Changes in accounting and presentation in 2007 and other adjustments

IFRS 7 Financial Instruments: Disclosures

Effective 2007, we will adopt the disclosure requirements for financial instruments under IFRS 7. The new standard has no impact on recognition, measurement and presentation of financial instruments. It does require entities to provide disclosures in their financial statements that enable users to evaluate: a) the significance of financial instruments for the entity's financial position and performance; and b) the nature and extent of the credit, market and liquidity risks arising from financial instruments during the period and at the reporting date, and how the entity manages those risks. The principles of IFRS 7 complement the principles for recognizing, measuring and presenting financial assets and financial liabilities in IAS 32 Financial Instruments: Presentation and IAS 39 Financial Instruments: Recognition and Measurement.

In our business, we regularly engage in transactions for which fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such financial instruments are initially recognized in UBS's financial statements at the transaction price, which is generally the best indicator of fair value, although the value obtained from the relevant valuation model may differ. Where such differences arise, UBS will be required by IFRS 7 to disclose, by class of financial instrument: (a) its accounting policy for recognizing that difference in profit or loss to reflect a change in factors (including time) that market participants would consider in setting a price, and (b) the aggregate difference yet to be recognized in profit or loss at the beginning and end of the period and a reconciliation of changes in the balance of this difference.

Changes in presentation in our credit risk disclosure

Starting in first quarter 2007, we will no longer report non-performing loans in the quarterly credit risk disclosure. Disclosure and discussion of the impaired lending portfolio, which is a key component of our internal credit risk management and control processes, will continue. Non-performing loans, as defined under Swiss Federal Banking Commission (SFBC) regulation, will be reported in the notes to the annual financial statements.

Prime Brokerage

UBS has reclassified certain receivables and payables resulting from its prime brokerage business for the years ended 2002 through 2006. This ensures consistent presentation of identical items throughout the firm. This change increased the size of previously disclosed loans of the Investment Bank and reduced the level of cash collateral on securities borrowed. While it affected certain interest income and interest expense components, it did not have an impact on UBS's income statement, credit exposure and regulatory capital. The corresponding tables are available in note 1 to the financial statements.