Other		0			(1	)		27						0			(1	)

Postretirement benefit obligation at the end of the year		(115	)		(117	)		(96	)
Post-retirement benefit obligation at end of the year											(145	)		(115	)		(117	)


CHF million	31.12.00			31.12.99			31.12.98			31.12.01			31.12.00			31.12.99


Fair value of plan assets at the beginning of the year		4			3			3
Fair value of plan assets at beginning of the year											4			4			3
Actual return on plan assets		0			1			1			0			0			1
Company contributions		4			4			3			3			4			4
Benefits paid		(4	)		(4	)		(4	)		(4	)		(4	)		(4	)

Fair value of plan assets at the end of the year		4			4			3
Fair value of plan assets at end of the year											3			4			4

The assumed health care cost trend used in determining the benefit expense for ~~2000~~2001 is ~~5.33%~~5.32%. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in the assumed health care cost trend rates would change the US ~~postretirement~~post-retirement benefit obligation and the service and interest cost components of the net periodic ~~postretirement~~post-retirement benefit costs as follows:


CHF million	1% increase		1% decrease			1% increase		1% decrease

Effect on total service and interest cost							3.0		(2.0	)




Effect on the post-retirement benefit obligation							17.0		(14.0	)

Effect on total service and interest cost		2.4		(1.7	)
Effect on the postretirement benefit obligation		11.0		(8.3	)

~~118~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

Note 3533 Equity Participation Plans

a) Equity Participation Plans Offered

UBS AG has established ~~various~~several equity participation ~~plans in the form of stock plans and stock option~~ plans to further align the long-term interests of executives, managers, staff and shareholders. The plans are offered to eligible employees in approximately 50 countries and are designed to meet the complex legal, tax and regulatory requirements of each country in which they are offered. The explanations below describe the most significant plans in general, but specific plan rules and investment offerings may vary by country.

~~Under~~Equity Plus Program (EPP):This plan replaces the Equity ~~Ownership~~Investment Plan ~~selected personnel are awarded a portion of their performance-related compensation in~~(EIP) (see below) and will be the main plan for all UBS ~~AG shares or warrants, which are restricted for a specified number of years. Under~~employees going forward. It was previously only available to UBS PaineWebber employees. Equity Plus gives eligible UBS employees the ~~Long Term Incentive Plan, key employees are granted long-term stock options~~opportunity to purchase UBS AG shares at fair market value on the purchase date and receive two options on UBS shares for each share purchased, up to a maximum limit. The options have a strike price ~~not less than~~equal to the fair market value of the ~~shares~~stock on the date the option is granted. Share purchases can be made annually from bonus compensation or quarterly, based on regular deductions from salary. Shares purchased under EPP are restricted from resale for two years from the time of purchase, and the options granted have either a

141

UBS Group Financial Statements
Notes to the Financial Statements

Note 33 Equity Participation ~~in both plans is mandatory. Long-term stock options are blocked for~~Plans (continued)

a) Equity Participation Plans Offered (continued)

two or three year vesting requirement and expire either seven or ~~five~~ten years ~~during which they cannot be exercised. One option gives~~after the ~~right to purchase one registered UBS AG share at the option’s strike price. UBS AG has additional plans under which new recruits and members~~date of ~~senior management may be granted UBS AG shares, options and warrants.~~

grant.

Under the Equity Investment Plan, employees have the choice to invest part of their annual bonus in UBS AG shares or in warrants or derivatives on UBS AG shares, which may be exercised or settled in cash. A number of awards under these plans are made in notional shares or instruments, which generally are settled in cash. A holding period, generally three years, applies during which the instruments cannot be sold or exercised. In addition, participants in the plan receive a restricted matching contribution of additional UBS AG shares or derivatives. Shares awarded under the plan are purchased or hedged in the market. Under the PAP plan,Discounted Purchase Plans:All employees in Switzerland are entitled to purchase a specified number of UBS AG shares at a predetermined discounted price each year (the discount is recorded as compensation expense). The number of shares that can be purchased depends primarily on years of service and rank. Any such shares purchased must be held for a specified period of time. ~~Information on~~

Equity Ownership Plan (EOP):Selected personnel receive a mandatory portion of their performance related compensation in UBS shares ~~available for issuance under~~and are also awarded a matching contribution in the form of additional UBS shares or options. Participants in certain countries are eligible to receive a portion of their award in Alternative Investment Vehicles (AIVs). These are generally money market funds, UBS and non-UBS mutual funds and other UBS sponsored funds. The awards vest either at the end of the restriction period (“cliff” vesting) which is normally three years or ratably over the vesting period. Under certain conditions, these awards are fully forfeitable by the employee.

Long Term Incentive Plans:Under these plans, ~~is included in the Group Statement of Changes in Equity.~~

~~The Group has adopted the equity-based compensation plans of PaineWebber for its eligible employees. The PaineWebber Equity Plus Program allows eligible~~key employees are granted options to purchase UBS AG shares at a price equal to fair market value on the purchase date and receive stock options to purchase UBS AG shares based upon the number of shares purchased under the Program. The non-qualified stock options have a price equal tonot less than the fair market value of the ~~stock~~shares on the date the option is granted. ~~Shares purchased under~~Long-term stock options are blocked for either three or five years during which they cannot be exercised. Expiration of the ~~Equity Plus Program~~options is generally six years. One option gives the right to purchase one registered UBS share at the option’s strike price. In some grants, accelerated vesting or non-forfeitability may occur if certain share appreciation targets are ~~restricted from resale~~met.

Other deferred compensation plans:UBS sponsors other deferred compensation plans for ~~two years from the time of purchase,~~selected eligible employees. Generally, contributions are made on a tax deferred basis. Participants are allowed to invest in UBS shares or AIVs. No additional company match is granted, and the ~~options that are granted under the Equity Plus Program have a three-year vesting requirement and expire seven years after the date of grant. PaineWebber has additional plans under which~~plan is generally not forfeitable. In addition, UBS also grants deferred compensation awards to new recruits, senior management and other key employees ~~may receive option grants. Options granted under the plans of PaineWebber are denominated in US dollars.~~

In addition, UBS has entered into employee retention agreements that provide for the payment to key PaineWebber employees which are subject to the employees’ continued employment and other restrictions. The awards are primarily in the form of UBS ~~stock and option grants. The estimated cost~~shares, options or other leveraged interests in non-UBS instruments.

Equity Investment Plan (EIP) (now discontinued):Prior to the ~~Group~~discontinuance of new awards under this plan in 2001, employees had the choice to invest part of their annual bonus in UBS shares, warrants or other derivatives on UBS shares. A holding period, generally three years, applied during which the instruments could not be sold or exercised. In addition, participants in the plan received a matching contribution of additional UBS shares or derivatives. Only the UBS matching contribution was forfeitable. The last EIP vesting will take place in 2004. Staff who used to have the possibility to take part in EIP are now offered the opportunity to take part in EPP.

142

Note 33 Equity Participation Plans (continued)

b) UBS Share Awards

i) Stock bonus plans

Shares granted under the various equity participation plans mentioned above are as follows:


Stock bonus plans	31.12.01		31.12.00		31.12.99

Shares awarded		15,644,000		38,340,000		10,407,000




Weighted-average fair market value per share (in CHF)		90		76		73

The stock bonus awards for 2000 include approximately 19.8 million shares granted under the retention agreements with key employees of UBS PaineWebber. The bonus awards for 1999 include 4.2 million shares issued in exchange for previously issued non-share awards and for special bonuses.

9.5 million, 4.0 million and 3.1 million shares vested in 2001, 2000 and 1999, respectively. Of these shares, the majority vested on 15 March of each year and the remaining shares vested on various dates throughout the year. On 31 December 2001, 2000 and 1999, there were 52.3 million, 47.5 million and 14.4 million unvested shares outstanding in various equity participation plans with a corresponding market value of CHF 4.4 billion in 2001, CHF 4.2 billion in 2000 and CHF 1.0 billion in 1999.

ii) Stock purchase plans

The following table shows the shares awarded and the weighted-average fair value per share for the ~~agreements is~~Group’s stock purchase plans.


Stock purchase plans	31.12.01		31.12.00		31.12.99

Share quantity for discounted purchase plans		1,701,099		966,000		5,406,000




Weighted-average purchase price (in CHF)		47		35		49




Share quantity for UBS PaineWebber plans		1,221,416		298,725




Weighted-average fair value purchase price (in USD)		51		46

143

UBS Group Financial Statements
Notes to the Financial Statements

Note 33 Equity Participation Plans (continued)

c) UBS Option Awards

Movements in options granted under various equity participation plans are as follows:


				Weighted					Weighted					Weighted
				average					average					average
				exercise					exercise					exercise
	Number of			price		Number of			price		Number of			price
	options			(in CHF)		options			(in CHF)		options			(in CHF)
	31.12.01			31.12.01		31.12.00			31.12.00		31.12.99			31.12.99

Outstanding, at the beginning of the year		63,308,502			58		30,415,386			66		21,608,358			59




Options due to the acquisition of
PaineWebber		0					18,975,810	¹		34		0			0




Granted during the year		11,070,992			94		21,248,046	²		72		10,317,426			79




Exercised during the year		(10,083,075	)		49		(5,390,307	)		50		(215,298	)		60




Forfeited during the year		(1,009,750	)		74		(1,940,433	)		64		(1,295,100	)		63

Outstanding, at the end of the year		63,286,669			66		63,308,502			58		30,415,386			66

Exercisable, at the end of the year		25,550,932			50		18,310,839			34		1,951,920			62

¹ UBS AG issued options in exchange for options of PaineWebber which have been included in the purchase price for PaineWebber at a fair value of CHF 992 million.
² Includes options granted to key employees of UBS PaineWebber, vesting over a 3-year period, subject to employee’s continued employment and other restrictions.

Some of the options in the table above have exercise prices denominated in US dollars which have been converted into CHF at the year-end spot exchange rate for purposes of this table. The exercise dates can occur on any business day during the year.

The following table summarizes additional information about stock options outstanding at 31 December 2001:


	Options outstanding						Options exercisable

Range of exercise	Number of options		Weighted-average		Weighted-average		Number of		Weighted-average
prices per share	outstanding		exercise price		remaining contractual life		options exercisable		exercise price



*CHF*			*CHF*		*Years*				*CHF*


56.67–70.00		19,966,200		63.08		3.3		4,374,462		57.85

70.01–85.00		11,017,595		78.41		3.3		0		0

85.01–106.00		6,024,480		98.60		6.8		31,800		90.00

56.67–106.00		37,008,275		73.42		3.8		4,406,262		58.08



*USD*			*USD*		*Years*				*USD*

6.34–15.00		5,269,657		8.79		2.7		5,269,657		8.79

15.01–25.00		2,879,652		22.61		3.2		2,879,652		22.61

25.01–35.00		5,983,999		28.62		4.3		5,983,999		28.62

35.01–45.00		0		0		0.0		0		0

45.01–55.00		10,067,766		48.05		6.1		7,011,362		47.05

55.01–58.76		2,077,320		57.81		6.1		0		0

6.34–58.76		26,278,394		33.74		4.7		21,144,670		28.97

Options are normally granted with a strike price either equal to fair market value or approximately ~~CHF 1.5 billion (USD 875 million) over a four-year period.~~

10% greater than the fair value of the underlying share on the grant date.

144

Note 33 Equity Participation Plans (continued)

d) Compensation Expense

Generally, the Group’s policy is to recognize expense ~~as of~~at the date of grant for equity participation instruments ~~(stocks,~~(shares, warrants, options and other derivatives for which the underlying is the Group’s own shares). The amount of expense recognized is equal to the intrinsic value ~~(excess of the UBS AG share price over the instrument’s strike price, if any)~~ of the instrument at such ~~date.~~date and is calculated as follows: 1) For stock options, it is the difference between the strike price and fair value of shares at the date of grant, if any. 2) For UBS shares and other derivative instruments, it is the fair market value. 3) For discounted share plans, the expense is equal to the difference between the fair market value and discounted value.

The accrued expense for share based compensation for the years ended 31 December 2001, 2000 and 1999 ~~and 1998~~ was CHF 974 million, CHF 1,749 million ~~CHF 1,684 million~~ and CHF ~~996~~1,684 million, respectively. The accruals include awards earned currently but issued in the following year.

~~119~~

e) Pro-Forma Net Income

~~Note 35 Equity Participation Plans (continued)~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Options on UBS AG shares~~

Weighted- Weighted- Weighted-
average average average
exercise exercise exercise
Number of price Number of price Number of price
options (in CHF) options (in CHF) options (in CHF)
31.12.00 31.12.00 31.12.99 31.12.99 31.12.98 31.12.98
Outstanding, at the beginning of the year 10,138,462 197 7,202,786 177 1,899,924 186
Options due to acquisition of PaineWebber 6,325,270 ¹ 102 0 0 0 0
Granted during the year 7,082,682 ² 215 3,439,142 237 5,811,778 182
Exercised during the year (1,796,769 ) 150 (71,766 ) 179 (22,970 ) 178
Forfeited during the year (646,811 ) 193 (431,700 ) 190 (485,946 ) 268
Outstanding, at the end of the year 21,102,834 175 10,138,462 197 7,202,786 177
Exercisable, at the end of the year 6,103,613 101 650,640 186 0 0

¹UBS AG issued options in exchange for vested options of PaineWebber, which have been included in the purchase price for PaineWebber at fair value (see Note 2: Acquisition of Paine Webber Group, Inc.). ²~~Includes options granted to key employees of PaineWebber, vesting over a 3-year period, subject to the employee’s continued employment and other restrictions.~~

~~Some of the options in the table above have exercise prices denominated in US dollars, which have been converted to Swiss francs for inclusion in the table.~~

The following table ~~summarizes information about stock options outstanding at 31 December 2000:~~
Options outstanding
Range of exercise Number of Weighted-average Weighted-average
prices per share options outstanding exercise price remaining contractual life
CHF
CHF years
170.00–225.00 9,755,040 186.81 4.1
225.01–270.00 3,436,805 237.80 4.1
170.00–270.00
13,191,845 200.09 4.1
USD
USD years
14.65–25.00 1,129,643 21.84 3.2
25.01–50.00 1,236,743 32.11 3.9
50.01–75.00 1,194,960 70.40 4.3
75.01–100.00 1,880,768 80.50 6.4
100.01–125.00 – – –
125.01–143.07 2,468,875 141.01 6.8
14.65–143.07
7,910,989 81.92 5.4

~~[Additional columns below]~~

[Continued from above table, first column(s) repeated]

Options exercisable
Range of exercise Number of Weighted-average
prices per share options exercisable exercise price

CHF
CHF

170.00–225.00 460,408 184.24

225.01–270.00 – –

170.00–270.00
460,408 184.24

USD
USD

14.65–25.00 1,129,643 21.84

25.01–50.00 1,236,743 32.11

50.01–75.00 1,194,960 70.40

75.01–100.00 1,880,768 80.50

100.01–125.00 – –

125.01–143.07 201,091 142.96

14.65–143.07
5,643,205 58.24

During 1998, options that had been issued to Swiss Bank Corporation employees were revised to reflect the 1 1/13 SBC to UBS AG share conversion rate of the merger. Also, during 1998, because of a significant drop in the UBS AG share price in the third quarter, employees were given the opportunity to convert options received earlier in the year with a strike price of CHF 270 to a reduced number ( 2/3) of options with a strike price of CHF 170.

~~Had the Group determined compensation cost for its stock-based compensation plans based on fair value at the award grant dates, the net~~presents Net income and ~~earnings~~Earnings per share for 2001, 2000 and 1999 ~~and 1998 would approximate~~as if the ~~amounts~~Group had adopted the fair value method of accounting for its equity compensation plans, rather than the intrinsic value method described in ~~the following table.~~

~~120~~

~~Note 35 Equity Participation Plans (continued)~~

~~UBS Group Financial Statements~~paragraph d) above.

~~Notes to the Financial Statements~~


CHF million, except per share data		31.12.00		31.12.99		31.12.98			31.12.01		31.12.00			31.12.99


Net income	As reported		7,792		6,153		2,972	As reported		4,973		7,792			6,153
	Pro forma		7,614		6,027		2,893	Pro-forma		4,626		7,634	¹		6,028	¹
Basic EPS	As reported		19.33		15.20		7.33	As reported		3.93		6.44			5.07
	Pro forma		18.89		14.89		7.14	Pro-forma		3.65		6.31			4.96
Diluted EPS	As reported		19.04		15.07		7.20	As reported		3.78		6.35			5.02
	Pro forma		18.61		14.76		7.01	Pro-forma		3.51		6.22			4.92

~~The pro forma amounts in the table above reflect the vesting periods of all options granted.~~
^1. Pro-forma net income at 31 December 2000 and 31 December 1999 has been adjusted for expense reversals related to forfeitures.

The effects of recognizing compensation expense and providing ~~pro forma~~pro-forma disclosures are not likely to be representative of the effects on reported Net profit for future years.

~~The weighted-average fair-value of options granted in 2000, 1999 and 1998 was CHF 48, CHF 59 and CHF 54 per share, respectively.~~

The fair value of options granted was determined ~~as of the date of issuance~~ using a proprietary option pricing model, substantially similar to the Black-Scholes model, with the following assumptions:


	31.12.2000		31.12.1999		31.12.1998
							31.12.01			31.12.00			31.12.99

Expected volatility		30%		33%		40%		30	%		30	%		33	%
Risk free interest rate (CHF)		3.27%		2.07%		2.56%		3.51	%		3.27	%		2.07	%
Risk free interest rate (USD)		5.66%		–		–		5.81	%		5.66	%		–
Expected dividend rate		2.44%		1.44%		1.64%		2.67	%		2.44	%		1.44	%
Expected life		4 years		6 years		6 years




Expected life (years)								4.5			4.4			6

~~Stock bonus and stock purchase plans~~

The ~~following table shows the shares awarded and the~~ weighted-average fair value of options granted in 2001, 2000 and 1999 was CHF 23, CHF 16 and CHF 20 per share, for the Group’s equity-based compensation plans. The fair values for the stock purchase awards reflect the purchase price paid. The stock bonus awards for 2000 include approximately 6,622,000 shares granted under the retention agreements with key employees of PaineWebber and the bonus awards for 1999, in addition to the 1998 plan-year awards, include 1,405,000 shares issued in exchange for previously issued non-share awards and for special bonuses. The stock purchase awards for 1999 include 666,000 shares issued for the 1999 plan-year.

Stock bonus plans 31.12.2000 31.12.1999 31.12.1998
Shares awarded 12,780,000 3,469,000 2,524,000
Weighted-average fair market value per share (in CHF) 228 220 210

Stock purchase plans 31.12.2000 31.12.1999 31.12.1998
Shares awarded 322,000 1,802,000 1,338,000
Weighted-average fair market value per share (in CHF) 104 148 155
respectively.

Shares awarded in 1998 under both types of plans included Swiss Bank Corporation shares issued to employees prior to the merger. For the above table, the number of these shares and their fair market value have been adjusted for the 1 1/13 Swiss Bank Corporation to UBS AG share conversion rate of the merger.145

~~121~~

UBS Group Financial Statements

Notes to the Financial Statements

Note 3634 Related Parties

Related parties include Associated companies, the Board of Directors, the Group Executive Board, the Group Managing Board, close family members and enterprises which are controlled by these individuals as well as certain persons performing similar functions.

Total remuneration ofto related parties recognized in the income statement amounted to CHF 321.4 million in 2001, CHF 272.3 million in 2000 and CHF 193.1 million in 1999, including accrued pension benefits of approximately CHF 35.4 million in 2001, CHF 30.0 million in 2000 and CHF 21.2 million in 1999. The remuneration paid to related parties in 2001 includes approximately USD 70 million (CHF 118 million) paid to employees of Paine Webber Group, Inc. who joined UBS at the merger on 3 November 2000.

The number of long-term stock options outstanding to related parties from equity plans was ~~1,564,486~~8,366,103 at 31 December ~~2000~~2001 and ~~274,616~~4,693,458 at 31 December ~~1999. This scheme is~~2000. These plans are further explained in Note 3533 Equity Participation Plans.

The external members of the Board of Directors do not have employment or service contracts with UBS, and thus are not entitled to benefits upon termination of their service on the Board of Directors. The full-time Chairman and ~~Vice-Chairman~~Vice-Chairmen have top-management employment contracts and receive pension benefits upon retirement.

The total amounts of shares and warrants held by members of the Board of Directors, Group Executive Board and Group Managing Board were ~~2,527,728~~4,068,918 and 60,578,417 as of 31 December 2001 and 7,583,184 and 69,504,577 as of 31 December ~~2000 and 2,456,092 and 11,424,514 as~~2000. No member of ~~31 December 1999.~~the Board of Directors, Group Executive Board or Group Managing Board is the beneficial owner of more than 1% of the Group’s shares.

~~Total loans~~Loans and advances receivable ~~(mortgages only)~~ from related parties were as follows:


CHF million	2000			1999			31.12.01			31.12.00


Mortgages at the beginning of the year		28			27			36			28
Additions		9			6			8			9
Reductions		(1	)		(5	)		(12	)		(1	)

Mortgages at the end of the year		36			28			32			36

Members of the Board of Directors, Group Executive Board and Group Managing Board are granted mortgages at the same terms and conditions as other employees. Terms and conditions are based on ~~third party~~third-party conditions ~~excluding~~adjusted for reduced credit ~~margin.~~risk.

Loans and advances to significant associated companies were as follows:


CHF million	2000			1999			31.12.01		31.12.00


Loans and advances at the beginning of the year		62			165			0		62
Additions		0			42			65		0
Reductions		(62	)		(145	)		0		(62	)

Loans and advances at the end of the year		0			62			65		0

All loans and advances to associated companies are transacted at arm’s length. At 31 December 2001, there are trading exposures and guarantees to significant associated companies of CHF 306 million. The Group routinely receives services from associated companies at an arm’s length basis. For the year ended 31 December 2001, the amount paid to significant associates was CHF 98 million. Note 3836 provides a list of significant associates.

146

Note 3735 Post-Balance Sheet Events

There have been no material post-balance sheet events which would require disclosure or adjustment to the 31 December ~~2000 financial statements.~~2001 Financial Statements.

~~Long-term debt, excluding medium-term notes, has~~Bond issues have decreased by CHF ~~582~~1,109 million ~~since~~from the balance sheet date to ~~5 March 2001.~~

12 February 2002. On 1412 February ~~2001,~~2002, the Board of Directors reviewed the ~~financial statements~~Financial Statements and ~~authorised~~authorized them for issue. These ~~financial statements~~Financial Statements will be submitted to the Annual General Meeting of Shareholders to be held on 2618 April ~~2001~~2002 for approval.

~~122~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Footnotes~~


¹	~~CH: UBS Switzerland~~
²	~~AM: UBS Asset Management~~
³	~~WA: UBS Warburg~~
⁴	~~CC: Corporate Center~~
⁵	~~Share Capital and Share Premium~~
⁶	~~Joined UBS Asset Management on 20 February 2001 and was renamed Brinson Advisors Inc~~

Note 3836 Significant Subsidiaries and Associates

The legal entity group structure of UBS is designed to support the Group’s businesses within an efficient legal, tax, regulatory and funding framework. Neither the Business Groups of UBS (namely UBS Warburg, UBS Switzerland and UBS Asset Management) nor Corporate Center are replicated in their own individual legal entities but rather they generally operate out of the parent bank, UBS AG, through its Swiss and foreign branches.

The ~~goal of the focus on the~~ parent bank isstructure allows UBS to capitalize on the ~~synergies~~advantages offered by the use of ~~a single~~one legal platform ~~enable~~by all the Business Groups. It provides for the most cost efficient and flexible structure and facilitates efficient allocation and use of capital, ~~in an efficient manner~~comprehensive risk management and ~~to provide a structure where the activities of the Business Groups may be carried on without the need to set up separate subsidiaries beforehand.~~straightforward funding processes.

Where, usually due to local legal, tax or regulatory rules or due to additional legal entities joining the UBS Group via acquisition, it is either not possible or not efficient to operate out of the parent bank then local subsidiary companies host the appropriate businesses. The significant operating subsidiary companies in the Group are listed below:

Significant subsidiaries

Equity
Share interest

Jurisdiction

Business
capital accumul-
Company
of incorporation

Group¹
in millions ated in %
Armand von Ernst & Cie AG
Bern, Switzerland

CH
CHF
5.0
100.0
Aventic AG
Zurich, Switzerland

CH
CHF
30.0
100.0
Banco UBS Warburg SA
Rio de Janeiro, Brazil

WA
BRL 52.9 100.0
Bank Ehinger & Cie AG
Basel, Switzerland

CH
CHF 6.0 100.0
BDL Banco di Lugano
Lugano, Switzerland

CH
CHF 50.0 100.0
Brinson Advisors Inc
Delaware, USA

AM
USD 35.2 ² 100.0
Brinson Canada Co
Halifax, Canada

AM
CAD 117.0 100.0
Brinson Partners (New York) Inc
New York, USA

AM
USD 0.5 100.0
Brinson Partners Inc
Delaware, USA

AM
USD – 100.0
Brunswick UBS Warburg Limited
George Town, Cayman Islands

WA
USD 25.0 ² 50.0
Cantrade Privatbank AG
Zurich, Switzerland

CH
CHF 10.0 100.0
Cantrade Private Bank Switzerland (CI) Limited
St. Helier, Jersey

CH
GBP 0.7 100.0
Crédit Industriel SA
Zurich, Switzerland

CH
CHF 10.0 100.0
EIBA «Eidgenössische Bank» Beteiligungs- und Finanzgesellschaft
Zurich, Switzerland

WA
CHF 14.0 100.0
Factors AG
Zurich, Switzerland

CH
CHF 5.0 100.0
Ferrier Lullin & Cie SA
Geneva, Switzerland

CH
CHF 30.0 100.0
Fondvest AG
Zurich, Switzerland

AM
CHF 4.3 100.0
Global Asset Management Limited
Hamilton, Bermuda

AM
USD 2.0 100.0
Hirslanden Holding AG
Zurich, Switzerland

CC
CHF 22.5 91.2
HYPOSWISS, Schweizerische Hypotheken- und Handelsbank
Zurich, Switzerland

CH
CHF 26.0 100.0 ³

Footnotes

¹ CH: UBS Switzerland, AM: UBS Asset Management, WA: UBS Warburg, CC: Corporate Center.
² Share Capital and Share Premium.
³ Sold subsequently to 31 December 2001.

147

Equity
Share interest
Registered Business capital accumul-
Company office Group in millions ated in %
Armand von Ernst & Cie AG Bern CH¹ CHF 5.0 100.0
Aventic AG Zurich CH CHF 30.0 100.0
Bank Ehinger & Cie AG Basel CH CHF 6.0 100.0
BDL Banco di Lugano Lugano CH CHF 50.0 100.0
Brinson Partners Inc Chicago AM² USD 1.9 ⁵ 100.0
Brunswick UBS Warburg Limited George Town WA³ USD 25.0 ⁵ 50.0
Cantrade Privatbank AG Zurich CH CHF 10.0 100.0
Cantrade Private Bank Switzerland (CI) Limited St. Helier CH GBP 0.7 100.0
Correspondent Services Corporation Delaware WA USD 26.8 ⁵ 100.0
Crédit Industriel SA Zurich CH CHF 10.0 100.0
EIBA “Eidgenössische Bank”
Beteiligungs- und Finanzgesellschaft Zurich WA CHF 14.0 100.0
Factors AG Zurich CH CHF 5.0 100.0
Ferrier Lullin & Cie SA Geneva CH CHF 30.0 100.0
Fondvest AG Zurich AM CHF 4.3 100.0
Global Asset Management Limited Hamilton AM USD 2.0 100.0
HYPOSWISS, Schweizerische Hypotheken- und Handelsbank Zurich CH CHF 26.0 100.0
IL Immobilien-Leasing AG Opfikon CH CHF 5.0 100.0
Klinik Hirslanden AG Zurich CC⁴ CHF 22.5 91.2
Mitchell Hutchins Asset Management Inc⁶
Delaware WA USD 35.1 ⁵ 100.0
NYRE Holding Corporation Delaware WA USD 30.3 ⁵ �� 100.0
PaineWebber Capital Inc Delaware WA USD 25.5 ⁵ 100.0
PaineWebber Incorporated Delaware WA USD 1,625.6 ⁵ 100.0
PaineWebber Incorporated of Puerto Rico Puerto Rico WA USD 24.2 ⁵ 100.0
PaineWebber Life Insurance Company California WA USD 29.3 ⁵ 100.0
PT UBS Warburg Indonesia Jakarta WA IDR 11,000.0 85.0
PW Trust Company New Jersey WA USD 4.4 ⁵ 99.6
Schröder Münchmeyer Hengst AG Hamburg WA DEM 100.0 100.0
SG Warburg & Co International BV Amsterdam WA GBP 40.5 100.0
SG Warburg Securities SA Geneva WA CHF 14.5 100.0
Thesaurus Continentale Effekten-Gesellschaft Zürich Zurich CH CHF 30.0 100.0
UBS (Bahamas) Ltd Nassau CH USD 4.0 100.0
UBS (Cayman Islands) Ltd George Town CH USD 5.6 100.0
UBS (France) SA Paris WA EUR 10.0 100.0
UBS (Italia) SpA Milan WA ITL 43,000.0 100.0
UBS (Luxembourg) SA Luxembourg CH CHF 150.0 100.0
UBS (Monaco) SA Monte Carlo CH EUR 9.2 100.0

~~123~~

UBS Group Financial Statements
Notes to the Financial Statements

Note 3836 Significant Subsidiaries and Associates (continued)

Significant subsidiaries (continued)

Equity

interest

Jurisdiction

Business

capital

accumul-

Company

of incorporation

Group¹

in millions

ated in %

IL Immobilien-Leasing AG

Opfikon, Switzerland

CHF

5.0

100.0

PaineWebber Capital Inc

Delaware, USA

USD

25.7

100.0

PT UBS Warburg Indonesia

Jakarta, Indonesia

IDR

11,000.0

85.0

PW Trust Company

New Jersey, USA

USD

4.4

99.6

SG Warburg & Co International BV

Amsterdam, the Netherlands

GBP

40.5

100.0

SG Warburg Securities SA

Geneva, Switzerland

CHF

14.5

100.0

Thesaurus Continentale Effekten-Gesellschaft Zürich

Zurich, Switzerland

CHF

30.0

100.0

UBS (Bahamas) Ltd

Nassau, Bahamas

USD

4.0

100.0

UBS (Cayman Islands) Ltd

George Town, Cayman Islands

USD

5.6

100.0

UBS (France)SA

Paris, France

EUR

10.0

100.0

UBS (Italia) SpA

Milan, Italy

EUR

22.2

100.0

UBS (Luxembourg) SA

Luxembourg, Luxembourg

CHF

150.0

100.0

UBS (Monaco) SA

Monte Carlo, Monaco

EUR

9.2

100.0

UBS (Sydney) Limited

Sydney, Australia

AUD

12.7

100.0

UBS (Trust and Banking) Ltd

Tokyo, Japan

JPY

10,900.0

100.0

UBS (USA) Inc

Delaware, USA

USD

315.0

100.0

UBS Americas Inc

Delaware, USA

USD

3,562.9

100.0

UBS Asset Management (Australia) Ltd

Sydney, Australia

AUD

8.0

100.0

UBS Asset Management (France) SA

Paris, France

EUR

0.8

100.0

UBS Asset Management (Italia) SIM SpA

Milan, Italy

EUR

0.5

100.0

UBS Asset Management (Japan) Ltd

Tokyo, Japan

JPY

2,200.0

100.0

UBS Asset Management (Singapore) Ltd

Singapore, Singapore

SGD

4.0

100.0

UBS Asset Management (Taiwan) Ltd

Taipei, Taiwan

TWD

340.0

84.1

UBS Asset Management Holding Limited

London, Great Britain

GBP

8.0

100.0

UBS Australia Limited

Sydney, Australia

AUD

50.0

100.0

UBS Bank (Canada)

Toronto, Canada

CAD

20.7

100.0

UBS Beteiligungs-GmbH & Co KG

Frankfurt, Germany

EUR

398.8

100.0

UBS Bunting Warburg Inc

Toronto, Canada

CAD

33.3

50.0

UBS Capital (Jersey) Ltd

St. Helier, Jersey

GBP

36.0

100.0

UBS Capital AG

Zurich, Switzerland

CHF

5.0

100.0

UBS Capital Americas Investments II LLC

Delaware, USA

USD

90.0

100.0

UBS Capital Asia Pacific Limited

George Town, Cayman Islands

USD

5.0

92.9

UBS Capital BV

The Hague, the Netherlands

EUR

3.2

100.0

UBS Capital II LLC

Delaware, USA

USD

2.6

100.0

UBS Capital Latin America LDC

George Town, Cayman Islands

USD

–

100.0

UBS Capital LLC

Delaware, USA

USD

18.5

100.0

UBS Capital Partners Limited

London, Great Britain

GBP

6.7

100.0

UBS Capital SpA

Milan, Italy

EUR

25.8

100.0

UBS Card Center AG

Glattbrugg, Switzerland

CHF

40.0

100.0

UBS España SA

Madrid, Spain

EUR

65.3

100.0

UBS Finance (Cayman Islands) Limited

George Town, Cayman Islands

USD

0.5

100.0

UBS Finance (Curação) NV

Willemstad, Netherlands Antilles

USD

0.1

100.0

UBS Finance (Delaware) LLC

Delaware, USA

USD

37.3

100.0

UBS Finanzholding AG

Zurich, Switzerland

CHF

10.0

100.0

UBS Fund Holding (Luxembourg) SA

Luxembourg, Luxembourg

CHF

42.0

100.0

UBS Fund Holding (Switzerland) AG

Basel, Switzerland

CHF

8.0

100.0

UBS Fund Management (Switzerland) AG

Basel, Switzerland

CHF

1.0

100.0

UBS Fund Services (Luxembourg) SA

Luxembourg, Luxembourg

CHF

2.5

100.0

UBS Global Trust Corporation

St. John, Canada

CAD

0.1

100.0

UBS Immoleasing AG

Zurich, Switzerland

CHF

3.0

100.0

UBS International Holdings BV

Amsterdam, the Netherlands

CHF

5.5

100.0

UBS Invest Kapitalanlagegesellschaft mbH

Frankfurt, Germany

EUR

6.4

100.0

UBS Leasing AG

Brugg, Switzerland

CHF

10.0

100.0

Footnotes

¹		CH: UBS Switzerland, AM: UBS Asset Management, WA: UBS Warburg, CC: Corporate Center.




²		Share Capital and Share Premium.

148

Note 36 Significant Subsidiaries and Associates (continued)

Significant subsidiaries (continued)

Equity

interest

Jurisdiction

Business

capital

accumul-

Company

of incorporation

Group¹

in millions

ated in %

UBS Life AG

Zurich, Switzerland

CHF

25.0

100.0

UBS Limited

London, Great Britain

GBP

10.0

100.0

UBS O’Connor LLC

Delaware, USA

USD

1.0

100.0

UBS PaineWebber Inc

Delaware, USA

USD

1,672.3

100.0

UBS PaineWebber Incorporated of Puerto Rico

Hato Rey, Puerto Rico

USD

31.0

100.0

UBS PaineWebber Life Insurance Company

California, USA

USD

29.3

100.0

UBS Portfolio LLC

Delaware, USA

USD

0.1

100.0

UBS Principal Finance LLC

Delaware, USA

USD

0.1

100.0

UBS Private Banking Deutschland AG

Hamburg, Germany

EUR

51.0

100.0

UBS Realty Investors LLC

Connecticut, USA

USD

–

100.0

UBS Securities Limited

London, Great Britain

GBP

10.0

100.0

UBS Trust (Canada)

Toronto, Canada

CAD

12.5

100.0

UBS Trustees (Bahamas) Ltd

Nassau, Bahamas

USD

2.0

100.0

UBS Trustees (Cayman) Ltd

George Town, Cayman Islands

USD

0.5

100.0

UBS Trustees (Jersey) Ltd

St. Helier, Jersey

GBP

0.7

100.0

UBS Trustees (Singapore) Ltd

Singapore, Singapore

SGD

3.3

100.0

UBS UK Holding Limited

London, Great Britain

GBP

5.0

100.0

UBS UK Limited

London, Great Britain

GBP

609.0

100.0

UBS Warburg Asia Limited

Hong Kong, China

HKD

20.0

100.0

UBS Warburg (France) SA

Paris, France

EUR

22.9

100.0

UBS Warburg (Italia) SpA

Milan, Italy

EUR

1.9

100.0

UBS Warburg (Japan) Limited

George Town, Cayman Islands

JPY

50,000.0

100.0

UBS Warburg (Malaysia) Sdn Bhd

Kuala Lumpur, Malaysia

MYR

0.5

70.0

UBS Warburg (Nederland) BV

Amsterdam, the Netherlands

EUR

10.9

100.0

UBS Warburg AG

Frankfurt, Germany

EUR

155.7

100.0

UBS Warburg Australia Corporate Finance Ltd

Sydney, Australia

AUD

–

100.0

UBS Warburg Australia Corporation Pty Limited

Sydney, Australia

AUD

50.4

100.0

UBS Warburg Australia Equities Ltd

Sydney, Australia

AUD

190.0

100.0

UBS Warburg Australia Limited

Sydney, Australia

AUD

571.5

100.0

UBS Warburg Derivatives Limited

Hong Kong, China

HKD

20.0

100.0

UBS Warburg Hong Kong Limited

Hong Kong, China

HKD

30.0

100.0

UBS Warburg International Ltd

London, Great Britain

GBP

18.0

100.0

UBS Warburg LLC

Delaware, USA

USD

948.1

100.0

UBS Warburg Ltd

London, Great Britain

GBP

17.5

100.0

UBS Warburg New Zealand Equities Ltd

Auckland, New Zealand

NZD

7.5

100.0

UBS Warburg Private Clients Ltd

Melbourne, Australia

AUD

53.9

100.0

UBS Warburg Pte Limited

Singapore, Singapore

SGD

55.0

100.0

UBS Warburg Real Estate Securities Inc

Delaware, USA

USD

0.4

100.0

UBS Warburg Securities (España) SV SA

Madrid, Spain

EUR

15.0

100.0

UBS Warburg Securities (South Africa) (Pty) Limited

Sandton, South Africa

ZAR

22.1

100.0

UBS Warburg Securities Co Ltd

Bangkok, Thailand

THB

400.0

100.0

UBS Warburg Securities India Private Limited

Mumbai, India

INR

237.8

75.0

UBS Warburg Securities Ltd

London, Great Britain

GBP

140.0

100.0

UBS Warburg Securities Philippines Inc

Makati City, Philippines

PHP

150.0

100.0

Footnotes

¹ CH: UBS Switzerland, AM: UBS Asset Management, WA: UBS Warburg, CC: Corporate Center.
² Share Capital and Share Premium.

149

UBS Group Financial Statements

Notes to the Financial Statements

~~Significant subsidiaries (continued)~~

Equity
Share interest
Registered Business capital accumul-
Company office Group in millions ated in %
UBS (Panama) SA Panama CH USD 6.0 100.0
UBS (Sydney) Limited Sydney CH AUD 12.7 100.0
UBS (Trust and Banking) Limited Tokyo WA JPY 10,500.0 100.0
UBS (USA) Inc New York WA USD 315.0 100.0
UBS Americas Inc Stamford WA USD 3,562.9 ⁵ 100.0
UBS Asset Management (Australia) Ltd Sydney AM AUD 8.0 100.0
UBS Asset Management (France) SA Paris AM EUR 0.8 100.0
UBS Asset Management (Japan) Ltd Tokyo AM JPY 2,200.0 100.0
UBS Asset Management (New York) Inc New York AM USD 72.7 ⁵ 100.0
UBS Asset Management (Singapore) Ltd Singapore AM SGD 4.0 100.0
UBS Asset Management (Taiwan) Ltd Taipei AM TWD 340.0 82.0
UBS Asset Management Holding Limited London AM GBP 8.0 ⁵ 100.0
UBS Australia Holdings Ltd Sydney WA AUD 11.7 100.0
UBS Australia Limited Sydney WA AUD 15.0 100.0
UBS Bank (Canada) Toronto CH CAD 20.7 100.0
UBS Beteiligungs-GmbH & Co KG Frankfurt WA EUR 398.8 100.0
UBS Capital AG Zurich WA CHF 0.5 100.0
UBS Capital Asia Pacific Limited George Town WA USD 5.0 100.0
UBS Capital BV The Hague WA EUR 104.1 ⁵ 100.0
UBS Capital GmbH Munich WA EUR – 100.0
UBS Capital II LLC Delaware WA USD 2.6 ⁵ 100.0
UBS Capital LLC New York WA USD 18.5 ⁵ 100.0
UBS Capital Partners Limited London WA GBP 6.7 100.0
UBS Capital SpA Milan WA ITL 50,000.0 100.0
UBS Card Center AG Glattbrugg CH CHF 40.0 100.0
UBS España SA Madrid WA EUR 55.3 100.0
UBS Finance (Cayman Islands) Limited George Town CC USD 0.5 100.0
UBS Finance (Curação) NV Willemstad CC USD 0.1 100.0
UBS Finance (Delaware) LLC Delaware WA USD 37.3 ⁵ 100.0
UBS Finanzholding AG Zurich CC CHF 10.0 100.0
UBS Fund Holding (Luxembourg) SA Luxembourg AM CHF 42.0 100.0
UBS Fund Holding (Switzerland) AG Basel AM CHF 18.0 100.0
UBS Fund Management (Switzerland) AG Basel AM CHF 1.0 100.0
UBS Fund Services (Luxembourg) SA Luxembourg AM CHF 2.5 100.0
UBS Futures & Options Limited London WA GBP 2.0 100.0
UBS Global Trust Corporation St. John CH CAD 0.1 100.0
UBS Immoleasing AG Zurich CH CHF 3.0 100.0
UBS Inc New York WA USD 375.3 ⁵ 100.0
UBS International Holdings BV Amsterdam CC CHF 5.5 100.0
UBS Invest Kapitalanlagegesellschaft mbH Frankfurt AM DEM 15.0 100.0
UBS Investment Management Pte Ltd Singapore WA SGD 0.5 90.0
UBS Lease Finance LLC Delaware WA USD 16.7 100.0
UBS Leasing AG Brugg CH CHF 10.0 100.0
UBS Life AG Zurich CH CHF 25.0 100.0
UBS Limited London WA GBP 10.0 100.0
UBS O’Connor Limited London AM GBP 8.8 100.0
UBS Overseas Holding BV Amsterdam WA EUR 18.1 100.0
UBS Preferred Funding Company LLC I Delaware WA USD – 100.0
UBS Securities Limited London WA GBP 10.0 100.0
UBS Services Limited London WA GBP – 100.0
UBS Trust (Canada) Toronto CH CAD 12.5 100.0
UBS Trustees (Singapore) Ltd Singapore CH SGD 0.8 100.0
UBS UK Holding Limited London WA GBP 5.0 100.0
UBS UK Limited London WA GBP 609.0 100.0
UBS Warburg Asia Limited Hong Kong WA HKD 20.0 100.0
UBS Warburg (France) SA Paris WA EUR 22.9 100.0
UBS Warburg (Italia) SIM SpA Milan WA EUR 1.9 100.0

~~124~~

Note 3836 Significant Subsidiaries and Associates (continued)

~~UBS Group Financial Statements~~Consolidated companies: changes in 2001

~~Notes to the Financial Statements~~

~~Significant subsidiaries (continued)~~

Equity
Share interest
Registered Business capital accumul-
Company office Group in millions ated in %
UBS Warburg (Japan) Limited George Town WA JPY 30,000.0 50.0
UBS Warburg (Malaysia) Sdn Bhd Kuala Lumpur WA MYR 0.5 70.0
UBS Warburg (Nederland) BV Amsterdam WA EUR 10.9 100.0
UBS Warburg AG Frankfurt WA EUR 155.7 100.0
UBS Warburg Australia Corporation Pty Limited Sydney WA AUD 50.4 ⁵ 100.0
UBS Warburg Australia Limited Sydney WA AUD 571.5 ⁵ 100.0
UBS Warburg Derivatives Limited Hong Kong WA HKD 20.0 100.0
UBS Warburg Futures Inc Delaware WA USD 2.0 100.0
UBS Warburg Hong Kong Limited Hong Kong WA HKD 30.0 100.0
UBS Warburg International Ltd London WA GBP 18.0 100.0
UBS Warburg LLC Delaware WA USD 450.1 100.0
UBS Warburg Ltd London WA GBP 17.5 100.0
UBS Warburg Pte Limited Singapore WA SGD 3.0 100.0
UBS Warburg Real Estate Securities Inc Delaware WA USD 0.4 ⁵ 100.0
UBS Warburg Securities (España) SV SA Madrid WA EUR 13.4 100.0
UBS Warburg Securities (South Africa) (Pty) Limited Sandton WA ZAR 22.1 100.0
UBS Warburg Securities Co Ltd Bangkok WA THB 400.0 100.0
UBS Warburg Securities India Private Limited Mumbai WA INR 237.8 75.0
UBS Warburg Securities Ltd London WA GBP 140.0 100.0
UBS Warburg Securities Philippines Inc Makati City WA PHP 120.0 100.0

~~Significant associates~~

Deconsolidated companies


Significant deconsolidated companies	Reason for deconsolidation

~~FSG Swiss Financial Services Group AG, Zurich~~UBS (Panama) SA — Panama City, Panama	~~33.0~~	~~CHF 26~~
~~Giubergia UBS Warburg SIM SpA, Milan~~	~~50.0~~	~~EUR 15~~
~~Motor Columbus AG, Baden~~	~~35.6~~	~~CHF 253~~
~~Telekurs Holding AG, Zurich~~	~~33.3~~	~~CHF 45~~
~~Volbroker.com Limited, London~~	~~20.6~~	~~GBP 16~~Liquidated

Significant associates

Equity interest

Share capital

Company

Industry

in %

in millions

FSG Swiss Financial Services Group AG — Zurich, Switzerland

Financial

33.0

CHF

Giubergia UBS Warburg SIM SpA — Milan, Italy

Financial

49.9

EUR

Motor Columbus AG — Baden, Switzerland

Electricity

35.6

CHF

253

Telekurs Holding AG — Zurich, Switzerland

Financial

33.3

CHF

Volbroker.com Limited — London, Great Britain

Financial

20.6

GBP

None of the above investments carry voting rights that are significantly different from the proportion of shares held.

~~Consolidated companies: changes in 2000~~

~~Significant new companies~~

~~Correspondent Services Corporation, Delaware~~

~~Fondvest AG, Zurich~~

~~Mitchell Hutchins Asset Management Inc, Delaware~~⁶

~~PaineWebber Capital Inc, Delaware~~

~~PaineWebber Incorporated of Puerto Rico, Puerto Rico~~

~~PaineWebber Incorporated, Delaware~~

~~PaineWebber Life Insurance Company, California~~

~~PW Trust Company, New Jersey~~

~~UBS Americas Inc, Stamford~~

~~UBS Asset Management (Taiwan) Ltd, Taipei (formerly Fortune Securities Investment & Trust Co Ltd)~~

~~UBS Global Trust Corporation, St. John~~

~~UBS Life AG, Zurich~~

~~UBS Preferred Funding Company LLC I, Delaware~~

~~UBS Trustees (Singapore) Ltd, Singapore~~

~~UBS Warburg Real Estate Securities Inc, Delaware~~

~~125~~

150

Note ~~38 Significant Subsidiaries~~37 Acquisition of Paine Webber Group, Inc.

On 3 November 2000, UBS completed its acquisition of 100% of the outstanding common stock of the Paine Webber Group, Inc. (“PaineWebber”), a full-service broker-dealer and ~~Associates (continued)~~one of the largest securities and commodities firms in the United States servicing both individual and institutional clients. The transaction was accounted for using the purchase method of accounting, making PaineWebber a wholly owned subsidiary of UBS. Results of operations of PaineWebber have been included in the consolidated results beginning on the date of acquisition. Under IAS, the valuation of shares and options issued was measured on the date the acquisition was completed, 3 November 2000.

Purchase consideration amounted to CHF 22.0 billion (USD 12.5 billion) consisting of shares, options and cash. Total goodwill recorded in connection with the acquisition amounted to CHF 12.8 billion (USD 7.3 billion) at 3 November 2000 and is being amortized using the straight line method over an estimated useful life of 20 years.

~~UBS Group Financial Statements~~

~~Notes~~In 2001, the goodwill amount increased by CHF 54.3 million, net of tax benefits, including realized tax benefits on options granted to employees before the merger and subsequently exercised, and other adjustments to the ~~Financial Statements~~identifiable assets and liabilities acquired. At 31 December 2001 and 2000, the balance of goodwill related to the PaineWebber acquisition amounted to CHF 11.6 billion and CHF 11.8 billion respectively.

~~Deconsolidated companies~~

~~Significant deconsolidated companies~~


		~~Reason for deconsolidation~~


~~IMPRIS AG, Zurich~~		~~Sold~~
~~Solothurner Bank, Solothurn~~		~~Sold~~

Note ~~39 Significant~~38 Currency Translation Rates

The following table shows the ~~significant~~principal rates used to translate the financial statements of foreign entities into Swiss ~~francs.~~francs:



	Spot rate		Average rate
	At		Year-to-date			Spot rate				Average rate
						As at				Year-to-date
	31.12.00	31.12.99	31.12.00	31.12.99	31.12.98
						31.12.01		31.12.00		31.12.01		31.12.00		31.12.99

1 USD	1.64	1.59	1.69	1.50	1.45		1.67		1.64		1.69		1.69		1.50
1 EUR	1.52	1.61	1.56	1.60			1.48		1.52		1.50		1.56		1.60
1 GBP	2.44	2.58	2.57	2.43	2.41		2.43		2.44		2.44		2.57		2.43
100 JPY	1.43	1.56	1.57	1.33	1.11		1.27		1.43		1.40		1.57		1.33
100 DEM		82.07		81.88	82.38

Note 4039 Swiss Banking Law Requirements

The ~~significant differences between~~consolidated financial statements of UBS are prepared in accordance with International Accounting ~~Standards (IAS), which~~Standards. Set out below are the ~~principles followed by~~deviations which would result if the ~~Group,~~provisions of the Banking Ordinance and the ~~accounting requirements for banks under~~Guidelines of the Swiss ~~laws and regulations, are as follows:~~

~~Securities borrowing and lending~~

~~Under IAS only~~Banking Commission governing financial statement reporting pursuant to Article 23 through Article 27 of the ~~cash collateral delivered or received is recognized~~Banking Ordinance were applied in the ~~balance sheet. There is no recognition or derecognition for~~preparation of the ~~securities received or delivered. Up to 31 December 1999, the Swiss requirement was to recognize the securities received or delivered in the balance sheet along with any collateral in respect~~consolidated financial statements of ~~those securities for which control is transferred.~~

~~For the year ended 31 December 2000 the Swiss regulators accepted the same treatment as for IAS and therefore there is no difference in the balance sheet.~~

UBS.

1. Treasury shares

~~Treasury shares is the term used to describe the holding by an enterprise of its own equity instruments. In accordance with~~Under IAS, treasury shares are presented in the balance sheet as a deduction from Shareholders’ equity and accounted for at weighted average cost. Contracts that require physical settlement or net share settlement in UBS AG shares are classified in the Shareholders’ equity as Share premium and accounted for at weighted average cost. The difference between the proceeds from sales of treasury shares or contracts that require physical settlement or contracts that require net share settlement and their cost (net of tax) is reported as Share premium. The par value of shares repurchased and cancelled is debited to the issued and paid up share capital for the par value, with the remainder of the cost of the repurchased shares debited to Share premium. No dividends are paid on treasury shares.

151

UBS Group Financial Statements
Notes to the Financial Statements

Under Swiss law, own shares held for market making purposes are presented in the balance sheet as Trading portfolio assets. Own shares held for other purposes are classified as Financial investments and a corresponding reserve for own shares is established within Shareholders’ equity. NoAll derivative contracts on own shares are reported as Positive or Negative replacement values. Traded own shares and derivatives on own shares are carried at fair value. Gains and losses realized on disposal and unrealized gains and losses from changes in the fair value are recorded as Net trading income. Own shares reported within Financial investments are reported at the lower of cost or market value. Reductions to market value and reversals of such reductions, as well as gains and losses on disposal, are included in Other income. Own shares repurchased for cancellation are reported as financial investments and accounted for at cost. Upon cancellation, the par value of shares repurchased and cancelled is debited against Share capital for the par value, with the remainder of the purchase cost debited against General statutory reserve.

2. Financial investments

Under IAS, available-for-sale financial investments are carried at fair value. Changes in the fair value of available-for-sale financial investments are recorded as increases or decreases to Shareholders’ equity until an investment is sold, collected or otherwise disposed of, or until an investment is determined to be impaired. At the time an available-for-sale investment is determined to be impaired, the cumulative unrealized gain or loss previously recognized in Shareholders’ equity is included in net profit or loss for the period. On disposal of an available-for-sale investment, the difference between the net disposal proceeds and the carrying amount, including any previously recognized unrealized gain or loss arising from a change in fair value reported within Shareholders’ equity, is included in net profit or loss for the period.

Under Swiss law financial investments are carried at the lower of cost or market value. Reductions to market value and reversals of such reductions as well as gains and losses on disposal are included in Other income.

3. Cash flow hedges

The Group also uses derivative instruments to hedge against the exposure from varying cash flows receivable and payable. Under IAS, when hedge accounting is applied for these instruments, the unrealized gain or loss on the effective portion of the derivatives is recorded in shareholders’ equity until the hedged cash flows occur, at which time the accumulated gain or loss is realized and released to income.

Under Swiss law, the gains or losses on the effective portion of the derivative instruments used to hedge cash flow exposures are deferred on the balance sheet. The deferred amounts are released to income when the hedged cash flows occur.

4. Gains/losses not recognized in the income statement

Gains/losses not recognized in the income statement ~~on the sale, issuance, or cancellation~~is a separate line within Shareholders’ equity where under IAS unrealized gains and losses from currency translation, changes in fair value of ~~those shares. Consideration received is presented in the~~ financial ~~statement~~investments available-for-sale and of derivative instruments designated as ~~a change in equity.~~cash flow hedges are reported.

Under Swiss ~~requirements, treasury shares would be carried~~law, only foreign currency translation differences are reported in shareholders’ equity. The other two components are reported according to the ~~balance sheet (trading portfolio assets, financial investments or other liabilities) with gains~~methods described in captions 2. and ~~losses on the sale, issuance, or cancellation of treasury shares reflected in the income statement.~~3. above.

5. Extraordinary income and expense

Under IAS, ~~most~~ items of income and expense ~~arise in~~can only be classified as extraordinary if they are clearly distinct from the ~~course of~~ ordinary ~~business,~~activities and ~~extraordinary items are~~their occurrence is expected to be rare.

Under ~~the~~ Swiss ~~requirements,~~law, income and expense items related to other accounting periods and/or not directly related with the core business activities of the enterprise (e.g. realized gains or losses on sale of ~~fixed assets~~Investments in associated companies or ~~bank premises)~~Property and equipment) are recorded as extraordinary income or expense.

~~126~~ The significant differences between IAS and Swiss banking law are as follows:

152

Note 39 Swiss Banking Law Requirements (continued)


CHF million		31.12.01			31.12.00

Differences in the Balance Sheet




Treasury shares




	Trading portfolio		128




	Financial investments		3,253			4,007




	Due to banks		24			2,516




	Shareholders’ equity		3,357			1,491




Financial investments




	Due to banks		(1,856	)




	Other liabilities		(215	)




	Shareholders’ equity		(1,641	)




Cash flow hedges




	Other liabilities		(459	)




	Shareholders’ equity		459

Differences in the Income Statement




Treasury shares Net trading income			(70	)		133




	Other income		(231	)		68




Financial investments Other income			(607	)




Reclassification of extraordinary income and expense




	Other income		(95	)		(211	)




	Extraordinary income		109			233




	Extraordinary expense		14			22

153

UBS Group Financial Statements

Notes to the Financial Statements

Note 40 ~~Swiss Banking Law Requirements (continued)~~

CHF million 31.12.00 31.12.99¹
Differences in the balance sheet

Securities borrowing and lending
Assets
Trading portfolio / Money market paper 47,401
Due from banks / customers 273,093
Liabilities
Due to banks / customers 375,080
Trading portfolio liabilities (54,586 )
Treasury shares
Assets
Trading portfolio 4,561
Financial investments 4,007 3,136
Liabilities
Other liabilities 2,516 0
Differences in the income statement

Treasury shares 201 (182 )
Reclassification of extraordinary income and expense

Other income, including income from associates (211 ) (1,726 )
Differences in the shareholders’ equity

Share premium (2,509 )
Treasury shares¹
4,000 8,023

~~127~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 41~~ Reconciliation of International Accounting Standards (IAS) to United States Generally Accepted Accounting Principles (US GAAP)

Note ~~41.1~~40.1 Valuation and income recognition differences between ~~International Accounting Standards~~IAS and ~~United States Generally Accepted Accounting Principles~~US GAAP

The consolidated financial statements of the Group have been prepared in accordance with IAS. The principles of IAS differ in certain respects from United States Generally Accepted Accounting Principles (“~~U.S.~~US GAAP”).

The following is a summary of the relevant significant accounting and valuation differences between IAS and ~~U.S.~~US GAAP.

a. Purchase accounting (merger of Union Bank of Switzerland and Swiss Bank Corporation)

Under IAS, the Group accounted for the 1998 merger of Union Bank of Switzerland and Swiss Bank Corporation under the ~~pooling~~uniting of interests method. The balance sheets and income statements of the banks were combined, and no adjustments were made to the carrying values of the assets and ~~liabilities were made.~~

liabilities. Under ~~U.S.~~US GAAP, the business combination creating UBS AG is accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. Under the purchase method, the cost of acquisition is measured at fair value and the acquirer’s interests in identifiable tangible assets and liabilities of the acquiree are restated to fair values at the date of acquisition. Any excess consideration paid over the fair value of net tangible assets acquired is allocated, first to identifiable intangible assets based on their fair values, if determinable, with the remainder allocated to goodwill.

Goodwill

Under ~~U.S.~~US GAAP until 31 December 2001, goodwill ~~and other intangible assets~~ acquired ~~are~~before 30 June 2001 is capitalized and amortized over ~~the expected periods to be benefited~~its estimated useful life with adjustments for any impairment.

For ~~purposes of the U.S.~~US GAAP ~~reconciliation,~~purposes, the excess of the consideration paid for Swiss Bank Corporation over the fair value of the net tangible assets received has been recorded as goodwill and is being amortized on a straight line basis over a weighted average life of 13 years ~~beginning~~from 29 June 1998.

Upon the adoption of Statement of Financial Accounting Standard (SFAS) 142, “Goodwill and Other Intangible Assets”, on 1 January 2002, the amortization of goodwill will no longer be recorded under US GAAP. Instead, goodwill will be subject to an annual impairment test, with any decrease in value recorded in the Income statement. Refer to section l of this note, “Recently issued accounting standards” for a more detailed discussion of SFAS 142.

In 2001 and 2000, ~~and 1999,~~ goodwill recorded under US GAAP was reduced by CHF ~~211~~53 million and CHF ~~118~~211 million respectively, due to recognition of deferred tax assets of Swiss Bank Corporation which had previously been subject to valuation reserves.

Other purchase accounting adjustments

Under U.S. GAAP, the results of operations of Swiss Bank Corporation would have been included in the Group’s consolidated financial statements beginning 29 June 1998. For purposes of the U.S. GAAP reconciliation, Swiss Bank Corporation’s Net profit for the six-month period ended 29 June 1998 has been excluded from the Group’s Net profit. For purposes of the U.S. GAAP reconciliation, theThe restatement of Swiss Bank Corporation’s net assets to fair value in 1998 resulted in decreasing net tangible assets by CHF 1,077 ~~million.~~million for US GAAP. This amount ~~will be~~is being amortized over ~~a period~~periods ranging from two years to 20 years.

b. Harmonization of accounting policies

The business combination ~~noted above~~of Union Bank of Switzerland and Swiss Bank Corporation was accounted for under the ~~pooling~~uniting of interests method under IAS. Under the ~~pooling interest~~uniting of interests method of accounting, a single uniform set of accounting policies was adopted and applied to all periods presented. This resulted in a restatement of 1997 Shareholders’ equity and Net loss.

~~U.S.~~US GAAP requires that accounting changes be ~~accounted for~~recorded in the ~~income~~Income statement in the period the change is made. For ~~purposes of the U.S.~~US GAAP, ~~reconciliation~~ the accounting policy harmonization recorded inunder IAS for 1997 was reversed, ~~because the business combination noted above is being accounted for under the purchase method~~ and the impact of the accounting changes was recorded in 1998.

~~128~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Harmonization of accounting policies~~

~~The income statement effect of this conforming adjustment was as follows:~~

CHF million
For the year ended 31.12.99 31.12.98
Depreciation policies (20 ) (338 )
Credit risk adjustments on derivatives 0 (193 )
Policies for other real estate 0 (140 )
Retirement benefit and equity participation plans 0 (47 )
Settlement-risk adjustments on derivatives 0 (33 )
Total
(20 ) (751 )

~~There was no income statement effect after year 1999.~~

c. Restructuring provision

Under IAS, restructuring provisions are recognized when a legal or constructive obligation has been incurred. In 1997, the Group recognized a CHF 7,000 million restructuring provision to cover personnel, IT, premises and other costs associated with combining and restructuring the

154

merged Group. A further CHF 300 million provision was recognized in 1999, reflecting the impact of increased precision in the estimation of certain leased and owned property costs.

Under ~~U.S.~~US GAAP, the criteria for establishing restructuring provisions were more stringent than under IAS prior to 2000. For ~~purposes of the U.S.~~US GAAP, ~~reconciliation,~~ the aggregate CHF 7,300 million restructuring provision was reversed. As a result of the business combination with Swiss Bank Corporation and the decision to combine and streamline certain activities of the banks for the purpose of reducing costs and improving efficiencies, Union Bank of Switzerland recognized a restructuring provision of CHF 1,575 million during 1998 for ~~purposes of the U.S. GAAP reconciliation.~~US GAAP. CHF 759 million of this provision related to estimated costs for restructuring the operations and activities of Swiss Bank Corporation, and that amount was recorded as a liability of the acquired business. The remaining CHF 816 million of estimated costs were charged to restructuring expense during 1998. The ~~reserve is expected to be substantially utilized by 2001.~~

~~The U.S.~~US GAAP restructuring provision was ~~adjusted in 1999 (increase of~~increased by CHF 600 ~~million) and 2000 (increase of CHF 130 million) as shown in the table below.~~

During 2000, the IAS requirements for restructuring provisions were changed such that they became substantially identical to the U.S. GAAP requirements. As of 31 December 2000, the remaining IAS provision was higher than the remaining U.S. GAAP provision by approximately CHF 114 million. This amount represents an accrual permitted under IAS for lease costs on properties to be vacated. Under U.S. GAAP, such costs may not be recognized until the premises are actually vacated.

~~Restructuring provision~~

~~The usage of the U.S. GAAP restructuring provision was as follows:~~

Balance Revision Usage Balance Revision Usage Balance Usage Provision
CHF million 31.12.00 2000 2000 31.12.99 1999 1999 31.12.98 1998 1998
Personnel 422 (71 ) (188 ) 681 553 (254 ) 382 (374 ) 756
Premises 143 194 (291 ) 240 179 (244 ) 305 (27 ) 332
IT 31 67 (63 ) 27 7 (5 ) 25 (68 ) 93
Other 20 (60 ) (49 ) 129 (139 ) (45 ) 313 (81 ) 394
Total
616 130 (591 ) 1,077 600 (548 ) 1,025 (550 ) 1,575

~~Additionally, for purposes of the U.S. GAAP reconciliation, CHF 138 million, CHF 150~~ million and CHF ~~273~~130 million ofin 1999 and 2000, respectively.

During 2001, CHF 112 million restructuring costs were expensed as incurred under US GAAP. These costs were already part of the restructuring provision under IAS, but were not eligible for recognition under US GAAP until 2001. The restructuring plan was completed and the remaining balance of the US GAAP restructuring provision was used substantially in ~~2000, 1999~~accordance with previously disclosed plans. At 31 December 2001, the restructuring provision for both IAS and ~~1998, respectively.~~

~~129~~US GAAP has been fully utilized.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

d. ~~Derivatives~~Derivative instruments held or issued for ~~non-trading purposes~~hedging activities

~~Under IAS,~~

Prior to 1 January 2001, the Group ~~recognizes transactions in~~applied no hedge accounting for US GAAP. As a result, all derivative instruments ~~hedging non-trading positions in~~were carried on the ~~income statement using the accrual or deferral method, which is generally the same accounting as the underlying item being hedged.~~

~~U.S. GAAP requires that derivatives be reported~~balance sheet at fair value, with changes in fair value recorded in ~~income unless specified criteria are met~~the Income statement. Under IAS, the Group accounted for derivative instruments hedging non-trading positions in the Income statement using the accrual or deferral method, which was the same as the accounting methodology applied to ~~obtain~~the underlying item hedged.

On 1 January 2001, the Group adopted IAS 39 for its IAS financial statements (see Note 1: Summary of Significant Accounting Policies) and SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” for its US GAAP financial statements. These standards introduce new rules for the accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts, and of hedging activities. The adoption of SFAS 133 did not result in any transition items for the Group on 1 January 2001 as the Group previously did not apply hedge accounting ~~treatment (accrual or deferral method).~~under US GAAP.

~~The~~Under IAS 39, the Group is permitted to hedge interest rate risk based on forecasted cash inflows and outflows on a group basis. For this purpose, the Group accumulates information about financial assets, financial liabilities, and forward commitments which is then used to estimate and aggregate cash flows and to schedule the future periods in which these cash flows are expected to occur. Appropriate derivative instruments are then used to hedge the estimated future cash flows. SFAS 133 does not ~~comply with all of the criteria necessary to obtain~~permit hedge accounting ~~treatment under U.S. GAAP.~~for hedges of future cash flows determined by this methodology. Accordingly, for ~~purposes of the U.S.~~US GAAP ~~reconciliation, derivative instruments held or issued for non-trading purposes that did not meet U.S. GAAP hedging criteria have been~~such items continue to be carried at fair value with changes in fair value recognized ~~as adjustments to~~in Net trading income.

Since 1 January 2001, the Group’s hedging relationships have been treated the same under both IAS and US GAAP, except for hedges of interest rate risk of forecasted cash flows on a group basis as mentioned in the previous paragraph.

In addition, amounts deferred under previous hedging relationships that now do not qualify as hedges under IAS 39 are being amortized against IAS net profit over the remaining life of the hedging relationship. Such amounts have been reversed for US GAAP as they have never been treated as hedges.

e. Financial investments (prior to the adoption of IAS 39)

~~Under~~

Prior to the adoption of IAS 39 on 1 January 2001, financial investments ~~are~~were classified as either current investments or long-term ~~investments.~~investments under IAS. The Group ~~considers~~considered current financial investments to be held for sale and carried at lower of cost or market value (“LOCOM”). The Group ~~accounts~~accounted for long-term financial investments at cost, less any permanent impairments.

Under ~~U.S.~~US GAAP, the Group’s financial investments are classified as ~~either held to maturity (essentially debt securities) which are carried at amortized cost or~~ available for sale (debt and marketable equity

155

UBS Group Financial Statements
Notes to the Financial Statements

securities), ~~which~~and are carried at fair value with changes in fair value recorded ~~as a separate component of Shareholders’ equity. Realized gains~~in Other comprehensive income. Gains and losses are recognized in ~~net~~Net profit in the period ~~sold.~~

sold, and losses are recognized in the period of permanent impairment. For ~~purposes of~~ the ~~U.S.~~IAS to US GAAP reconciliation, debt and marketable equity securities ~~are~~were adjusted from LOCOM to fair value and classified as available for sale investments. ~~Held to maturity investments that do not meet U.S. GAAP criteria are also reclassified to the available for sale category.~~ Unrealized gains or unrealized losses relating to these investments were recorded in Other comprehensive income.

f. Financial investments and private equity (after the adoption of IAS 39)

With the adoption of IAS 39 on 1 January 2001, the accounting for financial investments classified as available for sale is now generally the same under IAS and US GAAP. Two exceptions exist, however: 1) private equity investments and non-marketable equity financial investments, which are classified as available for sale and carried at fair value under IAS, continue to be valued at cost less other than temporary impairments under US GAAP; and 2) write-downs on impaired assets can be fully or partially reversed under IAS if the value of the impaired assets increases. Such reversals of impairment write-downs are not allowed under US GAAP. There were no significant reversals under IAS in 2001.

The opening adjustment and subsequent changes in fair value recorded ~~as a component~~in Unrealized gains/losses on available for sale investments related to private equity investments and non-marketable equity financial investments due to the implementation of ~~Shareholders’ equity.~~IAS 39 on 1 January 2001 have been reversed under US GAAP to reflect the difference between the two standards in measuring such investments.

f.g. Retirement benefit plans

Under IAS, the Group ~~has recorded~~recognizes pension expense based on a specific method of actuarial valuation ofused to determine the projected plan liabilities for accrued service, including future expected salary increases, and expected return on plan assets. Plan assets are recorded at fair value and are held in a separate trust to satisfy plan liabilities. ~~Plan assets are recorded at fair value. The~~Under IAS the recognition of a prepaid asset ~~on the books of the Group~~ is subject to certain ~~limitations. These~~ limitations, ~~generally cause amounts recognized as expense to equal amounts funded in the same period. Any amount not recognized as a~~and any unrecognized prepaid asset ~~and the corresponding impact on~~is recorded as pension ~~expense has been disclosed in the financial statements.~~expense.

~~Generally, under U.S.~~Under US GAAP, pension expense is based on the same actuarial method of valuation of liabilities and assets as under IAS. Differences in the ~~levels~~amounts of expense and liabilities (or prepaid assets) exist due to ~~the~~ different transition date rules, ~~and the~~ stricter provisions for recognition of a prepaid ~~asset.~~

~~As a result~~asset, and the treatment of the 1998 merger ~~of the benefit plans~~ of Union Bank of Switzerland and Swiss Bank ~~Corporation, there was a one time increase of~~Corporation.

In addition, under US GAAP, if the vested plan benefits for the beneficiaries of such plans. This had the effect of increasing the defined benefit obligation by CHF 3,525 million. Under IAS this resulted in a one time charge to income which was offset by the recognition of assets (previously unrecognized due to certain limitations under IAS).

Under U.S. GAAP, in a business combination that is accounted for under the purchase method, the assignment of the purchase price to individual assets acquired and liabilities assumed must include a liability for the projected plan liabilities in excessfair value of plan assets orfalls below the accumulated benefit obligation (current value of accrued benefits without allowance for future salary increases), an additional minimum liability must be shown in the balance sheet. If an additional minimum liability is recognized, an equal amount will be recognized as an intangible asset ~~for plan assets~~up to the amount of any unrecognized past service cost. Any amount not recognized as an intangible asset is reported in ~~excess of~~Other comprehensive income. In order to record the ~~projected plan liabilities, thereby recognizing any previously existing unrecognized~~ net ~~gains or losses, unrecognized prior service cost, or unrecognized net liabilities or assets.~~

~~For purposes of the U.S.~~additional minimum liability required under US GAAP ~~reconciliation, the Group recorded~~in 2001, UBS booked a ~~prepaid asset for the Union Bank of Switzerland plans as of 1 January 1998. Swiss Bank Corporation recorded a purchase accounting~~pre-tax adjustment to ~~recognize its prepaid asset at 29 June 1998. The recognition~~the liability of ~~these~~CHF 306 million, of which CHF 3 million was recognized in intangible assets ~~impacts the pension expense recorded under U.S. GAAP versus IAS. The assets recognized under IAS~~

~~130~~and CHF 303 million in Other comprehensive income. In 2000, no adjustment was required.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~(which had been previously unrecognized due to certain limitations under IAS) were already recognized under U.S. GAAP due to the absence of such limitations under U.S. GAAP.~~

g.h. Other employee benefits

Under IAS, the Group has recorded expenses and liabilities for post-retirement medical and life insurance benefits, determined under a methodology similar to that described above under retirement benefit plans.

Under ~~U.S.~~US GAAP, expenses and liabilities for post-retirement medical and life insurance benefits ~~would be~~are determined under ~~a similar~~the same methodology as under IAS. Differences in the levels of expenses and liabilities have occurred due to different transition date rules and the treatment of the merger of Union Bank of Switzerland and Swiss Bank Corporation under the purchase method.

h.i. Equity participation plans

IAS does not specifically address the recognition and measurement requirements for equity participation plans.

~~U.S.~~ US GAAP permits the recognition of compensation cost on the grant date for the estimated fair value of equity instruments issued ~~(Statement of Financial Accounting Standard “SFAS” No.~~(SFAS 123) or based on the intrinsic value of equity instruments issued (Accounting Principles Board ~~“APB”~~

156

“APB” No. 25), with the disclosure of the pro forma effects of equity participation plans on net profit and earnings per share, as if the fair value had been recorded on the grant date. ~~The~~Under IAS, the Group recognizes only intrinsic values at the grant date with subsequent changes in value not recognized. Under US GAAP, the Group applies the APB No. 25 intrinsic value method, which requires adjustments to intrinsic values subsequent to the grant date in certain circumstances.

The shares and other diversified instruments of the Group’s equity participation plans are held in trusts on behalf of the participants. Certain of these trusts are recorded on the Group’s balance sheet for US GAAP presentation, the effect of which is to increase assets by CHF 1,485 million and CHF 1,419 million, liabilities by CHF 1,607 million and CHF 1,559 million, and decrease shareholders’ equity by CHF 122��million and CHF 140 million (for UBS AG shares held by the trusts which are treated as treasury shares) at 31 December 2001 and 2000 respectively.

For ~~purposes of the U.S.~~US GAAP, ~~reconciliation,~~ certain of the Group’s option awards have been determined to be variable pursuant to APB No. 25, primarily because they may be settled in cash or because the Group has offered to hedge ~~their value. Additional compensation expense from~~the value of the award. The effect of applying variable accounting to these ~~options~~option awards in the US GAAP reconciliation for the years ended 31 December 2001, 2000 and 1999, ~~and 1998,~~ is a CHF 30 million decrease in compensation expense, CHF 85 million increase in compensation expense and CHF 41 million ~~and CHF 1 million,~~increase in compensation expense, respectively. In addition, certain of the Group’s equity participation plans ~~provide for deferral and~~required a new expense measurement date due to diversification or cash settlement of awards. Additional expense was also recorded related to the consolidation of the ~~awards,~~trusts in the US GAAP Balance sheet and for social tax payments on exercised options recorded directly in Shareholders’ equity for IAS. For US GAAP, the ~~instruments are held in trusts for the participants. Certain~~net effect of these ~~trusts are recorded on the Group’s balance sheet for U.S. GAAP presentation. The net effect on income of recording these assets and liabilities~~transactions is ~~a debit~~an increase to expense of CHF 41 million, CHF 82 million and CHF 8 million ~~and nil~~ for the years ended 31 December 2001, 2000 ~~1999~~ and ~~1998,~~1999, respectively.

i.j. Software capitalization

Under IAS, effective 1 January 2000, certain costs associated with the acquisitions or development of internal use software ~~are required to~~must be capitalized. Once the software is ready for its intended use, the costs capitalized are amortized to the Income statement over the estimated ~~lives.~~life of the software. Under ~~U.S.~~US GAAP, the same principle applies, however this standard was effective 1 January 1999. For ~~purposes of the U.S.~~US GAAP, ~~reconciliation,~~ the costs associated with the acquisition or development of internal use software that met the ~~U.S.~~US GAAP software capitalization criteria in 1999 have been reversed from Operating expenses and amortized over a life of two years ~~once it~~from the time that the software is ready for its intended use. From 1 January 2000, the only remaining reconciliation item is the amortization of software capitalized in 1999 for ~~U.S.~~US GAAP purposes.

~~j. Trading in own shares~~ This amount will be fully amortized by 31 December 2002, and ~~derivatives on own shares~~

As of 1 January 2000, upon adoption of the Standing Interpretations Committee’s (“SIC”) interpretation 16 “Share Capital – Reacquired Own Equity Instruments (Treasury Shares)” for IAS, all own shares are treated as treasury shares and reduce total shareholders’ equity. This applies also to the number of shares outstanding. Derivatives on own shares are classified as assets, liabilities or in shareholders’ equity depending upon the manner of settlement. Asthere will no longer be a ~~result of this adoption, there is no~~ difference between IAS and ~~U.S.~~US GAAP. ~~For 1999 and 1998, figures have been retroactively restated (see Note 1, Summary of Significant Accounting Policies).~~

~~131~~

k. IAS 39 opening retained earnings adjustment

With the adoption of IAS 39 on 1 January 2001, an opening adjustment was made to reduce Retained earnings by CHF 61 million, consisting of CHF 19 million reflecting the impact of the new hedge accounting rules and CHF 42 million reflecting the impact of remeasuring assets to either amortized cost or fair value as required under the standard. For US GAAP purposes, the first adjustment was not required (because all derivatives were previously recorded in the Income statement) and was reversed, and the second adjustment was recorded in the Income statement.

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

k.l. Recently issued US accounting standards

~~Accounting for derivative instruments and hedging activities~~

In June ~~1998,~~2001, the US Financial Accounting Standards ~~board~~Board (“FASB”) issued SFAS ~~No. 133, Accounting~~141, “Business Combinations” and SFAS 142, “Goodwill and Intangible Assets”.

SFAS 141 requires, among other things, that all business combinations initiated after 30 June 2001 be accounted for ~~Derivative Instruments and Hedging Activities, which, as amended,~~using the purchase method. The pooling of interests method has been eliminated. This new standard has no impact on these financial statements.

UBS is required to ~~be adopted for financial statements as of~~adopt SFAS 142 from 1 January 2002, except for goodwill and intangible assets acquired in a business combination initiated after 30 June 2001. Any such acquisition will be subject to the rules of SFAS 142 at the acquisition date. The standard ~~establishes accounting~~requires that goodwill and ~~reporting standards~~intangible assets with indefi-

157

UBS Group Financial Statements
Notes to the Financial Statements

nite lives no longer be amortized, but be tested annually for ~~derivative instruments, including certain derivative instrument embedded in other contracts, and for hedging activities. Under International Accounting Standards, the Group is not required~~impairment. Identifiable intangible assets with finite lives will continue to comply with all the criteria necessary to obtain hedge accounting under U.S. GAAP. Accordingly, for future U.S. GAAP reconciliation, derivative instruments held or issued for non-trading purposes that do not meet U.S. GAAP hedging criteria under SFAS No. 133 will be ~~carried at fair value with changes in fair value recognized as adjustments to trading income.~~amortized.

The ~~specific impact on earnings and financial position as a result~~adoption of SFAS ~~No. 133~~142 is ~~not possible to quantify as the Group will be complying with hedge accounting criteria necessary to obtain hedge accounting for certain activity, but not all.~~

~~Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities~~

In 1996 the FASB issued SFAS No. 125, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. That statement provided standards for distinguishing transfers of financial assets that are sales from those that are financing transactions. In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities – a replacement of SFAS No. 125”. SFAS No. 140 revises the standards for accounting for securitizations and other transfers of financial assets and collateral and requires certain new disclosures, but it carries over most of SFAS No. 125’s provisions without reconsideration. Generally, the new provisions of this standard are to be applied prospectively and become effective 31 March 2001. However, certain recognition and classification requirements for collateral and disclosures for collateral and securitization transactions have been adopted by the Group as of 31 December 2000. Adoption of the remaining provisions of this revised accounting standard is not expected to have a material impact on the ~~Group.~~Group’s Income statement and Shareholders’ equity in accordance with US GAAP. Upon adoption, the US GAAP amortization charge related to the 1998 business combination of Union Bank of Switzerland and Swiss Bank Corporation (CHF 1.7 billion for 2001) will cease to be recorded. Under IAS, this charge was never recorded because of a different method of accounting for the business combination.

~~132~~ In addition, the introduction of SFAS 142 may result in two new reconciling items: 1) Intangible assets on the IAS Balance sheet with a book value of CHF 1.8 billion at 31 December 2001 may be reclassified to goodwill for US GAAP. 2) The amortization of IAS goodwill and the intangible assets reclassified to goodwill for US GAAP (CHF 1.1 billion in 2001) will be reversed. From 1 January 2002, the goodwill balance in the US GAAP Balance sheet will be maintained at historical amortized cost and will be reviewed annually for impairment.

In August 2001, the FASB issued SFAS 143, “Accounting for Asset Retirement Obligations”. The standard requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. The standard is effective for fiscal years beginning after 15 June 2002. The Group does not expect the adoption of this standard to have a material effect on its financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which supersedes both SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, and the accounting and reporting provisions of APB No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. The statement primarily addresses financial accounting and reporting for the impairment or disposal of long-lived assets and is effective for fiscal years beginning after 15 December 2001. In addition, SFAS 144 eliminated the exception to consolidate subsidiaries for which control is likely to be temporary, as previously contained in Accounting Research Bulletin No. 51 “Consolidated Financial Statements” as amended by SFAS 94, “Consolidation of All Majority-Owned Subsidiaries”. The impact of the adoption of SFAS 144 on the Group’s US GAAP reconciliation may be that the unrealized gains and losses on private equity investments disclosed in Gains/losses not recognized in the income statement under IAS would be recorded in Net profit for US GAAP, should the “AICPAAudit and Accounting Guide, Audits of Investment Companies” be adopted. The estimated effect of such adoption would be a cumulative catch-up adjustment which would increase US GAAP Net profit before tax by approximately CHF 660 million at 1 January 2002. Had the Group applied such guidance in the US GAAP reconciliation in 2001, the estimated effect on Net profit before tax would have been a charge of approximately CHF 470 million. See section f of this note and table 40.2 for current treatment of private equity investments under US GAAP. The impact on the Group’s US GAAP reconciliation of SFAS 144 and Investment Company Guide treatment of private equity investments is under further detailed review.

158

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 41.2~~40.2 Reconciliation of IAS Shareholders’ equity and Net ~~profit/loss~~profit to ~~U.S.~~US GAAP

Shareholders’ equity Net profit/(loss)
CHF million 31.12.00 31.12.99 31.12.98 31.12.00 31.12.99 31.12.98
Amounts determined in accordance with IAS
44,833 30,608 28,794 7,792 6,153 2,972
Adjustments in respect of
a. SBC purchase accounting:
Goodwill 17,835 19,765 21,612 (1,719 ) (1,729 ) (864 )
Other purchase accounting adjustments (808 ) (858 ) (895 ) 50 37 (2,415 )
b. Harmonization of accounting policies 0 0 20 0 (20 ) (751 )
c. Restructuring provision 112 350 1948 (238 ) (1,598 ) (3,982 )
d. Derivative instruments held or issued for non-trading purposes (857 ) 507 1,052 (1,353 ) (545 ) (405 )
e. Financial investments 379 52 108 28 36 23
f. Retirement benefit plans 1,898 1,839 1,858 59 (19 ) 88
g. Other employee benefits (16 ) (24 ) (26 ) 8 2 (20 )
h. Equity participation plans (311 ) (113 ) (40 ) (167 ) (47 ) (1 )
i. Software capitalization 229 389 0 (160 ) 389 0
Tax adjustments (334 ) (682 ) 330 137 178 1,690
Total adjustments
18,127 21,225 25,967 (3,355 ) (3,316 ) (6,637 )

Amounts determined in accordance with U.S. GAAP 62,960 51,833 54,761 4,437 2,837 (3,665 )


				Shareholders' equity						Net profit

		Note 40.1
CHF million		Reference		31.12.01			31.12.00			31.12.01			31.12.00			31.12.99

Amounts determined in accordance with IAS					43,530			44,833			4,973			7,792			6,153




Adjustments in respect of SBC purchase accounting:




	Goodwill		a		16,142			17,835			(1,693	)		(1,719	)		(1,729	)




	Other purchase accounting adjustments		a		(729	)		(808	)		79			50			37




Harmonization of accounting policies			b		0			0			0			0			(20	)




Restructuring provision			c		0			112			(112	)		(238	)		(1,598	)




Derivative instruments held or issued for hedging activities			d		(188	)		(857	)		67			(1,353	)		(545	)




Financial investments (prior to the adoption of IAS 39)			e		0			379			0			28			36




Financial investments and private equity (after the adoption of IAS 39)			f		(709	)		0			0			0			0




Retirement benefit plans			g		1,714			1,898			119			59			(19	)




Other employee benefits			h		(8	)		(16	)		8			8			2




Equity participation plans			i		(186	)		(311	)		(12	)		(167	)		(47	)




Software capitalization			j		60			229			(169	)		(160	)		389




IAS 39 opening retained earnings adjustments			k		19			0			(42	)		0			0




Tax adjustments					(363	)		(334	)		16			137			178

Total adjustments					15,752			18,127			(1,739	)		(3,355	)		(3,316	)

Amounts determined in accordance with US GAAP					59,282			62,960			3,234			4,437			2,837

~~133~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 41.3~~40.3 Earnings per share

Under IAS and ~~U.S.~~US GAAP, basic earnings per share ~~(“EPS”)~~(EPS) is computed by dividing income available to common shareholders by the ~~weighted average~~weighted-average common shares outstanding. Diluted EPS includes the determinants of basic EPS and, in addition, gives effect to dilutive potential common shares that were outstanding during the period.

The computations of basic and diluted EPS for the years ended 31 December ~~2000,~~2001, 31 December ~~1999~~2000 and 31 December ~~1998~~1999 are presented in the following table. The adjustment in 1998 is due to the difference in weighted average shares calculated under purchase accounting for U.S. GAAP versus the pooling method under IAS for the Union Bank of Switzerland merger with Swiss Bank Corporation on 29 June 1998. There is otherwise no difference between IAS and U.S. GAAP for the calculation of weighted average shares for EPS.

% change from
For the year ended 31.12.00 31.12.99 31.12.98 31.12.99
Net profit / (loss) available
for Basic earnings per share (CHF million)
IAS 7,792 6,153 2,972 27
U.S. GAAP 4,437 2,837 (3,665 ) 56
Basic weighted average shares outstanding
IAS 403,029,309 404,742,482 405,222,295 0
U.S. GAAP 403,029,309 404,742,482 414,609,886 0
Basic earnings / (loss) per share (CHF)
IAS 19.33 15.20 7.33 27
U.S. GAAP 11.01 7.01 (8.84 ) 57

Net profit / (loss) available
for Diluted earnings per share (CHF million)
IAS 7,778 6,153 2,972 26
U.S. GAAP 4,423 2,837 (3,665 ) 56
Diluted weighted average shares outstanding

IAS 408,525,900 408,375,152 412,881,04 ¹ 0
U.S. GAAP 408,525,900 408,375,152 414,609,886 ¹ 0
Diluted earnings / (loss) per share (CHF)

IAS 19.04 15.07 7.20 26
U.S. GAAP 10.83 6.95 (8.84 )¹ 56


	31.12.01					31.12.00					31.12.99

For the year ended	US GAAP			IAS		US GAAP			IAS		US GAAP			IAS

Net profit available for ordinary shares (CHF million)		3,234			4,973		4,437			7,792		2,837			6,153




Net profit for diluted EPS (CHF million)		3,135			4,874		4,423			7,778		2,837			6,153




Weighted average shares outstanding		1,251,180,815	¹		1,266,038,193		1,198,680,193	¹		1,209,087,927		1,208,614,215	¹		1,214,227,446




Diluted weighted average shares outstanding		1,273,720,560	¹		1,288,577,938		1,215,169,966	¹		1,225,577,700		1,219,512,225	¹		1,225,125,456




Basic earnings per share (CHF)		2.58			3.93		3.70			6.44		2.35			5.07




Diluted earnings per share (CHF)		2.46			3.78		3.64			6.35		2.33			5.02

~~The following are adjustments to the calculation of weighted average outstanding common shares which result from valuation and presentation differences between IAS and U.S. GAAP:~~

Weighted average shares outstanding 31.12.00 31.12.99 31.12.98
Basic weighted-average ordinary shares (IAS) 403,029,309 404,742,482 405,222,295
add: Treasury shares adjustments 0 0 9,387,591
Basic weighted-average ordinary shares (U.S. GAAP) 403,029,309 404,742,482 414,609,886

¹ ~~No potential ordinary shares may be included in the computation of any diluted per-share amount when a loss from continuing operations exists.~~

~~134~~

The difference between the IAS and US GAAP weighted average shares outstanding and diluted weighted average shares outstanding is related to the shares for employee equity participation plans. These shares are held in trusts which are consolidated for US GAAP only and are recorded as treasury shares. Amounts in prior years have been restated for these treasury shares.

159

UBS Group Financial Statements

Notes to the Financial Statements

Note ~~41.4~~40.4 Presentation differences between IAS and ~~U.S.~~US GAAP

In addition to the differences in valuation and income recognition, other differences, essentially related to presentation, exist between IAS and ~~U.S.~~US GAAP. Although ~~these differences do not cause differences between~~there is no impact on IAS and ~~U.S.~~US GAAP reported shareholders’ equity and net profit due to these differences, it may be useful to understand them to interpret the financial statements presented in accordance with ~~U.S.~~US GAAP. The following is a summary of presentation differences that relate to the basic IAS financial statements.

1. ~~Purchase accounting~~

As described in Note 42.1, under U.S. GAAP the business combination creating UBS AG was accounted for under the purchase method with Union Bank of Switzerland being considered the acquirer. In the U.S. GAAP Condensed Consolidated Balance Sheet, the assets and liabilities of Swiss Bank Corporation have been restated to fair value at the date of acquisition (29 June 1998). In addition, the following table presents summarized financial results of SBC for the period from 1 January to 29 June 1998 which, under U.S. GAAP, would be excluded from the U.S. GAAP condensed consolidated Income statement for the year ended 31 December 1998.

2. Settlement date vs. trade date accounting

The Group’s transactions from securities activities are recorded under IAS on the settlement date for balance sheet and on the trade date for income statement purposes. This results in recording ~~an off-balance sheet~~a forward transaction during the period between the trade date and the settlement date. Forward positions relating to trading activities are revalued to fair value and any unrealized profits and losses are recognized in Net profit.

Under ~~U.S.~~US GAAP, trade date accounting is required for spot purchases and sales of securities. ~~For purposes of U.S. GAAP presentation,~~Therefore, all ~~purchases and sales of securities previously recorded~~such transactions with a trade date on or before the balance sheet date with a settlement date after the balance sheet date have been recorded ~~as of~~at trade date for ~~balance sheet purposes. Trade date accounting~~US GAAP. This has resulted in receivables and payables to broker-dealers and clearing organizations recorded in Other assets and Other ~~liabilities.~~

~~135~~liabilities in the US GAAP Balance sheet.

~~UBS Group~~2. Financial ~~Statements~~investments

~~Notes to the Financial Statements~~

~~SBC’s summarized Income statement~~

~~for the period 1 January 1998 to 29 June 1998~~


~~CHF million~~


~~Operating income~~
~~Interest income~~	~~8,205~~
~~Less: Interest expense~~	~~6,630~~

~~Net interest income~~	~~1,575~~
~~Less: Credit loss expense~~	~~164~~

~~Total~~	~~1,411~~

~~Net fee and commission income~~	~~3,701~~
~~Net trading income~~	~~2,135~~
~~Income from disposal of associates and subsidiaries~~	~~1,035~~
~~Other income~~	~~364~~

~~Total~~	~~8,646~~

~~Operating expenses~~
~~Personnel~~	~~3,128~~
~~General and administrative~~	~~1,842~~
~~Depreciation and amortization~~	~~511~~

~~Total~~	~~5,481~~

~~Operating profit before taxes and minority interests~~	~~3,165~~

~~Tax expense~~	~~552~~

~~Profit~~	~~2,613~~

~~Less: Minority interests~~	(1	)

~~Net profit~~	~~2,614~~

~~3. Securities lending, Securities borrowing, Repurchase, Reverse repurchase and Other collateralized transactions~~

Under IAS, the Group’s ~~repurchase agreements~~private equity investments and non-marketable equity financial investments are included in Financial investments. For US GAAP presentation, non-marketable equity financial investments are reclassified to Other assets, and private equity investments are shown separately on the Balance sheet.

3. Securities received as proceeds in a securities for securities lending ~~are accounted for as collateralized borrowings. Reverse repurchase agreements and securities borrowing are accounted for as collateralized lending transactions. Cash collateral is reported on~~transaction

In September 2000, the ~~balance sheet at amounts equal to the collateral advanced or received.~~

Under U.S. GAAP, these transactions are also generally accounted for as collateralized borrowing and lending transactions. However, certain such transactions may be deemed sale or purchase transactions under specific circumstances. U.S. GAAP (SFAS No. 125) required recognition of securities collateral controlled, and an offsetting obligation to return such securities collateral on certain financing transactions, when specific control conditions existed. Pursuant to the guidance inFinancial Accounting Standards Board released SFAS No. 140, ~~Accounting~~“Accounting for Transfers ofand Servicing of Financial Assets and Extinguishment of ~~Liabilities (a~~Liabilities”, a replacement of SFAS No. ~~125) issued~~125, which revises the standards for accounting for securitizations and other transfers of financial assets and collateral. The Group adopted the standard in ~~2000,~~accordance with its transition requirements, resulting in certain of its provisions becoming effective in 2000. Additional provisions became effective on 1 April 2001. Under the new provisions, when the Group ~~has restated its 1999 U.S.~~acts as the lender in a securities lending agreement and receives securities as collateral that can be pledged or sold, it recognizes the securities received and a corresponding obligation to return them. These securities are separately reflected on the US GAAP ~~Balance~~balance sheet ~~to derecognize securities collateral~~in the line “Securities received ~~that are no longer required to be recognized.~~

~~Additionally, SFAS No. 140 requires segregation~~as collateral” on the asset side of the balance as of 31 December 2000, of the Group’s Trading portfolio assets which it has pledged under agreements permitting the transferee to repledge or resell such collateral. For presentation purposes, such reclassifications are reflectedsheet. The offsetting liability is included separately in the ~~U.S. GAAP Balance Sheet in Trading portfolio assets, pledged.~~line “Obligation to return securities received as collateral”.

4. ~~Financial investments~~Secured financing without margining

~~Under IAS, the Group’s private equity investments, real estate held for sale and non-marketable equity financial investments have been included in Financial investments.~~

~~Under U.S. GAAP, private equity investments, real estate held for sale and non-marketable financial investments generally are~~

~~136~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~reported in Other assets or reported as a separate caption in the Balance sheet.~~

For purposes of U.S. GAAP presentation, private equity investments are reported as a separate caption in the Balance sheet and real estate held for sale and non-marketable equity financial investments are reported in Other assets.

~~5. Equity participation plans~~

Certain of the Group’s equity participation plans provide for deferral and diversification of the awards. The shares and other diversified instruments are held in trusts for the participants. Certain of these trusts are recorded on the Group’s balance sheet for U.S. GAAP presentation, the effect of which is to increase assets by CHF 1,298 million and CHF 655 million, liabilities by CHF 1,377 million and CHF 717 million, and decrease shareholders’ equity by CHF 69 million and CHF 62 million (for UBS AG shares held by the trusts which are treated as treasury shares) at 31 December 2000 and 31 December 1999, respectively.

~~6. Net trading income~~

The Group ~~has implemented~~enters into certain specific secured financing transactions that result in a change in accounting policy for interest and dividend income and expenses on trading related assets and liabilities (see Note 1, Summary of Significant Accounting Policies). For the years ended 31 December 1999 and 31 December 1998, figures have been retroactively restated. As a result of this change, there is no longer areclassification difference between IAS and ~~U.S.~~US GAAP. Under IAS, they are considered secured financing transactions. Under US GAAP, however, they are considered sale/buyback transactions due to the fact that the contracts do not require margining which is one of the criteria to meet US GAAP secured financing treatment. Due to the different treatment of these transactions under IAS and US GAAP, interest income and expense recorded under IAS must be reclassified to Other income for US GAAP. An additional reclassification on the US GAAP balance sheet is also required which reflects a spot purchase (Trading portfolio assets) and a forward sale transaction (Replacement values), instead of a claim from customers (Cash collateral on securities borrowed) under IAS.

~~137~~

160

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 41.5~~40.5 Consolidated Income Statement

The following is a Consolidated Income Statement of the Group, for the years ended 31 December ~~2000,~~2001, 31 December ~~1999~~2000 and 31 December ~~1998,~~1999, restated to reflect the impact of valuation and income recognition differences and presentation differences between IAS and ~~U.S.~~US GAAP.


																							31.12.01						31.12.00						31.12.99
			31.12.00						31.12.99¹						31.12.98¹
CHF million
For the year ended																					Reference		US GAAP			IAS			US GAAP			IAS			US GAAP			IAS
CHF million	Reference		U.S. GAAP			IAS			U.S. GAAP			IAS			U.S. GAAP			IAS


Operating income
Interest income		a, d, 1		51,565			51,745			35,404			35,604			29,136			37,442			a, d, 4		51,975			52,277			51,565			51,745			35,404			35,604
Less: Interest expense		a, 1		(43,584	)		(43,615	)		(29,660	)		(29,695	)		(25,773	)		(32,424	)




Interest expense																						a, 4		(44,178	)		(44,236	)		(43,584	)		(43,615	)		(29,660	)		(29,695	)

Net interest income				7,981			8,130			5,744			5,909			3,363			5,018					7,797			8,041			7,981			8,130			5,744			5,909
Less: Credit loss expense		1		130			130			(956	)		(956	)		(787	)		(951	)




Credit loss expense / (recovery)																								(498	)		(498	)		130			130			(956	)		(956	)

Total				8,111			8,260			4,788			4,953			2,576			4,067
Net interest income after credit loss expense / (recovery)																								7,299			7,543			8,111			8,260			4,788			4,953

Net fee and commission income		1		16,703			16,703			12,607			12,607			8,925			12,626					20,211			20,211			16,703			16,703			12,607			12,607
Net trading income		b, d, 1		8,597			9,953			7,174			7,719			455			3,313			d, k, 4		8,973			8,802			8,597			9,953			7,174			7,719
Net gains from disposal of associates and subsidiaries		1		83			83			1,821			1,821			84			1,119
Other income		b, e, 1		1,431			1,403			1,361			1,325			641			1,122			e, 4		534			558			1,514			1,486			3,182			3,146

Total				34,925			36,402			27,751			28,425			12,681			22,247
Total operating income																								37,017			37,114			34,925			36,402			27,751			28,425

Operating expenses
Personnel		b, c, f, g, h, 1		17,262			17,163			12,483			12,577			7,938			9,816			c, g, h, i, j		19,713			19,828			17,262			17,163			12,483			12,577
General and administrative		a, c, i, 1		6,813			6,765			6,664			6,098			6,259			6,735			c, j		7,631			7,631			6,813			6,765			6,664			6,098
Depreciation and amortization		a, b, i, 1		3,952			2,275			3,454			1,857			2,403			1,825




Depreciation of property and equipment																						a, b, j		1,815			1,614			1,800			1,608			1,619			1,517




Amortization of goodwill and other intangible assets																						a		2,782			1,323			2,152			667			1,835			340
Restructuring costs		c		191			0			750			0			1,089			0			c		112			0			191			0			750			0

Total				28,218			26,203			23,351			20,532			17,689			18,376					32,053			30,396			28,218			26,203			23,351			20,532

Operating profit/(loss) before tax and minority interests				6,707			10,199			4,400			7,893			(5,008	)		3,871
Operating profit / (loss) before tax and minority interests																								4,964			6,718			6,707			10,199			4,400			7,893

Tax expense/(benefit)		1		2,183			2,320			1,509			1,686			(1,339	)		904
Tax expense / (benefit)																								1,386			1,401			2,183			2,320			1,509			1,686

Net profit/(loss) before minority interests				4,524			7,879			2,891			6,207			(3,669	)		2,967
Net profit / (loss) before minority interests																								3,578			5,317			4,524			7,879			2,891			6,207

Minority interests		1		(87	)		(87	)		(54	)		(54	)		4			5					(344	)		(344	)		(87	)		(87	)		(54	)		(54	)

Net profit/(loss)				4,437			7,792			2,837			6,153			(3,665	)		2,972
Net profit																								3,234			4,973			4,437			7,792			2,837			6,153

¹ Certain IAS and U.S. GAAP 1999 and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1, Summary of Significant Accounting Policies).

Note: References above coincide with the discussions in Note ~~41.1~~40.1 and Note ~~41.4.~~40.4. These references indicate which IAS to ~~U.S.~~US GAAP adjustments affect an individual financial statement caption.

~~138~~

161

UBS Group Financial Statements

Notes to the Financial Statements

~~Note 41.6~~40.6 Condensed Consolidated Balance Sheet

The following is a Condensed Consolidated Balance Sheet of the Group, as of 31 December ~~2000~~2001 and 31 December ~~1999~~2000, restated to reflect the impact of valuation and income recognition principles and presentation differences between IAS and ~~U.S. GAAP.~~US GAAP



			31.12.00		31.12.99¹				31.12.01				31.12.00

CHF million		Reference	U.S. GAAP	IAS	U.S. GAAP	IAS	Reference		US GAAP		IAS		US GAAP		IAS


Assets
Cash and balances with central banks			2,979	2,979	5,073	5,073				20,990		20,990		2,979		2,979
Money market paper			66,454	66,454	69,717	69,717
Due from banks		a, 3	29,182	29,147	29,954	29,907		a		27,550		27,526		29,182		29,147
Cash collateral on securities borrowed			177,857	177,857	113,162	113,162		4		162,566		162,938		177,857		177,857
Reverse repurchase agreements			193,801	193,801	132,391	132,391				269,256		269,256		193,801		193,801
Trading portfolio assets		b, 2,3	197,048	253,296	184,085	211,932		1, 4		399,577		397,886		318,788		315,588
Trading portfolio assets, pledged		3	59,448
Positive replacement values		2	57,775	57,875	62,294	62,957		1, 4		73,051		73,447		57,775		57,875
Loans, net of allowance for credit losses		a, 3	245,214	244,842	235,401	234,858		a, d		226,747		226,545		245,214		244,842
Financial investments		b, e, 4	7,807	16,405	2,378	7,039		e, f, 2		20,676		28,803		10,985		19,583




Securities received as collateral								3		20,119
Accrued income and prepaid expenses			7,062	7,062	5,167	5,167		4		7,545		7,554		7,062		7,062
Investments in associates			880	880	1,102	1,102				697		697		880		880
Property and equipment		a, b, i	9,692	8,910	9,655	8,701		a, j		9,276		8,695		9,692		8,910
Intangible assets and goodwill		a	35,726	19,537	21,428	3,543		a, g		33,765		19,085		35,726		19,537
Private equity investments		4	6,658	0	3,001	0		2		6,069				6,658
Other assets		b, d, f, g, h, 2, 4, 5	26,971	8,507	18,717	11,007		d, g, h, i, 1, 2		36,972		9,875		27,955		9,491

Total assets			1,124,554	1,087,552	893,525	896,556				1,314,856		1,253,297		1,124,554		1,087,552


Liabilities
Money market paper issued		a	74,780	74,780	64,655	64,655
Due to banks		3	82,240	82,240	76,363	76,365				106,531		106,531		82,240		82,240
Cash collateral on securities lent		3	23,418	23,418	12,832	12,832				30,317		30,317		23,418		23,418
Repurchase agreements		3	295,513	295,513	173,840	196,914				368,620		368,620		295,513		295,513
Trading portfolio liabilities		2, 3	87,832	82,632	52,658	54,638		1		108,924		105,798		87,832		82,632




Obligation to return securities received as collateral								3		20,119
Negative replacement values		2	75,423	75,923	95,004	95,786		1,4		71,018		71,443		75,423		75,923
Due to customers		a, 3	310,686	310,679	279,971	279,960		a, d		333,766		333,781		310,686		310,679
Accrued expenses and deferred income			21,038	21,038	12,040	12,040				17,289		17,289		21,038		21,038
Long-term debt		a	54,970	54,855	56,049	56,332




Debt issued								a, d, k		156,462		156,218		129,750		129,635
Other liabilities		a, b, c, d, e, h, 2, 3	32,809	18,756	17,846	15,992		a, c, d, e, g, h, i, 1		38,416		15,658		32,809		18,756

Total liabilities			1,058,709	1,039,834	841,258	865,514				1,251,462		1,205,655		1,058,709		1,039,834

Minority interests			2,885	2,885	434	434				4,112		4,112		2,885		2,885

Total shareholders’ equity			62,960	44,833	51,833	30,608				59,282		43,530		62,960		44,833





Total liabilities, minority interests and shareholders’ equity	Total liabilities, minority interests and shareholders’ equity		1,124,554	1,087,552	893,525	896,556				1,314,856		1,253,297		1,124,554		1,087,552

Note: References above coincide with the discussions in Note ~~41.1~~40.1 and Note ~~41.4.~~40.4. These references indicate which IAS ~~and U.S.~~to US GAAP adjustments affect an individual financial statement caption.

~~138~~

162

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 41.7~~40.7 Comprehensive ~~income~~Income

Comprehensive income is defined as the change in Shareholders’ equity excluding ~~transactions~~transaction with shareholders. Comprehensive income has two major components: Net profit, as reported in the income statement, and Other comprehensive income. Other comprehensive income includes such items as foreign currency translation, unrealized gains/losses on available for sale securities, unrealized gains/losses on changes in fair value of derivative instruments designated as cash flow hedges and ~~unrealized gains in available-for-sale securities.~~additional minimum pension liability. The components and accumulated other comprehensive income amounts for the years ended 31 December 2001, 31 December 2000 and 31 December 1999 ~~and 31 December 1998~~ are as follows:


				Unrealized			Accumulated									Unrealized			Unrealized		Additional			Accumulated
	Foreign			gains in			other						Foreign			gains /(losses)			gains /(losses)		minimum			other
	currency			available-for-			comprehensive			Comprehensive			currency			on available for			on cash flow		pension			comprehensive			Comprehensive
CHF million	translation			sale securities			income			income			translation			sale securities			hedges		liability			income			income


Balance, 1 January 1998		(111	)		47			(64	)
Net loss											(3,665	)
Balance, 1 January 1999														(456	)		85								(371	)




Net Profit																												2,837




Other comprehensive income:
Foreign currency translation		(345	)					(345	)					14											14
Unrealized gains, arising during the year, net of CHF 89 million tax					267			267
Reclassification adjustment for gains realized in net profit, net of CHF 76 million tax					(229	)		(229	)		(307	)

Comprehensive loss											(3,972	)

Balance, 31 December 1998		(456	)		85			(371	)


Net profit											2,837




Other comprehensive income:
Foreign currency translation		14						14
Unrealized gains, arising during the year, net of CHF 18 million tax					74			74
Reclassification adjustment for gains realized in net profit, net of CHF 40 million tax					(143	)		(143	)		(55	)




Unrealized gains on available for sale investments arising during the year, net of CHF 18 million tax																	74								74




Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 40 million tax																	(143	)							(143	)		(55	)

Comprehensive income											2,782																	2,782

Balance, 31 December 1999		(442	)		16			(426	)					(442	)		16								(426	)


Net profit											4,437																	4,437




Other comprehensive income:
Foreign currency translation		(245	)					(245	)					(245	)										(245	)
Unrealized gains, arising during the year, net of CHF 152 million tax					456			456
Reclassification adjustment for gains realized in net profit, net of CHF 40 million tax					(121	)		(121	)		90




Unrealized gains on available for sale investments arising during the year, net of CHF 152 million tax																	456								456




Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 40 million tax																	(121	)							(121	)		90

Comprehensive income											4,527																	4,527

Balance, 31 December 2000		(687	)		351			(336	)					(687	)		351								(336	)


Net profit																												3,234




Other comprehensive income:




Foreign currency translation														(82	)										(82	)




Unrealized gains on available for sale investments arising during the year, net of CHF 27 million tax																	109								109




Reclassification adjustment for gains on available for sale investments realized in net profit, net of CHF 26 million tax																	(104	)							(104	)




Unrealized gains on cash flow hedges arising during the year, net of CHF 1 million tax																				4					4




Reclassification adjustment for losses on cash flow hedges realized in net profit, net of CHF 1 million tax																				3					3




Additional minimum pension liability																						(303	)		(303	)		(373	)

Comprehensive income																												2,861

Balance, 31 December 2001														(769	)		356			7		(303	)		(709	)

~~140~~

163

UBS Group Financial Statements

Notes to the Financial Statements

Note 4241 Additional Disclosures Required under ~~U.S.~~US GAAP

~~In addition to the differences in valuation~~ and ~~income recognition and presentation, disclosure differences exist between IAS and U.S. GAAP. The following are additional U.S. GAAP disclosures that relate to the basic financial statements.~~

~~Note 42.1 Business combinations~~SEC Rules

On 29 June 1998, Union Bank of Switzerland and Swiss Bank Corporation consummated a merger of the banks, resulting in the formation of UBS AG. New shares totaling 428,746,982 were issued exclusively for the exchange of the existing shares of Union Bank of Switzerland and Swiss Bank Corporation. Under the terms of the merger agreement, Union Bank of Switzerland shareholders received 5 registered shares for each bearer share held and 1 registered share for each registered share held, totaling 257,500,000 shares of UBS AG. Swiss Bank Corporation shareholders received 11/13 registered shares of the Group for each Swiss Bank Corporation registered share held, totaling 171,246,982 shares. The combined share capital amounted to CHF 5,754 million. As a result of the exchange of shares, CHF 1,467 million were transferred from share capital to the share premium account. The merger was accounted for under the pooling of interests method and, accordingly, the information included in the financial statements presents the combined results of Union Bank of Switzerland and Swiss Bank Corporation as if the merger had been in effect for all periods presented.

~~Summarized results of operations of the separate companies for the period from 1 January 1998 through 29 June 1998, the date of combination, are as follows:~~

Union Bank Swiss Bank
CHF million of Switzerland Corporation
Total operating income 5,702 8,646
Net profit 739 2,614

As a result of the merger, the Group harmonized its accounting policies that have been retrospectively applied for the restatement of comparative information and opening retained earnings at 1 January 1997. As a result, adjustments were required for the accounting for treasury shares, netting of balance sheet items, repurchase agreements, depreciation, and employee share plans.

~~Summarized results of operations of the separate companies for the year ended 31 December 1997 are as follows:~~

Total operating
CHF million income Net loss
Union Bank of Switzerland 13,114 (129 )
Swiss Bank Corporation 13,026 (248 )
Total as previously reported 26,140 (377 )
Impact of accounting policy harmonization (1,260 ) (290 )
Consolidated
24,880 (667 )

Prior to 29 June 1998, Union Bank of Switzerland and Swiss Bank Corporation entered into certain transactions with each other in the normal course of business. These intercompany transactions have been eliminated in the accompanying financial statements.

~~141~~

~~UBS Group Financial Statements~~

~~Notes to the Financial Statements~~

~~Note 42.2~~41.1 Financial investments

See Note 1513 for additional information on financial investments. The following table summarizes the Group’s financial investments ~~as of 31 December 2000 and 31 December 1999:~~

Gross Gross
Amortized unrealized unrealized Fair
CHF million cost gains losses value
31 December 2000

Equity securities¹
1,147 447 6 1,588
Debt securities issued by the Swiss national government and agencies 34 2 0 36
Debt securities issued by Swiss local governments 46 1 1 46
Debt securities issued by the U.S. Treasury and agencies 0 0 0 0
Debt securities issued by foreign governments and official institutions 4,852 7 3 4,856
Corporate debt securities 1,139 5 1 1,143
Mortgage-backed securities 47 0 0 47
Other debt securities 88 4 0 92
Total
7,353 466 11 7,808

31 December 1999

Equity securities 1 388 3 14 377
Debt securities issued by the Swiss national government and agencies 78 3 0 81
Debt securities issued by Swiss local governments 81 3 1 83
Debt securities issued by the U.S. Treasury and agencies 410 0 0 410
Debt securities issued by foreign governments and official institutions 321 6 1 326
Corporate debt securities 851 24 6 869
Mortgage-backed securities 109 1 1 109
Other debt securities 120 3 0 123
Total
2,358 43 23 2,378

¹ ~~The LOCOM value of the equity securities as reported in Note 15 is adjusted to cost basis for the purpose of fair value calculation.~~

~~The following table presents an analysis of the contractual maturities of the investments in debt securities as of~~at 31 December 2000:

1–5 years 5–10 years Over 10 years
Within 1 year
CHF million, except percentages Amount Yield(%) Amount Yield(%) Amount Yield(%) Amount Yield(%)
Swiss national government and agencies 2 6.90 16 5.13 16 6.45 0
Swiss local governments 1 6.11 27 5.19 18 4.43 0
U.S. Treasury and agencies 0 0 0 0
Foreign governments and official institutions 2,451 1.62 1,236 1.80 1,165 0.85 0
Corporate debt securities 16 5.20 917 6.02 206 2.21 0
Mortgage-backed securities 20 6.02 5 6.54 22 14.46 0
Other debt securities 21 6.57 56 4.33 11 3.68 0
Total amortized cost 2,511 2,257 1,438 0
Total market value
2,514 2,272 1,434 0


			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value

31 December 2000




Money market paper		4,162		0		0		4,162




Equity securities¹		1,147		447		6		1,588




Debt securities issued by the Swiss national government and agencies		34		2		0		36




Debt securities issued by Swiss local governments		46		1		1		46




Debt securities issued by foreign governments and official institutions		4,852		7		3		4,856




Corporate debt securities		1,139		5		1		1,143




Mortgage-backed securities		47		0		0		47




Other debt securities		88		4		0		92

Total		11,515		466		11		11,970

¹ The LOCOM value of the equity securities as reported in Note 13 is adjusted to cost basis for the purpose of the fair value calculation.

Proceeds from sales and maturities of investment securities available for sale during the year ended 31 December 2000 ~~and the year ended 31 December 1999~~ were CHF 325 ~~million and CHF 1,482 million, respectively. Gross~~million. On those sales gross gains of CHF 162 million and gross losses of CHF 1 million were realized in 2000 in the income statement.

Note 41.2 Sales of Financial Assets in Securitizations

During the year ended 31 December 2001, the Group securitized (i.e., transformed owned financial assets into securities through sales transactions) residential mortgage loans and securities, commercial mortgage loans and other financial assets, acting as lead or co-manager. The Group’s continuing involvement in these transactions was primarily limited to the temporary retention of various security interests. Proceeds received at the time of securitization from residential mortgage, commercial mortgage and other financial asset securitizations were CHF 67.6 billion, CHF 4.1 billion and CHF 2.8 billion, respectively. Related pre-tax gains recognized, including unrealized gains on ~~those sales, and gross gains~~retained interests, at the time of securitization were CHF ~~180~~112.9 million, CHF 129.7 million and ~~gross losses~~CHF 20.6 million, respectively. During 2000, the Group did not engage in significant securitization transactions involving the transfer of its financial assets. A significant portion of the securitization activities conducted in 2001 were derived from businesses acquired in the purchase of Paine Webber Group Inc. in November 2000.

At 31 December 2001, the Group retained CHF ~~3 million~~6.8 billion in residential mortgage securities, backed by the Government National Mortgage Association (GNMA), the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC), and CHF 1.6 billion in other residential mortgage securities. These retained interests are generally valued using observable market prices. Retained interests in commercial mortgage and other securities were ~~realized in 1999.~~

~~142~~not material at 31 December 2001.

164

Note 41.3 Supplemental Guarantor Information

Guarantee of PaineWebber Securities

Following the acquisition of Paine Webber Group, Inc., UBS AG made a full and unconditional guarantee of the publicly traded debt and trust preferred securities of PaineWebber. Prior to the acquisition, PaineWebber was an SEC registrant. Upon the acquisition, PaineWebber was merged into UBS Americas Inc., a wholly owned subsidiary of UBS AG. The following is summarized consolidating financial information segregating UBS AG Parent Bank, UBS Americas Inc. and UBS AG’s other non-guarantor subsidiaries as required by SEC regulation S-X Rule 3 - 10 “Financial statement requirements for guarantors”.

The information presented in this note is prepared in accordance with IAS and should be read in conjunction with the consolidated financial statements of the Group of which this information is a part. At the bottom of each column, Net profit and Shareholders’ equity has been reconciled to US GAAP. See Note 40 for a detailed reconciliation of the IAS financial statements to US GAAP for the Group on a consolidated basis.

Supplemental Guarantor Consolidating Income Statement


CHF million	UBS AG			UBS						Consolidating
For the year ended 31 December 2001	Parent Bank¹			Americas Inc.			Subsidiaries			Entries			UBS Group

Operating income




Interest income		33,997			5,303			23,667			(10,690	)		52,277




Interest expense		(26,979	)		(5,724	)		(22,223	)		10,690			(44,236	)

Net interest income		7,018			(421	)		1,444			0			8,041




Credit loss expense		(471	)		(15	)		(12	)		0			(498	)

Net interest income after credit loss expense		6,547			(436	)		1,432			0			7,543

Net fee and commission income		7,689			5,587			6,935			0			20,211




Net trading income		5,643			870			2,289			0			8,802




Income from subsidiaries		(21	)		0			0			21			0




Other income		1,182			39			(663	)		0			558

Total operating income		21,040			6,060			9,993			21			37,114

Operating expenses




Personnel expenses		9,388			5,178			5,262			0			19,828




General and administrative expenses		3,891			1,853			1,887			0			7,631




Depreciation of property and equipment		1,147			181			286			0			1,614




Amortization of goodwill and other intangible assets		155			808			360			0			1,323

Total operating expenses		14,581			8,020			7,795			0			30,396

Operating profit/(loss) before tax and minority interests		6,459			(1,960	)		2,198			21			6,718

Tax expense/(benefit)		1,486			(477	)		392			0			1,401

Net profit before minority interests		4,973			(1,483	)		1,806			21			5,317

Minority interests		0			0			(344	)		0			(344	)

Net profit/(loss)		4,973			(1,483	)		1,462			21			4,973

Net profit/(loss) US GAAP²		2,869			(1,519	)		1,884			0			3,234

¹ UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IAS.
² Refer to Note 40 for a description of the differences between IAS and US GAAP.

165

UBS Group Financial Statements

Notes to the Financial Statements

Supplemental Guarantor Consolidating Balance Sheet


CHF million	UBS AG		UBS				Consolidating			UBS
At 31 December 2001	Parent Bank¹		Americas Inc.		Subsidiaries		Entries			Group

Assets




Cash and balances with central banks		20,215		0		775		0			20,990




Due from banks		70,265		17,819		85,139		(145,697	)		27,526




Cash collateral on securities borrowed		29,134		35,723		140,668		(42,587	)		162,938




Reverse repurchase agreements		180,103		40,857		168,685		(120,389	)		269,256




Trading portfolio assets		206,899		7,604		183,383		0			397,886




Positive replacement values		75,218		457		11,030		(13,258	)		73,447




Loans, net of allowance for credit losses		263,128		20,870		20,226		(77,679	)		226,545




Financial investments		18,807		2,523		7,473		0			28,803




Accrued income and prepaid expenses		3,231		1,834		3,973		(1,484	)		7,554




Investments in associates		14,537		837		61		(14,738	)		697




Property and equipment		6,310		838		1,547		0			8,695




Goodwill and other intangible assets		114		14,971		4,000		0			19,085




Other assets		4,353		3,885		3,963		(2,326	)		9,875

Total assets		892,314		148,218		630,923		(418,158	)		1,253,297

Liabilities




Due to banks		111,963		43,875		96,390		(145,697	)		106,531




Cash collateral on securities lent		22,461		22,491		27,952		(42,587	)		30,317




Repurchase agreements		113,288		39,112		336,609		(120,389	)		368,620




Trading portfolio liabilities		56,082		1,550		48,166		0			105,798




Negative replacement values		75,417		405		8,879		(13,258	)		71,443




Due to customers		354,580		21,893		34,987		(77,679	)		333,781




Accrued expenses and deferred income		9,129		4,347		5,297		(1,484	)		17,289




Debt issued		96,045		8,234		51,939		0			156,218




Other liabilities		10,549		2,217		5,218		(2,326	)		15,658

Total liabilities		849,514		144,124		615,437		(403,420	)		1,205,655

Minority interests		0		0		4,112		0			4,112

Total shareholders’ equity		42,800		4,094		11,374		(14,738	)		43,530

Total liabilities, minority interests and shareholders’ equity		892,314		148,218		630,923		(418,158	)		1,253,297

Total shareholders’ equity – US GAAP²		59,178		3,620		11,222		(14,738	)		59,282

~~Selected Financial Data~~

CHF million, except where indicated
For the year ended 31.12.00 31.12.99¹ 31.12.98¹ 31.12.97
Income statement key figures

Interest income 51,745 35,604 37,442 23,669
Interest expense 43,615 29,695 32,424 16,733
Net interest income 8,130 5,909 5,018 6,936
Credit loss recovery / (expense) 130 (956 ) (951 ) (1,278 )
Net interest income after credit loss expense 8,260 4,953 4,067 5,658
Net fee and commission income 16,703 12,607 12,626 12,234
Net trading income 9,953 7,719 3,313 5,491
Other income 1,486 3,146 2,241 1,497
Operating income 36,402 28,425 22,247 24,880
Operating expenses 26,203 20,532 18,376 18,636
Operating profit before tax 10,199 7,893 3,871 6,244
Restructuring costs 0 0 0 7,000
Tax expense (benefit) 2,320 1,686 904 (105 )
Minority interests (87 ) (54 ) 5 (16 )
Net profit 7,792 6,153 2,972 (667 )
Cost / income ratio (%)²
72.2 69.9 79.2 71.2
Cost / income ratio before goodwill amortization (%)^2,3
70.4 68.7 77.7 70.7
Per share data(CHF)

Basic earnings per share^4,7
19.33 15.20 7.33 (1.59 )
Basic earnings per share before goodwill^3,4,7
20.99 16.04 8.18
Diluted earnings per share^4,7
19.04 15.07 7.20 (1.59 )
Diluted earnings per share before goodwill^3,4,7
20.67 15.90 8.03
Dividend payout ratio(%) 31.56 36.18 68.21

As of 31.12.00 31.12.99¹ 31.12.98¹ 31.12.97
Balance sheet key figures

Total assets 1,087,552 896,556 861,282 1,086,414
Shareholders’ equity 44,833 30,608 28,794 30,927
Market capitalization 112,666 92,642 90,720
Outstanding shares (weighted average)⁷

Registered ordinary shares 433,486,003 430,497,026 429,710,128 426,994,240
Own shares to be delivered 2,058,212
Treasury shares (32,514,906 ) (25,754,544 ) (24,487,833 ) (7,724,236 )
Shares for basic earnings per share 403,029,309 404,742,482 405,222,295 419,270,004
BIS capital ratios

Tier 1 (%) 11.7 10.6 9.3 8.3
Total BIS (%) 15.7 14.5 13.2 12.6
Risk-weighted assets 273,290 273,107 303,719 345,904
Total assets under management (CHF billion)
2,469 1,744 1,573
Headcount (full time equivalents)⁶
71,076 49,058 48,011
Long-term ratings

Fitch, London AAA AAA AAA
Moody’s, New York Aa1 Aa1 Aa1
Standard & Poor’s, New York AA+ AA+ AA+

~~143~~

166

Supplemental Guarantor Consolidating Cash Flow Statement


CHF million	UBS AG			UBS
For the year ended 31 December 2001	Parent Bank¹			Americas Inc.			Subsidiaries			UBS Group

Net cash flow from/(used in) operating activities		10,243			85			2,545			12,873

Cash flow (used in)/from investing activities




Investments in subsidiaries and associates		(44	)		(54	)		(369	)		(467	)




Disposal of subsidiaries and associates		95			0			0			95




Purchase of property and equipment		(1,316	)		(295	)		(410	)		(2,021	)




Disposal of property and equipment		191			137			52			380




Net (investment)/divestment in financial investments		(5,514	)		(269	)		13			(5,770	)

Net cash flow (used in)/from investing activities		(6,588	)		(481	)		(714	)		(7,783	)

Cash flow (used in) / from financing activities




Net money market paper issued		16,263			(6	)		7,969			24,226




Net movements in treasury shares and treasury share contract activity		(6,038	)		0			0			(6,038	)




Capital issuance		12			0			0			12




Capital repayment by par value reduction		(683	)		0			0			(683	)




Issuance of long-term debt		15,044			208			2,981			18,233




Repayment of long-term debt		(15,861	)		(1,260	)		(1,356	)		(18,477	)




Issuance of trust preferred securities		0			0			1,291			1,291




Dividend payments to / and purchase from minority interests		0			0			(461	)		(461	)




Net activity in investments in subsidiaries		(620	)		60			560			0

Net cash flow from/(used in) financing activities		8,117			(998	)		10,984			18,103




Effects of exchange rate differences		(164	)		(207	)		67			(304	)

Net increase / (decrease) in cash equivalents		11,608			(1,601	)		12,882			22,889




Cash and cash equivalents, beginning of the year		78,248			5,405			9,717			93,370

Cash and cash equivalents, end of the year		89,856			3,804			22,599			116,259

Cash and cash equivalents comprise:




Cash and balances with central banks		20,215			0			775			20,990




Money market paper		54,387			1,521			14,030			69,938




Due from banks maturing in less than three months		15,254			2,283			7,794			25,331

Total		89,856			3,804			22,599			116,259

¹ UBS AG Parent Bank prepares its financial statements in accordance with Swiss Banking Law requirements. For the purpose of this disclosure, the accounts have been adjusted to IAS.

Guarantee of other securities

In October 2000, UBS AG, acting through a wholly-owned subsidiary, issued USD 1.5 billion (CHF 2.6 billion at issuance) 8.622% UBS Trust Preferred securities. In June 2001, UBS issued an additional USD 800 million (CHF 1.3 billion at issuance) of such securities (USD 300 million at 7.25% and USD 500 million at 7.247%). UBS AG has fully and unconditionally guaranteed these securities.

167

UBS Group Financial Statements
Notes to the Financial Statements

Note 41.4 Derivative instruments indexed to UBS shares

US GAAP, like IAS, requires that derivatives indexed to a company’s own stock be recorded as an equity instrument if settlement is required in actual shares or the company has the choice to settle the contract by delivery or receipt of its own shares. If, however, the counterparty may require cash settlement, then the derivative must be classified as an asset or liability, with changes in fair value being recorded in income. Because the Group has no contracts for which the accounting treatment under US GAAP differs from IAS, there is no reconciling item for these derivative instruments. However, US GAAP also requires disclosure of the amount of income recognized from such derivative instruments.

UBS Warburg acts as a liquidity provider to the equity futures markets and as a market maker in UBS shares and derivatives. Trading income of CHF 261 million in 2001 and CHF 42 million in 2000 was recorded in both its IAS and US GAAP financial statements from trading in cash settled derivative instruments indexed to UBS shares.

168

UBS Group Financial Statements
Report of the Group Auditors

Report of the Group Auditors

~~Report of the Group Auditors~~

to the General Meeting of

UBS AG, ZURICH AND BASEL

Mr. Chairman,

Ladies and Gentlemen,

~~As auditors of the Group, we~~We have audited the accompanying Group ~~financial~~balance sheets of UBS AG as of 31 December 2001 and 2000, and the related Group statements ~~(income statement, balance sheet, statement~~ of income, cash flows and changes in equity ~~statement~~for each of ~~cash flows and notes) of UBS AG for~~ the ~~year~~three years in the period ended 31 December ~~2000.~~

2001, and notes thereto. These ~~Group~~ financial statements are the responsibility of the Company's management and the Board of Directors. Our responsibility is to express an opinion on these ~~Group~~ financial statements based on our ~~audit.~~audits. We confirm that we meet the legal requirements in Switzerland concerning professional qualification and independence.

~~Our audit was~~We conducted our audits in accordance with auditing standards generally accepted in the United States of America, as well as those promulgated by the profession in ~~Switzerland, which~~Switzerland. These standards require that anwe plan and perform the audit ~~be planned and performed~~ to obtain reasonable assurance about whether the ~~Group~~ financial statements are free ~~from~~of material misstatement. ~~We have examined~~An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ~~Group~~ financial statements. ~~We have~~An audit also ~~assessed~~includes assessing the accounting principles used and significant estimates made ~~and~~by management, as well as evaluating the overall ~~Group~~ financial statement presentation. We believe that our ~~audit provides~~audits provide a reasonable basis for our opinion.

In our opinion, based on our audits, the Group financial statements ~~give a true and fair view of~~referred to above present fairly, in all material respects, the consolidated financial position of UBS AG as of 31 December 2001 and 2000, and the consolidated results of operations and ~~the~~ cash flows for each of the three years in ~~accordance~~the period ended 31 December 2001, in conformity with International Accounting Standards ~~(IAS)~~(“IAS”), and they comply with ~~the~~ Swiss ~~law.~~Law.

WeIn accordance with Swiss Law, we recommend that the Group financial statements submitted to you be approved.

~~Basel, 5 March~~IAS vary in certain significant respects from accounting principles generally accepted in the United States of America. Application of accounting principles generally accepted in the United States of America would have affected shareholders' equity as of 31 December 2001 ~~Ernst & Young Ltd.~~and 2000 and the results of operations for each of the three years in the period ended 31 December 2001 to the extent summarized in Note 40 of the notes to the financial statements.


Basel, 12 February 2002		Ernst & Young Ltd
~~Roger K. Perkin~~		~~Peter Heckendorn~~
~~Chartered Accountant~~		~~lic. oec.~~
~~in charge of the audit~~
	~~in charge of the audit~~

~~Enclosures~~

~~144~~

~~[INTENTIONALLY LEFT BLANK]~~

~~UBS AG~~

~~(Parent Bank)~~

~~UBS AG (Parent Bank)~~

~~Table of Contents~~

~~UBS AG (Parent Bank)~~

~~Table of Contents~~











	Roger K. Perkin	Peter Heckendorn




	Chartered Accountant	lic. oec.




	in charge of the audit	in charge of the audit




Enclosures

Footer

169

(PHOTO)

170

(UBS AG (PARENT BANK)

171


UBS AG (Parent Bank) Table of Contents

UBS AG (Parent Bank)
Table of Contents


Parent Bank Review			~~148~~173









Financial Statements			~~149~~174









Income Statement			~~149~~174




Balance Sheet			~~150~~175




Statement of Appropriation of Retained Earnings			~~151~~175









Notes to the Financial Statements			~~152~~176









Additional Income Statement Information			~~153~~177




Net Trading Income			~~153~~177




Extraordinary Income and Expenses			~~153~~177









Additional Balance Sheet Information			~~154~~178




Value Adjustments and Provisions			~~154~~178




Statement of Shareholders’ Equity			~~154~~
~~Share Capital~~			~~154~~179




Share Capital			179









Off-Balance Sheet and ~~other~~Other Information			~~155~~180




Assets Pledged or Assigned as Security for ~~own~~Own Obligations, Assets Subject to Reservation of Title			~~155~~180




Fiduciary Transactions			~~155~~180




Due to UBS Pension Plans, Loans to Corporate ~~Bodies /~~ Bodies/Related Parties			~~155~~180









Report of the Statutory Auditors			~~156~~181

~~147~~

172

UBS AG (Parent Bank)
Parent Bank Review

Parent Bank Review

Income Statement

The Parent Bank ~~Review~~

~~Income statement~~

UBS AG net profit ~~increased~~decreased CHF ~~1,118~~3,251 million from CHF ~~6,788~~7,906 million ~~in 1999~~ to CHF ~~7,906 million in 2000.~~4,655 million.

Income from investments in associates ~~decreased~~increased to CHF 1,532 million from CHF 896 million in 2000 ~~from CHF 1,669 million in 1999,~~ mainly due to ~~lower dividends~~higher distribution received.

Sundry ~~operating expenses were~~expense from ordinary activities was CHF 139 million, down from CHF 614 million ~~up from CHF 21 million~~ in ~~1999.~~2000. This was mainly due to alower net write-down of financial investments.

Allowances, provisions and losses were CHF 1,140 million up from CHF 345 million in 2000 ~~down from CHF 1,815 million~~mainly caused by higher credit loss expenses. This variance is discussed in ~~1999, mainly due to~~more detail in the ~~release of previously established provisions as credit quality improved as a result of the strong performance of the Swiss economy in 2000.~~Group Financial Statements.

Extraordinary income contains CHF 87 million (2000: CHF 496 ~~million~~million) from the sale of former subsidiaries, down from CHF 2,100 million in 1999, and CHF 15 million from the sale of tangible fixed assets, down from CHF 417 million in 1999. It also contains CHF 139 million from the release of provisions.

Extraordinary expenses consist mainly of losses of CHF 20 million from the sale of tangible fixed assets, compared to losses of CHF 254 million in 1999. There were no losses from the disposal of investments in associated companies in 2000, compared to losses of CHF 157 million in 1999.subsidiaries.

Balance ~~sheet~~Sheet

Total assets ~~declined~~increased by CHF ~~164~~81 billion to CHF ~~935~~1,016 billion atby 31 December ~~2000.~~2001. This ~~decline~~movement is ~~principally~~impacted by increased trading related assets where mainly trading balances in securities and precious metals and positive replacement values have increased. Liquid assets have significantly increased due to ~~changes in the accounting treatment of the securities lending and borrowing business, bringing it closer into line~~deposits with the ~~treatment in~~ Bank of Japan.

173

UBS ~~Group’s~~ AG (Parent Bank)
Financial ~~Statements.~~Statements

~~148~~

Financial Statements

Income Statement


CHF million					% change from
For the year ended	31.12.01		31.12.00			31.12.00

Interest and discount income	38,056		40,375			(6	)




Interest and dividend income from financial investments	185		93			99




Interest expense	(31,444	)	(32,161	)		(2	)

Net interest income	6,797		8,307			(18	)

Credit-related fees and commissions	291		292			0




Fee and commission income from securities and investment business	8,232		9,574			(14	)




Other fee and commission income	524		492			7




Fee and commission expense	(1,176	)	(1,229	)		(4	)

Net fee and commission income	7,871		9,129			(14	)

Net trading income	5,015		7,378			(32	)

Net income from disposal of financial investments	15		785			(98	)




Income from investments in associated companies	1,532		896			71




Income from real estate holdings	54		41			32




Sundry income from ordinary activities	1,183		380			211




Sundry ordinary expenses	(139	)	(614	)		(77	)

Other income from ordinary activities	2,645		1,488			78

Operating income	22,328		26,302			(15	)

Personnel expenses	9,443		10,292			(8	)




General and administrative expenses	4,869		5,405			(10	)

Operating expenses	14,312		15,697			(9	)

Operating profit	8,016		10,605			(24	)

Depreciation and write-offs on investments in associated companies and fixed assets	1,650		1,623			2




Allowances, provisions and losses	1,140		345			230

Profit before extraordinary items and taxes	5,226		8,637			(39	)

Extraordinary income	95		650			(85	)




Extraordinary expenses	7		20			(65	)




Tax expense / (benefit)	659		1,361			(52	)

Profit for the period	4,655		7,906			(41	)

174

Balance Sheet


						% change from
CHF million	31.12.01		31.12.00			31.12.00

Assets




Liquid assets		20,215		2,242			802




Money market paper		54,384		61,152			(11	)




Due from banks		252,226		243,911			3




Due from customers		173,690		175,255			(1	)




Mortgage loans		117,706		117,830			0




Trading balances in securities and precious metals		185,306		155,342			19




Financial investments		17,253		12,133			42




Investments in associated companies		11,331		10,587			7




Tangible fixed assets		5,624		5,949			(5	)




Accrued income and prepaid expenses		3,231		3,239			0




Positive replacement values		171,798		141,516			21




Other assets		3,725		6,242			(40	)

Total assets		1,016,489		935,398			9

Total subordinated assets		*1,894*		805			135




Total amounts receivable from Group companies		*213,954*		187,724			14

Liabilities




Money market paper issued		52,604		36,340			45




Due to banks		303,036		294,440	¹		3




Due to customers on savings and deposit accounts		67,664		68,069			(1	)




Other amounts due to customers		288,684		263,459			10




Medium-term note issues		5,213		5,408			(4	)




Bond issues and loans from central mortgage institutions		65,471		42,731			53




Accruals and deferred income		8,707		11,230			(22	)




Negative replacement values		172,469		155,059			11




Other liabilities		5,795		8,073	¹		(28	)




Value adjustments and provisions		3,959		7,817			(49	)




Share capital		3,589		4,444			(19	)




General statutory reserve		14,507		18,047			(20	)




Reserve for own shares		3,253		4,007			(19	)




Other reserves		16,883		8,361			102




Profit brought forward				7			(100	)




Profit for the period		4,655		7,906			(41	)

Total liabilities		1,016,489		935,398			9

Total subordinated liabilities		*16,444*		15,302			7




Total liabilities to Group companies		*126,182*		142,263			(11	)

~~UBS AG (Parent Bank)~~

~~Financial Statements~~

¹ Reclassification of CHF 65,512 million trading liabilities from Other liabilities to Due to banks.

~~Financial Statements~~

~~Income Statement~~

CHF million % change from
For the year ended 31.12.00 31.12.99 31.12.99
Interest and discount income¹
40,375 24,172 67
Interest and dividend income from financial assets 93 41 127
Interest expense¹
(32,161 ) (18,148 ) 77
Net interest income 8,307 6,065 37
Credit-related fees and commissions 292 361 (19 )
Fee and commission income from securities and investment business 9,574 7,758 23
Other fee and commission income 492 534 (8 )
Fee and commission expense (1,229 ) (763 ) 61
Net fee and commission income 9,129 7,890 16
Net trading income¹
7,378 5,593 32
Net income from disposal of financial assets 785 440 78
Income from investments in associated companies 896 1,669 (46 )
Income from real estate holdings 41 30 37
Sundry income from ordinary activities 380 894 (57 )
Sundry ordinary expenses (614 ) (21 )
Other income from ordinary activities 1,488 3,012 (51 )
Operating income
26,302 22,560 17
Personnel expenses 10,292 9,178 12
General and administrative expenses 5,405 5,154 5
Operating expenses
15,697 14,332 10
Operating profit
10,605 8,228 29
Depreciation and write-offs on fixed assets 1,623 423 284
Allowances, provisions and losses 345 1,815 (81 )
Profit before extraordinary items and taxes
8,637 5,990 44
Extraordinary income 650 2,518 (74 )
Extraordinary expenses 20 411 (95 )
Tax expense / (benefit) 1,361 1,309 4
Profit for the period
7,906 6,788 16

¹ ~~The figures for 2000 are not comparable to 1999. See Notes to the Financial Statements for further details.~~

~~149~~

~~UBS AG (Parent Bank)~~

~~Financial Statements~~

~~Balance Sheet~~

% change from
CHF million 31.12.00 31.12.99 31.12.99
Assets

Liquid assets 2,242 3,975 (44 )
Money market paper 61,152 62,154 (2 )
Due from banks 243,911 356,858 (32 )
Due from customers 175,255 195,464 (10 )
Mortgage loans 117,830 123,151 (4 )
Trading balances in securities and precious metals 155,342 196,782 (21 )
Financial assets 12,133 5,067 139
Investments in associated companies 10,587 6,727 57
Tangible fixed assets 5,949 5,709 4
Accrued income and prepaid expenses 3,239 3,555 (9 )
Positive replacement values 141,516 131,730 7
Other assets 6,242 7,923 (21 )
Total assets
935,398 1,099,095 (15 )
Total subordinated assets
805 939 (14 )
Total amounts receivable from Group companies
187,724 197,211 (5 )

Liabilities

Money market paper issued 36,340 47,931 (24 )
Due to banks 228,928 352,775 (35 )
Due to customers on savings and deposit accounts 68,069 76,414 (11 )
Other amounts due to customers 263,459 341,509 (23 )
Medium-term note issues 5,408 5,918 (9 )
Bond issues and loans from central mortgage institutions 42,731 44,254 (3 )
Accruals and deferred income 11,230 8,746 28
Negative replacement values 155,059 159,713 (3 )
Other liabilities 73,585 7,835 839
Value adjustments and provisions 7,817 18,554 (58 )
Share capital 4,444 4,309 3
General statutory reserve 18,047 14,528 24
Reserve for own shares 4,007 3,462 16
Other reserves 8,361 6,356 32
Profit brought forward 7 3 133
Profit for the period 7,906 6,788 16
Total liabilities
935,398 1,099,095 (15 )
Total subordinated liabilities
15,302 13,362 15
Total liabilities to Group companies
142,263 160,055 (11 )

~~150~~

~~UBS AG (Parent Bank)~~

~~Financial Statements~~

Statement of Appropriation of Retained Earnings


CHF million


The Board of Directors proposes to the Annual General Meeting the following appropriation:




Profit for the financial year ~~2000~~2001 as per the Parent Bank’s Income Statement			~~7,906~~4,655
~~Retained earnings from prior years~~			7
~~Release of~~


Appropriation to other reserves			~~1,764~~4,655

~~Available for appropriation~~			~~9,677~~

~~Appropriation to General statutory reserve~~			~~165~~
~~Distributed partial dividend (1.1.00–30.9.00)~~			~~1,764~~
~~Appropriation to other reserve~~			~~7,748~~

~~Total appropriation~~			~~9,677~~

The Extraordinary General Meeting on 7 September 2000 accepted a proposal to pay a partial dividend of CHF 4.50 gross per CHF 10.00 share in respect of the first three quarters of the reporting year. This payment, after deduction of 35% Swiss withholding tax, was made on 5 October 2000, to all UBS shareholders on record on 2 October 2000.Par Value Repayment

The Board of Directors proposes to repay CHF ~~1.60~~2.00 of the par value of each CHF ~~10.00~~2.80 share, instead of distributing a ~~final dividend for the remaining months of the reporting year: October, November and December.~~dividend. This repayment would reduce the share capital by CHF ~~682~~2,517 million, as at 31 December 2001, and reduce the par amount per share to CHF 8.40. This proposal would be approved on the explicit condition that the revised article 622 paragraph 4 of the Swiss Code of Obligations comes into force. If the proposal is approved and the condition met, the0.80. The repayment of CHF ~~1.60~~2.00 of the par value would be made on 1810 July ~~2001~~2002 to those shareholders who hold UBS shares on 135 July ~~2001, through their depository banks.~~

~~151~~

2002.

175

UBS AG (Parent Bank)
Notes to the Financial Statements

Notes to the Financial Statements

~~Notes to the~~

~~Financial Statements~~

Accounting and Valuation Principles

The Parent Bank’s accounting and valuation policies are in compliance with Swiss ~~federal~~ banking law. The accounting and valuation policies are ~~principally~~prinicipally the same as ~~outlined~~ for the Group Financial Statements outlined in Note ~~1 to the Group Financial Statements.~~1: Summary of Significant Accounting Policies. Major differences between the Swiss ~~federal~~ banking law requirements and International Accounting Standards are described in Note 4039 to the Group Financial Statements.

In addition, the following principles are applied for the Parent Bank:

Treasury shares

Treasury shares is the term used to describe ~~a company’s holdings in~~when an enterprise holds its own equity instruments. ~~In accordance with~~Under IAS, treasury shares are presented in the balance sheet as a deduction from equity. No gain or loss is ~~recognised~~recognized in the income statement on the sale, issuance, acquisition, or cancellation of those shares. Consideration received or paid is presented in the financial statement as a change in equity.

Under Swiss ~~federal banking requirements,~~law, treasury shares are ~~carried~~classified in the balance sheet as trading balances or as financial assets, ~~or other liabilities with~~short positions are included in Due to banks. Realized gains and losses on the sale, issuance or ~~cancellation, unrealised losses on~~acquisition of treasury shares, and ~~unrealised~~unrealized gains onor losses from remeasurement of treasury shares ~~included in trading balances and other liabilities reflected~~ in the ~~income statement.~~

~~Securities borrowing and lending~~

At 31 December 1999, securities received or delivered were recognised in the balance sheet together with any collateral in respect of those securities for which control was transferred. At 31 December 2000, securities borrowed and lent that are collateralized by cashtrading portfolio to market value are included in the ~~balance sheet~~income statement. Treasury shares included in Financial investments are carried at ~~amounts equal to~~ the ~~collateral advanced~~lower of cost or ~~received. Non-cash collateral is not reflected in the balance sheet.~~market value.

Investments in associated companies

Investments in associated companies are equity interests which are held ~~on a long-term basis~~ for the purpose of the Parent Bank’s business ~~activities.~~activities or for strategic reasons. They are carried at ~~a value no higher than their~~ cost ~~price.~~less valuation reserves, if needed.

Property and equipment

Bank buildings and other real estate are carried at cost less ~~depreciation at a rate which takes account of the economic and business situation and which is permissible for tax purposes.~~accumulated depreciation. Depreciation of computer and telecommunication equipment, ~~as well as~~ other office equipment, fixtures and fittings is ~~recognised~~recognized on a straight-line basis over the estimated useful lives of the related assets. The useful lives of Property and ~~Equipment~~equipment are ~~summarised~~summarized in Note 1, toSignificant Accounting Policies, of the Group Financial Statements.

~~Interest and dividend income on trading assets~~

~~In 1999, interest and dividend~~Extraordinary income and expense on trading assets and liabilities were included in Net trading income. In order to improve comparability with the main competitors, interest and dividend income and expense on trading assets and liabilities are now included in Interest income and interest expense respectively.

~~Extraordinary Income and Expenses~~expenses

Certain items of income and expense appear as extraordinary within the Parent Bank Financial Statements, whereas in the Group Financial Statements they are considered to be operating income or expenses and appear within the appropriate income or expense category. These items are separately identified below.

Taxation

Deferred Tax Assets ~~except those relating to Restructuring Provisions,~~ and Deferred Tax Liabilities, except for a few immaterial exceptions, are not ~~recognised~~recognized in the Parent Bank ~~Financial Statements as it is not required by~~financial statements. Swiss ~~federal~~ banking law does not require to ~~do so.~~recognize deferred taxes.

~~152~~

176

~~UBS AG (Parent Bank)~~

~~Notes to the Financial Statements~~

Additional Income Statement Information

Net Trading Income


CHF million								% change from
For the year ended	31.12.00		31.12.99			31.12.01	31.12.00		31.12.00


Foreign exchange and bank notes		1,151		717		1,629	1,151		42
Bonds and other interest rate instruments		88		1,816		805	88		815
Equities		6,117		3,089		2,435	6,117		(60	)
Precious metals and commodities		22		(29	)	146	22		564

Total		7,378		5,593		5,015	7,378		(32	)

Extraordinary Income and Expenses

Extraordinary income contains CHF ~~496~~87 million ~~(1999:~~(2000: CHF ~~2,100~~496 million) from the sale of subsidiaries and CHF 8 million (2000: CHF 15 ~~million (1999: CHF 417~~ million) from ~~the sale of tangible fixed assets and CHF 139 million from the release of provisions no longer operationally necessary.~~

other disposals. Extraordinary expenses consist mainly of losses of CHF 4 million from the liquidation of investments in subsidiaries. In 2000 losses of CHF 20 million ~~(1999: CHF 254 million)~~resulted from the sale of tangible fixed assets. ~~There were no losses from the disposal of investments in associated companies in 2000 (1999: CHF 157 million).~~

~~153~~

177

UBS AG (Parent Bank)

Notes to the Financial Statements

Additional Balance Sheet Information

Value Adjustments and Provisions


			Provisions			Recoveries,												Provisions			Recoveries,
			applied in			doubtful												applied in			doubtful
			accordance			interest,			New		Provisions							accordance			interest,			New
			with their			currency			provisions		released and							with their			currency			provisions
	Balance at		specified			translation			charged		credited			Balance at		Balance at		specified			translation			charged		Balance at
CHF million	31.12.99		purpose			differences			to income		to income			31.12.00		31.12.00		purpose			differences			to income		31.12.01


Default risks (credit and country risk)		12,929		(2,890	)		489			0		(139	)		10,389		10,389		(2,976	)		252			367		8,032
Other business risks¹		3,267		(1,211	)		404			473		0			2,933




Other business risks																	2,933		(163	)		(165	)		289		2,894
Capital and income taxes		1,153		(421	)		(8	)		1,330		0			2,054		2,054		(1,634	)		(68	)		549		901
Other provisions		2,380		(659	)		(344	)		196		0			1,573		1,573		(799	)		(212	)		469		1,031

Total allowance for general credit losses and other provisions		19,729		(5,181	)		541			1,999		(139	)		16,949		16,949		(5,572	)		(193	)		1,674		12,858

Allowances deducted from assets		1,175													9,132		9,132										8,899

Total provisions as per balance sheet		18,554													7,817		7,817										3,959

¹ ~~Provisions for litigation, settlement and other business risks.~~

~~Statement of Shareholders’ Equity~~

CHF million 31.12.00 31.12.99 Change %
Shareholders’ equity

Share capital at the beginning of the year 4,309 4,300 9 0
General statutory reserve 14,528 14,295 233 2
Reserves for own shares 3,462 490 2,972 607
Other reserves 6,356 10,806 (4,450 ) (41 )
Retained earnings 6,791 653 6,138 940
Total shareholders’ equity at the beginning of the period (before distribution of profit) 35,446 30,544 4,902 16
Capital increase 135 9 126
Increase in General statutory reserve 215 190 25 13
Premium 3,304 45 3,259
Other allocations ¹
(1,979 ) (38 ) (1,941 )
Prior-year dividend (2,255 ) (2,092 ) (163 ) 8
Profit for the period 7,906 6,788 1,118 16
Total shareholders’ equity at the end of the year (before distribution of profit) 42,772 35,446 7,326 21
of which:
Share capital 4,444 4,309 135 3
General statutory reserve 18,047 14,528 3,519 24
Reserves for own shares 4,007 3,462 545 16
Other reserves 8,361 6,356 2,005 32
Retained earnings 7,913 6,791 1,122 17

¹ ~~Includes distributed partial dividend (1.1.–30.9.2000).~~

~~Share Capital~~

Par value Ranking for dividends
No. of shares Capital in CHF No. of shares Capital in CHF
Issued and paid up 444,379,729 4,443,797,290 444,379,729 4,443,797,290
Conditional share capital 16,571,341 165,713,410

~~154~~

178

Statement of Shareholders’ Equity


								% change from
CHF million		31.12.01			31.12.00			31.12.00

Shareholders’ equity Share capital at beginning of the period			4,444			4,309			3




General statutory reserves			18,047			14,528			24




Reserves for own shares			4,007			3,462			16




Other reserves			8,361			6,356			32




Retained earnings			7,913			6,791			17

Total shareholders’ equity at beginning of the period (before distribution of profit)			42,772			35,446			21

Reduction of share capital			(867	)




Capital increase			12			135			(91	)




Increase in General statutory reserves			275			215			28




Share premium			(3,815	)		3,304




Other allocations¹			(145	)		(1,979	)		(93	)




Prior-year dividend²						(2,255	)		(100	)




Profit for the period			4,655			7,906			(41	)

Total shareholders’ equity at the end of the period (before distribution of profit)			42,887			42,772			0




of which:




	Share capital		3,589			4,444			(19	)




	General statutory reserves		14,507			18,047			(20	)




	Reserves for own shares		3,253			4,007			(19	)




	Other reserves		16,883			8,361			102




	Retained earnings		4,655			7,913			(41	)

¹ The 31 December 2000 figure includes a partial dividend for the period from 1 January 2000 until 30 September 2000 distributed in the year 2000.
² For the fourth quarter 2000 a par value repayment has been done instead of distributing a final dividend.

Share Capital


	Par value				Ranking for dividends

	No. of shares		Capital in CHF		No. of shares		Capital in CHF

Issued and paid up		1,281,717,499		3,588,808,997		1,258,653,143		3,524,228,800




Conditional share capital		13,017,716		36,449,605

179

UBS AG (Parent Bank)

Notes to the Financial Statements

Off-Balance Sheet and ~~other~~Other Information

Assets Pledged or Assigned as Security for ~~own~~Own Obligations,
Assets Subject to Reservation of Title



	31.12.00				31.12.99				Change in %						31.12.01				31.12.00				Change in %

	Book		Effective		Book		Effective		Book			Effective			Book		Effective		Book		Effective		Book			Effective
CHF million	value		liability		value		liability		value			liability			value		liability		value		liability		value			liability


Money market paper		28,355		0		35,475		702		(20	)					29,893				28,355				5
Mortgage loans		1,565		1,066		1,869		1,325		(16	)		(20	)		1,239		813		1,565		1,066		(21	)		(24	)
Securities		40,649		24,721		3,722		188		992						5,224				40,649		24,721		(87	)		(100	)

Total		70,569		25,787		41,066		2,215		72						36,356		813		70,569		25,787		(48	)		(97	)

Assets are pledged as collateral for securities borrowing and repo transactions, for collateralized credit lines with central banks, loans from mortgage institutions and security deposits relating to stock exchange membership.

Fiduciary Transactions


															% change from
CHF million	31.12.00		31.12.99		Change			%			31.12.01		31.12.00		31.12.00


Deposits with other banks		50,274		47,802		2,472			5
Deposits
with other banks												38,978		50,274		(22	)
with Group banks		682		759		(77	)		(10	)		532		682		(22	)

Loans and other financial transactions		403		415		(12	)		(3	)		1,042		403		159

Total		51,359		48,976		2,383			5			40,552		51,359		(21	)

Due to UBS Pension Plans, Loans to Corporate Bodies/Related Parties


															% change from
CHF million	31.12.00		31.12.99		Change			%			31.12.01		31.12.00		31.12.00

Due to UBS pension plans (including securities borrowed) and UBS securities held by pension plans												1,605		4,644		(65	)




Loans to directors, senior executives and auditors¹												32		36		(11	)

Due to UBS pension plans (including securities borrowed) and UBS securities held by pension plans		4,644		6,785		(2,141	)		(32	)
Loans to directors, senior executives and auditing bodies¹				61		(61	)		(100	)

¹ Loans to directors, senior executives and auditing bodies are loans to members of the Board of Directors, the Group Executive Board, the Group Managing Board and the Group’s official auditors under Swiss company law. This also includes loans to companies which are controlled by these natural or legal persons.

~~155~~

¹ Loans to directors, senior executives and auditors are loans to members of the Board of Directors, the Group Executive Board, the Group Managing Board and the Group’s official auditors under Swiss company law. This also includes loans to companies which are controlled by these natural or legal persons. There are no loans to the auditors.

180

UBS AG (Parent Bank)

Report of the Statutory Auditors

Report of the statutory auditors

to the General Meeting of

UBS AG, ZURICH AND BASEL

Mr. Chairman,

Ladies and Gentlemen,

As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes) of UBS AG for the year ended 31 December ~~2000.~~2001.

These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence.

Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with the Swiss ~~law~~Law and the ~~company’s~~company's articles of ~~incorporation.~~association.

We recommend that the financial statements submitted to you be approved.

~~Basel, 5 March 2001 Ernst & Young Ltd.~~


Basel, 12 February 2002	Ernst & Young Ltd














	Roger K. Perkin	Peter Heckendorn




	Chartered Accountant	lic. oec.




	in charge of the audit	in charge of the audit




Enclosures

~~Enclosures~~ Footer

~~156~~

181

~~Information for~~

~~Shareholders~~

182

~~Information for~~

~~Shareholders~~

~~UBS Registered Shares (Par Value CHF 10),~~

~~ISIN Number CH0010740741, CUSIP Number H8920G155~~

183

Additional Disclosure Required
under SEC Regulations
Table of Contents

Additional Disclosure Required under SEC Regulations
Table of Contents


A	Introduction	185





~~Ticker symbols~~B	Selected Financial Data	185




	Balance Sheet Data	187




	US GAAP Income Statement Data	188




	US GAAP Balance Sheet Data	189




	Ratio of Earnings to Fixed Charges	189





~~Stock exchange listings~~C	~~Bloomberg~~Information on the Company	~~Reuters~~189




	Property, plant and equipment	189





D	~~Telekurs~~Information Required by Industry Guide 3	190

~~SWX (Swiss exchange)~~


	~~UBSN SW~~Selected statistical information	~~UBSZn.S~~190




	~~UBSN, 004~~

~~NYSE (New York Stock Exchange)~~Average Balances and Interest Rates	~~UBS US~~190




	~~UBS.N~~Analysis of Changes in Interest Income and Expense	~~UBS, 65~~192

~~Tokyo~~


	~~8657 JP~~Deposits	~~UBS.T~~194




	~~N16631, 106~~Short-term Borrowings	195




	Loans	196




	Loan Maturities	197




	Impaired, Non-performing and Restructured Loans	198




	Cross-Boarder Outstandings	199




	Summary of Movements in Allowances and Provisions for Credit Losses	201




	Allocation of the Allowances and Provisions for Credit Losses	203




	Loss History Statistics	205

184

A – Introduction

The following pages contain additional disclosure about UBS Group which is required under SEC regulations.

B – Selected Financial Data

UBS’s Financial Statements have been prepared in accordance with International Accounting Standards (IAS) and are denominated in Swiss francs, or CHF, the reporting currency of the Group. Certain financial information has also been presented in accordance with United States Generally Accepted Accounting Principles (US GAAP).

The tables below set forth, for the periods and dates indicated, information concerning the noon buying rate for the Swiss franc, expressed in United States dollars, or USD, per one Swiss franc. The noon buying rate is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

On 28 February 2002 the noon buying rate was 0.5864 USD per 1 CHF.


					Average rate¹
Year ended 31 December	High		Low		(USD per 1 CHF)		At period end

1997		0.7446		0.6510		0.6890		0.6845




1998		0.7731		0.6485		0.6894		0.7281




1999		0.7361		0.6244		0.6605		0.6277




2000		0.6441		0.5479		0.5912		0.6172




2001		0.6331		0.5495		0.5910		0.5857

Month	High		Low

September 2001		0.6331		0.5859




October 2001		0.6217		0.6021




November 2001		0.6132		0.5985




December 2001		0.6136		0.5907




January 2002		0.6081		0.5814




February 2002		0.5932		0.5833

¹ The average of the noon buying rates on the last business day of each full month during the relevant period.

185

Additional Disclosure Required
under SEC Regulations

B – Selected Financial Data (continued)


CHF million, except where indicated
For the year ended	31.12.01			31.12.00			31.12.99			31.12.98			31.12.97

Income statement data




Interest income		52,277			51,745			35,604			37,442			23,669




Interest expense		44,236			43,615			29,695			32,424			16,733




Net interest income		8,041			8,130			5,909			5,018			6,936




Credit loss (expense) / recovery		(498	)		130			(956	)		(951	)		(1,278	)




Net interest income after credit loss (expense) / recovery		7,543			8,260			4,953			4,067			5,658




Net fee and commission income		20,211			16,703			12,607			12,626			12,234




Net trading income		8,802			9,953			7,719			3,313			5,491




Other income		558			1,486			3,146			2,241			1,497




Operating income		37,114			36,402			28,425			22,247			24,880




Operating expenses		30,396			26,203			20,532			18,376			18,636




Operating profit before tax		6,718			10,199			7,893			3,871			6,244




Restructuring costs		0			0			0			0			7,000




Tax expense/(benefit)		1,401			2,320			1,686			904			(105	)




Minority interests		(344	)		(87	)		(54	)		5			(16	)




Net profit		4,973			7,792			6,153			2,972			(667	)




Cost / income ratio (%)¹		80.8			72.2			69.9			79.2			71.2




Cost / income ratio before goodwill (%)^{1, 2}		77.3			70.4			68.7			77.7			70.7

Per share data (CHF)




Basic earnings per share^{3, 4}		3.93			6.44			5.07			2.44			(0.53	)




Basic earnings per share before goodwill^{2, 3, 4}		4.97			7.00			5.35			2.72




Diluted earnings per share^{3, 4}		3.78			6.35			5.02			2.40			(0.53	)




Diluted earnings per share before goodwill^{2, 3, 4}		4.81			6.89			5.30			2.68




Cash dividends declared per share (CHF)⁵					1.50			1.83			1.67




Cash dividends declared per share (USD)⁵					0.86			1.10			1.10




Dividend payout ratio (%)⁵					23.28			36.18			68.21

Rates of return (%)




Return on shareholders’ equity⁶		11.7			21.5			22.4			10.7




Return on shareholders’ equity before goodwill^{2, 6}		14.8			23.4			23.6			12.0




Return on average equity		10.4			22.0			18.6			9.0			(2.0	)




Return on average assets		0.36			0.7			0.65			0.28			(0.07	)

~~Financial calendar~~¹

~~Annual General Meeting~~ ~~Thursday, 26 April 2001~~
~~Publication of first quarter 2001 results~~ ~~Tuesday, 15 May 2001~~
~~Publication of second quarter 2001 results~~ ~~Tuesday, 14 August 2001~~
~~Publication of third quarter 2001 results~~ ~~Tuesday, 13 November 2001~~

		Operating expenses / operating income before credit loss expense.




~~For information contact~~²		~~Change~~The amortization of ~~address~~goodwill and other intangible assets is excluded from the calculation.
~~UBS AG~~ ~~Investor Relations G41B~~ ~~P.O. Box~~ ~~CH-8098 Zurich~~ ~~Phone +41-1-234 41 00~~ ~~Fax +41-1-234 34 15~~ ~~E-Mail SH-investorrelations@ubs.com~~ ~~www.ubs.com/investor-relations~~



³		~~UBS AG~~ ~~Shareholder Services GUMV~~ ~~P.O. Box~~ ~~CH-8098 Zurich~~ ~~Phone +41-1-235 62 02~~ ~~Fax +41-1-235 31 54~~ ~~E-Mail SH-shareholder-services@ubs.com~~For EPS calculation, see Note 9 to the Financial Statements.




⁴		The 2000, 1999, 1998 and 1997 share and earnings per share figures have been adjusted for the 3 for 1 share split which took place on 16 July 2001.




⁵		Dividends are normally declared and paid in the year subsequent to the reporting period. In 2000, as part of the arrangements of the acquisition of PaineWebber, a dividend of CHF 1.50 was paid on 5 October 2000 in respect of the nine months ended 30 September 2000. Prior to the merger between Union Bank of Switzerland and Swiss Bank Corporation, each paid dividends in accordance with its own dividend policies. In 2001 a further amount of CHF 1.60 per share was distributed to shareholders in the form of a par value reduction, in respect of 2000. No dividend will be paid out for the year 2001. A par value reduction of CHF 2.00 per share will be paid on 10 July 2002, in respect of 2001, subject to approval by shareholders at the Annual General Meeting.




⁶		Net profit / average shareholders’ equity excluding dividends.

~~157~~

186

B – Selected Financial Data (continued)


CHF million, except where indicated
As at	31.12.01		31.12.00			31.12.99		31.12.98		31.12.97

Balance sheet data




Total assets		1,253,297		1,087,552			896,556		861,282		1,086,414




Shareholders’ equity		43,530		44,833			30,608		28,794		30,927




Average equity to average assets (%)		3.49		3.17			3.52		3.06		3.40

Market capitalization		105,475		112,666			92,642		90,720





Shares¹
Registered ordinary shares		1,281,717,499		1,333,139,187			1,292,679,486		1,289,857,836		1,286,174,100




Own shares to be delivered		0		28,447,788			0		0		0




Treasury shares		41,254,951		55,265,349			110,621,142		73,370,094		38,236,224

BIS capital ratios




Tier 1 (%)		11.6		11.7			10.6		9.3		8.3




Total BIS (%)		14.8		15.7			14.5		13.2		12.6




Risk-weighted assets		253,735		273,290			273,107		303,719		345,904

Invested assets (CHF billion)		2,457		2,452	⁴		1,744		1,573

Headcount (full time equivalents)²		69,985		71,076			49,058		48,011

Long-term ratings³




Fitch, London	AAA		AAA			AAA		AAA




Moody’s, New York	AA2		Aa1			Aa1		Aa1




Standard & Poor’s, New York	AA+		AA+			AA+		AA+

¹ The 2000, 1999, 1998 and 1997 share figures have been adjusted for the 3 for 1 split which took place on 16 July 2001.
² The Group headcount does not include the Klinik Hirslanden AG headcount.
³ See the UBS Handbook 2001/2002, page 10 to 11 for information about the nature of these ratings.
⁴ Restated to reflect the new definition.

Balance Sheet Data


CHF million
As at	31.12.01		31.12.00¹		31.12.99¹		31.12.98¹		31.12.97¹

Assets




Total assets		1,253,297		1,087,552		896,556		861,282		1,086,414




Due from banks		27,526		29,147		29,907		68,495		66,582




Cash collateral on securities borrowed		162,938		177,857		113,162		91,695		82,656




Reverse repurchase agreements		269,256		193,801		132,391		141,285		216,355




Trading portfolio assets		397,886		315,588		211,932		159,179		210,738




Positive replacement values		73,447		57,875		62,957		90,511		149,538




Loans, net of allowances for credit losses		226,545		244,842		234,858		247,926		270,917

Liabilities




Due to banks		106,531		82,240		76,365		85,716		159,634




Cash collateral on securities lent		30,317		23,418		12,832		19,171		14,140




Repurchase agreements		368,620		295,513		196,914		137,617		191,793




Trading portfolio liabilities		105,798		82,632		54,638		47,033		68,215




Negative replacement values		71,443		75,923		95,786		125,847		170,162




Due to customers		333,781		310,679		279,960		274,850		302,516




Debt issued		156,218		129,635		120,987		102,310		109,864




Shareholders’ equity		43,530		44,833		30,608		28,794		30,927

¹ Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of Significant Accounting Policies in the Financial Statements).

187

Additional Disclosure Required
under SEC Regulations

B – Selected Financial Data (continued)

US GAAP Income Statement Data


CHF million
For the year ended	31.12.01			31.12.00			31.12.99			31.12.98

Operating income




Interest income		51,975			51,565			35,404			29,136




Interest expense		(44,178	)		(43,584	)		(29,660	)		(25,773	)

Net interest income		7,797			7,981			5,744			3,363




Credit loss (expense) / recovery		(498	)		130			(956	)		(787	)

Net interest income after credit loss (expense) / recovery		7,299			8,111			4,788			2,576

Net fee and commission income		20,211			16,703			12,607			8,925




Net trading income		8,973			8,597			7,174			455




Other income		534			1,514			3,182			725

Total operating income		37,017			34,925			27,751			12,681

Operating expenses




Personnel expenses		19,713			17,262			12,483			7,938




General and administrative expenses		7,631			6,813			6,664			6,259




Depreciation and amortization		4,597			3,952			3,454			2,403




Restructuring costs		112			191			750			1,089

Total operating expenses		32,053			28,218			23,351			17,689

Operating profit / (loss) before tax and minority interests		4,964			6,707			4,400			(5,008	)

Tax expense / (benefit)		1,386			2,183			1,509			(1,339	)

Net profit / (loss) before minority interests		3,578			4,524			2,891			(3,669	)

Minority interests		(344	)		(87	)		(54	)		4

Net profit / (loss)		3,234			4,437			2,837			(3,665	)

188

B – Selected Financial Data (continued)

US GAAP Balance Sheet Data


CHF million
As at	31.12.01		31.12.00¹		31.12.99¹		31.12.98¹

Assets




Total assets		1,314,856		1,124,554		893,525		899,589

Due from banks		27,550		29,182		29,954		68,554




Cash collateral on securities borrowed		162,566		177,857		113,162		91,695




Reverse repurchase agreements		269,256		193,801		132,391		141,285




Trading portfolio assets		399,577		318,788		228,230		178,130




Positive replacement values²		73,051		57,775		62,294		90,520




Loans, net of allowances for credit losses		226,747		245,214		235,401		248,657




Intangible assets and goodwill		33,765		35,726		21,428		21,707




Other assets		36,972		27,955		18,717		29,398

Liabilities
Due to banks		106,531		82,240		76,363		85,716




Cash collateral on securities lent		30,317		23,418		12,832		19,127




Repurchase agreements		368,620		295,513		173,840		136,824




Trading portfolio liabilities		108,924		87,832		52,658		47,772




Negative replacement values²		71,018		75,423		95,004		125,857




Due to customers		333,766		310,686		279,971		274,861




Accrued expenses and deferred income		17,289		21,038		12,040		11,232




Debt issued		156,462		129,750		120,704		101,973




Shareholders’ equity		59,282		62,960		51,833		54,761

¹ Changes have been made to prior year to conform to the current presentation (see Note 1: Summary of significant Accounting Policies in the Financial Statements).




² Positive and negative replacement values represent the fair value of derivative instruments.

Ratio of Earnings to Fixed Charges

The following table sets forth UBS AG’s ratio of earnings to fixed charges, for the periods indicated. Ratios of earnings to combined fixed charges and preferred stock dividends requirements are not presented as there were no preferred share dividends in any of the periods indicated.


For the year ended	31.12.01			31.12.00			31.12.99			31.12.98			31.12.97

IAS		1.14	¹		1.23	¹		1.25	¹		1.11	¹		0.95	^1,3




US GAAP		1.10	^1,2		1.15	^1,2		1.14	^1,2		0.80	^1,2

¹ The ratio is provided using both IAS and US GAAP values, since the ratio is materially different under the two accounting standards. No US GAAP information is provided for 31 December 1997 as a US GAAP reconciliation was not required for that period.




² The deficiency in the coverage of fixed charges by earnings before fixed charges at 31 December 1998 was CHF 5,319 million.




³ The deficiency in the coverage of fixed charges by earnings before fixed charges at 31 December 1997 was CHF 851 million.

C – Information on the Company

Property, plant and equipment

At 31 December 2001, UBS operated about 2000 offices and branches worldwide, of which about 51% were in Switzerland, 10% in the rest of Europe, 37% in the Americas and 2% in Asia.

28% of the offices and branches in Switzerland were owned directly by UBS with the remainder, along with most of UBS’s offices outside Switzerland, being held under commercial leases.

These premises are subject to continuous maintenance and upgrading and are considering suitable and adequate for our current and anticipated operations.

189

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3

Selected statistical information

The tables below set forth selected statistical information regarding the Group’s banking operations extracted from the Financial Statements. Unless otherwise indicated, average balances for the year ended 31 December 2001, 31 December 2000 and 31 December 1999 are calculated from monthly data. Certain prior year balances and figures have been reclassified to conform to current year presentation. The distinction between domestic and foreign is generally based on the booking location. For loans, this method is not significantly different from an analysis based on the domicile of the borrower.

Average Balances and Interest Rates

The following table sets forth average interest-earning assets and average interest-bearing liabilities, along with the average rates, for the years ended 31 December 2001, 2000 and 1999.


		31.12.01						31.12.00						31.12.99

		Average				Average		Average				Average		Average				Average
CHF million, except where indicated		balance		Interest		rate (%)		balance		Interest		rate (%)		balance		Interest		rate (%)

Assets




Due from banks
	Domestic		11,753		1,055		9.0		13,366		1,273		9.5		19,451		1,757		9.0




	Foreign		15,528		1,823		11.7		16,994		2,280		13.4		28,999		2,739		9.4




Cash collateral on securities borrowed and on reverse repurchase agreements
	Domestic		7,868		563		7.2		8,383		558		6.7		3,265		117		3.6




	Foreign		474,295		17,774		3.7		348,395		18,530		5.3		223,962		11,305		5.0




Trading portfolio assets
	Domestic		12,940		307		2.4		20,800		244		1.2		38,372		72		0.2




	Foreign		333,576		16,225		4.9		256,605		11,598		4.5		159,327		5,526		3.5




Loans
	Domestic		177,404		8,017		4.5		181,646		10,985		6.0		200,111		8,750		4.4




	Foreign		72,176		3,090		4.3		67,528		3,813		5.6		58,634		3,485		5.9




Financial investments
	Domestic		4,598		90		2.0		3,440		105		3.1		2,761		101		3.7




	Foreign		39,252		363		0.9		22,529		297		1.3		17,153		143		0.8




Net interest on swaps					2,970						2,062						1,609

Total interest-earning assets			1,149,390		52,277		4.5		939,686		51,745		5.5		752,035		35,604		4.7




Non-interest-earning assets
	Positive replacement values		153,687						135,762						146,036




	Fixed assets		13,376						9,660						8,824




	Other		46,954						32,925						34,957

Total average assets			1,363,407						1,118,033						941,852

190

D – Information Required by Industry Guide 3 (continued)

Average Balances and Interest Rates (continued)


		31.12.01						31.12.00						31.12.99

		Average				Average		Average				Average		Average				Average
CHF million, except where indicated		balance		Interest		rate (%)		balance		Interest		rate (%)		balance		Interest		rate (%)

Liabilities and Equity




Due to banks




	Domestic		36,260		1,424		3.9		31,133		2,397		7.7		37,581		3,254		8.7




	Foreign		61,642		3,506		5.7		57,258		3,758		6.6		41,583		2,261		5.4




Cash collateral on securities lent and repurchase agreements




	Domestic		13,147		600		4.6		12,700		478		3.8		12,830		106		0.8




	Foreign		415,121		13,917		3.4		284,220		14,437		5.1		144,837		8,340		5.8




Trading portfolio liabilities




	Domestic		2,526		1		0.0		1,078		4		0.4		0		0		0.0




	Foreign		94,597		7,814		8.3		66,597		5,305		8.0		48,560		2,070		4.3




Due to customers




	Domestic		139,014		2,420		1.7		143,809		2,202		1.5		155,887		1,931		1.2




	Foreign		187,783		6,738		3.6		143,432		7,303		5.1		122,411		6,399		5.2




Debt issued




	Domestic		12,823		587		4.6		15,569		778		5.0		16,387		952		5.8




	Foreign		139,982		7,229		5.2		116,095		6,953		6.0		95,919		4,382		4.6

Total interest-bearing liabilities			1,102,895		44,236		4.0		871,891		43,615		5.0		675,995		29,695		4.4




Non-interest-bearing liabilities




	Negative replacement values		165,220						157,668						171,800




	Other		47,676						53,049						60,946

Total liabilities			1,315,791						1,082,608						908,741




Shareholders’ equity			47,616						35,425						33,111

Total average liabilities and shareholders’ equity			1,363,407						1,118,033						941,852

Net interest income					8,041						8,130						5,909




Net yield on interest-earning assets							0.7						0.9						0.8

The percentage of total average interest-earning assets attributable to foreign activities was 81% for 2001 (76% for 2000 and 65% for 1999). The percentage of total average interest-bearing liabilities attributable to foreign activities was 82% for 2001 (77% for 2000 and 67% for 1999).

All assets and liabilities are translated into CHF at uniform month-end rates. Interest income and expense are translated at monthly average rates.

191

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Analysis of Changes in Interest Income and Expense

The following tables allocate, by categories of interest-earning assets and interest-bearing liabilities, the changes in interest income and expense due to changes in volume and interest rates for the year ended 31 December 2001 compared to the year ended 31 December 2000, and for the year ended 31 December 2000 compared to the year ended 31 December 1999. Volume and rate variances have been calculated on movements in average balances and changes in interest rates. Changes due to a combination of volume and rates have been allocated proportionally.


		2001 compared to 2000									2000 compared to 1999

		Increase (decrease)									Increase (decrease)
		due to changes in									due to changes in

		Average			Average			Net			Average			Average			Net
CHF million		volume			rate			change			volume			rate			change

Interest income from interest-earning assets




Due from banks




	Domestic		(153	)		(65	)		(218	)		(550	)		66			(484	)




	Foreign		(196	)		(261	)		(457	)		(1,134	)		675			(459	)




Cash collateral on securities borrowed and reverse repurchase agreements




	Domestic		(35	)		40			5			183			258			441




	Foreign		6,673			(7,429	)		(756	)		6,281			944			7,225




Trading portfolio assets




	Domestic		(94	)		157			63			(33	)		205			172




	Foreign		3,464			1,163			4,627			3,374			2,698			6,072




Loans




	Domestic		(255	)		(2,713	)		(2,968	)		(807	)		3,042			2,235




	Foreign		260			(983	)		(723	)		529			(201	)		328




Financial investments




	Domestic		36			(51	)		(15	)		25			(21	)		4




	Foreign		217			(151	)		66			45			109			154

Interest income




Domestic			(501	)		(2,632	)		(3,133	)		(1,182	)		3,550			2,368




Foreign			10,418			(7,661	)		2,757			9,095			4,225			13,320

Total interest income from interest-earning assets			9,917			(10,293	)		(376	)		7,913			7,775			15,688




Net interest on swaps									908									453

Total interest income									532									16,141

192

D – Information Required by Industry Guide 3 (continued)

Analysis of Changes in Interest Income and Expense (continued)


		2001 compared to 2000									2000 compared to 1999

		Increase (decrease)									Increase (decrease)
		due to changes in									due to changes in

		Average			Average			Net			Average			Average			Net
CHF million		volume			rate			change			volume			rate			change

Interest expense on interest-bearing liabilities




Due to banks




	Domestic		395			(1,368	)		(973	)		(558	)		(299	)		(857	)




	Foreign		289			(541	)		(252	)		852			645			1,497




Cash collateral on securities lent and repurchase agreements




	Domestic		17			105			122			(1	)		373			372




	Foreign		6,676			(7,196	)		(520	)		8,026			(1,929	)		6,097




Trading portfolio liabilities




	Domestic		6			(9	)		(3	)		4			0			4




	Foreign		2,240			269			2,509			769			2,466			3,235




Due to customers




	Domestic		(72	)		290			218			(150	)		421			271




	Foreign		2,262			(2,827	)		(565	)		1,099			(195	)		904




Debt issued




	Domestic		(137	)		(54	)		(191	)		(48	)		(126	)		(174	)




	Foreign		1,433			(1,157	)		276			922			1,649			2,571

Interest expense




	Domestic		209			(1,036	)		(827	)		(753	)		369			(384	)




	Foreign		12,900			(11,452	)		1,448			11,668			2,636			14,304

Total interest expense			13,109			(12,488	)		621			10,915			3,005			13,920

193

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Deposits

The following table analyzes average deposits and the average rates on each deposit category listed below for the years ended 31 December 2001, 2000 and 1999. The geographic allocation is based on the location of the office or branch where the deposit is made. Deposits by foreign depositors in domestic offices were CHF 54,095 million, CHF 45,815 million and CHF 45,285 million at 31 December 2001, 31 December 2000 and 31 December 1999, respectively.


	31.12.01				31.12.00				31.12.99

	Average		Average		Average		Average		Average		Average
CHF million, except where indicated	deposit		rate (%)		deposit		rate (%)		deposit		rate (%)


Banks




Domestic offices




Demand deposits		3,741		1.2		4,649		1.9		12,736		0.9




Time deposits		8,012		4.2		8,717		8.7		6,715		12.6

Total domestic offices		11,753		3.3		13,366		6.3		19,451		5.0

Foreign offices




Interest-bearing deposits ¹		15,528		5.7		16,994		6.6		28,999		5.4

Total due to banks		27,281		4.6		30,360		6.5		48,450		5.2


Customer accounts




Domestic offices




Demand deposits		41,664		1.7		44,403		1.3		49,261		0.6




Savings deposits		66,089		1.1		72,207		1.1		80,543		1.1




Time deposits		31,261		3.2		27,199		3.0		26,083		2.8

Total domestic offices		139,014		1.7		143,809		1.5		155,887		1.2

Foreign offices




Demand deposits		187,783		3.6		143,432		5.1		122,411		5.2

Total due to customers		326,797		2.8		287,241		3.3		278,298		3.0

Mainly time deposits.

At 31 December 2001, the maturity of time deposits exceeding CHF 150,000, or an equivalent amount in other currencies, was as follows:


CHF million	Domestic		Foreign

Within 3 months		34,240		156,183




3 to 12 months		4,103		7,783




1 to 5 years		981		705




Over 5 years		56		896

Total time deposits		39,380		165,567

194

D – Information Required by Industry Guide 3 (continued)

Short-term Borrowings

The following table presents our period-end, average and maximum month-end outstanding amounts for short-term borrowings, along with the average rates and period-end rates at and for the years ended 31 December 2001, 2000 and 1999.


	Money market paper issued						Due to banks						Repurchase agreements¹
CHF million,
except where indicated	31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99		31.12.01		31.12.00		31.12.99

Period-end balance		99,006		74,780		64,655		77,312		51,245		40,580		462,316		330,857		217,736




Average balance		96,253		78,154		58,102		70,621		58,031		30,714		400,648		278,601		149,071




Maximum month-end balance		117,022		89,821		76,368		85,808		73,355		64,562		502,578		342,427		217,736




Average interest rate during the period (%)		4.4		5.6		3.9		7.0		7.0		9.7		3.2		4.8		4.8




Average interest rate at period-end (%)		2.6		6.0		4.6		2.2		4.1		4.8		2.9		4.8		3.9

For the purpose of this disclosure, balances are presented on a gross basis.

195

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Loans

Loans are widely dispersed over customer categories both within and outside of Switzerland. With the exceptions of private households (foreign and domestic) and banks and financial institutions outside Switzerland, there is no material concentration of loans. For further discussion of the loan portfolio, see the UBS Handbook 2001/2002. The following table illustrates the diversification of the loan portfolio among customer categories at 31 December 2001, 2000, 1999, 1998 and 1997. The industry categories presented are consistent with the classification of loans for reporting to the Swiss Federal Banking Commission and Swiss National Bank.


CHF million	31.12.01		31.12.00		31.12.99		31.12.98		31.12.97

Domestic




Banks		1,533		2,896		5,802		4,543		17,751




Construction		3,499		4,870		6,577		7,897		9,627




Financial institutions		5,673		5,725		9,387		10,240		11,371




Hotels and restaurants		2,950		3,526		4,259		4,129		4,668




Manufacturing¹		8,686		9,577		11,377		13,505		16,440




Private households		93,746		91,667		93,846		97,664		109,044




Public authorities		5,222		5,658		5,277		5,858		6,354




Real estate and rentals		14,992		16,673		19,835		21,231		22,915




Retail and wholesale		8,674		9,635		10,904		8,912		10,512




Services²		12,161		11,767		14,862		11,582		13,083




Other³		1,860		2,651		1,818		1,662		1,862

Total domestic		158,996		164,645		183,944		187,223		223,627

Foreign




Banks		26,728		27,168		24,983		65,000		49,559




Chemicals		1,080		1,423




Construction		266		773




Electricity, gas and water supply		977		1,584




Financial institutions		14,458		20,348




Manufacturing⁶		4,258		4,596




Mining		1,313		2,070




Private households		25,619		29,470




Public authorities		6,454		11,754




Real estate and rentals		10,227		5,077




Retail and wholesale		1,732		1,862




Services		4,786		1,585




Transport, storage and communication		2,117		993




Other^{4, 5}		2,973		11,168		69,087		78,741		80,054

Total foreign		102,988		119,871		94,070		143,741		129,613

Total gross		261,984		284,516		278,014		330,964		353,240

¹ Includes chemicals, food and beverages.
² Includes transportation, communication, health and social work, education and other social and personal service activities.
³ Includes mining and electricity, gas and water supply.
⁴ For the years prior to the year 2000, no detailed industry classifications are available.
⁵ Includes hotels and restaurants.
⁶ Includes food and beverages.

196

D – Information Required by Industry Guide 3 (continued)

Loans (continued)

The following table analyzes the Group’s mortgage portfolio by geographic origin of the customer and type of mortgage at 31 December 2001, 2000, 1999, 1998 and 1997. Mortgages are included in the industry categories mentioned above.


CHF million	31.12.01		31.12.00		31.12.99		31.12.98		31.12.97

Mortgages




Domestic		116,628		116,348		126,677		138,306		142,919




Foreign		9,583		4,206		1,310		2,479		3,883

Total gross mortgages		126,211		120,554		127,987		140,785		146,802

Mortgages




Residential		101,969		96,181		91,408		106,093		105,926




Commercial		24,242		24,373		36,579		34,692		40,876

Total gross mortgages		126,211		120,554		127,987		140,785		146,802

Loan Maturities

The following table discloses loans by maturity at 31 December 2001. The determination of maturities is based on contract terms. Information on interest rate sensitivities can be found in Note 30 to the UBS Group Financial Statements.


CHF million	Within 1 year		1 to 5 years		Over 5 years		Total

Domestic




Banks		1,384		149		0		1,533




Mortgages		63,952		45,246		7,430		116,628




Other loans		31,578		7,671		1,586		40,835

Total domestic		96,914		53,066		9,016		158,996

Foreign




Banks		26,153		305		270		26,728




Mortgages		8,746		664		173		9,583




Other loans		63,927		2,110		640		66,677

Total foreign		98,826		3,079		1,083		102,988

Total gross loans		195,740		56,145		10,099		261,984

197

Additional Disclosure Required under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Impaired, Non-performing and Restructured Loans

A loan is classified as impaired if the book value of the claim exceeds the present value of the cash flows actually expected in future periods – interest payments, scheduled principal repayments and liquidation of collateral. Impaired obligations are thus obligations where losses are probable and estimable. A provision is then made with respect to the loan in question. Impaired loans include non-performing loans, for which the contractual payments of principal, interest or commission are overdue by 90 days. When loans are classified as non-performing, the recognition of interest or commission income ceases to be recorded according to the original terms of the loan agreement. Allowances are provided for non-performing loans to reflect their net estimated recoverable amount. The gross interest income that would have been recorded on non-performing loans was CHF 336 million for the year ended 31 December 2001, CHF 182 million for the year ended 31 December 2000 and CHF 409 million for the year ended 31 December 1999. The amount of interest income that was included in net income for those loans was CHF 201 million for the year ended 31 December 2001. There was no interest income recorded in net income for non performing loans in 2000 and 1999. The table below provides an analysis of the Group’s non-performing and restructured loans. For further discussion of impaired and non-performing loans, see the UBS Handbook 2001/2002.


CHF million	31.12.01		31.12.00		31.12.99		31.12.98		31.12.97

Non-performing loans:




Domestic		6,531		7,588		11,435		14,023		15,238




Foreign		2,108		2,864		1,638		2,091		1,426

Total non-performing loans		8,639		10,452		13,073		16,114		16,664

Foreign restructured loans¹				179		287		449		638

¹ Amounts presented for 2001, 2000, 1999 and 1998 include only performing foreign restructured loans. Amounts presented for 1997 include both performing and non-performing foreign restructured loans. UBS does not, as a matter of policy, typically restructure loans to accrue interest at rates different from the original contractual terms or reduce the principal amount of loans. Instead, specific loan allowances are established as necessary. Unrecognized interest related to foreign restructured loans was not material to the results of operations during these periods.

In addition to the non-performing loans shown above, the Group had CHF 5,990 million, CHF 8,042 million, CHF 9,383 million and CHF 10,333 million in “other impaired loans” for the years ended 31 December 2001, 2000, 1999 and 1998, respectively. These are loans that are current, or less than 90 days in arrears, with respect to payment of principal or interest however, the Group’s credit officers have expressed doubts as to the ability of the borrowers to repay the loans. As at 31 December 2001 specific allowances of CHF 1,920 million had been established against these loans, which are primarily domestic.

198

D – Information Required by Industry Guide 3 (continued)

Cross-Border Outstandings

Cross-border outstandings consist of general banking products such as loans and deposits with third parties, credit equivalents of over-the-counter (OTC) derivatives and repurchase agreements, and the market value of the inventory of securities. Outstandings are monitored and reported on an ongoing basis by the credit risk management and control organization with a dedicated country risk information system. With the exception of the 27 most developed economies, these exposures are rigorously limited.

Claims that are secured by third-party guarantees are recorded against the guarantor’s country of domicile. Outstandings that are secured by collateral are recorded against the country where the asset could be liquidated. This follows the “Guidelines for the Management of Country Risk”, which are applicable to all banks that are supervised by the Swiss Federal Banking Commission.

The following tables list those countries for which cross-border outstandings exceeded 0.75% of total assets at 31 December 2001, 2000 and 1999. At 31 December 2001, there were no outstandings that exceeded 0.75% of total assets in any country currently facing liquidity problems that the Group expects would materially affect the country’s ability to service its obligations.

For more information on cross-border outstandings, see the UBS Handbook 2001/2002.

199

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)


	31.12.01

	Banking products
					Traded		Tradable				% of total
CHF million	Banks		Non-banks		products¹		assets²		Total		assets

United States		2,360		1,284		31,129		114,615		149,388		11.9




United Kingdom		2,483		543		9,128		27,754		39,908		3.2




Germany		3,605		6,395		11,962		11,755		33,717		2.7




Japan		640		770		4,442		22,995		28,847		2.3




Italy		1,086		498		11,628		11,180		24,392		1.9




France		159		2,043		4,114		8,052		14,368		1.1




Canada		114		950		5,220		8,038		14,322		1.1




Netherlands		1,834		2,414		6,126		3,110		13,484		1.1


	31.12.00

	Banking products
					Traded		Tradable				% of total
CHF million	Banks		Non-banks		products¹		assets²		Total		assets

United States		1,826		958		21,796		64,077		88,657		8.2




Japan		123		895		6,378		58,779		66,175		6.1




United Kingdom		1,795		1,224		9,037		22,440		34,496		3.2




Germany		2,686		3,720		13,198		5,085		24,689		2.3




Italy		1,293		931		3,629		9,700		15,553		1.4




France		1,085		1,900		3,956		5,987		12,928		1.2




Netherlands		910		1,480		6,092		3,803		12,285		1.1




Australia		27		370		3,113		7,508		11,018		1.0


	31.12.99

	Banking products
					Traded		Tradable				% of total
CHF million	Banks		Non-banks		products¹		assets²		Total		assets

United States		3,202		2,508		41,970		48,012		95,692		10.7




Japan		1,117		965		7,153		69,194		78,429		8.8




United Kingdom		3,417		3,193		11,273		58,300		76,183		8.5




Germany		4,455		3,174		41,422		8,181		57,232		6.4




Italy		2,462		762		6,803		8,708		18,735		2.1




Netherlands		1,932		1,149		6,648		4,993		14,722		1.6




France		1,200		1,395		7,324		4,379		14,298		1.6




Australia		2,688		409		6,342		3,735		13,174		1.5




Canada		866		492		5,233		807		7,398		0.8

¹ Traded products consist of derivative instruments and repurchase agreements. In 2001 and 2000 unsecured OTC derivatives exposure is reported based on the Potential Credit Exposure measurement methodology and is therefore not directly comparable to the exposure in the prior years, which were measured based on Gross Replacement Values plus Add-on.
² Tradeable assets consist of equity and fixed income financial instruments held for trading purposes, which are marked to market on a daily basis.

200

D – Information Required by Industry Guide 3 (continued)

Summary of Movements in Allowances and Provisions for Credit Losses

The following table provides an analysis of movements in allowances and provisions for credit losses.

As a result of Swiss bankruptcy laws, banks write-off loans against allowances only upon final settlement of bankruptcy proceedings, the sale of the underlying assets and/or in case of the forgiveness of debt. Under Swiss law, a creditor can continue to collect from a debtor who has emerged from bankruptcy, unless the debt has been forgiven through a formal agreement.


CHF million	31.12.01			31.12.00			31.12.99			31.12.98			31.12.97

Balance at beginning of year		10,581			13,398			14,978			16,213			18,135




Write-offs




Domestic




Banks		0			0			(4	)		(2	)		(5	)




Construction		(248	)		(261	)		(296	)		(228	)		(408	)




Financial institutions		(51	)		(178	)		(92	)		(66	)		(226	)




Hotels and restaurants		(52	)		(193	)		(137	)		(98	)		(138	)




Manufacturing¹		(109	)		(264	)		(242	)		(214	)		(514	)




Private households		(1,297	)		(640	)		(598	)		(534	)		(1,214	)




Public authorities		0			0			0			(2	)		(19	)




Real estate and rentals		(317	)		(729	)		(823	)		(610	)		(871	)




Retail and wholesale		(115	)		(160	)		(210	)		(178	)		(227	)




Services²		(93	)		(227	)		(315	)		(116	)		(229	)




Other³		(46	)		(30	)		(41	)		(15	)		(29	)

Total domestic domestic write-offs		(2,328	)		(2,682	)		(2,758	)		(2,063	)		(3,880	)

Foreign⁴




Banks		(24	)		(15	)




Chemicals		(2	)




Construction		(10	)		(13	)




Electricity, gas and water supply		(63	)		(3	)




Financial institutions		(74	)		(33	)




Manufacturing⁶		(119	)		(11	)




Mining		(304	)




Private households		(5	)




Public authorities		0			(4	)




Real estate and rentals		(1	)




Retail and wholesale		0			(160	)




Services		(30	)		(8	)




Transport, storage and communication		0			(11	)




Other		(48	)		(55	)

Total foreign write-offs		(680	)		(313	)		(517	)		(261	)		(240	)

Total write-offs		(3,008	)		(2,995	)		(3,275	)		(2,324	)		(4,120	)

Recoveries




Domestic		58			124			54			59			406




Foreign		23			39			11						36

Total recoveries		81			163			65			59			442

Net write-offs		(2,927	)		(2,832	)		(3,210	)		(2,265	)		(3,678	)

Credit loss expense / (recovery)		498			(130	)		956			951			1,432




Other adjustments⁵		66			145			674			79			324

Balance at end of year		8,218			10,581			13,398			14,978			16,213

¹ Includes chemicals, food and beverages.
² Includes transportation, communication, health and social work, education and other social and personal service activities.
³ Includes mining and electricity, gas and water supply.
⁴ For years prior to 2000, no detailed industry classifications are available.
⁵ See the following table for details.
⁶ Includes food and beverages.

201

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Summary of Movements in Allowances and Provisions for Credit Losses (continued)


CHF million	31.12.01		31.12.00			31.12.99			31.12.98			31.12.97

Doubtful interest		0		182			409			423			450




Net foreign exchange		44		23			351			(98	)		91




Subsidiaries sold and other		22		(60	)		(86	)		(246	)		(217	)

Total adjustments		66		145			674			79			324

202

D – Information Required by Industry Guide 3 (continued)

Allocation of the Allowances and Provisions for Credit Losses

The following table provide an analysis of the allocation of the allowances and provisions for credit losses by industry categories and geographic location at 31 December 2001, 2000, 1999, 1998 and 1997. For a description of procedures with respect to allowances and provisions for credit losses, see the UBS Handbook 2001/2002.


CHF million	31.12.01		31.12.00		31.12.99		31.12.98		31.12.97

Domestic




Banks		34				41		49		34




Construction		467		843		1,247		1,671		1,449




Financial institutions		262		328		342		668		510




Hotels and restaurants		346		454		690		657		512




Manufacturing¹		722		863		1,223		1,331		1,036




Private households		1,082		1,570		2,350		2,741		2,264




Public authorities		37				40		107		59




Real estate and rentals		1,067		1,635		2,696		3,333		2,591




Retail and wholesale		395		629		779		825		723




Services²		448		419		934		766		661




Other³		165		413		141		71		52

Total domestic		5,025		7,154		10,483		12,219		9,891

Foreign⁸




Banks⁴		39		32




Chemicals		5		0




Construction		0		11




Electricity, gas and water supply		88		107




Financial institutions		420		262




Manufacturing⁹		653		547




Mining		169		586




Private households		103		72




Public authorities		0		0




Real estate and rentals		9		82




Retail and wholesale		0		41




Services		414		126




Transport, storage and communication		45		2




Other⁵		242		267

Total foreign, net of country provisions		2,187		2,135		1,539		1,309		1,399

Country provisions		1,006		1,292		1,376		1,450		1,175

Total foreign⁶		3,193		3,427		2,915		2,759		2,574

Unallocated allowances⁷										3,748

Total allowances and provisions for credit losses		8,218		10,581		13,398		14,978		16,213

¹ Includes chemicals, food and beverages.
² Includes transportation, communication, health and social work, education and other social and personal service activities.
³ Includes mining and electricity, gas and water supply.
⁴ Counterparty allowances and provisions only. Country provisions with banking counterparties amounting to CHF 662 million are disclosed under country provisions.
⁵ Includes hotels and restaurants.
⁶ The 2001, 2000, 1999 and 1998 amounts include CHF 305 million, CHF 54 million, CHF 149 million and CHF 435 million respectively of provisions and commitments for contingent liabilities.
⁷ The 1997 amount includes a provision for commitments and contingent liabilities of CHF 472 million.
⁸ For years prior to 2000, no detailed industry classifications are available.
⁹ Includes food and beverages.

203

Additional Disclosure Required
under SEC Regulations

D – Information Required by Industry Guide 3 (continued)

Allocation of the Allowances and Provisions for Credit Losses (continued)

The following table presents the percentage of loans in each category to total loans. This table can be read in conjunction with the preceding table showing the breakdown of the allowances and provisions for credit losses by industry categories to evaluate the credit risks in each of the categories.


in %	31.12.01		31.12.00		31.12.99		31.12.98		31.12.97

Domestic




Banks		0.6		1.0		2.1		1.4		5.0




Construction		1.3		1.7		2.4		2.4		2.7




Financial institutions		2.2		2.0		3.4		3.1		3.2




Hotels and restaurants		1.1		1.2		1.5		1.2		1.3




Manufacturing		3.3		3.4		4.1		4.1		4.7




Private households		35.8		32.2		33.8		29.5		30.9




Public authorities		2.0		2.0		1.9		1.8		1.8




Real estate and rentals		5.7		5.9		7.1		6.4		6.5




Retail and wholesale		3.3		3.4		3.9		2.7		3.0




Services		4.6		4.1		5.3		3.5		3.7




Other		0.8		1.0		0.7		0.5		0.5

Total domestic		60.7		57.9		66.2		56.6		63.3

Foreign




Banks		10.2		9.5		9.0		19.6		14.0




Chemicals		0.4		0.5




Construction		0.1		0.3




Electricity, gas and water supply		0.4		0.6




Financial institutions		5.5		7.2




Manufacturing		1.6		1.6




Mining		0.5		0.7




Private households		9.8		10.4




Public authorities		2.5		4.1




Real estate and rentals		3.9		1.8




Retail and wholesale		0.7		0.7




Services		1.8		0.6




Transport, storage and communication		0.8		0.3




Other		1.1		3.8		24.8		23.8		22.7

Total foreign		39.3		42.1		33.8		43.4		36.7

Total gross loans		100.0		100.0		100.0		100.0		100.0

204

D – Information Required by Industry Guide 3 (continued)

Loss History Statistics

The following is a summary of the Group’s loan loss history.


CHF million, except where indicated	31.12.01		31.12.00			31.12.99		31.12.98		31.12.97

Gross loans		261,984		284,516			278,014		330,964		353,240




Impaired loans		14,629		18,494			22,456		26,447




Non-performing loans		8,639		10,452			13,073		16,114		16,664




Allowances and provisions for credit losses		8,218		10,581			13,398		14,978		16,213




Net write-offs		2,927		2,832			3,210		2,265		3,678




Credit loss expense / (recovery)		498		(130	)		956		951		1,432

Ratios




Impaired loans as a percentage of gross loans		5.6		6.5			8.1		8.0




Non-performing loans as a percentage of gross loans		3.3		3.7			4.7		4.9		4.7




Allowance and provisions for credit losses as a percentage of:




Gross loans		3.1		3.7			4.8		4.5		4.6




Impaired loans		56.2		57.2			59.7		56.6




Non-performing loans		95.1		101.2			102.5		93.0		97.3




Allocated allowances as a percentage of impaired loans¹		49.9		52.4			55.5		51.4




Allocated allowances as a percentage of non-performing loans²		62.2		60.6	³		66.3		62.1




Net write-offs as a percentage of:




Gross loans		1.1		1.0			1.2		0.7		1.0




Allowance and provisions for credit losses		35.6		26.8			24.0		15.1		22.7




Allowance and provisions for credit losses as multiple of net write-offs		2.81		3.74			4.17		6.61		4.41

1 Allowances relating to impaired loans only.
2 Allowances relating to non-performing loans only.
3 31 December 2000 figure has been restated to account for an overallocation of allowances to non-performing loans.

205

Cautionary statement regarding forward-looking statements

This communication contains statements that constitute “forward-looking statements”, including, without limitation, statements relating to the implementation of strategic initiatives, including the implementation of the new European wealth management strategy, expansion of our corporate finance presence in the US and worldwide, the ~~implementation~~development of aUBS Warburg’s new ~~business model for UBS Capital,~~energy trading operations, 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 credit-worthiness of our customers, obligors and counterparties, (6) legislative developments, (7) the impact of the terrorist attacks on the World Trade Center and ~~(7)~~other sites in the United States on 11 September 2001 and subsequent related developments, (8) the impact of the management changes and changes to our Business Group structure which took place in December 2001 and (9) other key factors that we have indicated could adversely affect our business and financial performance which are contained in our past and future filings and reports, including those with the SEC.

More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the ~~SEC.~~SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2001. UBS is not under any obligation to (and expressly disclaims any such obligations to) update or alter its forward-looking statements whether as a result of new information, future events, or otherwise.

~~For information contact:~~Imprint

Publisher/ Copyright: UBS AG, ~~Investor Relations G41B, P.O. Box, CH-8098 Zurich~~

~~Phone: +41-1-234 41 00, Fax: +41-1-234 34 15~~

~~E-mail: SH-investorrelations@ubs.com, Internet: www.ubs.com/investor-relations~~

~~Change of address~~

~~UBS AG, Shareholder Services GUMV, P.O. Box, CH-8098 Zurich~~

~~Phone: +41-1-235 6202, Fax: +41-1-235 31 54~~

~~E-mail: SH-shareholder-services@ubs.com~~

~~Published by UBS AG~~

~~Content: UBS AG, Investor Relations and Corporate Control and Accounting.~~

Switzerland; Photos: Thierry Martinez, Philippe Schiller (Alinghi); Daniel Forster, Carlo Borlenghi (Nautor Challenge); Marcel Grubenmann (Portraits). Languages: English, ~~German. Copyright: UBS AG.~~German; SAP-R/3 80531E-0201

~~UBS AG~~ UBS LOGO

~~P.O. Box, CH-8098 Zurich~~

~~P.O. Box, CH-4002 Basel~~

~~www.ubs.com~~

Index to Exhibits


~~Exhibit~~
~~Number~~			~~Description~~

	~~1.1.~~		~~Articles of Association of UBS AG~~
	~~1.2.~~		~~Bylaws of UBS AG(1)~~	Exhibit
	7.Number	Description

	1.1.	Articles of Association of UBS AG




	1.2.	Organization Regulations of UBS AG




	2(b)	Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries.

		We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt.




	7.	Statement regarding ratio of earnings to fixed ~~charges~~			charges.




	8.		Significant Subsidiaries of UBS ~~AG.~~AG

		Please see Note 36 on pages 147 to 150 of the attached Financial Report 2001.




	10.		Consent of Ernst & Young Ltd.


~~(1)~~	~~Incorporated by reference to Exhibit 3.2 to the registration statement (File No. 333-52832) filed on Form F-1 on 27 December 2000.~~

(UBS LOGO)


~~Title of each class~~		~~Name of each exchange on which registered~~

~~Ordinary Shares (par value of CHF 10 each)~~ Please see the following page.		~~New York Stock Exchange~~
~~$75,000,000 18.5% GOALs due May 28, 2002~~		~~American Stock Exchange~~
~~$50,000,000 18.25% GOALs due June 27, 2002~~		~~American Stock Exchange~~
~~$60,000,000 19.5% GOALs due July 23, 2002~~		~~American Stock Exchange~~
~~$45,000,000 18.25% GOALs due July 31, 2002~~		~~American Stock Exchange~~
~~$30,000,000 14.125% GOALs due August 15, 2002~~		~~American Stock Exchange~~
~~$51,000,000 26% GOALs due September 12, 2002~~		~~American Stock Exchange~~


Title of each class		Name of each exchange on which registered

Ordinary Shares (par value of CHF 2.80 each)		New York Stock Exchange




7.25% Noncumulative Trust Preferred Securities		New York Stock Exchange




7.25% Noncumulative Company Preferred Securities		New York Stock Exchange*




Subordinated Guarantee of UBS AG with respect to Company Preferred Securities		New York Stock Exchange*




$75,000,000 18.5% GOALS due May 28, 2002		American Stock Exchange




$50,000,000 18.25% GOALS due June 27, 2002		American Stock Exchange




$60,000,000 19.5% GOALS due July 23, 2002		American Stock Exchange




$45,000,000 18.25% GOALS due July 31, 2002		American Stock Exchange




$30,000,000 14.125% GOALS due August 15, 2002		American Stock Exchange




$51,000,000 26% GOALS due September 12, 2002		American Stock Exchange




$80,000,000 BULS due April 10, 2003		American Stock Exchange




$40,000,000 BULS due April 28, 2003		American Stock Exchange




$32,000,000 BULS due May 16, 2003		American Stock Exchange




$17,000,000 16.25% GOALS due November 18, 2002		American Stock Exchange




$45,000,000 23.125% GOALS due May 31, 2002		American Stock Exchange




$6,500,000 16.125% GOALS due July 2, 2002		American Stock Exchange




$54,000,000 BULS due September 1, 2006		American Stock Exchange




$4,500,000 BULS due October 17, 2006		American Stock Exchange




$48,000,000 12.5% GOALS+ due November 1, 2002		American Stock Exchange




$27,000,000 10.5% GOALS+ due December 2, 2002		American Stock Exchange




$15,000,000 9.5% GOALS+ due December 23, 2002		American Stock Exchange




$19,500,000 12% GOALS+ due January 24, 2003		American Stock Exchange




$23,500,000 14% GOALS+ due February 3, 2003		American Stock Exchange


	~~(1)~~	The 1999 and 1998 figures have been restated to reflect retroactive changes in accounting policy arising from newly applicable International Accounting Standards and changes in presentation (see Note 1 to the Financial Statements).

	~~(2)~~	~~Operating expenses/ operating income before credit loss expense.~~

	~~(3)~~	~~The amortization of goodwill and other intangible assets is excluded from the calculation.~~

	~~(4)~~	~~For EPS calculation, see Note 10 to the Financial Statements.~~

	~~(5)~~	~~Net profit/average shareholders’ equity excluding dividends.~~

	~~(6)~~	~~The Group headcount does not include the Klinik Hirslanden AG headcount.~~

	~~(7)~~	~~The 1999, 1998 and 1997 share figures are restated for the two-for-one share split, effective 8 May 2000.~~

	~~(8)~~	Dividends are normally declared and paid in the year subsequent to the reporting period. In 2000, as part of the arrangements for the merger with PaineWebber, a dividend was paid on 5 October 2000 in respect of the nine months ended 30 September 2000. Prior to the merger between Union Bank of Switzerland and Swiss Bank Corporation, each paid dividends in accordance with their own dividend policies. Union Bank of Switzerland’s dividends for 1997 were CHF 50.00 (USD 33.65) for its bearer shares and CHF 10.00 (USD 6.73) for its registered shares. Swiss Bank Corporation paid a dividend of CHF 12.00 (USD 8.01) in 1997. Dividend payments are reflected at actual historical amounts and have been translated to US dollars at an exchange rate equal to the noon buying rate in New York City on the date of payment.


CHF million
As of	31.12.00		31.12.99(1)		31.12.98(1)		31.12.97


Assets




Total assets		1 087 552		896 556		861 282		1 086 414




Due from banks		29 147		29 907		68 495		66 582




Cash collateral on securities borrowed		177 857		113 162		91 695		82 656




Reverse repurchase agreements		193 801		132 391		141 285		216 355




Trading portfolio assets		253 296		211 932		159 179		210 738




Positive replacement values		57 875		62 957		90 511		149 538




Loans, net of allowances for credit losses		244 842		234 858		247 926		270 917

Liabilities




Due to banks		82 240		76 365		85 716		159 634




Cash collateral on securities lent		23 418		12 832		19 171		14 140




Repurchase agreements		295 513		196 914		137 617		191 793




Trading portfolio liabilities		82 632		54 638		47 033		68 215




Negative replacement values		75 923		95 786		125 847		170 162




Due to customers		310 679		279 960		274 850		302 516




Long-term debt		54 855		56 332		50 783		54 284




Shareholders’ equity		44 833		30 608		28 794		30 927


CHF million
As of		31.12.00		31.12.99(1)		31.12.98(1)


Assets:




Total assets			1 124 554		893 525		899 589




Due from banks			29 182		29 954		68 554




Cash collateral on securities borrowed			177 857		113 162		91 695




Reverse repurchase agreements			193 801		132 391		141 285




Trading portfolio assets			197 048		184 085		161 440




Trading portfolio assets, pledged	(2)		59 448




Positive replacement values	(3)		57 775		62 294		90 520




Loans, net of allowance for credit losses			245 214		235 401		248 657




Intangible assets and goodwill			35 726		21 428		21 707




Other assets			26 971		18 717		29 398




Liabilities




Due to banks			82 240		76 363		85 716




Cash collateral on securities lent			23 418		12 832		19 127




Repurchase agreements			295 513		173 840		136 824




Trading portfolio liabilities			87 832		52 658		47 772




Negative replacement values	(3)		75 423		95 004		125 857




Due to customers			310 686		279 971		274 861




Accrued expenses and deferred income			21 038		12 040		11 232




Long-term debt			54 970		56 049		50 445




Shareholders’ equity			62 960		51 833		54 761


(Mark One)




		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934



OR

		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the fiscal year ended December 31, 2001

OR

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Cautionary Statement Regarding Forward-Looking Statements		4




PART I		6




	Item 1. Identity of Directors, Senior Management and Advisors.	6




	Item 2. Offer Statistics and Expected Timetable.	6




	Item 3. Key Information.	6




	Item 4. Information on the Company.	6




	Information required by Industry Guide 3.	7




	Item 5. Operating and Financial Review and Prospects.	7




	Item 6. Directors, Senior Management and Employees.	8




	Item 7. Major Shareholders and Related Party Transactions.	8




	Item 8. Financial Information.	9




	Item 9. The Offer and Listing.	9




	Item 10. Additional Information.	11




	Item 11. Quantitative and Qualitative Disclosures About Market Risk.	15




	Item 12. Description of Securities Other than Equity Securities.	15




PART II		16




	Item 13. Defaults, Dividend Arrearages and Delinquencies.	16




	Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.	16




	Item 15. [Reserved].	16




	Item 16. [Reserved].	16




PART III		17




	Item 17. Financial Statements.	17




	Item 18. Financial Statements.	17




	Item 19. Exhibits.	17




Signatures		18




Index to Exhibits		19


	High		Low		Average Rate(1)		At Period End
Year Ended 31 December					(USD per 1 CHF)


1996		0.8641		0.7399		0.8090		0.7468




1997		0.7446		0.6510		0.6890		0.6845




1998		0.7731		0.6485		0.6894		0.7281




1999		0.7361		0.6244		0.6605		0.6277




2000		0.6441		0.5479		0.5912		0.6172


Month	High		Low


September 2000		0.5804		0.5596




October 2000		0.5773		0.5479




November 2000		0.5759		0.5529




December 2000		0.6172		0.5785




January 2001		0.6240		0.6031




February 2001		0.6124		0.5910


~~(1)~~	~~The average of the noon buying rates on the last business day of each full month during the relevant period.~~


1.	The ratio is provided using both IAS and U.S. GAAP values, as the ratio is materially different between the two accounting standards. No U.S. GAAP information is provided for 31 December 1997 as a U.S. GAAP reconciliation was not required for that period.

2.	~~The deficiency in the coverage of fixed charges by earnings before fixed charges at 31 December 1997 was CHF 851 million.~~

3.	~~The deficiency in the coverage of fixed charges by earnings before fixed charges at 31 December 1998 was CHF 5,319 million.~~



		2000 compared to 1999									1999 compared to 1998


		Increase (decrease)									Increase (decrease)
		due to changes in									due to changes in

		Average			Average			Net			Average			Average			Net
CHF million		Volume			Rate			Change			Volume			Rate			Change


Interest income from interest-earning assets:
Money market paper




	Domestic		(16	)		35			19			(21	)		(22	)		(43	)




	Foreign		370			1,410			1,780			985			(582	)		403
Due from banks




	Domestic		(550	)		66			(484	)		(229	)		386			157




	Foreign		(1,134	)		675			(459	)		(1,590	)		(395	)		(1,985	)
Securities borrowed and reverse repurchase agreements




	Domestic		183			258			441			(52	)		80			28




	Foreign		6,281			944			7,225			(1,926	)		2,941			1,015
Trading portfolio




	Domestic		(31	)		202			171			(42	)		36			(6	)




	Foreign		2,976			1,414			4,390			158			458			616
Loans




	Domestic		(807	)		3,042			2,235			(333	)		244			(89	)




	Foreign		529			(201	)		328			(1,037	)		(918	)		(1,955	)
Financial Investments




	Domestic		21			(35	)		(14	)		(13	)		(17	)		(30	)




	Foreign		82			(26	)		56			(126	)		(57	)		(183	)

Interest Income




	Domestic		(1,200	)		3,568			2,368			(690	)		707			17




	Foreign		9,104			4,216			13,320			(3,536	)		1,447			(2,089	)

Total interest income from interest- earning assets:			7,904			7,784			15,688			(4,226	)		2,154			(2,072	)

Net interest on swaps									453									234

Total interest income									16,141									(1,838	)



	Repurchase Agreements

CHF million, except where indicated	31.12.00	31.12.99	31.12.98


Period-end balance	330,857	217,736	137,617




Average balance	278,601	149,071	177,298




Maximum month-end balance	342,427	217,736	202,062




Average interest rate during the period (%)	4.8	4.8	3.6




Average interest rate at period-end (%)	4.8	3.9	4.9


~~(1)~~	~~Mainly time deposits.~~



									31.12.96

CHF million	31.12.00		31.12.99		31.12.98		31.12.97		UBS	SBC


Domestic:




Banks		2,896		5,802		4,543		17,751	15,039	2,532




Construction		4,870		6,577		7,897		9,627	6,022	4,556




Financial institutions		5,725		9,387		10,240		11,371	14,465	6,752




Hotels and restaurants		3,526		4,259		4,129		4,668	4,815	2,200




Manufacturing(1)		9,577		11,377		13,505		16,440	9,650	9,019




Private households		91,667		93,846		97,664		109,044	55,088	59,098




Public authorities		5,658		5,277		5,858		6,354	3,271	4,972




Real estate and rentals		16,673		19,835		21,231		22,915




Retail and wholesale		9,635		10,904		8,912		10,512	7,220	6,602




Services(2)		11,767		14,862		11,582		13,083	7,841	6,383




Other(3)		2,651		1,818		1,662		1,862	1,156	694

Total domestic		164,645		183,944		187,223		223,627	124,567	102,808

Foreign:




Banks		27,168		24,983		65,000		49,559	25,048	70,758




Chemicals		1,423




Construction		773




Electricity, gas and water supply		1,584




Financial institutions		20,348




Manufacturing		4,596




Mining		2,070




Private households		29,470




Public authorities		11,754




Real estate and rentals		5,077




Retail and wholesale		1,862




Services		1,585




Transport, storage and communication		993




Other		11,168		69,087		78,741		80,054	33,412	34,758

Total foreign		119,871		94,070		143,741		129,613	58,460	105,516

Total gross		284,516		278,014		330,964		353,240	183,027	208,324



	31 December 1999


	Banking Products
					Traded		Tradeable				% of Total
CHF million, except where indicated	Banks		Non-Banks		Products(1)		Assets(2)		Total		Assets


United States		3,202		2,508		41,970		48,012		95,692		10.7




Japan		1,117		965		7,153		69,194		78,429		8.8




United Kingdom		3,417		3,193		11,273		58,300		76,183		8.5




Germany		4,455		3,174		41,422		8,181		57,232		6.4




Italy		2,462		762		6,803		8,708		18,735		2.1




Netherlands		1,932		1,149		6,648		4,993		14,722		1.6




France		1,200		1,395		7,324		4,379		14,298		1.6




Australia		2,688		409		6,342		3,735		13,174		1.5




Canada		866		492		5,233		807		7,398		0.8



	31 December 1998


	Banking Products
					Traded		Tradeable				% of Total
CHF million, except where indicated	Banks		Non-Banks		Products(1)		Assets(2)		Total		Assets


United States		13,882		2,292		27,922		65,543		109,639		12.7




United Kingdom		4,006		2,583		10,912		32,348		49,849		5.8




Japan		1,633		768		7,879		38,133		48,413		5.6




Germany		7,850		2,500		20,666		15,903		46,919		5.5




France		2,490		1,420		10,037		8,521		22,468		2.6




Italy		2,174		1,201		8,236		9,394		21,005		2.4




Australia		6,749		543		3,097		4,760		15,149		1.8




Netherlands		1,221		1,086		6,134		6,363		14,804		1.7




Sweden		449		812		3,710		8,091		13,062		1.5




Canada		755		549		5,162		3,479		9,945		1.2




Austria		769		82		1,513		5,436		7,800		0.9




Spain		913		350		2,495		3,701		7,459		0.9




Belgium		1,248		162		2,393		3,599		7,402		0.9




Luxembourg		1,212		2,130		1,723		2,195		7,260		0.9


~~(1)~~	~~Includes chemicals.~~

~~(2)~~	~~Includes transportation, communication, health and social work, education and other social and personal service activities.~~

~~(3)~~	~~Includes mining and electricity, gas and water supply.~~

~~(4)~~	~~For years prior to 2000, no detailed industry classifications are available.~~

~~(5)~~	~~The 1996 UBS amount includes a special provision of CHF 3,000 million for credit risks, and the release of a CHF 711 million provision for general banking risks from the prior year.~~

~~(6)~~	~~Includes the following for 2000, 1999, 1998 and 1997:~~


~~(1)~~	~~Allowances relating to impaired loans only~~

~~(2)~~	~~Allowances relating to non-performing loans only~~



	SWX Swiss Exchange						New York Stock Exchange (NYSE)(2)

	High CHF		Low CHF		Period end		High USD		Low USD		Period end


2000		264.50		190.75		264.50		153.00		129.85		163.40




Fourth quarter		264.50		213.50		264.50		163.40		141.80		163.40




December		264.50		244.25		264.50		163.40		141.80		163.40




November		259.50		240.00		240.00		144.25		135.55		137.25




October		249.00		213.50		249.00		140.00		121.35		140.00




Third quarter		264.00		224.00		230.00		153.25		135.19		135.45




September		257.00		230.00		230.00		147.56		135.45		135.45




August		264.00		240.50		253.50		153.25		141.75		146.19




July		242.50		224.00		240.50		149.25		135.19		144.00




Second quarter		250.00		209.50		239.00		153.00		129.85		147.00




June		250.00		227.75		239.00		153.00		135.56		147.00




May(2)		236.00		211.00		227.75		136.25		129.85		135.25




April		224.50		209.50		211.00




First quarter		218.50		190.75		218.50




March		218.50		199.75		218.50




February		212.25		198.00		202.75




January		217.00		190.75		192.50

1999		264.00		202.50		215.00




Fourth quarter		239.75		202.50		215.00




Third quarter		246.75		202.50		211.50




Second quarter		264.00		221.00		232.00




First quarter		246.00		207.25		232.50

1998(3)		326.50		135.00		211.00




1997(3)




1996(3)


~~(1)~~	~~Restated for the 2:1 stock split effective 8 May 2000.~~

~~(2)~~	UBS was listed on the NYSE on 16 May 2000. NYSE figures for May 2000 are therefore for the period 16 May 2000 to 31 May 2000 only, NYSE figures for second quarter are for 16 May 2000 to 30 June 2000 only, and NYSE figures for 2000 are for 16 May 2000 to 31 December 2000 only. There are no NYSE figures for periods prior to May 2000.

~~(3)~~	UBS was created by the merger of Union Bank of Switzerland and Swiss Bank Corporation, on 29 June 1998. 1998 figures are therefore for the period 29 June 1998 to 31 December 1998 only. There are no figures for 1997 and 1996.


	1 – 3	Please see page 6 of the attached Handbook 2001/2002.

	4	Please see pages 14 to 15 of the attached UBS Handbook 2001/2002.

	5, 6	Please see the sectionInformation for Readerson page 8 of the attached Financial Report 2001, in particular, subsectionsPaineWebber mergerandRestructuring provision; also see sectionGroup Results 2001of theGroup Financial Reviewon pages 17 to 29 of the attached Financial Report 2001, in particular, the subsection regarding PaineWebber merger-related costs.

	7	Not applicable.


	1, 2, 3, 5, 7	Please see sectionsThe UBS Group andThe Business Groups on pages 9 to 53 of the attached UBS Handbook 2001/2002. For a breakdown of revenues by category of activity and geographic market, please refer to Notes 2a and 2b to the Financial Statements, on pages 92 to 95 of the attached Financial Report 2001.

	4, 6	Not applicable.

	8	Please see the sectionRegulation and Supervisionon pages 106 to 110 of the attached UBS Handbook 2001/2002.

		Please see sectionsInformation for Readers,Group Financial Review andReview of Business Group Performanceon pages 8 to 73 of the attached Financial Report 2001.

		Please also see Note 40 to the Financial StatementsReconciliation of International Accounting Standards (IAS) to United States Generally Accepted Accounting Principles (US GAAP) and Note 41 to the Financial StatementsAdditional Disclosures Required Under US GAAP and SEC Ruleson pages 154 to 168 of the attached Financial Report 2001 and theCurrency managementsubsection of the Group Treasury section, on page 83 of the attached Handbook 2001/2002.

		We believe that our working capital is sufficient for the company’s present requirements.

		Group liquidity and capital management is undertaken at UBS by Group Treasury as an integrated asset and liability management function. For a detailed discussion of Group Treasury’s functions and results, including our capital resources, please see pages 77 to 85 of the attached UBS Handbook 2001/2002, and Note 19Debt Issued on pages 108 to 113 of the attached Financial Report 2001.

		For comments on UBS Group’s balance sheet and cash flows, please see pages 25 to 26 of the attached Financial Report 2001.

		For comment on UBS’s long term credit ratings, please see theCapital strengthsubsection on page 11 of the attached UBS Handbook 2001/2002.

		The Board of Directors has nominated Ernesto Bertarelli to become a member of the Board of Directors, subject to the approval of the Annual General Meeting on 18 April 2002. His biographical details are provided below:
		Ernesto Bertarelli (born 1965), a Swiss citizen, has been the Chief Executive Officer and Chairman of the Executive Committee of Serono International SA since 1996. He started his career with Serono in 1985 and held several positions in sales and marketing. Prior to his appointment as CEO, he served for five years as Deputy CEO and Vice Chairman of the Board of Directors. Mr. Bertarelli received his Bachelor of Science degree from Babson College in Boston, Massachusetts, and his MBA from Harvard Business School. Mr. Bertarelli’s business address is Serono International SA, Chemin des Mines 15 bis, 1202 Genève.

		For 2001 and 2000, please see Note 34 to the Financial Statements on page 146 of the attached Financial Report 2001.

		The number of long-term stock options outstanding to related parties from equity plans was 823,848 at 31 December 1999.

		The total loans and advances receivable were CHF 28 million at 31 December 1999.

		The total amounts of shares and warrants held by members of the Board of Directors, Group Executive Board and Group Managing Board were 7,368,276 and 11,424,514 as of 31 December 1999. (These figures have been restated to reflect the effect of the 3 for 1 share split which took place on 16 July 2001).

		Since July 2001, Swiss blue chip stocks have no longer been traded on the SWX Swiss Exchange. All trading in the shares of members of the Swiss Market Index (SMI) now takes place on virt-x, although these stocks remain listed on the SWX Swiss Exchange.

		virt-x, the new name for Tradepoint, is a collaboration between the TP Group LDC and the SWX Swiss Exchange to provide the first platform on which all European blue chips can be traded electronically and which offers integrated clearing and settlement. virt-x is a Recognized Investment Exchange supervised by the Financial Services Authority in the United Kingdom. It is delivered on the modern, scalable SWX trading platform.

		All the constituents of the SMI are traded on virt-x. Altogether, approximately 600 blue chips representing around 80% of European market capitalization are traded on virt-x, in the currency of their home market.

		virt-x is available for trading on all TARGET days, as specified by the European Central Bank. The opening hours are 06:00 to 22:00 CET and the trading hours are 09:00 to 17:30 CET. During the pre-opening phase from 17:30 to 22:00 CET on the previous business day and from 06:00 to 09:00 CET on the current business day, orders can be entered or deleted. From 09:00 CET, once the opening price is set, trading begins. Orders are executed automatically according to established rules that match bid and asked prices. Regardless of their size or origin, incoming orders are executed on a price/time priority, i.e., in the order of price (first priority) and time received (second priority). Depending on the type of transaction, the order and trade details are also transmitted to data vendors (Reuters, Bloomberg, Telekurs, etc.).

		In most cases, each trade triggers an automatic settlement instruction which is routed through to the Swiss national central securities depository SIS SEGAINTERSETTLE AG, the UK national central securities depository CRESTCo or Euroclear.

		All trades executed through the order book settle on a uniform “T+3” basis, meaning that delivery and payment of exchange transactions occur three days after the trade date. The buyer is able to ask virt-x to enforce settlement if the seller has not delivered within two days of the intended settlement date.
		Any transaction executed under the rules of virt-x must be reported to virt-x. Order book executions are automatically reported by the trading system. There are separate provisions for the delayed reporting of certain qualifying trades. Individual elements of Portfolio trades must be reported within one hour while block trades and enlarged risk trades must be reported when the business is substantially (80%) complete, or by the end of order book trading that day, unless the trade is agreed one hour or less before the market close, when the Trade must be reported by the end of order book trading on the following market day. Block trades and enlarged risk trades are subject to minimum trade size criteria. During normal trading hours all other transactions must be reported within three minutes. The enlarged risk trades provisions enable a member to protect a client’s interest while the member works a large trade on behalf of the client. The block trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.

		In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, virt-x may take whatever measures it deems necessary to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.

		UBS listed its shares on the New York Stock Exchange (“NYSE”) on 16 May 2000.

		As of 31 December 2001, the equity securities of more than 2,797 corporations were listed on the NYSE.

		The NYSE is open Monday through Friday, 9:30 A.M.-4:00 P.M., eastern time.

		The NYSE is an agency auction market. Trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the US over-the-counter market, the price is determined by a dealer who buys and sells out of inventory.

		At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or through a floor broker. As a result, the flow of buy and sell orders for each stock is funneled to a single location.

		This heavy stream of diverse orders is one of the great strengths of the Exchange. It provides liquidity—the ease with which securities can be bought and sold without wide price fluctuations.

		When an investor’s transaction is completed, the best price will have been exposed to a wide range of potential buyers and sellers.

		Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts NYSE regulatory personnel to possible insider trading abuses or other prohibited trading practices. The Exchange’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on broker’s sales practices, and the continuous monitoring of specialist operations.

		a) Item 14 of our registration statement on Form 20-F filed 9 May 2000
		b) The “Global Registered Share” chapter on pages 122 to 123 of the attached Handbook 2001/2002 which provides details of recent changes relating to the par value of the UBS share.
		c) Pages 7 and 122 of the attached Handbook 2001/2002 which provide details of our new transfer agent in the US, Mellon Investor Services.

	•		a citizen or resident of the United States,

	•		a corporation or other entity taxable as a corporation organized under the laws of the United States or any political subdivision of the United States,

	•		an estate the income of which is subject to United States federal income tax without regard to its source, or

	•		a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

		A US holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate. The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland. The form used for obtaining a refund is Swiss Tax Form 82 (82C for companies; 82E for other entities; 82I for individuals), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.

		Repayment of capital in the form of a par value reduction is not subject to Swiss withholding tax.

Significant new companies

~~Equity interest~~

~~Share capital~~

~~Company~~Brinson Canada Co — Halifax, Canada

~~in millions~~