FIEE 20-F Report ended Dec. 31, 2010

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 1-15060

UBS AG

(Exact Name of Registrant as Specified in Its Charter)

Switzerland
(Jurisdiction of Incorporation or Organization)
Bahnhofstrasse 45
CH-8001 Zurich, Switzerland
and
Aeschenvorstadt 1
CH-4051 Basel, Switzerland
(Address of Principal Executive Offices)

Sarah M. Starkweather
UBS AG
677 Washington Boulevard
Stamford, CT 06901
Telephone: (203) 719-3000
Fax: (203) 719-0680
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Please see page 3.

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Please see page 4.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
Please see page 4.

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of 31 December 2010:

Ordinary shares, par value CHF 0.10 per share: 3,830,840,513 ordinary shares (including 38,892,031 treasury shares)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ		No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o		No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ		No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 205 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ		No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

(Check One):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial
statements included in this filing.

U.S. GAAP o		International Financial Reporting Standards as issued by the International Accounting Standards Board þ		Other o

If “Other” has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to follow.

Item 17 o		Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act)

Yes o		No þ

Securities registered or to be registered pursuant to Section 12(b) of the Act:

		Name of each exchange on
Title of each class		which registered
Ordinary Shares (par value of CHF 0.10 each)		New York Stock Exchange
$300,000,000 Floating Rate Noncumulative Trust Preferred Securities		New York Stock Exchange
$300,000,000 Floating Rate Noncumulative Company Preferred Securities		New York Stock Exchange*
$1,000,000,000 6.243% Noncumulative Trust Preferred Securities		New York Stock Exchange
$1,000,000,000 6.243% Noncumulative Company Preferred Securities		New York Stock Exchange*
Subordinated Guarantee of UBS AG with respect to each of the Noncumulative Company Preferred Securities above		New York Stock Exchange*
$17,842,000 PPNs due October 2011		NYSE Alternext US
$100,000,000 E-TRACS UBS Bloomberg CMCI Food ETN due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Bloomberg CMCI Agriculture ETN due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Bloomberg CMCI Energy ETN due April 2038		NYSE Arca
$100,000,000 E-TRACS UBS Bloomberg CMCI Total Return ETN due April 2038		NYSE Arca
$100,000,000 E-TRACS UBS Bloomberg Gold ETN due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Bloomberg CMCI Industrial Metals due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Bloomberg CMCI Livestock ETN due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Bloomberg CMCI Silver ETN due April 2038		NYSE Arca
$50,000,000 E-TRACS UBS Long Platinum ETN due May 2018		NYSE Arca
$50,000,000 E-TRACS UBS Short Platinum ETN due May 2018		NYSE Arca
$100,000,000 E-TRACS UBS S&P 500 Gold Hedged Index ETN due January 2040		NYSE Arca
$100,000,000 E-TRACS Dow Jones-UBS Commodity Index Total Return ETN due October 2039		NYSE Arca
$100,000,000 E-TRACS Linked to the Alerian MLP Infrastructure Index due April 2, 2040		NYSE Arca

		Name of each exchange on
Title of each class		which registered
$100,000,000 1xMonthly Short E-TRACS Linked to the Alerian MLP Infrastructure Total Return Index due October 1, 2040		NYSE Arca
$100,000,000 2xMonthly Leveraged Long E-TRACS Linked to the Alerian MLP Infrastructure Index due July 9, 2040		NYSE Arca
$100,000,000 E-TRACS Linked to the Alerian Natural Gas MLP Index due July 9, 2040		NYSE Arca
$100,000,000 E-TRACS Linked to the Wells Fargo ® MLP Index due October 29, 2040		NYSE Arca
$100,000,000 E-TRACS Daily Long-Short VIX ETN due November 30, 2040		NYSE Arca

* Not for trading, but solely in connection with the registration of the corresponding Trust Preferred Securities.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

Auction Rate Securities Rights Series A-1, A-2, B-1, B-2, C-1, C-2 and G (non-transferable)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that constitute “forward-looking statements”, including but not limited to management’s outlook for UBS’s financial performance and statements relating to the anticipated effect of transactions and strategic initiatives on UBS’s business and future development. While these forward-looking statements represent UBS’s judgments and expectations concerning the matters described, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from UBS’s expectations. These factors include, but are not limited to: (1) future developments in the markets in which UBS operates or to which it is exposed, including movements in securities prices or liquidity, credit spreads, currency exchange rates and interest rates and the effect of economic conditions and market developments on the financial position or creditworthiness of UBS’s clients and counterparties; (2) changes in the availability of capital and funding, including any changes in UBS’s credit spreads and ratings; (3) the ability of UBS to retain earnings and reduce its risk-weighted assets in order to comply with recommended Swiss capital requirements without adversely affecting its business; (4) changes in financial regulation in Switzerland, the US, the UK and other major financial centers which may impose constraints on or necessitate changes in the scope and location of UBS’s business activities and in its legal and booking structures, including the imposition of more stringent capital and liquidity requirements, incremental tax requirements and constraints on remuneration, some of which may affect UBS in a different manner or degree than they affect competing institutions; (5) the liability to which UBS may be exposed due to legal claims and regulatory investigations, including those stemming from market dislocation and losses incurred by clients and counterparties during the financial crisis; (6) the outcome and possible consequences of pending or future inquiries or actions concerning UBS’s cross-border banking business by tax or regulatory authorities in various jurisdictions; (7) the degree to which UBS is successful in effecting organizational changes and implementing strategic plans, and whether those changes and plans will have the effects intended; (8) UBS’s ability to retain and attract the employees necessary to generate revenues and to manage, support and control its businesses; (9) changes in accounting standards or policies, and accounting determinations affecting the recognition of gain or loss, the valuation of goodwill and other matters; (10) limitations on the effectiveness of UBS’s internal processes for risk management, risk control, measurement and modeling, and of financial models generally; (11) changes in the size, capabilities and effectiveness of UBS’s competitors, including whether UBS will be successful in keeping pace with competitors in updating its technology, particularly in trading businesses; and (12) the occurrence of operational failures, such as fraud, unauthorized trading and systems failures, either within UBS or within a counterparty. Our business and financial performance could be affected by other factors identified in our past and future filings and reports, including those filed with the SEC. More detailed information about those factors is set forth in documents furnished by UBS and filings made by UBS with the SEC, including UBS’s Annual Report on Form 20-F for the year ended 31 December 2010. UBS is not under any obligation to (and expressly disclaims any obligation to) update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.

PART I

Item 1.   Identity of Directors, Senior Management and Advisors.

Not required because this Form 20-F is filed as an annual report.

Item 2.   Offer Statistics and Expected Timetable.

Not required because this Form 20-F is filed as an annual report.

Item 3.   Key Information

A—Selected Financial Data.

Please see Selected Financial Data on pages 406 to 409 and Statement of changes in equity on pages 268 to 270 of the Annual Report 2010 of UBS AG (the “Annual Report”) which is annexed hereto and forms an integral part hereof.

The noon purchase rate for the Swiss franc on 28 February 2011 was 1.0747 USD per 1 CHF. See page 406 of the Annual Report for additional exchange rate information.

Ratio of Earnings to Fixed Charges.

Please see page 409 of the Annual Report and Exhibit 7 to this Form 20-F.

B—Capitalization and Indebtedness.

Not required because this Form 20-F is filed as an annual report.

C—Reasons for the Offer and Use of Proceeds.

Not required because this Form 20-F is filed as an annual report.

D—Risk Factors.

Please see pages 25 to 30 of the Annual Report.

Item 4.   Information on the Company.

A—History and Development of the Company

	1-3		Please see Corporate information on page 6 of the Annual Report.
	4-6		Please see The making of UBS on page 18 and Key factors affecting our financial position and results of operations in 2010 on pages 32 to 33 of the Annual Report.
	7		Not applicable.

B—Business Overview.

1,2,5,7

Please refer to the Annual Report on pages 75 to 77 (as to Wealth Management) and pages 81 to 82 (as to Retail & Corporate) with respect to Wealth Management & Swiss Bank, pages 85 to 87 with respect to Wealth Management Americas, pages 92 to 96 with respect to Global Asset

			Management, pages 102 to 103 with respect to the Investment Bank, and pages 109 to 110 with respect to the Corporate Center. For a breakdown of revenues by category of activity and geographic market for each of the last three financial years, please refer to Notes 2a and 2b to the consolidated financial statements (the “Financial Statements”) contained in the Annual Report, Segment reporting on pages 293 to 296 and Segment reporting by geographic location on page 297, respectively.
	3		Please refer to Seasonal characteristics on page 33 of the Annual Report.
	4		Not applicable.
	6		None.
	8		Please see Regulation and supervision on pages 215 to 217 of the Annual Report.

C—Organizational Structure.

Please see Note 34 to the Financial Statements, Significant subsidiaries and associates, on pages 362 to 365 of the Annual Report.

D—Property, Plant and Equipment.

Please see Property, plant and equipment on page 410 of the Annual Report.

Information Required by Industry Guide 3

Please see Information required by industry guide 3 on pages 411 to 424 of the Annual Report. See also Selected financial data on pages 406 to 409 of the Annual Report for the return on equity attributable to UBS shareholders, return on average equity, return on average assets, dividend payout ratio and ratio of average equity to average assets.

Item 4A.   Unresolved Staff Comments.

No material unresolved comments.

Item 5.   Operating and Financial Review and Prospects.

A—Operating Results.

Please see Financial performance on pages 31 to 53 of the Annual Report. For a discussion of operating results by business division, please refer to the Annual Report, page 74 and pages 78 to 80 (as to Wealth Management) and pages 83 to 84 (as to Retail & Corporate) with respect to Wealth Management & Swiss Bank, pages 88 to 91 with respect to Wealth Management Americas, pages 97 to 101 with respect to Global Asset Management, pages 104 to 108 with respect to the Investment Bank and pages 110 to 111 with respect to the Corporate Center.

For information regarding the impact of foreign currency fluctuations, see Corporate currency management on page 154 of the Annual Report.

B—Liquidity and Capital Resources.

We believe that our working capital is sufficient for the company’s present requirements. Liquidity and capital management is undertaken at UBS as an integrated asset and liability management

function. For a detailed discussion, please see Liquidity and funding management on pages 147 to 152 and Capital management on pages 155 to 159 of the Annual Report.

For a discussion of UBS’s borrowings and cash flows, please see Balance sheet on pages 44 to 47 and Cash flows on page 53 of the Annual Report.

Please see also Interest rate and currency management on pages 153 to 154 and Shares and capital instruments on pages 160 to 162 of the Annual Report and Note 19 to the Financial Statements, Financial liabilities designated at fair value and debt issued, on pages 312 to 313 of the Annual Report.

C—Research and Development, Patents and Licenses, etc.

Not applicable.

D—Trend Information.

Please see Current market climate and industry drivers on pages 20 to 21 of the Annual Report.

E—Off-balance Sheet Arrangements.

Please see Off-balance sheet arrangements on pages 48 to 52 of the Annual Report and Notes 24 and 25 to the Financial Statements, Pledgeable off-balance-sheet securities and Operating lease commitments, respectively, on page 329 of the Annual Report.

F—Tabular Disclosure of Contractual Obligations.

Please see Contractual obligations on page 52 of the Annual Report.

Item 6.   Directors, Senior Management and Employees.

A—Directors and Senior Management.

	1,2,3		Please see pages 198 to 201 and pages 205 to 209 of the Annual Report.
	4,5		None.

B—Compensation.

	1		Please see pages 240 to 250 of the Annual Report and also Note 31 to the Financial Statements, Equity participation and other compensation plans, on pages 351 to 358 and Note 32 to the Financial Statements, Related parties, on pages 359 to 361 of the Annual Report.
	2		Please see Note 30 to the Financial Statements, Pension and other post-employment benefits plans, on pages 345 to 350 of the Annual Report.

C—Board practices.

	1		Please see pages 198 to 209 of the Annual Report.
	2		Please see pages 240 to 250 of the Annual Report and Note 32 to the Financial Statements, Related parties, on pages 359 to 361 of the Annual Report.

3

Please see Audit committee on page 201 and Human Resources and Compensation Committee on page 202 of the Annual Report.

D—Employees.

Please see Our employees on pages 54 to 58 of the Annual Report.

E—Share Ownership.

Please see pages 243 to 250 in the Annual Report, Note 31 to the Financial Statements, Equity participation and other compensation plans, on pages 351 to 358 of the Annual Report and “Equity holdings” in Note 32 to the Financial Statements, Related parties, on page 359 of the Annual Report.

Item 7.   Major Shareholders and Related Party Transactions.

A—Major Shareholders.

Please see Group structure and shareholders on page 191 of the Annual Report. At December 31, 2010, the portion of UBS ordinary shares held in the United States was 265,029,075 by 1,128 record holders.

B—Related Party Transactions.

Please see Loans on page 241 of the Annual Report, Note 32 to the Financial Statements, Related parties, on pages 359 to 361 of the Annual Report and Loans granted to members of the BoD on 31 December 2009/2010 and Loans granted to members of the GEB on 31 December 2009/2010 on page 399 of the Annual Report.

The aforementioned loans (a) were made in the ordinary course of business, (b) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and (c) did not involve more than the normal risk of collectability or present other unfavorable features.

C—Interests of Experts and Counsel.

Not applicable because this Form 20-F is filed as an annual report.

Item 8.   Financial Information.

A—Consolidated Statements and Other Financial Information.

	1,2,3,4,5,6		Please see Item 18 of this Form 20-F.
	7		Information on material legal and regulatory proceedings is in Note 21 to the Financial Statements, Provisions and contingent liabilities , on pages 314 to 319 of the Annual Report. For developments during the year, please see also the Financial Information section in each of our quarterly reports: First Quarter 2010 Report, filed on Form 6-K dated May 4, 2010 (Note 15, Litigation ); Second Quarter 2010 Report, filed on Form 6-K dated July 27, 2010 (Note 15, Litigation ); Third Quarter 2010 Report, filed on Form 6-K dated October 26, 2010 (Note 15, Litigation and regulatory matters ); and Fourth Quarter 2010 Report, filed on Form 6-K dated February 8, 2011 (Note 14, Litigation and regulatory matters, and Note 15, Other contingent liabilities ). The Notes in each such Quarterly Report speak only as of their respective dates.

8

Please refer to Distributions to shareholders on page 162 of the Annual Report for a description of UBS’s dividend policy.

B—Significant Changes.

UBS is not aware of any significant change that has occurred since the date of the annual financial statements included in this Form 20-F. Please see Key factors affecting our financial position and results of operations in 2010 on pages 32 to 33 of the Annual Report and Note 33 to the Financial Statements, Events after the reporting period, on page 362 of the Annual Report .

Item 9.   The Offer and Listing.

A—Offer and Listing Details.

	1,2,3,5,6,7		Not required because this Form 20-F is filed as an annual report.
	4		Please see Stock exchange prices on page 165 of the Annual Report.

B—Plan of Distribution.

Not required because this Form 20-F is filed as an annual report.

C—Markets.

UBS’s shares are listed and traded on the SIX Swiss Exchange and the New York Stock Exchange. The symbols are shown on page 163 of the Annual Report.

(a) Trading on SIX Swiss Exchange

From 2001 to 2009, Swiss blue chip stocks were traded on the SWX Europe (formerly virt-x) in London, a subsidiary wholly owned by the SIX Group, although these stocks remained listed on the SIX Swiss Exchange. In 2009, trading of blue chip stocks and ETFs was repatriated to Switzerland.

SIX Swiss Exchange is a Recognized Overseas Investment Exchange supervised by FINMA. It is delivered on the modern, scalable SIX trading platform.

SIX Swiss Exchange is open from Monday to Friday, except on Swiss public holidays. Exchange days are also clearing days. This means that trading takes place and that trades can be forwarded to the central counterparty (CCP) or central securities depository (CSD) for clearing and settlement. Exchange hours are 6 a.m. to 10 p.m. CET. Clearing hours are 8 a.m. to 6:15 p.m. CET.

All trades executed through the order book settle on a uniform “T+3” basis, meaning that delivery and payment of exchange transactions occur three business days after the trade date. The buyer is able to ask SIX Swiss Exchange to enforce settlement if the seller has not delivered within three business days of the intended settlement date.

Any transaction executed under the rules of SIX Swiss Exchange must be reported to SIX Swiss Exchange. Order book executions are automatically reported by the trading system. There are separate provisions for the delayed publication of certain qualifying trades. The block trade provisions allow a member a publication delay when the member has executed a large transaction for a client; the delay gives the member time in which to offset the risk of the large trade.

In the event of extraordinary situations such as large price fluctuations and other situations likely to hamper fair and orderly trading, SIX Swiss Exchange may take whatever measures it deems necessary

to maintain fair and orderly markets. A listed security may be suspended, the opening of trading in that security may be delayed or continuous trading may be interrupted.

(b) Trading on the New York Stock Exchange

UBS listed its shares on the New York Stock Exchange (the “NYSE”) on May 16, 2000.

As of 31 December 2010, the securities of more than 2,300 operating corporations with a total combined market valuation of approximately USD 16.3 trillion were listed on the NYSE, including 519 non-U.S. issuers from 47 countries.

The NYSE is open Monday through Friday, 9:30 A.M. to 4:00 P.M., EST.

The NYSE is an agency auction market. Trading at the NYSE takes place by open bids and offers by Exchange members, acting as agents for institutions or individual investors. Buy and sell orders meet directly on the trading floor, and prices are determined by the interplay of supply and demand. In contrast, in the U.S. over-the-counter market, the price is determined by a dealer who buys and sells out of inventory.

At the NYSE, each listed stock is assigned to a single post where the specialist manages the auction process. NYSE members bring all orders for NYSE-listed stocks to the Exchange floor either electronically or through a floor broker. As a result, the flow of buy and sell orders for each stock is funneled to a single location.

This heavy stream of diverse orders is one of the great strengths of the NYSE. It provides liquidity—the ease with which securities can be bought and sold without wide price fluctuations.

When an investor’s transaction is completed, the best price will have been exposed to a wide range of potential buyers and sellers.

Every transaction made at the NYSE is under continuous surveillance during the trading day. Stock Watch, a computer system that searches for unusual trading patterns, alerts the NYSE’s regulatory personnel to possible insider trading abuses or other prohibited trading practices. The NYSE’s other regulatory activities include the supervision of member firms to enforce compliance with financial and operational requirements, periodic checks on brokers’ sales practices, and the continuous monitoring of specialist operations.

D—Selling Shareholders.

Not required because this Form 20-F is filed as an annual report.

E—Dilution.

Not required because this Form 20-F is filed as an annual report.

F—Expenses of the Issue.

Not required because this Form 20-F is filed as an annual report.

Item 10.   Additional Information.

A—Share Capital.

Not required because this Form 20-F is filed as an annual report.

B—Memorandum and Articles of Association.

Please see the Articles of Association of UBS AG and the Organization Regulations of UBS AG (Exhibits 1.1 and 1.2, respectively, to this Form 20-F).

Set forth below is a summary of the material provisions of our Articles of Association, which we call the “Articles” throughout this document, Organization Regulations and the Swiss Code of Obligations relating to our shares. This description does not purport to be complete and is qualified in its entirety by references to Swiss law, including Swiss company law, and to the Articles and Organization Regulations.

The shares are registered shares with a par value of CHF 0.10 per share. The shares are fully paid up.

Each share carries one vote at our shareholders’ meetings. Voting rights may be exercised only after a shareholder has been recorded in our share register as a shareholder with voting rights. Registration with voting rights is subject to certain restrictions. See “— Transfer of Shares” and “—Shareholders’ Meeting”.

The Articles provide that we may elect not to print and deliver certificates in respect of registered shares. Shareholders may, however, following registration in the share register, request at any time that we issue a written statement in respect of their shares.

Transfer of Shares

The transfer of shares is effected by corresponding entry in the books of a bank or depository institution following an assignment in writing by the selling shareholder and notification of such assignment to us by the bank or depository institution. The transfer of shares further requires that the purchaser file a share registration form in order to be registered in our share register as a shareholder. Failing such registration, the purchaser may not vote at or participate in shareholders’ meetings.

A purchaser of shares will be recorded in our share register with voting rights upon disclosure of its name, citizenship and address. However, we may decline a registration with voting rights if the shareholder does not declare that it has acquired the shares in its own name and for its own account. If the shareholder refuses to make such declaration, it will be registered as a shareholder without voting rights.

There is no limitation under Swiss law or our Articles on the right of non-Swiss residents or nationals to own or vote our shares.

Shareholders’ Meeting

Under Swiss law, annual ordinary shareholders’ meetings must be held within six months after the end of our financial year, which is 31 December. Shareholders’ meetings may be convened by the Board of Directors (BoD) or, if necessary, by the statutory auditors, with twenty days’ advance notice. The BoD is further required to convene an extraordinary shareholders’ meeting if so resolved by a shareholders’ meeting or if so requested by shareholders holding in aggregate at least 10% of our nominal share capital. Shareholders holding shares with an aggregate par value of at least CHF 62,500 have the right to request that a specific proposal be put on the agenda and voted upon at the next

shareholders’ meeting. A shareholders’ meeting is convened by publishing a notice in the Swiss Official Commercial Gazette ( Schweizerisches Handelsamtsblatt ) at least twenty days prior to such meeting.

The Articles do not require a minimum number of shareholders to be present in order to hold a shareholders’ meeting.

Resolutions generally require the approval of an “absolute majority” of the votes cast at a shareholders’ meeting. Shareholders’ resolutions requiring a vote by absolute majority include:

	•		Amendments to the Articles;
	•		Elections of directors and statutory auditors;
	•		Approval of the annual report and the consolidated statements of accounts;
	•		Approval of the annual financial statements and the resolution on the use of the balance sheet profit (declaration of dividend);
	•		Decisions to discharge directors and management from liability for matters disclosed to the shareholders’ meeting; and
	•		Passing resolutions on matters which are by law or by the Articles reserved to the shareholders’ meeting (e.g., the ordering of an independent investigation into the specific matters proposed to the shareholders’ meeting).

Under the Articles, a resolution passed at a shareholders’ meeting with a supermajority of at least two thirds of the Shares represented at such meeting is required to:

	•		Change the limits on BoD size in the Articles;
	•		Remove one fourth or more of the members of the BoD; or
	•		Delete or modify the above supermajority requirements.

Under Swiss corporate law, a resolution passed by at least two thirds of votes represented and an absolute majority of the par value of the shares represented must approve:

	•		A change in our stated purpose in the Articles;
	•		The creation of shares with privileged voting rights;
	•		A restriction on transferability;
	•		An increase in authorized capital;
	•		An increase in capital out of equity against contribution in kind, for the purpose of acquisition and granting of special rights;
	•		Changes to pre-emptive rights;
	•		A change of domicile of the corporation; or
	•		Dissolution of the corporation without liquidation.

At shareholders’ meetings, a shareholder can be represented by his or her legal representative or under a written power of attorney by another shareholder eligible to vote, by a corporate proxy, by the independent proxy or by a custodial proxy. Votes are taken electronically, by written ballot or by a show of hands. If a written ballot is requested by at least 3% of the votes present at the shareholders’ meeting or such ballot is ordered by the Chairman of the meeting, a written ballot will be conducted.

Net Profits and Dividends

Swiss law requires that at least 5% of the annual net profits of a corporation must be retained as general reserves for so long as these reserves amount to less than 20% of the corporation’s nominal share capital. Any net profits remaining are at the disposal of the shareholders’ meeting, except that, if

an annual dividend exceeds 5% of the nominal share capital, then 10% of such excess must be retained as general reserves.

Under Swiss law, dividends may be paid out only if the corporation has sufficient distributable profits from previous business years or if the reserves of the corporation are sufficient to allow distribution of a dividend. In either event, dividends may be paid out only after approval by the shareholders’ meeting. The BoD may propose that a dividend be paid out, but cannot itself set the dividend. The auditors must confirm that the dividend proposal of the BoD conforms with statutory law. In practice, the shareholders’ meeting usually approves the dividend proposal of the BoD.

Dividends are usually due and payable after the shareholders’ resolution relating to the allocation of profits has been passed. Under Swiss law, the statue of limitations in respect of dividend payments is five years.

U.S. holders of shares will receive dividend payments in U.S. dollars, unless they provide notice to our U.S. transfer agent, Mellon Investor Services, that they wish to receive dividend payments in Swiss francs. Mellon Investor Services will be responsible for paying the U.S. dollars or Swiss francs to registered holders, and for withholding any required amounts for taxes or other governmental charges. If Mellon Investor Services determines, after consultation with us, that in its judgment any foreign currency received by it cannot be converted into U.S. dollars or transferred to U.S. holders, it may distribute the foreign currency received by it, or an appropriate document evidencing the right to receive such currency, or in its discretion hold such foreign currency for the accounts of U.S. holders.

Preemptive Rights

Under Swiss law, any share issue, whether for cash or non-cash consideration or for no consideration, is subject to the prior approval of the shareholders’ meeting. Shareholders of a Swiss corporation have certain preemptive rights to subscribe for new issues of shares in proportion to the nominal amount of shares held. The Articles or a resolution adopted at a shareholders’ meeting with a supermajority may, however, limit or suspend preemptive rights in certain limited circumstances.

Borrowing Power

Neither Swiss law nor the Articles restrict in any way our power to borrow and raise funds. No shareholders’ resolution is required.

Conflicts of Interest

Swiss law does not have a general provision on conflicts of interest. However, the Swiss Code of Obligations requires directors and members of senior management to safeguard the interests of the corporation and, as such, imposes a duty of care and a duty of loyalty on directors and officers. This rule is generally understood as disqualifying directors and senior officers from participating in decisions that directly affect them. Directors and officers are personally liable to the corporation for any breach of these provisions. In addition, Swiss law contains a provision under which payments made to a shareholder or a director or any person associated therewith, other than at arm’s length, must be repaid to us if the shareholder or director was acting in bad faith.

In addition, our Organization Regulations prohibit any member of the BoD from participating in discussions and decision-making regarding a matter as to which he or she has a conflict of interest.

Repurchase of Shares

Swiss law limits a corporation’s ability to hold or repurchase its own shares. We and our subsidiaries may only repurchase shares if we have sufficient free reserves to pay the purchase price and if the aggregate nominal value of the shares does not exceed 10% of our nominal share capital. Furthermore, we must create a special reserve on our balance sheet in the amount of the purchase price of the acquired shares. Such shares held by us or our subsidiaries do not carry any rights to vote at shareholders’ meetings.

Notices

Notices to shareholders are made by publication in the Swiss Official Gazette of Commerce. The BoD may designate further means of communication for publishing notices to shareholders.

Notices required under the listing rules of the SIX Swiss Exchange will be published in two Swiss newspapers in German and French. We or the SIX Swiss Exchange may also disseminate the relevant information on the online exchange information systems.

Registration and Business Purpose

We are registered as a corporation in the commercial registers of Canton Zurich and Canton Basle-City under the registration number CH-270.3.004.646-4 and have registered offices in Zurich and Basel, Switzerland.

Our business purpose, as set forth in our Articles, is the operation of a bank, with a scope of operations extending to all types of banking, financial, advisory, trading and service activities in Switzerland and abroad.

Duration, Liquidation and Merger

Our duration is unlimited.

Under Swiss law, we may be dissolved at any time by a shareholders’ resolution which must be passed by (1) an absolute majority of the shares represented at the meeting in the event we are to be dissolved by way of liquidation, or (2) a supermajority of at least two thirds of the votes represented and an absolute majority of the par value of the shares represented at the meeting in other events (for example, in a merger where we are not the surviving entity). Dissolution by court order is possible if we become bankrupt.

Under Swiss law, any surplus arising out of a liquidation (after the settlement of all claims of all creditors) is distributed to shareholders in proportion to the paid-up nominal value of shares held.

Disclosure of Principal Shareholders

Under the applicable provisions of the new Swiss Stock Exchange Act, shareholders and shareholders acting in concert with third parties who reach, exceed or fall below the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 33 1/3%, 50% or 66 2/3% of the voting rights of a Swiss listed corporation must notify the corporation and the SIX Swiss Exchange on which such shares are listed of such holdings, whether or not the voting rights can be exercised. Following receipt of such notification, the corporation has the obligation to inform the public. The corporation must disclose in an attachment to the balance sheet the identity of any shareholders who own in excess of 5% of its shares.

Mandatory Tender Offer

Under the Swiss Stock Exchange Act, shareholders and groups of shareholders acting in concert who acquire more than 33 1/3% of the voting rights of a listed Swiss company will have to submit a takeover bid to all remaining shareholders. A waiver from the mandatory bid rule may be granted by our supervisory authority. If no waiver is granted, the mandatory takeover bid must be made pursuant to the procedural rules set forth in the Swiss Stock Exchange Act and implementing ordinances.

Other

Ernst & Young Ltd, Aeschengraben 9, CH-4051 Basel, Switzerland, have been appointed as statutory auditors and as auditors of the consolidated accounts of UBS. The auditors are subject to confirmation by the shareholders at the ordinary general meeting on an annual basis.

Please see Capital structure on pages 193 to 195, Shareholders’ participation rights on pages 196 to 197 and Election and terms of office on page 202 of the Annual Report.

C—Material Contracts.

None.

D—Exchange Controls.

There are no restrictions under UBS’s Articles of Association or Swiss law, presently in force, that limit the right of non-resident or foreign owners to hold UBS’s securities freely. There are currently no Swiss foreign exchange controls or other Swiss laws restricting the import or export of capital by UBS or its subsidiaries. In addition, there are currently no restrictions under Swiss law affecting the remittance of dividends, interest or other payments to non-resident holders of UBS securities.

E—Taxation.

This section outlines the material Swiss tax and U.S. federal income tax consequences of the ownership of UBS ordinary shares by a U.S. holder (as defined below) who holds UBS ordinary shares as capital assets. It is designed to explain the major interactions between Swiss and U.S. taxation for U.S. persons who hold UBS shares.

The discussion does not address the tax consequences to persons who hold UBS ordinary shares in particular circumstances, such as tax-exempt entities, banks, financial institutions, life insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of the voting stock of UBS, holders that hold UBS ordinary shares as part of a straddle or a hedging or conversion transaction or holders whose functional currency for U.S. tax purposes is not the U.S. dollar. This discussion also does not apply to holders who acquired their UBS ordinary shares through a tax-qualified retirement plan, nor generally to unvested UBS ordinary shares held under deferred compensation arrangements.

The discussion is based on the tax laws of Switzerland and the United States, including the U.S. Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, which we call the “Treaty,” all of which may be subject to change or change in interpretation, possibly with retroactive effect.

For purposes of this discussion, a “U.S. holder” is any beneficial owner of UBS ordinary shares that is for U.S. federal income tax purposes:

	•		A citizen or resident of the United States;
	•		A domestic corporation or other entity taxable as a corporation;
	•		An estate, the income of which is subject to U.S. federal income tax without regard to its source; or
	•		A trust, if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust.

The discussion does not generally address any aspects of Swiss taxation other than income and capital taxation or of U.S. taxation other than federal income taxation. Holders of UBS shares are urged to consult their tax advisors regarding the U.S. federal, state and local and the Swiss and other tax consequences of owning and disposing of these shares in their particular circumstances.

(a) Ownership of UBS Ordinary Shares-Swiss Taxation

Dividends and Distributions

Dividends paid by UBS to a holder of UBS ordinary shares (including dividends on liquidation proceeds and stock dividends) are in principle subject to a Swiss federal withholding tax at a rate of 35%.

Until the end of 2010, the Par Value Principle was applicable. Under the Par Value Principle any distribution, which was not a repayment of the par value of the shares, was subject to Swiss withholding tax.

Starting 1 January 2011, the Par Value Principle was replaced by the Capital Contribution Principle. Under the Capital Contribution Principle, the repayment of capital contributions, including share premiums made by the shareholders after December 31, 1996 is in principle no longer subject to Swiss withholding tax if certain requirements regarding the booking of these capital contributions are met. The Swiss Federal Tax Administration issued guidelines on how the Capital Contribution Principle has to be applied. Nevertheless certain aspects are still unclear and disputed respectively.

A U.S. holder that qualifies for Treaty benefits may apply for a refund of the withholding tax withheld in excess of the 15% Treaty rate (or for a full refund in case of qualifying retirement arrangements). The claim for refund must be filed with the Swiss Federal Tax Administration, Eigerstrasse 65, CH-3003 Berne, Switzerland no later than December 31 of the third year following the end of the calendar year in which the income subject to withholding was due. The form used for obtaining a refund is Swiss Tax Form 82 (82 C for companies; 82 E for other entities; 82 I for individuals; 82 R for regulated investment companies), which may be obtained from any Swiss Consulate General in the United States or from the Swiss Federal Tax Administration at the address above. The form must be filled out in triplicate with each copy duly completed and signed before a notary public in the United States. The form must be accompanied by evidence of the deduction of withholding tax withheld at the source.

Mellon Investor Services, the registrar for UBS AG shares in the United States, is offering tax reclamation services for the cash dividends.

Transfers of UBS Ordinary Shares

The purchase or sale of UBS ordinary shares, whether by Swiss resident or non-resident holders (including U.S. holders), may be subject to a Swiss securities transfer stamp duty of up to 0.15%

calculated on the purchase price or sale proceeds if it occurs through or with a bank or other securities dealer in Switzerland as defined in the Swiss Federal Stamp Tax Act in Switzerland or the Principality of Liechtenstein. In addition to the stamp duty, the sale of UBS ordinary shares by or through a member of a recognized stock exchange may be subject to a stock exchange levy.

Capital gains realized by a U.S. holder upon the sale of UBS ordinary shares are not subject to Swiss income or gains taxes, unless such U.S. holder holds such shares as business assets of a Swiss business operation qualifying as a permanent establishment for the purposes of the Treaty. In the latter case, gains are taxed at ordinary Swiss individual or corporate income tax rates, as the case may be, and losses are deductible for purposes of Swiss income taxes.

(b) Ownership of UBS Ordinary Shares-U.S. Federal Income Taxation

Dividends and Distributions

Subject to the passive foreign investment company rules discussed below, U.S. holders will include in gross income the gross amount of any dividend paid, before reduction for Swiss withholding taxes, by UBS out of its current or accumulated earnings and profits, as determined for U.S. federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the U.S. holder. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a return of capital to the extent of the U.S. holder’s basis in its UBS ordinary shares and thereafter as capital gain.

Dividends paid to a noncorporate U.S. holder in taxable years beginning before January 1, 2013 that constitute qualified dividend income will be taxable to the holder at a maximum rate of 15%, provided that the holder has a holding period in the shares of more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Dividends paid by UBS with respect to the shares will generally be qualified dividend income.

For U.S. federal income tax purposes, a dividend will include a distribution characterized as a repayment of capital in the form of a par value reduction, if the distribution is made out of current or accumulated earnings and profits, as described above.

Dividends will generally be income from sources outside the United States for foreign tax credit limitation purposes, and will, depending on the holder’s circumstances, be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to the holder. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% rate. The dividend will not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.

The amount of the dividend distribution included in income of a U.S. holder will be the U.S. dollar value of the Swiss franc payments made, determined at the spot Swiss franc/U.S. dollar rate on the date such dividend distribution is includible in the income of the U.S. holder, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. Such gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Subject to U.S. foreign tax credit limitations, the nonrefundable Swiss tax withheld and paid over to Switzerland will be creditable or deductible against the U.S. holder’s U.S. federal income tax liability. Special rules apply in determining the foreign tax credit limitation with respect to dividends that are subject to the maximum 15% tax rate. To the extent a refund of the tax withheld is available to

a U.S. holder under the laws of Switzerland or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holder’s U.S. federal income tax liability, whether or not the refund is actually obtained. See “(a) Ownership of UBS Ordinary Shares—Swiss Taxation” above, for the procedures for obtaining a tax refund.

Stock dividends to U.S. holders that are made as part of a pro rata distribution to all shareholders of UBS generally will not be subject to U.S. federal income tax. Whether a stock dividend is considered to be such a nontaxable pro rata distribution for U.S. federal income tax can be a complex inquiry. In order for U.S. holders that receive a stock dividend subject to Swiss tax but not U.S. tax to receive the benefit of the foreign tax credit associated with that tax, such holder must have other foreign source income.

Transfers of UBS Ordinary Shares

Subject to the passive foreign investment company rules discussed below, a U.S. holder that sells or otherwise disposes of UBS ordinary shares generally will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. dollar value of the amount realized and the tax basis, determined in U.S. dollars, in the UBS ordinary shares. Capital gain of a non-corporate U.S. holder that is recognized in taxable years beginning before January 1, 2013 is generally taxed at a maximum rate of 15% if the UBS ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Passive Foreign Investment Company Rules

UBS believes that UBS ordinary shares should not be treated as stock of a passive foreign investment company for U.S. federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. In general, UBS will be a passive foreign investment company with respect to a U.S. holder if, for any taxable year in which the U.S. holder held UBS ordinary shares, either (i) at least 75% of the gross income of UBS for the taxable year is passive income or (ii) at least 50% of the value, determined on the basis of a quarterly average, of UBS’s assets is attributable to assets that produce or are held for the production of passive income (including cash). If UBS were to be treated as a passive foreign investment company, then unless a U.S. holder were to make a mark-to-market election with respect to the UBS ordinary shares, gain realized on the sale or other disposition of UBS ordinary shares would in general not be treated as capital gain. Instead, a U.S. holder would be treated as if the holder had realized such gain and certain “excess distributions” ratably over the three preceding taxable years or, if shorter, the holder’s holding period for the shares and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a holder’s UBS ordinary shares will be treated as stock in a passive foreign investment company if UBS was a passive foreign investment company at any time during the holder’s holding period in the UBS ordinary shares. In addition, dividends received from UBS would not be eligible for the preferential tax rate applicable to qualified dividend income if UBS were to be treated as a passive foreign investment company either in the taxable year of the distribution or the preceding taxable year, but would instead be taxable at rates applicable to ordinary income.

F—Dividends and Paying Agents.

Not required because this Form 20-F is filed as an annual report.

G—Statement by Experts.

Not required because this Form 20-F is filed as an annual report.

H—Documents on Display.

UBS files periodic reports and other information with the Securities and Exchange Commission. You may read and copy any document that we file with the SEC on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 (in the United States) or at +1 202 942 8088 (outside the United States) for further information on the operation of its public reference room. Much of this additional information may also be found on the UBS website at www.ubs.com/investors.

I—Subsidiary Information.

Not applicable.

Item 11.   Quantitative and Qualitative Disclosures About Market Risk.

(a) Quantitative Information About Market Risk.

Please see Market risk on pages 134 to 140 of the Annual Report.

(b) Qualitative Information About Market Risk.

Please see Market risk on pages 134 to 140 of the Annual Report.

(c) Interim Periods.

Not applicable.

Item 12.   Description of Securities Other than Equity Securities.

Not required because this Form 20-F is filed as an annual report.

PART II

Item 13.   Defaults, Dividend Arrearages and Delinquencies.

There has been no material default in respect of any indebtedness of UBS or any of its significant subsidiaries or any arrearages of dividends or any other material delinquency not cured within 30 days relating to any preferred stock of UBS AG or any of its significant subsidiaries.

Item 14.   Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

Item 15.   Controls and Procedures.

(a) Disclosure Controls and Procedures.

Please see US regulatory disclosure requirements on pages 213 to 214 of the Annual Report. See also Exhibit 12 to this Form 20-F.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

Please see Management’s report on internal control over financial reporting on page 259 of the Annual Report.

(c) Attestation Report of the Registered Public Accounting Firm.

Please see Report of independent registered public accounting firm on internal control over financial reporting on pages 260 to 261 of the Annual Report.

(d) Changes in Internal Control over Financial Reporting.

None.

Item 15T.   Controls and Procedures.

Not applicable.

Item 16A.   Audit Committee Financial Expert.

Please see Audit committee on page 202 and Compliance with NYSE listing standards on corporate governance on pages 218 to 219 of the Annual Report.

Item 16B.   Code of Ethics.

The Code of Business Conduct and Ethics (the “Code”) was substantially rewritten in January 2010. As rewritten, the Code is strengthened and updated based on international standards and best practices. It sets up clear requirements rather than merely statements of intention. It contains new provisions on cross-border business and tax compliance, as well as expanded provisions to improve corporate responsibility—fair dealing and fair competition, diversity and equal opportunity, health and safety, protecting the environment, respecting human rights, and community investment. Finally, the Code includes new requirements for training, annual certification and disciplinary consequences for all employees.

The code of business conduct and ethics is published on our website under http://www.ubs.com/1/e/investors/corporategovernance/business_conduct.html .

Item 16C.   Principal Accountant Fees and Services.

Please see Auditors on pages 211 to 212 of the Annual Report. None of the non-audit services disclosed in the table on page 211 were approved by the Audit Committee pursuant to paragraph (c) (7)(i)(C ) of Rule 2-01 of Regulation S-X.

Item 16D.   Exemptions from the Listing Standards for Audit Committees.

Not applicable.

Item 16E.   Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Please see Treasury share activities on page 161 of the Annual Report. The 2007/2010 share buyback program had been suspended since 2008, and expired on 8 March 2010 without being replaced by a new program. Throughout 2010 and at the time of expiration of the program, the unutilized volume of shares under the program was 174.1 million shares.

Item 16F.   Changes in Registrant’s Certifying Accountant.

Not applicable.

Item 16G.   Corporate Governance.

Please see Compliance with NYSE listing standards on corporate governance on pages 218 to 219 of the Annual Report.

PART III

Item 17.   Financial Statements.

Not applicable.

Item 18.   Financial Statements.

Please see the Financial Statements and the Notes to the Financial Statements on pages 259 to 378 of the Annual Report.

Item 19.   Exhibits.

Exhibit
Number		Description
1.1		Articles of Association of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed October 5, 2010)
1.2		Organization Regulations of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed August 4, 2010)
2(b)		Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries.
		We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt.
4.1		Deferred Prosecution Agreement between the United States of America and UBS AG, dated February 18, 2009 (incorporated by reference to Exhibit 4.1 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2009).
7		Statement regarding ratio of earnings to fixed charges.

Exhibit
Number		Description
8		Significant Subsidiaries of UBS AG.
		Please see Note 34 to the Financial Statements Significant subsidiaries and associates, on pages 362 to 365 of the Annual Report.
12		The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a))
13		The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350).
15		Consent of Ernst & Young Ltd.

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused the undersigned to sign this annual report on its behalf.

March 15, 2011

INDEX TO EXHIBITS

Exhibit
Number		Description
1.1		Articles of Association of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed October 5, 2010)
1.2		Organization Regulations of UBS AG. (Incorporated by reference to UBS AG’s Report of Foreign Private Issuer on Form 6-K filed August 4, 2010)
2(b)		Instruments defining the rights of the holders of long-term debt issued by UBS AG and its subsidiaries.
		We agree to furnish to the SEC upon request, copies of the instruments, including indentures, defining the rights of the holders of our long-term debt and of our subsidiaries’ long-term debt.
4.1		Deferred Prosecution Agreement between the United States of America and UBS AG, dated February 18, 2009 (incorporated by reference to Exhibit 4.1 to UBS AG’s Annual Report on Form 20-F for the fiscal year ended December 31, 2009).
7		Statement regarding ratio of earnings to fixed charges.
8		Significant Subsidiaries of UBS AG.
		Please see Note 34 to the Financial Statements Significant subsidiaries and associates, on pages 362 to 365 of the Annual Report.
12		The certifications required by Rule 13(a)-14(a) (17 CFR 240.13a-14(a))
13		The certifications required by Rule 13(a)-14(b) (17 CFR 240.13a-14(b)) and Section 1350 of Chapter 63 of Title 18 of the U.S. Code (18 U.S.C. 1350).
15		Consent of Ernst & Young Ltd.

			Annual Report 2010

2010 was a year of substantial improvement for us. We achieved a net profit attributable to UBS shareholders of CHF 7.5 billion ¹ , compared with a loss of CHF 2.7 billion in 2009. Our return on equity for 2010 improved to 16.7% from negative 7.8% at the end of 2009. We believe that providing outstanding levels of execution and delivering sustainable profitability are the cornerstones on which we can build a successful future, and that the progress we made during 2010 has enhanced our reputation with stakeholders.

Sustaining this progress will require us to continue to act with discipline and integrity, and to maintain a sharp focus on achieving our targets. During the year we increased revenues by CHF 9 billion compared with 2009, while at the same time reducing overall risk levels. We maintained discipline over our cost base, achieving our targeted fixed costs of less than CHF 20 billion. Our clients have once again entrusted us with net new money, with net inflows stabilizing in the second half of the year. Profits for 2010 were a key driver of the increase in our Basel II tier 1 capital ratio, which stood at an industry-leading 17.8% at the year-end. While our results for 2010 showed a marked improvement, we have far greater ambitions. In 2011 we will continue to build further on our achievements.

Most of our business divisions showed an improvement compared with 2009. In Wealth Management, client confidence remained subdued in volatile markets, affecting overall transaction volumes. Market rates of interest also remained low during the year. Against this backdrop, Wealth Management’s pre-tax profit increased to CHF 2,308 million compared with CHF 2,280 million in 2009, mainly as a result of reduced operating expenses. Total operating income declined marginally on lower interest income reflecting the interest rate environment as well as the effects of foreign exchange on our results, particularly the decrease in the value of the euro and US dollar against the Swiss franc. Fee income decreased on a lower average asset base, but trading income increased reflecting the work we have done to further strengthen our advisory relationship with clients. Invested assets declined by 7% as foreign exchange movements and outflows more than offset positive investment performance. Operating expenses declined by 3% mainly reflecting reduced personnel and restructuring costs.

In Retail & Corporate, pre-tax profit increased by 9% to CHF 1,772 million compared with 2009. Total operating income remained broadly stable, with net interest income impacted by low market interest rates. Operating expenses were reduced by 8%, reflecting cost-cutting measures initiated in 2009.

Wealth Management Americas reported a pre-tax loss of CHF 130 million compared with a pre-tax profit of CHF 32 million in 2009. The result belies the considerable operational progress made during the year, the benefits of which were more than offset by a significant increase in litigation provisions. We believe the restructuring of this business over the past year will allow us to leverage our strong competitive positioning going forward. Retaining talent within the business is key, and we are encouraged that financial advisors with us for more than one year delivered a strong performance, especially in the fourth quarter. Operating income was flat, with improved managed account fees and higher mutual fund revenues offset by a decrease in municipal trading income. Net new money trends in the business are encouraging, with the business delivering positive net new money in the second half of the year.

In 2010, Global Asset Management continued to build on its already sound investment track record with a pre-tax profit of CHF 516 million, an increase of 18% compared with 2009. This was achieved despite a decrease in invested assets as positive investment performance and net new money inflows were more than offset by negative currency effects. Operating income was down by 4% due to lower performance fees and lower revenues also reflecting the sale of UBS Pactual. Operating expenses decreased by 9%.

Our Investment Bank contributed most to the improvement in our 2010 results, recording a pre-tax profit of CHF 2,197 million compared with a pre-tax loss of CHF 6,081 million in 2009. This was primarily due to a reversal of losses in our fixed income, currencies and commodities business and reflects the rebuild of our credit business where revenues rose significantly. In 2010 we recorded considerably lower net credit loss expenses and lower own credit losses, partly offset by an increase in operating expenses.

We continued to maintain tight control over our risks and balance sheet alongside improvements in profitability over the year. Risk-weighted assets were reduced by 4% during the year to CHF 199 billion, and, on 31 December 2010, our balance sheet stood at CHF 1,317 billion, down 2% compared with the prior year. The increase in our regulatory capital, together with a reduction in risk-weighted assets, led to an improvement of our BIS tier 1 capital ratio to 17.8% compared with 15.4% at the end of 2009.

During 2010 the regulatory landscape shifted substantially with the expectation of more stringent regulatory requirements becoming a reality. New global regulatory pro-

¹ Our 2010 results were adjusted after the issuance of our fourth quarter 2010 report. The adjustment, which increased the net profit attributable to UBS shareholders by CHF 373 million, is explained in Note 33 to the financial statements included in our Annual Report 2010.

Kaspar Villiger Chairman of the Board of Directors Oswald J. Grübel Group Chief Executive Officer

posals were finalized by the Basel Committee on Banking Supervision early this year, and the Swiss Federal Council published draft legislation for Swiss banks based on the recommendations of the Swiss Expert Commission and designed to address the “too big to fail” issue. These proposals are due to be debated in the Swiss Parliament later this year. We will continue to evaluate the impacts of these changes, especially the effect that they may have on the profitability of our businesses, and, where necessary, we will take appropriate action. As previously stated, we will retain earnings in order to meet the recommended future capital requirements.

Recent quarters have demonstrated that our results for certain divisions, and for the Group as a whole, are highly sensitive to regulatory, legal and tax developments. In 2011, we believe that we may have opportunities to recognize further deferred tax assets in our results. We also expect that provisions for litigation and other contingencies will continue to affect us, although the timing and magnitude of these developments are not predictable.

In the current environment it is more important than ever that we focus on our clients’ needs. During the year we continued to implement our global and integrated bank strategy. We

improved the way in which we deliver our products and services to clients, which in turn should help us achieve further revenue growth. As part of this strategy we established our Investment Products and Services unit. We believe that this unit will play a crucial role, ensuring that our clients receive fast and efficient access to products and services tailored to their individual needs. Alongside this we set up our Global Family Office Group, catering to the often complex needs of many of the world’s wealthiest families.

We continued our tradition of supporting the local communities in which we live and work. We believe that our success stems not only from our employees’ skills and resources and from our relationships with our clients, but also from a healthy social environment. All over the world, our regional Community Affairs teams organize a wide variety of charitable activities in addition to direct donations made by the firm. Across all of our business regions, our employees continue to play a very active role in our community investment efforts, in particular through their volunteering activities. In 2010, our employees spent nearly 81,000 hours volunteering. We support their commitment by offering up to two working days a year for volunteering efforts, and also match employee donations to selected charities. In 2010 we also announced our support of the UBS Kids Cup, an athletics competition in Switzerland involving up to 70,000 children aged 7 to 15, helping to promote health and well-being.

During the year there were signs of improved client confidence in UBS. Building on this momentum, in August we launched our new brand campaign, our first global campaign for two years. The “We will not rest” campaign conveys our commitment to and focus on our clients at every level of the organization.

The ultimate responsibility for the firm’s strategy and the supervision of its executive management rests with the Board of Directors. We welcome the announcement that Joseph Yam, founder and former Chief Executive of the Hong Kong Monetary Authority, has been nominated for election to the Board. His expected appointment following the 2011 Annual General Meeting should further strengthen UBS’s Board of Directors, allowing us to benefit from his considerable experience. We recently announced that Sally Bott has resigned from the Board. We would like to express our gratitude to Sally for her outstanding contributions and great commitment during the past two and a half years.

2010 was a year of substantial improvement in our financial performance and our financial condition, and we would like to take this opportunity to thank you, our shareholders, for your continued support, and all of our employees for their hard work and commitment. In 2011, we are confident that we can consolidate the progress already made throughout the firm, helping to deliver our goal of long-term sustainable profitability for our shareholders.

15 March 2011

Yours sincerely,

UBS

Reporting publications

Annual publications: Annual report (SAP no. 80531): Published in both English and German, this single volume report provides a description of: our UBS Group strategy, performance and responsibility; the strategy and performance of the business divisions and the Corporate Center; risk and treasury management; corporate governance and senior management and Board of Directors compensation; and financial information, including the financial statements. Review (SAP no. 80530): The booklet contains key information on our strategy and financials. It is published in English, German, French and Italian. Compensation Report (SAP no. 82307): The report discusses compensation for senior management and the Board of Directors (executive and non-executive members). It is published in English and German.

Quarterly publications: Letter to shareholders: The letter provides a quarterly update from executive management on our strategy and performance. The letter is published in English, German, French and Italian. Financial report (SAP no. 80834): The quarterly financial report provides an update on our strategy and performance for the respective quarter. It is published in English.

How to order reports

The annual and quarterly publications are available in PDF format on the internet at www.ubs.com/investors/topics in the “Financial information” section. Printed copies can be ordered from the same website by accessing the order / subscribe panel on the left-hand side of the screen. Alternatively, they can be ordered by quoting the SAP number and the language preference where applicable, from UBS AG, F2AL-AUL, P.O. Box, CH-8098 Zurich, Switzerland.

Other information

Website: The “Analysts & Investors” section at www.ubs.com/ investors provides the following information on UBS: financial in-

Result presentations: Our quarterly results presentations are webcast live. A playback of most presentations is downloadable at www.ubs.com/presentations.

Messaging service / UBS news alert: On the www.ubs.com/ newsalerts website, it is possible to subscribe to receive news alerts about UBS via SMS or e-mail. Messages are sent in English, German, French or Italian and it is possible to state theme preferences for the alerts received.

Form 20-F and other submissions to the US Securities and Exchange Commission: We file periodic reports and submit other information about UBS to the US Securities and Exchange Commission (SEC). Principal among these filings is the annual report on Form 20-F, filed pursuant to the US Securities Exchange Act of 1934. The filing of Form 20-F is structured as a “wraparound” document. Most sections of the filing can be satisfied by referring to parts of the annual report. However, there is a small amount of additional information in Form 20-F which is not presented elsewhere, and is particularly targeted at readers in the US. Readers are encouraged to refer to this additional disclosure. Any document that we file with the SEC is available to read and copy on the SEC’s website, www.sec.gov, or at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, DC, 20549. Please call the SEC by dialing +1-800-SEC-0330 for further information on the operation of its public reference room. Much of this additional information may also be found on the UBS website at www.ubs.com/investors, and copies of results-related filings with the SEC may be obtained from our Investor Relations team at www.ubs.com/investors.

Corporate information

UBS AG shares are currently listed on the SIX Swiss Exchange and the New York Stock Exchange.

Contacts

Investor Relations

Office of the Company Secretary

US Transfer Agent

Corporate calendar

Imprint

Strategy, performance and responsibility

Strategy and performance

–		We are a client-focused financial services firm that offers a strong combination of wealth management, asset management and investment banking services on a global and regional basis.
–		We aim to generate sustainable earnings and create value for our shareholders.

UBS business model and aspiration

UBS AG is the parent company of the UBS Group (Group). The operational structure of the Group comprises the Corporate Center and four business divisions: Wealth Management & Swiss Bank, Wealth Management Americas, Global Asset Management and the Investment Bank.

–		further strengthening our position as a leading bank for high net worth and ultra high net worth clients around the world;
–		continuing our leadership across all client segments in Switzerland;
–		attaining a top-tier position in the growth regions in which we choose to operate; and
–		remaining a leading investment bank with a client-centric business model, focusing on flow trading and advice, leveraging our traditional strengths and maximizing our scope by working in close conjunction with our wealth management and asset management businesses.

Wealth Management & Swiss Bank
Wealth Management & Swiss Bank focuses on delivering comprehensive financial services to high net worth and ultra high net worth individuals around the world – except to those served by

Wealth Management Americas – as well as private and corporate clients in Switzerland. Our Wealth Management business unit provides clients in over 40 countries, including Switzerland, with financial advice, products and tools to fit their individual needs. Our Retail & Corporate business unit provides individual and business clients with an array of banking services, such as deposits and lending, and maintains a leading position across its client segments in Switzerland.

Wealth Management Americas
Wealth Management Americas provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, high net worth and core affluent individuals and families. It includes the domestic United States business (Wealth Management US), the domestic Canadian business and international business booked in the United States.

Global Asset Management
Global Asset Management is a large-scale asset manager with businesses diversified across regions, capabilities and distribution channels. It offers investment capabilities and styles across all major traditional and alternative asset classes including equities, fixed income, currency, hedge fund, real estate and infrastructure that can also be combined into multi-asset strategies. The fund

Strategy, performance and responsibility

services unit provides legal fund set-up and accounting and reporting for retail and institutional funds.

Investment Bank

Corporate Center

UBS’s competitive profile

Our business mix reflects decades of continuous development, organic growth and acquisitions. As a leader in the wealth management industry in terms of total invested assets, we offer a combination of wealth management, investment banking and asset management and services in local and regional markets. Specifically, we are a leading wealth manager in Switzerland, Europe, and the Asia Pacific region and are well positioned in

main growth markets such as the Middle East and Latin America. In the US, we are a leading wealth management service provider and are the biggest foreign-owned wealth manager. Furthermore, we have the largest ultra high net worth business globally in terms of invested assets. Our Investment Bank maintains a strong presence among global corporate and institutional clients, and holds leading positions in equities, foreign exchange, money markets, mergers and acquisitions and financial advisory services. In the Asia Pacific region, we operate leading investment banking, wealth management and asset management businesses.

UBS’s strategy

At the end of 2009, we established strategic objectives to improve our financial performance and reposition the firm in order to generate sustainable profitability and increased shareholder value. These strategic objectives and the related medium-term financial targets were reiterated at our Investor Day in November 2010. Our strategy is built on two primary pillars: re-focusing our business portfolio to fully capitalize on our strengths, and transforming the way we operate, exploiting the full potential of our strengths based on our three strategic guidelines of reputation, integration and execution. We are delivering against this strategy and have made progress in improving our financial performance during 2010.

Re-focusing the business portfolio

Transforming the way we operate

We are committed to our Swiss home market. Switzerland is the only country in which retail, corporate and institutional banking, wealth and asset management as well as investment banking are present. We strive to be the leading bank with regard to client satisfaction, employee engagement and sustainable profitability. Within the Swiss market, we maintain a leading position in all of our businesses.

Through our network of over 300 branches including around 4,700

client-facing staff, we reach approximately 80% of Swiss wealth. We serve every third household, every third wealthy individual and almost half of all Swiss companies.

Our strategy leverages our strengths and leading position in Switzerland and our integrated bank model allows us to offer a very broad range of products and services to our clients. For example, we can offer our private clients banking products and services needed throughout

their lives, ensuring the stability and continuity of the relationship. The same holds true for our corporate and institutional clients. We also offer our clients in Switzerland access to our global asset gathering and investment banking expertise.

UBS Switzerland operates with an integrated management team consisting of the heads of all Swiss business segments and support functions.

Strategy, performance and responsibility

step in this process. Also, we launched a new corporate identity program in 2010, including the world-wide brand campaign “We will not rest”, and a corresponding sponsorship strategy to raise our brand awareness.

¹ Kaspar Villiger Chairman of the Board of Directors, Chairperson of the Corporate Responsibility Committee and Governance and Nominating Committee ² Michel Demaré Independent Vice Chairman, member of the Audit Committee and Governance and Nominating Committee ³ Axel P. Lehmann Member of the Risk Committee ⁴ Rainer-Marc Frey Member of the Audit Committee and Risk Committee ⁵ Bruno Gehrig Member of the Governance and Nominating Committee and Human Resources and Compensation Committee ⁶ Ann F. Godbehere Member of the Audit Committee and Corporate Responsibility Committee ⁷ William G. Parrett Chairperson of the Audit Committee ⁸ Helmut Panke Ad-interim Chairperson of the Human Resources and Compensation Committee and member of the Risk Committee ⁹ Wolfgang Mayrhuber Member of the Corporate Responsibility Committee and Human Resources and Compensation Committee ¹⁰ David Sidwell Senior Independent Director, Chairperson of the Risk Committee

Strategy, performance and responsibility

The Board of Directors (BoD) is our most senior body. Under the leadership of the Chairman, it determines the strategy of the Group based upon the recommendations of the Group Chief Executive Officer (Group CEO). It exercises ultimate supervision of management and is responsible for the appointment and dismissal of all Group Executive Board (GEB) members, the Company Secretary and the head of Group Internal Audit as well as supervising and setting appropriate risk management and control principles for the firm. With the exception of its current Chairman, Kaspar Villiger, all members of the BoD are independent.

¹ Oswald J. Grübel Group Chief Executive Officer ² John Cryan Group Chief Financial Officer and ad-interim Chairman and CEO of UBS Group Europe, Middle East & Africa ³ Markus U. Diethelm Group General Counsel ⁴ John A. Fraser Chairman and CEO of Global Asset Management ⁵ Maureen Miskovic Group Chief Risk Officer ⁶ Chi-Won Yoon co-Chairman and co-CEO of UBS Group Asia Pacific ⁷ Ulrich Körner Group Chief Operating Officer and CEO of Corporate Center ⁸ Robert J. McCann CEO of Wealth Management Americas ⁹ Lukas Gähwiler CEO of UBS Switzerland and co-CEO of Wealth Management & Swiss Bank ¹⁰ Carsten Kengeter Chairman and CEO of the Investment Bank ¹¹ Alexander Wilmot-Sitwell co-Chairman and co-CEO of UBS Group Asia Pacific ¹² Jürg Zeltner CEO of UBS Wealth Management and co-CEO of Wealth Management & Swiss Bank ¹³ Philip J. Lofts CEO of UBS Group Americas

Strategy, performance and responsibility

Management of the firm is delegated by the BoD to the GEB. Under the leadership of the Group CEO, the GEB has executive management responsibility for the Group and its businesses. It assumes overall responsibility for the development of the Group and business division strategies and the implementation of approved strategies.

Strategy, performance and responsibility

Emergence from the financial crisis amid continued
uncertainties

Global growth accelerated in the first half of 2010, as companies restocked their inventories and improved consumer confidence kick-started spending. Monetary policies remained expansionary in nature given the continuing fragility of the economic recovery. Emerging economies exited the crisis relatively unscathed and with improved economic, financial and fiscal positions in comparison with developed economies. Re-leveraging started across emerging markets at a time when de-leveraging was the norm in most developed markets, and China overtook Japan as the biggest Asian economy.

Euro crisis
Europe’s sovereign debt crisis resulted in a major dip in confidence in the euro. The situation had its origins as much in the establish-

ment and subsequent development of the common currency itself as in the effects of the financial market crisis. When the global recession struck in 2008, much of the debt accumulated mostly (but not exclusively) in the private sectors of some European Monetary Union (EMU) countries became unsustainable. The governments faced falling tax revenues, rising social outlays and costs for supporting their economies and their failing financial institutions. Public debt-to-gross domestic product (GDP) ratios in the EMU rose by around 20 percentage points on average. The weaker and most severely affected countries saw their annual public deficits swell to double-digit levels as a percentage of GDP. Holders of government bonds grew increasingly nervous about their investments, triggering today’s sovereign debt crisis in Europe.

Macroeconomic perspectives

The global recovery, while weak, appears to be increasingly self-sustaining. We believe that the global economy has the potential

Strategy, performance and responsibility

to grow at between 3% and 4% in the medium term, a moderate rate of growth compared with previous recovery years. However, this global figure masks distinct regional discrepancies. The US is likely to show slower growth than during the period 1982–2007. Among the factors responsible for this are the de-leveraging of the private sector, re-regulation of financial intermediaries, the surge of public debt and the subsequent need to repair the public sector balance sheet. A subdued recovery remains the most likely US scenario as the stimulus-induced boom has come to a definite end. Generally, spare capacity in the western world will only be slowly re-absorbed, keeping inflation rates in most countries subdued (with the notable exception of the UK), while requiring further monetary easing, including via asset purchases (i.e. quantitative easing).

Industry drivers

A number of drivers have a significant impact on banks’ earnings as well as the structure of the financial services industry. The most relevant factor over the coming years will be the new business environment arising out of regulatory reform. This is likely to have far reaching and transformational consequences for markets, firm structures and business models.

Changing business models
Changes in regulation are expected to have a profound effect on banks’ business models. In view of the pressure that the new capital requirements and other regulatory principles, as stipulated by the Basel Committee and other bodies, will put on asset inventory-based future returns, the industry is currently reassessing its business portfolios and models. This is particularly true in the case of fixed income. However, structural changes are unlikely to happen in the short term.

Increasing role of emerging market banks
Emerging market banks came out of the global financial crisis in much better shape than their peers in developed markets, given their limited exposure to the US sub-prime market. As such, their capital position, on average, is already well above the Basel minimal requirement for 2019. Global emerging market banks are also strongly funded with deposits, which, together with a mostly supportive macro outlook, make them well positioned to capture future growth. In 2010, a number of emerging market countries enacted additional regulations for local banks. These include higher reserve requirements (China, India, Indonesia, and Turkey), more stringent provisioning (India, Indonesia and Mexico), compulsory lending (Korea), banking taxes (Hungary) and mortgage restrictions (China, Hong Kong, India, Malaysia, Poland and Thailand).

Demographics
The demographic dividend brought by a fall in child dependency and a rise in the share of the working population has been exhausted in western countries, and will soon be exhausted in a few developing countries (e.g. China). For most of the developing world this point lies 20–30 years ahead. Countries that have lost the demographic dividend will confront fiscal and social stresses from increases in the old age dependency ratio. In Japan, today there are 3.4 people working for every person over 65. By 2050, it is estimated the ratio will be 1.3. In Western Europe the ratio would fall from nearly four to two. Many pension funds – particularly pay-as-you-go public pensions – are underfunded, leaving many with insufficient retirement income. As baby-boomers retire, they will roll over trillions of assets from defined contribution plans and individual retirement accounts to other accounts. The need for stable income will increase the demand for fixed income investments and target date funds.

Development of major currencies versus the Swiss franc

Global capital and liquidity standard – Basel III

The enhanced Basel II framework (increased weighting of market risks) and Basel III capital requirements mandate that banking businesses will have to be underpinned by a higher quantity and quality of capital going forward. The definition of core tier 1 capital (common equity) will be more restrictive. Risk-weighted assets (RWA) will rise significantly, notably at banks with large trading portfolios, due to the introduction of additional charges as well as increased calibration percentages. It will take some time to implement fully the Basel reforms and global standards, and, as a result, the focus is on local regulations and their comparison. It is apparent that the pace of regulatory change varies considerably from country to country, and it is likely that there will be different rules in different jurisdictions.

ing buffers amounts 10.5–13%.These requirements will be phased-in from 2013 to the end of 2018. The risk-based capital requirements are supplemented by a tier 1 leverage ratio of 3% that will be tested from 2013 to 2016, with a view to perform a final calibration and implementation as of 1 January 2018.

Basel II market risk framework

Further to the publication of the enhanced Basel II market risk framework in July 2009, the BCBS has issued certain adjustments to the revision in June 2010. For a transition period of two years, the capital charges for non-correlation trading securitization positions may be based on the larger of the capital charges for net long and net short positions instead of the sum of net long and net short positions. Also, for correlation trading securitization positions, banks applying an internally developed model are subject to a floor of at least 8% of the capital charge for specific risk according to the standardized measurement method. Finally, the BCBS agreed to a coordinated start-date of not later than 31 December 2011.

Systemically important financial institutions

Regulatory attention is clearly focused on the question of systemically important financial institutions. However, at present, an in-

Strategy, performance and responsibility

Swiss Commission of Experts on “Too big to fail”
and public consultation

Of special relevance for UBS is the “too big to fail” discussion in Switzerland. On 4 October 2010, the Commission of Experts appointed by the Swiss Federal Council presented its final report, proposing measures to be applied to systemically relevant banks, with recommendations for increased capital requirements (including a leverage ratio) and organizational measures aimed at safeguarding the continuation of important Swiss banking services at the point of a bank’s non-viability. These measures are supplemented by strict liquidity requirements and a limitation of interdependencies and concentration risks in the financial sector. The proposals include:

1.

Capital : Common equity of at least 10% of RWA and additional capital equivalent instruments (contingent convertibles [CoCos]) of 9% of RWA. The CoCos would automatically convert into common equity in the event that the capital ratios of the issuing bank fall below certain predefined thresholds (trigger levels). Of the 9% capital equivalent instruments, the Commission of Experts recommended that 3% consist of CoCos with a trigger at a 7% common equity capital ratio. Alternatively, this 3% may also be held in the form of common equity. The remaining 6% would be issued as CoCos with a lower trigger, set at a 5% common equity capital ratio. This progressive component would be variable, based on the bank’s degree of systemic importance, and depend on market share in Swiss systemic functions and total balance sheet size of the bank. These proposed capital requirements exceed the proposed Basel III minimum standards. The calibration of the three components was based on the assumption that RWA would increase to approximately CHF 400 billion under Basel III. The 6% progressive component, calibrated as at the end of 2009, is based on a balance sheet total of approximately CHF 1,500 billion and a market share of around 20%. Furthermore, the Commission recommended a leverage ratio (minimum capital level as a proportion of the balance sheet) as an additional capital rule. The timeframe for the imple-

		mentation of the Swiss capital requirements is the same as it is for the Basel III standards.
2.		Liquidity : Proposals concerning liquidity requirements largely correspond to the FINMA principles that were effective as of 30 June 2010. It has been proposed that the agreed-upon FINMA principles should be given legal form. The FINMA liquidity regulations require banks to hold a balance of highly liquid assets sufficient to offset the projected outflows under the stress scenario for a period of 30 days. Similar to the FINMA liquidity regime, our established internal liquidity stress tests consider a severe stress scenario. We believe that our internal model enables us to sustain our business in stress conditions for a period substantially beyond the minimum regulatory horizon.

3.

Risk diversification : The measures presented by the Commission to improve risk diversification are similar to the adjustments envisaged in other jurisdictions, notably the European Union. One objective of these measures is to reduce the degree of interconnectedness within the banking sector, and thus limit the dependence of other banks on systemically important banks.

4.		Organization : The Commission stressed that it is the responsibility of a systemically important bank to organize itself in such a way that maintenance of the Swiss systemically important functions would be guaranteed in the event of a crisis. No specific structural measures were recommended by the Commission for systemically important banks.
		On 22 December 2010, the Swiss Federal Council launched a consultation on the “too big to fail” legislative proposals. The draft contains the measures recommended by the Commission of Experts which form the heart of the proposals. There were two additional elements compared with the Commission’s final report: (i) proposed legal changes to grant tax relief for the Swiss capital market, and (ii) a paragraph that empowers the Federal Council to rule on variable compensation for bank employees in case of future government support for a bank. The consultation is scheduled to end on 23 March 2011 and, after consolidation, the papers will enter the parliamentary process with a view to conclude the debate in 2011. The Swiss administration took strides to further clarify the measures stipulated by the Commission, while the abovementioned four main pillars remained in place.
		The revised legislation would require each systemically relevant institution such as UBS to develop a plan to ensure the continuation of systemically relevant functions within Switzerland in the event that the institution approaches insolvency. It would empower FINMA to impose far-reaching structural changes, including among other things the separation of lines of business into separate legal entities and restrictions on intragroup funding and guarantees, should any such institution be deemed to have failed to develop an adequate plan.

Regulatory developments in other jurisdictions

Other notable regulatory initiatives include the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US, which impacts the financial services industry by addressing, among other issues, systemic risk oversight, bank capital standards, the liquidation of failing systemically significant financial institutions, over-the-counter derivatives, the ability of deposit-taking banks to engage in proprietary trading activities and invest in hedge funds and private equity (the so-called Volcker rule), consumer and investor protection, hedge fund registration, securitization, investment advisors, shareholder “say on pay,” the role of credit-rating agencies, and more. The details of these regulations will depend on the final regulations ultimately adopted by various agencies and oversight boards in 2011.

Strategy, performance and responsibility

Certain risks, including those described below, may impact our ability to execute our strategy and directly affect our business activities, financial condition, results of operations and prospects. Because the business of a broad-based international financial services firm such as UBS is inherently exposed to risks that only become apparent with the benefit of hindsight, risks of which we are not presently aware could also materially affect our business activities, financial condition, results of operations and prospects. The sequence in which the risk factors are presented below is not indicative of their likelihood of occurrence or the potential magnitude of their financial consequences.

Regulatory changes may adversely affect our business and ability to execute our strategic plans

In the wake of the recent financial crisis, regulators and legislators have proposed and adopted, or continue to actively consider, a wide range of measures designed to address the perceived causes of the crisis and to limit the systemic risks posed by major financial institutions. These measures include:

–		significantly higher regulatory capital requirements
–		changes in the definition and calculation of regulatory capital, including in the capital treatment of certain capital instruments issued by UBS and other banks
–		changes in the calculation of risk-weighted assets
–		new or significantly enhanced liquidity requirements
–		requirements to maintain liquidity and capital in multiple jurisdictions where activities are conducted
–		limitations on principal trading activities
–		limitations on risk concentrations and maximum levels of risk
–		taxes and government levies that would effectively limit balance sheet growth
–		a variety of measures constraining, taxing or imposing additional requirements relating to compensation
–		requirements to adopt structural and other changes designed to reduce systemic risk and to make major financial institutions easier to wind down or disassemble
–		outright size limitations

A number of measures have been adopted (or in the case of Basel III, the framework established) and will be implemented in the next several years, or in some cases are subject to legislative action or to further rulemaking by regulatory authorities before final implementation. As a result, there is a high level of uncertainty regarding a number of the measures described above. The timing and implementation of changes could have a material and adverse effect on our business.

regulation may be imposed in a manner that makes it more difficult to manage a global institution. The absence of a coordinated approach is also likely to disadvantage certain banks, such as UBS, as they attempt to compete with less strictly regulated peers based in other jurisdictions.

Our reputation is critical to the success of our business

Damage to our reputation can have fundamental negative effects on our business and prospects. As the events of the past few years have demonstrated, our reputation is critical to the success of our strategic plans. Reputational damage is difficult to reverse. The process is slow and success can be difficult to measure. This was demonstrated in recent years as our very large losses during the financial crisis, the US cross-border matter and other matters seriously damaged our reputation. This was an important factor in our loss of clients and client assets across our asset-gathering businesses, and to a lesser extent in our loss of and difficulty in attracting staff. These developments had short-term and also more lasting adverse effects on our financial performance. We recognized that restoring our reputation would be essential to maintaining our relationships with clients, investors, regulators and the general public, as well as with our employees. Although there is evidence that the steps we have taken in the past couple of years to restore our reputation have been effective, our reputation has not been fully restored, and we remain vulnerable to the risk of further reputational damage. Any further reputational damage could have a material adverse effect on our operational results and financial condition and on our ability to achieve our strategic goals and financial targets.

Our capital strength is important in supporting our client franchise; changes in capital requirements are likely to constrain certain business activities in our Investment Bank

Our capital position, as measured by the BIS tier 1 and total capital ratios, is determined by (i) risk-weighted assets (RWA) (balance sheet, off-balance sheet and other market and operational risk positions, measured and risk-weighted according to regulatory criteria) and (ii) eligible capital. Both RWA and eligible capital are subject to change. Eligible capital would be reduced if we experience net losses, as determined for the purpose of the regulatory capital calculation. Eligible capital can also be reduced for a number of other reasons, including certain reductions in the ratings of securitization exposures, adverse currency movements directly affecting the value of equity and prudential adjustments that may be required due to the valuation uncertainty associated with certain types of positions. RWA, on the other hand, are driven by our business activities and by changes in the risk profile of our exposures. For instance, substantial market volatility, a widening of credit spreads (the major driver of our value-at-risk), a change in regulatory treatment of certain positions, adverse currency movements, increased counterparty risk or a deterioration in the economic environment could result in a rise in RWA. Any such reduction in eligible capital or increase in RWA could potentially reduce our capital ratios, and such reductions could be material.

We hold risk positions that may be adversely affected by conditions in the financial markets

UBS, like other financial market participants, was severely affected by the financial crisis that began in 2007. The deterioration of financial markets since the beginning of the crisis was extremely severe by historical standards, and we recorded substantial losses on fixed income trading positions, particularly in 2008 and to a lesser extent in 2009. We have drastically reduced our risk exposures from 2008 through 2010, in part through transfers in 2008 and 2009 to a fund controlled by the Swiss National Bank. We do, however, continue to hold legacy risk positions that are exposed to the general systemic and counterparty risks that were exacerbated by the financial crisis.

Strategy, performance and responsibility

The continued illiquidity of most of these legacy risk positions makes it increasingly difficult to reduce our legacy risk exposures.

Performance in the financial services industry depends on the economic climate

The financial services industry prospers in conditions of economic growth, stable geopolitical conditions, transparent, liquid and buoyant capital markets and positive investor sentiment. An economic downturn, inflation or a severe financial crisis (as seen in the last few years) can negatively affect our revenues and ultimately our capital base.

–		a general reduction in business activity and market volumes would affect fees, commissions and margins from market-making and client-driven transactions and activities;
–		a market downturn is likely to reduce the volume and valuations of assets we manage on behalf of clients, reducing our asset- and performance-based fees;
–		reduced market liquidity limits trading and arbitrage opportunities and impedes our ability to manage risks, impacting both trading income and performance-based fees;
–		assets we own and account for as investments or trading positions could fall in value;
–		impairments and defaults on credit exposures and on trading and investment positions could increase, and losses may be exacerbated by falling collateral values; and
–		if individual countries impose restrictions on cross-border payments or other exchange or capital controls, we could suffer losses from enforced default by counterparties, be unable to access our own assets, or be impeded in – or prevented from – managing our risks.

Because UBS has very substantial exposures to other major financial institutions, the failure of any such institution could have a material effect on UBS.

Our global presence subjects us to risk from currency fluctuations

We prepare our consolidated financial statements in Swiss francs. However, a substantial portion of our assets, liabilities, invested assets, revenues and expenses are denominated in other currencies, particularly the US dollar, the euro and the British pound. Accordingly, changes in foreign exchange rates, particularly between the Swiss franc and the US dollar (US dollar revenue represents the major part of our non-Swiss franc revenue) have an effect on our reported income and invested asset levels. During 2010, a strengthening of the Swiss franc, especially against the US dollar and euro, had an adverse effect on our revenues and invested assets. Since exchange rates are subject to constant change, sometimes from completely unpredictable reasons, our results are subject to risks associated with changes in the relative values of currencies.

We are dependent upon our risk management and control processes to avoid or limit potential losses in our trading and counterparty credit businesses

Controlled risk-taking is a major part of the business of a financial services firm. Credit is an integral part of many of our retail, wealth management and Investment Bank activities. This includes

lending, underwriting and derivatives businesses and positions. Changes in interest rates, credit spreads, equity prices, foreign exchange levels and other market fluctuations can adversely affect our earnings. Some losses from risk-taking activities are inevitable, but to be successful over time, we must balance the risks we take against the returns we generate. We must therefore diligently identify, assess, manage and control our risks, not only in normal market conditions but also as they might develop under more extreme (stressed) conditions, when concentrations of exposures can lead to severe losses.

–		we do not fully identify the risks in our portfolio, in particular risk concentrations and correlated risks;
–		our assessment of the risks identified or our response to negative trends proves to be inadequate or incorrect;
–		markets move in ways that we do not expect – in terms of their speed, direction, severity or correlation – and our ability to manage risks in the resultant environment is therefore affected;
–		third parties to whom we have credit exposure or whose securities we hold for our own account are severely affected by events not anticipated by our models, and we accordingly suffer defaults and impairments beyond the level implied by our risk assessment; or
–		collateral or other security provided by our counterparties proves inadequate to cover their obligations at the time of their default.

We also manage risk on behalf of our clients in our asset and wealth management businesses. Our performance in these activities could be harmed by the same factors. If clients suffer losses or the performance of their assets held with us is not in line with relevant benchmarks against which clients assess investment performance, we may suffer reduced fee income and a decline in assets under management or withdrawal of mandates.

required to be held beyond a normal trading horizon. They are subject to a distinct control framework. Deteriorations in the fair value of these positions would have a negative impact on our earnings.

Valuations of certain assets rely on models. For some
of the inputs to these models there is no observable source

Where possible, we mark our trading book assets at their quoted market price in an active market. Such price information may not be available for certain instruments and we therefore apply valuation techniques to measure such instruments. Valuation techniques use “market observable inputs” where available, derived from similar assets in similar and active markets, from recent transaction prices for comparable items or from other observable market data. In the case of positions for which some or all of the reference data are not observable or have limited observability, we use valuation models with non-market observable inputs. There is no single market standard for valuation models of this type. Such models have inherent limitations; different assumptions and inputs would generate different results, and these differences could have a significant impact on our financial results. We regularly review and update our valuation models to incorporate all factors that market participants would consider in setting a price, including factoring in current market conditions. Judgment is an important component of this process. Changes in model inputs or in the models themselves, or failure to make the changes necessary to reflect evolving market conditions, could have a material adverse effect on our financial results.

We are exposed to possible further reduction in client
assets in our wealth management and asset management
businesses

In 2008 and 2009, we experienced substantial net outflows of client assets in our wealth management and asset management businesses. Our wealth management businesses continued to experience net outflows in the first half of 2010, albeit at significantly reduced levels. The net outflows resulted from a number of different factors, including our substantial losses, the damage to our reputation, the loss of client advisors, difficulty in recruiting qualified client advisors and developments concerning our cross-border private banking business. Some of these factors have been successfully addressed, but others, such as the long-term changes affecting the cross-border private banking business model, will continue to affect client flows for an extended period of time. If we again experience material net outflows of client assets, the results of our wealth management and asset management businesses are likely to be adversely affected.

Liquidity and funding management are critical to
our ongoing performance

Reductions in our credit ratings can increase our funding costs, in particular with regard to funding from wholesale unsecured

Strategy, performance and responsibility

sources, and can affect the availability of certain kinds of funding. In addition, as we experienced in 2008 and 2009, ratings downgrades can require us to post additional collateral or make additional cash payments under master trading agreements relating to our derivatives businesses. Our credit ratings also contribute, together with our capital strength and reputation, to maintaining client and counterparty confidence.

Operational risks may affect our business

All of our businesses are dependent on our ability to process a large number of complex transactions across multiple and diverse markets in different currencies, and to comply with the requirements of the many different legal and regulatory regimes to which we are subject. Our operational risk management and control systems and processes are designed to help ensure that the risks associated with our activities, including those arising from process error, failed execution, unauthorized trading, fraud, system failures and failure of security and physical protection, are appropriately controlled. If our internal controls fail or prove ineffective in identifying and remedying such risks, we could suffer operational failures that might result in material losses.

Legal claims and regulatory risks and restrictions
arise in the conduct of our business

Due to the nature of our business, we are subject to regulatory oversight and liability risk. We are involved in a variety of claims, disputes, legal proceedings and government investigations in jurisdictions where we are active. These types of proceedings expose us to substantial monetary damages and legal defense costs, injunctive relief and criminal and civil penalties, in addition to potential regulatory restrictions on our businesses. The outcome of these matters cannot be predicted and they could adversely affect our future business. We continue to be subject to government inquiries and investigations, and are involved in a number of liti-

gations and disputes, many of which arose out of the financial crisis. These matters concern, among other things, our valuations, accounting classifications, disclosures, writedowns and contractual obligations. We are also subject to potentially material exposure in connection with claims relating to US RMBS and mortgage loan sales, the Madoff investment fraud, Lehman principal protection notes and other matters.

We might be unable to identify or capture revenue or
competitive opportunities, or retain and attract qualified
employees

The financial services industry is characterized by intense competition, continuous innovation, detailed (and sometimes fragmented) regulation and ongoing consolidation. We face competition at the level of local markets and individual business lines, and from global financial institutions that are comparable to UBS in their size and breadth. Barriers to entry in individual markets are being eroded by new technology. We expect these trends to continue and competition to increase in the future.

leave UBS, or that we may be less successful than our competitors in attracting qualified employees. Although changes in regulatory requirements and pressure from regulators and other stakeholders affect not only UBS but also the other major international banks, the constraints and pressures differ by jurisdiction, and this may give some of our peers a competitive advantage.

We are exposed to risks arising from the different
regulatory, legal and tax regimes applicable to our
global businesses

We operate in more than 50 countries, earn income and hold assets and liabilities in many different currencies and are subject to many different legal, tax and regulatory regimes. Our ability to execute our global strategy depends on obtaining and maintaining local regulatory approvals. This includes the approval of acquisitions or other transactions and the ability to obtain and maintain the necessary licenses to operate in local markets. Changes in local tax laws or regulations and their enforcement may affect the ability or the willingness of our clients to do business with the bank, or the viability of our strategies and business model.

The effects of taxes on our financial results are significantly
influenced by changes in our deferred tax assets
and final determinations on audits by tax authorities

The deferred tax assets we have recognized on our balance sheet as of 31 December 2010 in respect of prior years’ tax losses are based on profitability assumptions over a five-year horizon. If the business plan earnings and assumptions in future periods sub-

stantially deviate from the current outlook, the amount of deferred tax assets may need to be adjusted in the future. This could include write-offs of deferred tax assets through the income statement if actual results come in substantially below the business plan forecasts and/or if future business plan forecasts are substantially revised downwards.

Strategy, performance and responsibility

		As of or for the year ended
CHF million, except where indicated			31.12.10				31.12.09				31.12.08
Group results
Operating income			31,994				22,601				796
Operating expenses			24,539				25,162				28,555
Operating profit from continuing operations before tax			7,455				(2,561	)			(27,758	)
Net profit attributable to UBS shareholders			7,534				(2,736	)			(21,292	)
Diluted earnings per share (CHF) 1			1.96				(0.75	)			(7.63	)
Key performance indicators, balance sheet and capital management 2
Performance
Return on equity (RoE) (%)			16.7				(7.8	)			(58.7	)
Return on risk-weighted assets, gross (%)			15.5				9.9				1.2
Return on assets, gross (%)			2.3				1.5				0.2
Growth
Net profit growth (%) 3			N/A				N/A				N/A
Net new money (CHF billion) 4			(14.3	)			(147.3	)			(226.0	)
Efficiency
Cost / income ratio (%)			76.5				103.0				753.0
Capital strength
BIS tier 1 ratio (%) 5			17.8				15.4				11.0
FINMA leverage ratio (%) 5			4.45				3.93				2.45
Balance sheet and capital management
Total assets			1,317,247				1,340,538				2,014,815
Equity attributable to UBS shareholders			46,820				41,013				32,531
BIS total ratio (%) 5			20.4				19.8				15.0
BIS risk-weighted assets 5			198,875				206,525				302,273
BIS tier 1 capital 5			35,323				31,798				33,154
Additional information
Invested assets (CHF billion)			2,152				2,233				2,174
Personnel (full-time equivalents)			64,617				65,233				77,783
Market capitalization 6			58,803				57,108				43,519

¹ Refer to “Note 8 Earnings per share (EPS) and shares outstanding” in the “Financial information” section of this report. ² For the definitions of our key performance indicators refer to the “Measurement and analysis of performance” section of this report. ³ Not meaningful if either the current period or the comparison period is a loss period. ⁴ Excludes interest and dividend income. ⁵ Refer to the “Capital management” section of this report. ⁶ Refer to the “UBS shares in 2010” section of this report.

Key factors affecting our financial position and results
of operations in 2010

–

In 2010, we generated a net profit attributable to UBS shareholders of CHF 7.5 billion, a significant improvement over the net loss of CHF 2.7 billion in 2009. This increase was primarily due to a significant improvement in fixed income, currencies and commodities revenues from a loss in 2009. In addition, a reduction in credit loss expense, as well as significantly lower own credit losses on financial liabilities designated at fair value supported the result. Operating expenses were slightly lower than in 2009, when we recorded higher restructuring costs and a goodwill impairment charge related to the sale of UBS Pactual. Further, we reduced fixed costs excluding bonus and significant non-recurring items to CHF 19.9 billion in 2010, in line with our communicated target of below CHF 20 billion, despite increased costs for litigation provisions compared with 2009. Diluted earnings per share were CHF 1.96 in 2010, compared with negative CHF 0.75 in 2009.

–

We recognized a net income tax benefit of CHF 381 million for 2010. This mainly reflects the recognition of additional deferred tax assets in respect of losses and temporary differences in a number of foreign locations, taking into account updated forecast taxable profit assumptions over the five-year horizon used for recognition purposes. This was partly offset by a Swiss net deferred tax expense as Swiss tax losses for which deferred tax assets have previously been recognized were used against profits for the year, which was itself partly offset by an upward revaluation of Swiss deferred tax assets taking into account revised forecast profit assumptions. In 2009, the net income tax benefit was CHF 443 million.

–

As our credit spreads continued to tighten in 2010, the Investment Bank incurred an own credit charge on financial liabilities designated at fair value of CHF 548 million compared with a charge of CHF 2,023 million recognized in 2009.

–

In 2010, we recorded a gain on our option to acquire the equity of the SNB StabFund of CHF 745 million compared with CHF 117 million in 2009, following higher asset valuations supporting a higher valuation of the SNB StabFund.

–

In January 2010, UBS closed the sale of its investments in several associated entities owning office space in New York. A significant portion of the office space is leased by the Group until 2018. The sales price was CHF 187 million with a resulting

gain on sale of CHF 180 million recorded in the first quarter. In the fourth quarter, we recognized a gain of CHF 158 million from the sale of a property in Zurich.

–

In 2010, we incurred a credit loss expense of CHF 66 million, of which CHF 64 million occurred in Wealth Management & Swiss Bank. The net credit loss expense in the Investment Bank was nil. In 2009, we recorded an overall credit loss expense of CHF 1,832 million, mainly in the Investment Bank.

–

During 2010, we incurred net restructuring charges of CHF 113 million compared with CHF 791 million in 2009.

–

Charges related to the UK Bank Payroll Tax in 2010 amounted to CHF 200 million.

–

Other comprehensive income attributable to UBS shareholders was negative CHF 1,659 million in 2010 due to: (1) losses in the currency translation account of CHF 909 million (net of tax) mainly related to the Swiss franc carrying value of investments in US, Eurozone and British subsidiaries; (2) fair value losses on financial investments available-for-sale of CHF 607 million (net of tax) predominantly relating to our fixed-interest bearing long-term bond portfolio, which consists of US and UK government bonds; and (3) changes in the replacement values of interest rate swaps designated as hedging instruments of negative CHF 143 million (net of tax).

–

At the end of 2010, our invested asset base was CHF 2,152 billion, down from CHF 2,233 billion at year-end 2009. This decline was mainly due to unfavorable currency effects, as both the US dollar and the euro fell sharply in value against the Swiss franc. In local currencies, the overall market performance was positive. During 2010, net new money stabilized, and over the last two quarters we achieved net inflows for the overall Group. Wealth Management & Swiss Bank recorded net new money outflows of CHF 10.0 billion in full-year 2010, compared with net outflows of CHF 89.8 billion in 2009; Wealth Management Americas’ net new money outflows declined to CHF 6.1 billion in 2010 from CHF 11.6 billion in 2009; Global Asset Management full year net new money flows turned positive to CHF 1.8 billion, compared with net outflows of CHF 45.8 billion in 2009.

–

We ended 2010 with an industry-leading Basel II tier 1 capital ratio of 17.8%, up from 15.4% at the end of 2009. Our BIS tier 1 capital increased by CHF 3.5 billion during 2010 to CHF

Strategy, performance and responsibility

35.3 billion, due to the CHF 7.5 billion net profit attributable to UBS shareholders and the reversals of own credit losses of CHF 0.5 billion. These effects were partially offset by a redemption of hybrid tier 1 capital of CHF 1.5 billion, increased tier 1 deductions of CHF 1.0 billion, negative effects relating to share-based compensation net of tax of CHF 0.9 billion, as well as currency effects of CHF 0.6 billion and other effects of CHF 0.5 billion. Risk-weighted assets decreased by CHF 7.7 billion during 2010 to CHF 198.9 billion as of 31 December 2010.

–

Our total balance sheet assets stood at CHF 1,317 billion on 31 December 2010, down CHF 23 billion compared with year-end 2009. Our funded asset volume, which excludes positive replacement values, remained relatively unchanged, declining by CHF 3 billion in 2010.

–

On 5 March 2010, the mandatory convertible notes with a notional value of CHF 13 billion issued in March 2008 to the Government of Singapore Investment Corporation Pte. Ltd. and an investor from the Middle East were converted into UBS shares. The notes were converted at a price of CHF 47.68 per share. As a result, UBS issued 272,651,005 new shares with a nominal value of CHF 0.10 each from existing conditional capital.

Seasonal characteristics

Our main businesses do not generally show significant seasonal patterns, although the Investment Bank’s revenues have been affected in some years by the seasonal characteristics of general financial market activity and deal flows in investment banking. Other business divisions are only slightly impacted by seasonal components, such as asset withdrawals that tend to occur in the fourth quarter and by lower client activity levels related to the summer and end-of-year holiday seasons.

Performance measures

Key performance indicators

Client/invested assets reporting
We report two distinct metrics for client funds:

–

The measure “client assets” encompasses all client assets managed by or deposited with us, including custody-only assets and assets held for purely transactional purposes.

–

The measure “invested assets” is a more restrictive term and includes all client assets managed by or deposited with us for investment purposes.

Of the two, invested assets is our central measure and includes, for example, discretionary and advisory wealth management portfolios, managed institutional assets, managed fund assets and wealth management securities or brokerage accounts. It excludes all assets held for purely transactional and custody-only purposes, as we only administer the assets and do not offer advice on how these assets should be invested. Non-bankable assets (for example, art collections) and deposits from third-party banks for funding or trading purposes are excluded from both measures.

Wealth Management &

Swiss Bank

Wealth

Global

Wealth

Retail &

Management

Asset

Investment

Key performance indicators

Definition

Group

Management

Corporate

Americas

Management

Bank

Net profit growth (%)

Change in net profit attributable to UBS shareholders from continuing operations between current and comparison periods / net profit attributable to UBS shareholders from continuing operations of comparison period

l

Pre-tax profit growth (%)

Change in business division performance before tax between current and comparison periods / business division performance before tax of comparison period

l

l

l

l

l

Cost / income ratio (%)

Operating expenses / operating income before credit loss (expense) or recovery

l

l

l

l

l

l

Return on equity (%)

Net profit attributable to UBS shareholders on a year-to-date basis (annualized as applicable) / average equity attributable to UBS shareholders (year-to-date basis)

l

Return on attributed equity (%)

Business division performance before tax on a year-to-date basis (annualized as applicable) / average attributed equity (year-to-date basis)

l

Return on assets, gross (%)

Operating income before credit loss (expense) or recovery on a year-to-date basis (annualized as applicable) / average total assets (year-to-date basis)

l

l

Return on risk-weighted assets, gross (%)

Operating income before credit loss (expense) or recovery on a year-to-date basis (annualized as applicable) /average risk-weighted assets (year-to-date basis)

l

FINMA leverage ratio (%)

BIS tier 1 capital / average adjusted assets as per definition by FINMA

l

BIS tier 1 ratio (%)

BIS tier 1 capital / BIS risk-weighted assets

l

Net new money (CHF billion) 1

Inflow of invested assets from new and existing clients less outflows from existing clients or due to client defection

l

l

l

l

Gross margin on invested assets

Operating income before credit loss (expense) or recovery (annualized as applicable) / average invested assets

l

l

l

Impaired lending portfolio as a % of total lending portfolio, gross

Impaired lending portfolio, gross / total lending portfolio, gross

l

Average management VaR (1-day, 95% confidence, five years of historical data)

Value-at-risk (VaR) expresses maximum potential loss measured to a 95% confidence level, over a 1-day time horizon and based on five years of historical data

l

¹ Retail & Corporate no longer reports “Net new money” as a KPI.

Strategy, performance and responsibility

Wealth Management & Swiss Bank reorganization

From 2010 onwards, the internal reporting of Wealth Management & Swiss Bank to the Group Executive Board was revised in order to better reflect the management structure and responsibilities. Segregated financial information is now reported for:

–

“Wealth Management”, encompassing all wealth management business conducted out of Switzerland and in our Asian and European booking centers;

–

“Retail & Corporate”, including services provided to Swiss retail private clients, small and medium enterprises and corporate and institutional clients.

In line with this revised internal reporting structure and IFRS 8 Operating Segments , Wealth Management and Retail & Corporate are now presented in our external financial reports as separate business units and reportable segments. Prior periods presented have been restated to conform to the new presentation format.

Allocation of additional Corporate Center costs to reportable segments

From 2010 onwards, almost all costs incurred by the Corporate Center related to shared services and control functions are allocated to the reportable segments, which directly and indirectly receive the value of the services, either based on a full cost recovery or on a periodically agreed flat fee. The allocated costs are shown in the respective expense lines of the reportable segments in “Note 2a Segment reporting” in the “Financial information” section, and in the “UBS business divisions and Corporate Center” section of this report.

penses and performance before tax would have been as shown in the table below.

Cash collateral from derivative transactions and prime brokerage receivables and payables

From 2010 onwards, we have changed the presentation of cash collateral from derivative transactions and prime brokerage receivables and payables to improve transparency.

Personnel expenses

In 2010, we reclassified certain elements of Other personnel expenses to Variable compensation – other in order to align the presentation with the new FINMA definition of variable compensation.

Corporate Center cost allocation impact on 2009 figures

Wealth

Total

Wealth Management &

Management

Global Asset

Investment

business

Corporate

Swiss Bank

Americas

Management

Bank

divisions

Center

Wealth

Retail &

CHF million

Management

Corporate

Estimated increase in 2009 operating expenses and decrease in performance before tax

128

96

84

44

288

640

(640

)

Cash collateral from derivative transactions and prime brokerage receivables and payables
		31.12.09												31.12.08
		Before								After				Before								After
CHF million		reclassification				Reclassification				reclassification				reclassification				Reclassification				reclassification
Due from banks			46,574				(29,770	)			16,804				64,451				(46,757	)			17,694
Cash collateral receivables on derivatives instruments			0				53,774				53,774				0				85,703				85,703
Loans			306,828				(40,351	)			266,477				340,308				(48,852	)			291,456
Other assets			7,336				16,347				23,682				9,931				9,906				19,837
Due to banks			65,166				(33,244	)			31,922				125,628				(48,806	)			76,822
Cash collateral payables on derivatives instruments			0				66,097				66,097				0				92,937				92,937
Due to customers			410,475				(71,212	)			339,263				465,741				(103,102	)			362,639
Other liabilities			33,986				38,359				72,344				42,998				58,971				101,969

Furthermore, we reclassified the pension costs related to bonus to Pension and other post-employment benefit plans . Previously, those amounts were reported under Social security . Prior period amounts have been adjusted accordingly. The change in the presentation did not impact our personnel expenses. The related amounts are disclosed in the footnotes to “Note 6 Personnel expenses” in the “Financial information” section of this report.

IFRS 9 Financial Instruments

In November 2009, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments , which includes revised guidance on the classification and measurement of financial assets. In October 2010, the IASB updated IFRS 9 Financial Instruments to include guidance on financial liabilities and derecognition of financial instruments and amended IFRS 7 Financial Instruments: Disclosure to include disclosures about transferred financial assets. The publication of IFRS 9 Financial Instruments represents the completion of the first part of a multi-stage project to replace IAS 39 Financial Instruments: Recognition and Measurement .

instruments may be accounted for at fair value through other comprehensive income (OCI). Such a designation is available on initial recognition on an instrument-by-instrument basis and is irrevocable. There is no subsequent recycling of realized gains or losses from OCI to profit or loss. All other financial assets are measured at fair value through profit or loss.

Strategy, performance and responsibility

Income statement
		For the year ended												% change from
CHF million		31.12.10				31.12.09				31.12.08				31.12.09
Continuing operations
Interest income			18,872				23,461				65,679				(20	)
Interest expense			(12,657	)			(17,016	)			(59,687	)			26
Net interest income			6,215				6,446				5,992				(4	)
Credit loss (expense) / recovery			(66	)			(1,832	)			(2,996	)			96
Net interest income after credit loss expense			6,149				4,614				2,996				33
Net fee and commission income			17,160				17,712				22,929				(3	)
Net trading income			7,471				(324	)			(25,820	)
Other income			1,214				599				692				103
Total operating income			31,994				22,601				796				42
Personnel expenses			16,920				16,543				16,262				2
General and administrative expenses			6,585				6,248				10,498				5
Depreciation of property and equipment			918				1,048				1,241				(12	)
Impairment of goodwill			0				1,123				341				(100	)
Amortization of intangible assets			117				200				213				(42	)
Total operating expenses			24,539				25,162				28,555				(2	)
Operating profit from continuing operations before tax			7,455				(2,561	)			(27,758	)
Tax expense / (benefit)			(381	)			(443	)			(6,837	)			14
Net profit from continuing operations			7,836				(2,118	)			(20,922	)
Discontinued operations
Profit from discontinued operations before tax			2				(7	)			198
Tax expense			0				0				1
Net profit from discontinued operations			2				(7	)			198
Net profit			7,838				(2,125	)			(20,724	)
Net profit attributable to non-controlling interests			304				610				568				(50	)
from continuing operations			303				600				520				(50	)
from discontinued operations			1				10				48				(90	)
Net profit attributable to UBS shareholders			7,534				(2,736	)			(21,292	)
from continuing operations			7,533				(2,719	)			(21,442	)
from discontinued operations			1				(17	)			150
Performance by business division
Wealth Management			2,308				2,280				3,631				1
Retail & Corporate			1,772				1,629				2,382				9
Wealth Management & Swiss Bank			4,080				3,910				6,013				4
Wealth Management Americas			(130	)			32				(823	)
Global Asset Management			516				438				1,333				18
Investment Bank			2,197				(6,081	)			(34,300	)
Treasury activities and other corporate items			793				(860	)			19
Operating profit from continuing operations before tax			7,455				(2,561	)			(27,758	)