Dear shareholders,

Marcel Ospel and Peter Wuffli

This past year has been the best in our history. It was also very lively. We made four significant acquisitions and invested in the organic growth of our business. This has improved our competitive position and enhanced the quality and range of products and services we offer to clients. These steps are of great long-term importance to the value of your investment and some already show tangible benefits. Even though they have taken considerable effort, they have not stopped us from surpassing our performance objectives, generating a strong improvement in earnings per share.

We owe our success to the 78,140 UBS employees working in more than 50 countries. Granted, financial market conditions were excellent last year. Still, without their energy and professio­nalism, we would not have been able to take advantage of all the business opportunities we saw last year and we would like to take this opportunity to thank them deeply for their work.

In 2006, we expanded our position in key emerging market segments and regions. We acquired Brazilian ­financial services firm Banco Pactual, one of the country's leading independent ­investment banks and asset management firms. It also has a growing wealth management business. Pactual's integration into our investment banking, wealth management and asset management units is proceeding smoothly. In its first month as a part of UBS, it contributed positively to revenues and profit. The combined business has gotten off to a strong start, and several major investment banking deals have been completed as a result. Moreover, the combined invested assets of CHF 24 billion have made us Brazil's sixth largest asset manager. Beyond that, we expect that Pactual will help us expand our business throughout Latin America.

In early January 2007, we received ­approval from the Mexican Ministry of Finance to offer domestic banking services. We plan to begin operations in first quarter this year by offering cash, foreign exchange, and debt products to institutional investors.

We continued to make progress in ­China. The securities regulator in December 2006 granted us business commencement approval for UBS Securities following the approval of the restructuring of Beijing Securities. The business should see UBS becoming the first foreign firm to invest directly in, and manage, a full-service domestic Chinese securities firm.

In India, at the end of January 2007, we announced the purchase of Standard Chartered's mutual funds management business, the country's ninth largest domestic mutual fund manager. Although the domestic market has demonstrated strong growth rates over the last six years, the number of mutual fund investors is still low, which gives our business tremendous scope as ­India's pension market liberalizes and clients become more sophisticated.

We have also made important investments in mature economies where we have strong market positions. The US-based wealth management business has completed the acquisitions of the branch office network of Piper Jaffray and McDonald Investments. Both have increased our presence and scale in the American market. We also expanded by opening a dedicated ultra-high net worth office in New York City. We plan to open further such offices this year. This step has enhanced our offering and client services, and helped us to accelerate the development of our business with clients who have more than USD 10 million to invest, our fastest growing segment.

The Investment Bank continued to invest in its people and technology in the fixed income, rates and currencies business in 2006. Towards the end of the year, we started to see some of the new businesses contribute handsomely to revenues. The IT investments will allow us to build capacity, increase efficiency, and reduce the complexity of our IT infrastructure. In the equities business, the acquisition of ABN AMRO's global futures and options business, completed on 30 September 2006, helped us achieve the necessary scale in the commoditizing exchange traded derivatives market.

Our wealth management businesses continued to stand out. In 2006, they contributed CHF 113 billion, or 75%, to the total UBS net new money inflows of CHF 152 billion. This represents a growth rate of 6% relative to the invested asset base at the end of 2005. Strong inflows were seen from the Asia Pacific and domestic European business. It has been six years since we launched the European wealth management business. The business, well established and profitable, is a strong platform from which we intend to capture further growth opportunities in the ultra-high net worth client, core affluent and finan­cial intermediary markets.

Expansion increases costs. It requires more people, infrastructure and activity, and expenses in 2006 went up almost at the same pace as revenues. While the overall cost / income ratio fell to 69.7%, its lowest ever level, developments differed according to business. Our recent investments – in particular the relatively high number of acquisitions, have used capital, which is why we did not buy back as many shares in 2006 as in preceding years. Nevertheless, diluted earnings per share from continuing operations were CHF 5.58, 20% higher than in 2005, and in line with our target of double-digit annual growth. Return on equity was 26.5%, well above the targeted minimum of 20% over the cycle.

We value your trust. We are convinced that our investments will bring valuable returns – even if it will take some time until we are satisfied with the revenues from all the areas we are working on. It is our collective management responsibility to ensure that we use our resources to create value while not tole­ra­ting any inefficiency or complacency. While we have identified several attractive areas for further expansion, we will continue to invest according to our long established financial criteria.

Our recent entry into new markets and the launch of new business ventures is, of course, associated with some risk. However, it is only as a result of our diligent effort to improve our risk profile over the last nine years that we have been able to assume them comfortably.

Our group combines global scale and focus on growth in a unique way. Our businesses occupy strong ­market positions in those segments of the financial industry that are expected to grow significantly faster than the economy as a whole over the long term.When we wrote to you on 13 February, we said that in the short term, as the economic cycle matures, investors might become more sensitive to any disappointing political or economic developments, so our top-class risk control would ­remain paramount. Recent market developments appear to confirm this heightened level of sensitivity. However, for UBS, 2007 has started on a positive note, with a strong deal pipeline and continued investor confidence and activity. With a global presence that is balanced across the Americas, Europe and Asia Pacific, the building blocks of our growth strategy are firmly in place. Last year we made a highly concentrated number of acquisitions while investing heavily in organic growth. In 2007, our focus will be on integrating our new areas of activity and we expect to start seeing the benefits from them materializing for our ­clients and shareholders.

21 March 2007

Marcel Ospel
Chairman

Peter Wuffli
Chief Executive Officer

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Who we are

We are one of the world’s leading financial firms, serving a discerning international client base. Our business, global in scale, is focused on growth. As an integrated firm, we create added value for clients by drawing on the combined resources and expertise of all our businesses.

We are present in all major financial centers worldwide, with offices in more than 50 countries. We employ around 78,000 people, with 39% in the Americas, 35% in Switzerland, 16% in the rest of Europe and 10% in Asia Pacific.

We are one of the best capitalized financial institutions in the world, with a BIS Tier 1 ratio of 11.9%, invested assets of CHF 3.0 trillion, equity attributable to shareholders of around CHF 50 billion and market capitalization of roughly CHF 154 billion (on 31 December 2006).

What we do

In wealth management, our services are designed for high net worth and affluent individuals around the world, whether investing internationally or in their home country. We provide them with tailored, unbiased advice and investment services – ranging from asset management to estate planning and from corporate finance to art banking.

As an asset manager, we offer innovative investment management solutions in nearly every asset class to private, institutional and corporate clients, and through financial intermediaries. Our investment capabilities comprise traditional assets (for instance equities, fixed income and asset allocation), alternative and quantitative investments (multimanager funds, funds of hedge funds, hedge funds) and real estate.

In the investment banking and securities businesses, we provide securities products and research (in the areas of equities, fixed income, rates, foreign exchange, energy and metals) as well as advice and access to the world’s capital markets to corporate, institutional, intermediary and alternative asset management clients.

Our Swiss retail and corporate banking business provides a complete set of banking and securities services for domestic individual and corporate clients.

Our impact

This year’s Annual Review looks at some major global trends and our part in them. Because of our size and scale, we do not just feel the effects of world developments – we help to shape them.

On the following pages, we look at what “globalization” really means, and the constant pressure it puts on society to become ever more flexible. We consider the way that “internationalization” affects the idea of community, and the durability of local customs in a connected world. We describe the part that financial services plays in helping the world to change, and the regulatory challenges this brings. A portrait of a UBS employee shows how important real brains, combined with people skills, are in creating a company that can cope responsibly with a changing world. And we look at the challenges, and new business opportunities, presented by an aging society.

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