ROBECO N.V. ANNUAL REPORT 2004

 

 

 

Coolsingel 120

Postbus 973

NL-3000 AZ Rotterdam

Tel.: +31 - 10 - 224 12 24

Fax +31 - 10 - 411 52 88

Internet: www.robeco.com

 

Paulus C. van den Hoek, chairman

Constant E.M. Beckers (as of 22 April until 1 July 2004)

Gilles Izeboud (as of 22 April 2004)

Johan Kremers

Petrus A.W. Roef (until 22 April 2004)

Anthony Ruys (until 22 April 2004)

Dirk P.M. Verbeek

 

Mark R. Glazener, chairman/fund manager

Marnix C. Vriezen (until 1 October 2004)

Volker Wytzes

 

Martin S. Feldstein

Toyoo Gyohten

Paul J. Keating

Karl O. Pöhl

H. Onno C.R. Ruding

 

David H. Cross

George A. Möller (as of 1 July 2004)

Géry A.M.J. Daeninck, chairman (until 1 July 2004)

Stefan T. Bichsel

Leni M.T. Boeren (as of 1 January 2005)

Sander van Eijkern (as of 29 November 2004)

Hans H. van der Koogh (until 8 February 2005)

Constant T.L. Korthout (as of 27 December 2004)

Niek F. Molenaar (as of 27 December 2004)

 

 

The General Meeting of Shareholders will be held on 21 April 2005 at 10:00 hours at the Hilton Hotel, Weena 10, Rotterdam, the Netherlands. Holders of share certificates to bearer wishing to attend and vote at the meeting should apply for a written statement from the Euroclear Netherlands-affiliated institution where their shares are held, which will give admission to the meeting. The institutions affiliated with Euroclear Netherlands should submit a copy of this statement to ABN AMRO Bank N.V. stating the number of shares held for the shareholder concerned prior to the meeting, and which will be frozen until after the meeting. This statement should be submitted not later than 14 April 2005.

Holders of K shares should lodge their share certificates not later than 14 April 2005 with one of the banks mentioned in the convening notice of 30 March 2005.

Holders of subshares or an account with Robeco Group Accounts System in Rotterdam, Banque Robeco S.A. in Paris or Robeco Bank Belgium in Brussels wishing to attend the meeting should inform the management board in writing not later than 14 April 2005.

This report is also published in Dutch, French, German, Italian and Spanish. Only the original Dutch edition is binding and will be submitted to the General Meeting of Shareholders.

 

 

The prospectus is available at the offices of the company and via www.robeco.com.

 

We herewith present the Robeco N.V. accounts for the financial year 2004 together with the report of the management board.

The way in which the supervisory board carries out its supervisory duties is significantly determined by the structure of the Robeco Group. The management of Robeco N.V. is carried out by Robeco Nederland B.V., which employs the personnel who work for Robeco N.V., including its management board. Robeco Nederland B.V. is a wholly-owned subsidiary of Robeco Groep N.V. Discussion of the management of Robeco N.V. can therefore take place in the supervisory board of either the company or that of Robeco Groep N.V. As a result of the personal links between the members of the two boards, in practice this presents no difficulties.

The purpose of an investment institution such as Robeco N.V., as laid down in its Articles of Association, is limited to the investing of its assets in securities in such a way that risks are diversified with the object of allowing its shareholders to participate in the profits. At its meetings therefore, the supervisory board devotes extensive attention to the investment policy, the realized results and the development of the assets invested, on the basis of frequent and detailed reports. In connection with the above regarding the structure of the Robeco Group, matters which are also relevant to Robeco N.V., such as the risks associated with the investment policy and the application of instruments to manage these risks, may also be discussed at the meetings of the supervisory board of Robeco Groep N.V.

The general policy of the Robeco Group is determined by the management board of Robeco Groep N.V. in consultation with its supervisory board. This means that matters such as product development, acquisitions and risk management are discussed at the meetings of the supervisory board of Robeco Groep N.V. An audit and remuneration committee has been appointed by this board, and intensive discussions were held with the internal audit department and the external auditor concerning matters affecting the whole Robeco Group. Two members of this committee are also supervisory directors of Robeco N.V. Besides the subjects mentioned, no special issues were discussed at the meetings of the supervisory board during the reporting year.

The Committee for Modernising Collective Investments Schemes (known as the 'Winter Committee') published its report on 22 December 2004. The consequences of the recommendations in this report for the Robeco group will be evaluated in the course of 2005. In anticipation of their recording in regulations, several of these recommendations were already taken into account in this annual report.

We have taken note of the contents of the auditor's report presented by Ernst & Young Accountants and recommend approval of the annual financial statements. We concur with management's proposal to distribute a dividend of EUR 0.40 per share in cash.

Messrs. P.A.W. Roef and A. Ruys stepped down as members of the supervisory board at the General Meeting of Shareholders held on 22 April 2004. At the same meeting Messrs. G. Izeboud and C.E.M. Beckers were appointed as supervisory directors of the company with immediate effect. Mr. Beckers resigned of his own accord on 1 July 2004 because of a possible conflict of interests relating to a new position he had accepted.

It will be proposed at the General Meeting that Mr. Ph. Lambert be appointed as a supervisory director of the company with immediate effect to fill the vacancy arising from Mr. Beckers's resignation. Mr. Lambert works at Unilever as head of corporate pensions and in that capacity is responsible for the pensions and investments of Unilever's global pension funds.   

 

Mr. J. Kremers will retire as a supervisory director at the General Meeting of Shareholders on 21 April 2005, as he has reached the statutory retirement age. Mr. Kremers has been a member of the supervisory board since 1997. The board is extremely grateful for his important contribution to the exercise of its advisory and supervisory duties throughout this period.

According to schedule, Mr. P. van den Hoek will resign at the General Meeting of Shareholders to be held on 21 April 2005. Mr. van den Hoek is available for re-election. It is proposed that he be reappointed as a supervisory director of the company with immediate effect.

Mr. M.C. Vriezen resigned of his own accord as member of the management board of the company as of 1 October 2004.

 

Rotterdam, 11March 2005

 

The supervisory board

Paulus C. van den Hoek, chairman (66)

Dutch nationality. Appointed in 1990 and last reappointed in 2000.

Lawyer and partner at Stibbe, lawyers and notaries, in Amsterdam since 1965. Former Dean of the Dutch National Bar (1981/84). Supervisory director of ASM International, Ballast Nedam, Buhrmann, Euronext, Robeco Groep, Rolinco and Rorento.

 

Gilles Izeboud (62)

Dutch nationality. Appointed in 2004.

Former partner at PricewaterhouseCoopers. Former member of the Corporate Governance Committee in the Netherlands. Deputy justice of the Enterprise Section of the Amsterdam Court of Appeal. Supervisory director of Robeco Groep, Rolinco and Rorento.

 

Johan Kremers (71)

Dutch nationality. Appointed in 1997 and reappointed in 2001.

Former Queen's Commissioner in the Dutch province of Limburg (1977/90), vice-chairman of the Management Board of Robeco Groep and vice-chairman of Rodamco (1990/97). Supervisory director of Robeco Groep, Rolinco and Rorento.

 

Dirk P.M. Verbeek (54)

Dutch nationality. Appointed in 2001 and reappointed in 2003.

Member of the executive board of Aon Group of Chicago, and chairman/CEO of the executive board of Aon Holdings in Rotterdam. Supervisory director of Petroplus International, Robeco Groep, Rolinco and Rorento.

 

 

 

The global economy again showed considerable growth in 2004 as the recovery that began in the previous year continued. Companies saw their earnings rise as a result of ongoing cost-cutting and increasing turnover. Consumers continued to spend, encouraged partly by rising house prices and slightly improved employment prospects. However worries about the sustainability of economic growth also remained. Rising commodity prices formed a threat and extra demand from emerging economies, such as China, pushed prices higher. These price movements were exacerbated by speculators. Political uncertainty in various oil-producing countries was also a contributory factor. Another source of concern was the depreciation of the US dollar and the resulting deterioration in the US trade balance and the US government's budget deficit.

Despite the higher commodity prices, inflation remained moderate. This can partly be attributed to structural factors such as the intensified international competition and the improved productivity in many sectors. Another contributory factor was the fact that the capacity surplus accumulated at the end of the 1990s had not been completely eliminated. It was therefore not easy for companies to pass on price increases to consumers. Finally there was a lack of wage-cost inflation. For the time being, the labor reserve in most countries is still large enough to curb wage demands.

Differences between the regions still existed in 2004. The US economy performed relatively well. Consumer spending was high. US household savings have fallen on balance, which was partly caused by the rising house prices. The euro zone's performance was once again disappointing. The main reason was that a pick-up in domestic demand failed to materialize due to consumers' concerns about the consequences of structural reforms and labor-market conditions. The emerging economies in Asia are becoming increasingly important. Partly because of its geographical location, Japan is also benefiting from this and it seems that the period of deflation there has now come to an end. However, this has not led the Japanese monetary authorities to increase official short-term interest rates. The European central bank also left its official rates unchanged, whereas the US central bank started reversing the interest-rate cuts of previous years.

 

In the reporting period, equity prices showed an ongoing recovery from the lows of November 2002 in the US and March 2003 in Europe. The yields in 2004 were again determined by the home base of the global investor. A US investor with a global portfolio also benefited from the appreciation of the euro and the Japanese yen, whereas European investors saw their interests in US dollars fall. The Dow Jones Index (US) rose by almost 3.1%, the Dow Jones STOXX 50 Index by 4.3%, the FTSE 100 Index (United Kingdom) by 7.5% and the Nikkei Stock Average 225 Index (Japan) also by 7.5%.

Although equity prices rose there were many concerns about too rapid growth with the accompanying increase in interest rates, slowdown in China, the deficit on both the current account and the budget in the US, the elections, rising raw materials prices and terrorist attacks. In this respect the old stock-market adage 'the market needs a wall of worry to climb' proved to be true again again.  Corporate-earnings development was favorable all over the world. There were two reasons for this: businesses benefited from the effects of the cost-saving operations of the last years while at the same time. Initially, earnings were used to redeem debts, but more and more often they were used to repurchase own shares or to pay (bonus) dividends. In the last quarter this money was also used for takeovers.

 

The expectations for 2005 are not high. The driving force of global growth, American consumers, could be slower. Interest rates will not fall further and employment is growing moderately. After a number of years of economic recovery and exuberant earnings, earnings growth will weaken. Consequently, expectations are not high, meaning that results could be more favorable than expected. We therefore expect a positive year for the markets, in which the sectors which lagged in previous years (such as health care and consumer staples) will take the lead in this year of slowing growth.

 

 

 

 

During 2004, the share price of Robeco rose from EUR 20.92 to EUR 21.62. Assuming reinvestment of the dividend of EUR 0.36 per share distributed in May 2004, this was an investment result of 5.0%. Based on net asset value, which rose from EUR 21.01 to EUR 21.74, the investment result was 5.1%.

The fund's benchmark, the MSCI World Index, rose 6.9% over the same period.

The slight lag against the benchmark is attributable to stock selection within the various sectors. The other major investment decisions contributed slightly positively to relative performance.

The currency policy performed well throughout the year. In the first six months of 2004 an above-average position was taken in the US dollar against the euro on several occasions, which turned out favorably. When the US dollar fell against the euro in the second half of 2004, part of the fund's position was hedged. The overweight in the energy sector and the underweight in the information-technology sector were good decisions and contributed positively to the result. The same applied to the increased interest in the telecom sector in the second half of 2004. These positive contributions were only slightly offset by an overweight position in the lagging health-care sector. Japan, in which the fund held an above-average position, was one of the world's best-performing markets.

Stock selection had a negative contribution, particularly in the consumer-discretionary and information-technology sectors. Compass is an example of a poorly-performing stock in the first sector. Earnings development of this catering company once again lagged expectations as a result of which the company's stock price took a plunge in the second half of the year under review. Within the information-technology sector the fund took a premature position in Nortel, anticipating the stock's decline. The risks of the survey into the company's accounts were underestimated. Stock selection in the health-care sector was positive. The overweight position in service companies (such as the health insurers WellPoint and Aetna) and medical-equipment makers (such as Varian Medical) led to a good selection within this sector.

 

Robeco's investment policy focuses on global selection of stocks within business sectors, and determining the relative weights of those sectors. Regional allocation is mainly determined by this selection. The weight in North America decreased in the past six months, due to the depreciation of the US dollar against the euro, as well as sales of US stocks. The proceeds were reinvested in Europe. The difference in valuation of similar companies within sectors has become substantial in some cases, in favor of Europe. Examples include Exxon Mobil versus Royal Dutch, Dow Chemical versus BASF and US Bancorp versus Banco Santander. Now that economic growth is expected to slow down in the US and to remain at least equal in Europe there will be less reason for the large difference in valuation between the two regions. The weight of Japan was reduced to neutral in the second half of the year. The question is whether the country's domestic economy is powerful enough to cushion lower growth of exports when the global economy weakens.

Turnover in the portfolio decreased significantly. The sales volume amounted to 56% of the portfolio during the reporting year.

 

The overweight in this sector was reduced to an underweight position in the second half of the year, when oil prices had reached a level of USD 50 per barrel. This seemed excessive given the existing supply/demand ratios. Weight was reduced by liquidating or reducing the position in the most oil-sensitive stocks. These are mainly the pure oil exploration and extraction companies (such as Suncor and Occidental Petroleum) and oil services and drilling companies (Smith International and Noble Drilling), but the interest in Exxon Mobil was reduced as well. The fund prefers refinery (Valero Energy), integrated companies with good valuations (Royal Dutch, PetroCanada and ENI) and certain oil services companies (Schlumberger and Weatherford).

 

Weight in materials was also reduced. The interests in the more expensive diversified mining companies such as Anglo American and Rio Tinto were either sold or reduced. They were replaced by Holcim (cement) and an upgrade of the interests in International Paper and Shin-Etsu Chemical. We expect prices of metals (such as nickel, steel and aluminum) will maintain a high level of volatility. Demand from China will continue, but capacity is also gradually expanded. Within the sector the fund prefers building materials (CRH and Holcim).

 

We lowered the weight in industrials in the second half of the year. Several new names were included in the portfolio (Cooper Industries, Boeing) at the expense of very expensive conglomerates such as United Technologies and 3M. The fund had a relatively high weight in Japanese companies in the capital-goods segment. These companies usually have a large global market share and favorable valuation (Asahi Glass, JGC, Daikin, Mitsubishi Corp and Fanuc).

 

 

US consumers take out high loans, while saving little. The cost of debt rose this year as interest rates increased, while tax benefits expired. Consumer spending was therefore expected to decline. The fund was therefore underweight in consumer discretionary, particularly in the auto and retail segments. Within the auto segment Denway Motors - overcapacity in the Chinese market is getting problematic - was traded too late for Peugeot. Pleasure boat maker Brunswick and restaurant chain Brinker were added to the portfolio. Motivation for adding these stocks was that the reelected President George W. Bush will make the rich richer in the US.

 

The consumer staples sector was increased to overweight. The sector is not very popular and there are many problems. The purchasing power of Wal-Mart and other retail companies is putting pressure on the prices of Unilever's brand products. Makers of brand products (Colgate) have to advertise more to sell their products. The 'stop smoking' trend is putting pressure on growth of tobacco companies (Altadis and Imperial Tobacco). The fund invested in this sector because of stable earnings growth, which is expected to be scarce in 2005, and high free cash flow (the cash remaining after capital expenditure).

 

The weight in this sector was kept at overweight  which did not turn out well. 2004 was a bad year for drug makers. Discussions about keeping health care affordable and the possible pressure on prices pushed valuations lower. Merck having to take its painkiller Vioxx offf the market because of health risks was the final blow for the sector. As a result of this the US regulator FDA (Food and Drug Administration) will be even more critical on side effects and risks of new drugs. We are adopting a wait-and-see stance until large pharmaceuticals react to the pressure on prices by reducing the size of their sales organizations. Until that time the fund maintains its preference for the services (Aetna, Wellpoint, Medco Health Solutions, Caremark), suppliers (Baxter, Smith&Nephew) and biotechnology (Gilead) subsectors.

 

 

 

 

 

The weight in this sector has been reduced. This sector has realized enormous earnings growth in recent years, benefiting from falling interest rates, rising house prices and home ownership (and thus the increase in the number, level and refinancing of mortgages), better risk-management systems, a mild recession (with a relatively low number of bad loans) and cost saving (mainly on administrative staff). The question is whether this will go on like this. Interest rates have reached a low for the time being. House prices have reached their peak in many developed countries. In the US consumers are spending so much that the savings rate is practically zero. However, earnings will only decrease if bad loans increase and this will only happen if there is a recession. We are  not expecting this for the next year and therefore we maintain a neutral position in the sector with an underweight in banks.

 

The fund was underweight in this sector throughout the year, as stocks in this sector have currently lost some of their growth characteristics. Current growth is the result of the replacement of existing systems rather than the implementation of new applications. The sector still has a high valuation. Portfolio emphasis is on software (SAP, Accenture, Veritas and Adobe).

 

During the reporting period the position in telecommunication services was expanded to overweight. Telephone rates (fixed or mobile) are still under pressure. It is expected, however, that competition will remain limited in those parts of Europe where the fixed-telephone networks have little competition from cable companies. This is the case in countries such as Germany (Deutsche Telekom) and Italy (Telecom Italia). The fund's positions in these companies were therefore increased at the expense of the interests in Vodafone (where growth depends on 3G services, which have not yet proved their success) and KDDI (fierce competition in mobile services in Japan). The penetration level of cell phones is relatively low in the US. This is why the fund holds positions in Sprint and Telus.

 

Utilities was the best-performing sector in 2004. The fund's underweight here thus did not yield the desired result. Particularly now that the sector's valuation has risen again, we are maintaining our underweight.

 

 

Rotterdam, 11 March 2005

 

The management board

BALANCE SHEET before profit appropriation , EUR x million

PROFIT AND LOSS ACCOUNT EUR x million

 

 

CASH-FLOW SUMMARY

indirect method, EUR x million

 

 

 

 

Robeco N.V. (hereafter also referred to as 'the fund') is a Dutch investment company with a variable capital within the meaning of article 28 of the 1969 Dutch Corporate Income Tax Act. This means that no corporate income tax is due, providing that the fund makes its profit available for distribution to shareholders in the form of dividend within eight months of the close of the financial year and satisfies any other relevant regulations. Robeco N.V. holds a license from the AFM (the Dutch Authority for the Financial Markets) under the Dutch Investment Institutions Supervision Act ('Wtb', Wet toezicht beleggingsinstellingen). Since 26 April 2002, Robeco N.V. is subject to the EC directive containing rules for Undertakings for Collective Investment in Transferable Securities (UCITS). Under the terms of the Dutch Investment Institutions Supervision Act, Robeco N.V. was granted a license as of the same date by the AFM, permitting trade of its shares in other EC member states.

 

As a result of changes to the Guidelines for Annual Reporting, with effect from the 2004 financial year changes in the value of investments, both realized and unrealized, are reported in the Profit and loss account, and the Reserve for capital gains and losses is reported under Other reserves. Furthermore, the market value of derivatives, which was formerly reported under Sundry debtors or Sundry creditors is now reported under Financial investments. In the Profit and loss account under Other costs a number of costs are reported including costs that were previously charged directly to net assets. The change has no effect on the assets as at 31 December 2003 and 31 December 2004. The effect on the result over 2003 amounts to EUR 279 million, and over 2004 EUR 274 million. Comparative figures in this report have been adjusted accordingly where necessary.

 

The annual financial statements have been drawn up in conformity with the models provided by Dutch legislature. In certain areas descriptions have been used which better express the nature of the items and relate better to the characteristics of an investment company.

 

Robeco N.V. is an open-end investment company, meaning that, barring exceptional circumstances, Robeco N.V. issues and repurchases its shares on a daily basis via the intermediary at prices approximating net asset value. Robeco Investment Consulting B.V. functions as the intermediary between Robeco N.V. and investors for the issuance and repurchase of shares, as a result of which Robeco N.V. issues and repurchases its shares at net asset value. The abovementioned margin between the net asset value and the bid and offer prices, and the associated costs, are for the account and risk of the intermediary. The intermediary will distribute any positive results, calculated on a cumulative basis, to the funds on a quarterly basis. Distribution will be in proportion to the positive contribution of each fund to the intermediary's result. A buffer is maintained to cover any future losses.

 

The administration has been outsourced to Robeco Nederland B.V., a 100% subsidiary of Robeco Groep N.V. These costs are covered by the service fee. Agreements have been made with the aforementioned party relating to the provision of information and performance standards.

 

 

Unless stated otherwise, items shown in the financial statements are included at nominal value and expressed in millions of euros.

 

Unless stated otherwise, financial investments are included at fair value. The fair value of stocks is determined on the basis of market prices and other market quotations at closing date. For derivatives such as forward-exchange transactions, this  value is based on the currency rates and reference rates and for futures the value is determined on the basis of the market price and other market quotations at closing date. Transaction costs incurred in the purchase and sale of investments are included in the purchase or sale price as appropriate.

 

Robeco N.V. is affiliated to the entities belonging to Robeco Groep N.V. The affiliation with Robeco Groep N.V. is the result of the possibility of having decisive control or a substantial influence on the fund's business policy. Robeco Groep N.V. belongs to the Rabobank Group. The management structure of Robeco Groep N.V., in which significant authority is allocated to its independent supervisory board, is such that Rabobank does not have a meaningful say in or influence on the fund's business policy. Robeco Groep N.V. pursues an independent investment policy on behalf of its affiliated investment companies, taking into account the interests of the investors involved. Besides services of other market parties, Robeco N.V. also uses the services of one or more of these affiliated entities including transactions relating to securities, treasury, derivatives, custody, securities lending, and sale and purchase of its own shares, as well as management activities. Transactions are executed at market rates.

 

Hard commissions and soft-dollar arrangements

Various independent research institutions/third parties provide services to the company to support its decision-making process. Part of the commissions paid to brokers is used to pay for these services ( so-called soft-dollar arrangements). The size of these items is not significant. There were no hard commissions during the reporting period.

 

 

Investment results are determined by income received, rises or declines in stock prices, rises or declines in foreign exchange rates and results of (forward) transactions in currencies and derivative instruments. The results are accounted for in the Profit and loss account.

 

Net cash dividends declared during the year under review, the nominal value of stock dividends declared, interest received and paid and proceeds from loan transactions. Accrued interest at balance-sheet date is taken into account.

 

Realized and unrealized capital gains and losses on securities and currencies.

 

Transactions in currencies other than the euro are converted into euros at the exchange rates valid at the time. Assets and liabilities expressed in other currencies are converted into euros at the exchange rate prevailing at balance-sheet date. Any exchange differences arising are accounted for in the Profit and loss account.

 

 

Transactions in financial instruments may lead to the fund being subject to the risks described below or to the fund transferring these risks to another party.

Currency risk is the risk that the value of a financial instrument will fluctuate as a result of changes in exchange rates. Interest-rate risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market rates. Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, caused by factors that exclusively apply to the individual instrument or its issuer or caused by factors that affect all instruments traded in the market.

The fund minimizes the risks by investing mainly in large and well-known companies and by making a balanced selection with regard to distribution across regions, sectors, individual stocks and currencies.

Credit risk is the risk that the counterparty of a financial instrument will no longer meet its obligations, as a result of which the fund will suffer a financial loss. The fund minimizes this risk by trading exclusively with well-known counterparties. Wherever it is customary in the market, the fund will demand and obtain collateral.

Liquidity risk is the risk that the fund is not able to obtain the financial means required to meet the obligations arising from financial instruments. The fund minimizes this risk by mainly investing in financial instruments that are tradable on a daily basis.

 

The report of the management board, the balance sheet, the notes to the balance sheet and the spread of net assets, which includes the geographic distribution of the investments, the net currency position and distribution over sectors, give an insight into the actual risks at balance-sheet date.

 

Managing risk is a part of the investment process as a whole and with the help of advanced systems, the risks outlined above are limited, measured and monitored on the basis of fixed risk measures.

 

Investing implies that positions are taken. As it is possible to use various (derivative) instruments to construct an identical position, the selection of derivatives is subordinate to the positioning of a portfolio. In our published information, attention is given primarily to the overall position, and secondarily to the nature and volume of the financial instruments employed.

 

The market value of derivatives is reported in the Balance sheet under Financial investments. Liabilities and receivables and the values of derivatives' underlying instruments are not included in the Balance sheet. They are, however, explained under the heading Commitments not shown in the balance sheet.

 

 

 

 

The spread of the portfolio and an analysis of purchases and sales exceeding an amount of EUR 20 million is found at the end of this report. At balance sheet date, shares to the amount of EUR 1.5 billion (EUR 1.4 billion at the end of last year) had been lent. To cover the risk of non-restitution, adequate collateral was demanded and obtained; this collateral is not included in the Balance sheet. Part of this collateral as at the end of 2004 consisted of cash (EUR 68 million, compared to EUR 63 million at end 2003). This cash sum was invested according to strict guidelines, with the intent of generating additional returns while the extra risk is kept to a negligible level.

 

 

Concerns dividends declared but not yet received.

Receivable in respect of dividend tax recoverable and suspense items.

Includes balances in current accounts and time deposits.

Current liabilities such as unpaid expenses and suspense items.

 

The company's authorized share capital amounts to EUR 800 million, divided into 800,000,000 ordinary shares with a nominal value of EUR 1 each.

 

 

8 Assets, shares outstanding and per share value

 

The forward exchange transactions current at closing date represent purchases of AUD 29 million, CAD 80 million, JPY 3,312 million and GBP 54 million and USD 223 million, against sales of EUR 289 million and CHF 85 million. The futures contracts purchased at balance sheet date represent an additional investment of JPY 8,298 million. Forward exchange transactions and futures contracts have been included in the Spread of net assets at the end of this report. Unrealized results of these transactions at closing date are included in the Profit and loss account.

 

 

 

 

 

11 Total expense ratio

 

The total expense ratio expresses the costs charged to the fund during the reporting period as a percentage of the average assets entrusted during the reporting period. The total expense ratio as shown does not include transaction costs. The total expense ratio was 0.92% during the reporting period. With the exception of costs relating to investments and taxes, the management costs relate to all the fund's costs and all costs resulting from the management of the fund. The service fee covers the administration, the costs of the external auditor, other external advisers, regulators, costs relating to reports required by law, such as the annual and semiannual reports, and the costs relating to the meetings of shareholders.

Other costs mainly relate to the custody fee charged by third parties for the custody of the fund's securities portfolio and bank charges.

 

It is the Robeco Group's policy to present the costs of its funds as transparently as possible, furthermore Robeco aims at a cost level more or less equal to the average of the European market, combined with high-level service and advice. With effect from 1 October 2004, the management fee on the average assets entrusted has been raised from 0.84% to 1.00% a year, to bring it more in line with the market. Furthermore, a service fee has been introduced, as of the same date, to cover formal and operational costs such as the production of annual reports and the fund's administration. It is market practice to charge these costs to the fund. The Robeco Group has chosen to charge a fixed annual fee to cover these expenses to make the actual costs transparent to its clients. The service fee for Robeco N.V. will be 0.12% per year. For assets exceeding EUR 1 billion the service fee is 0.10%; for assets exceeding EUR 5 billion the service fee is 0.08%. The fees are calculated on a daily basis, based on the average assets entrusted. Before 1 October 2004 the average assets entrusted was calculated on an annual basis, based on 13 observations.

 

This includes custody costs and bank charges. 

 

Robeco N.V. does not charge a performance fee.

 

 

 

Brokerage costs and exchange fees relating to investment transactions are discounted in the cost price or the sales value of the investments. These costs and fees are charged to the result.

 

This is the turnover ratio of the investments against the average assets entrusted and this is a measure of the incurred transaction costs resulting from the portfolio policy pursued and the ensuing investment transactions. In the calculation method that is used the amount of turnover is determined by the sum of the purchases and sales of investments less the sum of issuance and repurchase of own shares. If the outcome is negative, the turnover ratio is 0. The turnover ratio is determined by expressing the amount of turnover as a percentage of the average assets entrusted. For 2004 the turnover ratio is 56% (versus 128% in the previous year). At the beginning of 2004 it was our intention to expand Robeco N.V.'s investment horizon with the objective of reducing turnover. The actual turnover now fits in well with the fund's investment horizon of 3 to 5 years.

 

Part of the transaction volume over the reporting period relates to transactions with affiliated parties. The table below shows the various types of transactions where this was the case.

 

 

 

Robeco Securities Lending B.V. is the intermediary for all Robeco N.V.'s securities-lending transactions. As compensation for its services Robeco Securities Lending B.V. receives a fee of 40% of the gross income resulting from these securities-lending transactions.

 

Robeco N.V. does not employ personnel. Robeco Nederland B.V. is the employer of Robeco N.V.'s management board and personnel in the Netherlands. Their remuneration is paid from the management fees received.

Robeco Nederland B.V.'s remuneration policy for fund managers consists of both a fixed and a variable income. The secondary conditions of employment are in line with what is common practice in the financial services industry.

The fixed income offers a good and competitive remuneration basis within the Dutch asset-management market. A fund manager is assigned to a salary scale with a minimum and maximum income based on the level of responsibility of his function (HAY method for function valuation). Growth within this scale is linked to (performance) results and competencies.

The variable income offers the fund manager remuneration for his individual, long-term outperformance. The system is related to the outperformance relative to a preset target. 

The track record over both a 1-year and 3-year period is taken into account when determining the variable remuneration. The variable remuneration to which the fund manager is entitled for any sinlge year is paid out over a 3-year period (60% in the first year, 30% in the second and 10% in the last year).

 

An amount of EUR 36,905 (previous year EUR 39,930) has been allocated from the profit appropriation for this purpose.

 

Rotterdam, 11 March 2005

 

P.C. van den Hoek, chairman

G. Izeboud

J. Kremers

D.P.M. Verbeek

 

M.R. Glazener

V. Wytzes

 

 

The ordinary shares of Robeco N.V. are listed on the Official Market of Euronext Amsterdam Stock Market N.V. In addition, Robeco N.V. has a stock-exchange quotation in Paris, Brussels, Luxembourg, London, Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, Vienna and Zurich.

 

According to article 39 of the Articles of Association, the profit less allocations to the reserves deemed desirable by the management board in agreement with the supervisory board shall be at the disposal of the General Meeting of Shareholders.

 

We propose to declare a dividend of EUR 0.40 per share for the 2004 financial year (previous year EUR 0.36). If this proposal is accepted, the dividend will be available on Friday 6 May 2005. With effect from Monday 25 April 2005, Robeco shares will be listed ex-dividend coupon no. 103 on the stock exchange.

Shareholders will be offered the opportunity to reinvest the dividend (less dividend tax) in Robeco shares at the company's expense. The price used to calculate this is the opening price of the shares on the stock market of Euronext Amsterdam N.V. on Friday 6 May 2005. Any collection commissions charged by banks in line with the relevant regulations in their respective countries will be borne by the shareholder. In some countries, reinvestment will not be possible for technical reasons.

 

 

 

At 31 December 2004, supervisory and managing directors held a joint interest of 3,955 and 10,581 Robeco N.V. shares respectively. At end 2004, no options had been granted to supervisory directors; managing directors held options to acquire 15,339 Robeco N.V. shares. Under the option scheme, Robeco Groep N.V. grants the right at its own expense to purchase Robeco N.V. shares for 5 years, the value of the shares being at least the opening price on the first trading day following the day of granting.

Aon Risk Services International, of which Dirk P.M. Verbeek is a director, acted as an intermediary in various insurance policies concluded at Rabobank Group level, including a Banking, General Liability and D&O Liability policy. Furthermore, Aon Risk Services International insures several of Robeco's art objects. Apart from the above, there were no other business relations between supervisory directors and the company than that of member of the supervisory board during the period under review.

 

The fund manager should act in accordance with Dutch legislation and, insofar as relevant, legislation in other countries. As an employee of Robeco Nederland B.V. he is bound by Robeco's internal regulations and procedures, including the Rules and regulations regarding private investment transactions, which are based on the Dutch Securities Transactions Supervision Act. These Rules should guarantee that the (semblance of) insider trading and mixing of business and private interests is avoided at all times. According to these Rules a fund manager should be considered as an insider.

As of 31 December 2004 the fund manager had an interest of 973 Robeco N.V. shares. Furthermore, as of that same date, he had the following interest in Robeco N.V investments: 585 Royal Dutch shares and 3,500 Reed Elsevier shares.

 

Statement in conformity with article 21, paragraph 2, sections b and c, of the Btb.

The company knows of only one party to be considered a major investor within the meaning of the Btb, namely Stichting Aandelen-Rekeningen Robeco-Groep. During the period under review, no transactions as referred to in article 21, paragraph 2, section c, of the Btb took place.

 

The members of the supervisory board and the management board of Robeco N.V. hereby declare that their beneficial interests and those of their children below the age of 18 years do not in the aggregate exceed 5% of the company, in respect of either share capital or voting control.

 

Rotterdam, 11 March 2005

 

 

 

 

We have audited the 2004 financial statements of Robeco N.V., Rotterdam. These annual financial statements are the responsibility of the company's management.

Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with auditing standards generally accepted in the Netherlands. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements give a true and fair view of the financial position of the company as at 31 December 2004 and of the result for the year then ended in accordance with accounting principles generally accepted in the Netherlands and comply with the financial reporting requirements included in Part 9 Book 2 of the Netherlands Civil Code and in the Investment Institutions Supervision Act.

 

Amsterdam, 11 March 2005

 

Ernst & Young Accountants