Shareholders' Letter

Dear Shareholders,

Marcel Ospel & Peter Wuffli

This time last year, we could not have anticipated that 2003 would turn out to be such a positive year for the financial services industry. It was also an excellent year for UBS – the second most profitable in our history. When conditions were difficult at the outset of the year, our results were resilient. As the year progressed, investor sentiment turned increasingly positive and activity levels picked up along with stock market valuations. Helped by this improving environment, we fully captured the resulting revenue opportunities.

Our net profit for the year was CHF 6,385 million, up from CHF 3,535 million in 2002 - and only 18% lower than the record result we achieved in the booming markets of 2000.

Results in both 2002 and 2003 were influenced by items that we call significant financial events – items that indicate neither future performance nor our underlying operational result. In 2002, we realized total net gains of CHF 185 million from the sale of non-core businesses. At the end of that year, our decision to adopt a single brand required us to write down the CHF 953 million net value of the PaineWebber brand. In 2003, we realized a net gain of CHF 2 million from the sale of our US clearing business. Excluding these effects, and before goodwill amortization, net profit increased 33% in 2003 from 2002. On the same basis, return on equity of 20.9% and basic earnings per share growth of 44% represent first-class shareholder returns. Our businesses closely traced the strong recovery in financial markets, gaining market share in the process. In addition, our results reflect a significant improvement in the performance of our private equity portfolio.

Overall, expenses remain under tight control across UBS, with cost reductions in practically all categories. The cost / income ratio fell again and reached its lowest level since PaineWebber became part of UBS. Our plan to integrate IT infrastructure across UBS is the latest signal of our commitment to run this firm with maximum efficiency.

The growing strength of our franchise stands out in a fiercely competitive industry. In January, UBS was named 2004’s „Best Global Private Bank” by Euromoney. While awards are gratifying, our most important endorsement is the trust of our clients as shown by the new assets they invest with us. In 2003, wealth management clients added CHF 50.8 billion to their investments managed by UBS.

Our Investment Banking & Securities business also achieved significant competitive gains, and is currently firmly positioned in the top bracket of the industry. Our equities business with institutional clients is stretching its lead as the number one player globally; our fixed income business continues to post results as good as any in the industry, and we ended the year as the fourthranked advisor for corporations worldwide, up from seventh place in 2002.

Focusing on fourth quarter, we reported net profit of CHF 1,859 million compared with a loss of CHF 101 million in the same period a year earlier, when we wrote down the value of the PaineWebber brand. Excluding all significant financial events and before goodwill, net profit increased by 94% between the two quarters. In fact, it was our best quarterly performance for more than three years, with all our businesses reporting higher pre-tax profit than the same quarter a year earlier. Our equities and fixed income businesses both reported exceptionally strong results, and rising markets helped our asset-based fees.

Our wealth management businesses attracted CHF 14.2 billion of new assets, with strong inflows in our domestic European business, and from Asian and Eastern European clients.

When managing our business, our overriding goal is to secure an appropriate balance between risk and return, limiting the scope for adverse variations in our earnings. Our revenue opportunities are now increasing, as markets and investor sentiment are starting to improve, and as our trading and corporate client franchises continue to grow and build their market share. It is therefore likely that the absolute levels of market and credit risk we take will experience a gradual increase in coming quarters. That said, we do not have any intention of changing our risk culture which has made an invaluable contribution to the excellent quality and consistency of our earnings.

The Board of Directors will recommend a dividend of CHF 2.60 per share to the Annual General Meeting (AGM) on 15 April 2004. The 30% increase over the CHF 2.00 paid out last year demonstrates our confidence in the sustainability of our performance as well as our commitment to provide attractive returns to shareholders. It also reflects the fact that you, our shareholders, have different preferences for receiving shareholder returns: some prefer cash dividends, some prefer share buybacks. By pursuing both avenues, we aim to attract and retain the widest, most diverse global shareholder base. With a BIS Tier 1 ratio of 11.4% on 31 December 2003, we remain committed to being one of the best-capitalized financial services firms in the world.

At the upcoming AGM, you will also be asked to elect three new members to our Board of Directors. Stephan Haeringer, currently our Deputy CEO, has held several positions with UBS over the last three decades. He will significantly strengthen the financial services expertise of our Board as Vice Chairman. We are also nominating two external, independent candidates to the Board, both of whom will bring entrepreneurial experience to our organization. Helmut Panke, Chairman of the Board of Management of BMW AG, the renowned German automotive company, and Peter Spuhler, owner of Stadler Rail AG, a dynamic young Swiss company successfully competing in the global market.

Outlook – Having successfully navigated the turbulent down-markets of the last few years with no unpredictable changes in our profitability, our strategy, or our staffing levels, we now enter what seem likely to be calmer waters with, we believe, the full confidence of our clients, our employees, and you, our shareholders. Our businesses are all performing extremely well. And while, of course, we cannot predict with certainty whether markets will continue in their friendly mood, we are committed to again securing for our investors the best possible returns in 2004.


10 February 2004

UBS AG