UBS shares are listed on the Swiss Exchange (where they are traded on virt-x), and on the New York and Tokyo stock exchanges. For a detailed definition of UBS shares (par value, type, rights of security), see page 99 of the Corporate Governance section.

Major equity markets, except in the US, saw significant gains in 2005. Investor sentiment was buoyed by the positive rate of economic growth around the world and the generally high level of corporate earnings. In the US, the crisis of the automobile industry sharpened in spring and was a temporary drag on market sentiment and performance, with the fall-out from Hurricane Katrina slowing US consumer sentiment in the second half of the year. Banking and financial stocks recorded strong gains in 2005, with the DJ Stoxx Banks Index rising 21.2%. The DJIA eased 0.6%, the S&P 500 rose 3% and the MSCI (World) Index increased 7.6%. UBS shares outpaced the market’s overall gains, closing the year 31.2% higher at CHF 125.10 – outstripping its main benchmark, the DJ Stoxx Banks Europe index.

The first quarter started with mixed sentiment in the financial markets, with many investors expecting US interest rates to rise, bringing with it a flatter yield curve, wider spreads and lower market volatility. UBS shares rose 4.4% in first quarter 2005 to CHF 101 as its fourth quarter 2004 results, announced in February, beat the market consensus by 5%. It also raised its dividend for 2004 by 15% to CHF 3.00 a share.

In second quarter, markets slowed perceptibly. Credit spreads widened unexpectedly, driven by the GM and Ford credit downgrades. There were also fears that hedge fund losses would trigger massive redemptions from investors. Oil prices increased rapidly, prompting observers to forecast significantly slower economic growth, corporate activity and private consumption. Towards the end of the quarter, however, equity markets staged a strong recovery on expectations of an improvement in the credit environment and the belief that financial sector shares would benefit most. UBS shares fell 1% to CHF 100 in second quarter, tracing the overall market, and after it released first quarter results in line with the market consensus.

The third quarter saw the strong recovery in the equity markets continue as investors, taking their cue from buoyant corporate earnings and continued solid economic growth, became increasingly active. Activity in the merger and acquisitions market was at its strongest level seen in six years. UBS shares traced those developments, rising 10% to CHF 110. Its second quarter results came in sharply above expectations, beating the market consensus by 26%.

The fourth quarter was characterized by a further strong improvement in investor sentiment. Markets believed that economies around the world would continue to grow briskly and that energy prices would soon start to decline. Corporate merger and acquisition activity remained very strong as well. UBS shares rose to their all-time high just above CHF 125 in fourth quarter. It rose 13.7% in the quarter, significantly outpacing the S&P’s 4.8% and the SMI’s 9.3% gains. In early November, the firm reported third quarter earnings that were 8% above the market consensus.

Share liquidity

During 2005, daily average volume in UBS shares on virt-x was 3.7 million shares. On NYSE, it was 383,973 shares. Because of the greater volume on virt-x, trading of UBS shares there is expected to remain the main factor determining the movement in our share price.

During the hours in which both virt-x and NYSE are simultaneously open for trading (currently 3:30 pm to 5.30 pm Central European Time), 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 virt-x price and the prevailing US dollar / Swiss franc exchange rate. When 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, is required to facilitate sufficient liquidity and an orderly market in UBS shares.