ab Financial Report 2000 Our Information Portfolio This Financial Report 2000 contains our audited financial statements for the year 2000 and accom- panying 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 gover- nance 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 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. “Excellence” As sponsor of the UBS Verbier Festival Youth Orchestra, we provide support and encour- agement for talented young musicians from all over the world as they rise to the top of their profession. Our Annual Review 2000 carries portraits of some of these young musicians, who are also shown on the front cover of this document. Table of Contents Introduction 2 Information for Readers 3 UBS Group Financial Highlights 7 Group Financial Review 9 Review of Business Group Performance 23 Principles 24 UBS Switzerland 26 UBS Asset Management 32 UBS Warburg 38 Corporate Center 52 UBS Group Financial Statements 55 Table of Contents 56 Financial Statements 58 Notes to the Financial Statements 63 Report of the Group Auditors 143 UBS AG (Parent Bank) Financial Statements 145 Table of Contents 146 Parent Bank Review 147 Financial Statements 148 Notes to the Financial Statements 151 Report of the Statutory Auditors 155 Information for Shareholders 156 1 Introduction Introduction The UBS Financial Report 2000, published for We hope that you will find the information in the first time in this format, forms an essential these documents useful and informative. We be- part of UBS’s reporting portfolio. It includes the lieve that UBS is among the leaders in corporate audited consolidated financial statements of UBS disclosure, but we would be very interested to Group for 2000 and 1999, prepared according to hear your views on how we might improve the International Accounting Standards and recon- content and presentation of our information ciled to U.S. GAAP, and the audited financial portfolio. statements of the UBS Parent Bank for 2000, pre- pared according to Swiss Banking Law require- ments. It contains the discussion and analysis of the results of UBS Group required for the US Se- curities and Exchange Commission’s Form 20-F. The UBS Financial Report 2000 is comple- mented by another new publication, the UBS Please contact UBS Investor Relations with any Handbook 2000 / 2001, which describes the enquiries: Group’s strategy and organization, the business- es it operates, the way it manages risk and its UBS AG arrangements for corporate governance. Investor Relations G41B In addition, UBS publishes Quarterly Finan- P.O. Box, CH-8098 Zurich cial Reports, analyzing its performance during Phone +41-1-234 41 00 each quarter of the year, and an Annual Review, Fax +41-1-234 34 15 which provides a brief summary of the Group E-mail [email protected] and its financial performance in 2000. www.ubs.com/investor-relations 2 Information for Readers Information for Readers The discussion and analysis in the Group Finan- in accounting standards and methods of presen- cial Review and Review of Business Group tation, including Performance should be read in conjunction with – the removal from net trading income of profit the UBS Group’s consolidated financial state- on UBS ordinary shares held for trading pur- ments and the related notes, which are shown in poses; pages 58 to 142 of this document. – the treatment of these shares as treasury shares, reducing both the number of shares and the shareholders’ equity used in ratio cal- Parent Bank culations; – the reclassification of trading-related interest Pages 147 to 154 contain the financial statements and dividend revenues from net trading in- for the UBS AG Parent Bank – the Swiss com- come to net interest income; and pany, including branches worldwide, which owns – the removal of the credit to net interest income all the UBS Group companies, directly or indi- and matching debit to net trading income for rectly. Except in those pages, or where otherwise the cost of funding trading positions. explicitly stated, all references to “UBS” refer to Note 1 of UBS’s consolidated financial state- the UBS Group and not to the Parent Bank. ments includes a complete explanation of these and other accounting changes. Accounting standards PaineWebber The UBS Group’s consolidated financial state- ments have been prepared in accordance with In- Except where otherwise stated, all 2000 figures ternational Accounting Standards (IAS). As a US for UBS Group throughout this report, include listed company, UBS provides a description in the impact of the merger with Paine Webber Note 41 to its consolidated financial statements Group, Inc., which was completed on 3 Novem- of the significant differences which would arise ber 2000. Under purchase accounting rules, the were our accounts to be presented under U.S. results reflect PaineWebber’s income and ex- GAAP, and a specific reconciliation of the two penses for two months only, from 3 November methods of calculating shareholders’ equity and 2000 until year end. net profit. Unless otherwise stated, all of UBS Group’s financial information presented in this document Restructuring provision is presented on a consolidated basis under IAS. The Parent Bank’s financial statements have The 1998 merger of Swiss Bank Corporation and been prepared in accordance with Swiss Banking Union Bank of Switzerland, which was com- Law requirements. pleted on 29 June 1998, was accounted for under All references to 2000, 1999 and 1998 refer to the “pooling-of-interests” method of accounting. the UBS Group and the Parent Bank’s fiscal years Under the pooling-of-interests method, a single ended 31 December 2000, 1999 and 1998, re- uniform set of accounting policies was adopted spectively. The financial statements for the UBS and applied retrospectively for the restatement of Group and the Parent Bank for each of these pe- comparative information. riods have been audited by Ernst & Young Ltd., After the merger was effected, UBS began as described in the Reports of the Independent integrating the operations of the two banks. This Auditors on pages 143 and 155. process included streamlining operations, eliminat- ing duplicate information technology infrastruc- ture, and consolidating banking premises. At the Accounting changes and restatements time of the merger, UBS established a restructuring provision of CHF 7 billion to cover its expected For comparative purposes, UBS Group’s 1999 costs associated with the integration process. and 1998 figures have been restated to conform An additional pre-tax restructuring charge of to the 2000 presentation, reflecting certain changes CHF 300 million in respect of the merger, repre- 3 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 70007 15 22 UBS Warburg 00000 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 senting about 4% of the original CHF 7 billion accompanying illustrative tables. All segmental provision, was recognized in December 1999. reporting includes tables showing both reported The majority of the additional provision was due figures and adjusted ones, if applicable. to revised estimates of the cost of lease breaks and All adjusted figures are clearly identified as property disposals. such, and the pre-tax amount of each individual UBS has now largely completed the integra- significant financial event is clearly disclosed, as tion and restructuring process relating to the is the net tax benefit or loss associated with all the merger and, at 31 December 2000, had used ap- significant financial events in each period. proximately CHF 6.6 billion of the CHF 7.3 bil- UBS introduced the concept of significant lion restructuring provision. UBS expects to have financial events for the first time in its 1999 utilized the entire provision by the end of 2001. Reporting, and did not define significant finan- cial events for 1998. The comparison of results for 1999 against 1998 therefore considers only Significant financial events unadjusted figures. Significant financial events during 1999 and UBS analyses its performance on a reported basis 2000 are shown in the table opposite and de- determined in accordance with International scribed in more detail below. Accounting Standards, and on a normalized basis – During 2000, UBS recorded restructuring which excludes from the reported amounts cer- charges and provisions of CHF 290 million tain items UBS calls significant financial events.