Annual Report Robeco N.V.

 

General information                                 2            

Report of the supervisory board            5                                                            

Report of the management board          7                            

Financial statements                                 13          

Balance sheet                                              13                          

Profit and loss account                             14          

Cash-flow summary                                 15          

Notes                                                           16

Other data                                                   25

Spread of net assets                                   28

List of securities                                        30          

Purchases and sales                                   36          

Coolsingel 120

Postbus 973

NL-3000 AZ Rotterdam

Tel.:+31 - 10 - 224 1 224

Fax +31 - 10 - 411 52 88

Internet: www.robeco.com

 

Paulus C. van den Hoek, chairman

Gilles Izeboud

Johan Kremers (until 21 April 2005)

Philip Lambert (as of 21 April 2005)

Dirk P.M. Verbeek

 

Mark R. Glazener, chairman

Volker Wytzes

Mark R. Glazener

 

Martin S. Feldstein

Toyoo Gyohten

Paul J. Keating

Karl O. Pöhl

H.Onno C.R. Ruding

 

David H. Cross

George A. Möller (chairman)

Stefan T. Bichsel (until 31 December 2005)

Leni M.T. Boeren

Sander van Eijkern

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

Constant T.L. Korthout

Niek F. Molenaar

 

 

The General Meeting of Shareholders will be held on 27 April 2006 at 09:30 hours at the Hilton Rotterdam, 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 20 April 2006.

Holders of K shares should lodge their share certificates not later than 20 April 2006 with one of the banks mentioned in the convening notice of 6 April 2006.

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 20 April 2006.

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.

A simplified prospectus with information on Robeco N.V. and its associated costs and risks is available. This simplified prospectus and the full prospectus are available at the company's office and via www.robeco.com

Paulus C. van den Hoek, chairman (67)

Dutch nationality. Appointed in 1990 and last reappointed in 2005.

Lawyer and partner at Stibbe, lawyers and notaries, in Amsterdam, the Netherlands, since 1965. Former Dean of the Dutch National Bar (81/84). Supervisory director of ASM International, Bührmann, Euronext Amsterdam, Robeco Groep N.V., Rolinco and Rorento.

Gilles Izeboud (63)

Dutch nationality. Appointed in 2004.

Former partner at PricewaterhouseCoopers. Deputy justice of the Enterprise Section of the Amsterdam Court of Appeal. Supervisory director of Bührmann, Endex, Robeco Groep N.V., Rolinco and Rorento.

 

Philip Lambert (59)

Dutch nationality. Appointed in 2005.

Head of Unilever Corporate Pensions in London. Chairman of the investment committeeof the Algemeen Burgelijk Pensioenfonds [ABP, the largest Dutch pension fund] and member of the investment committee of ABN AMRO Pensioenfonds. Supervisordirector of Robeco Groep N.V., Rolinco and Rorento.

 

Dirk P.M. Verbeek (55)

Dutch nationality. Appointed in 2001 and reappointed in 2003.

Member of the executive board of Aon Group in Chicago, USA, and chairman/CEO of the executive board of Aon Holdings in Rotterdam, the Netherlands. Supervisory director of Robeco Groep N.V., Rolinco and Rorento.

 

 

We herewith present the Robeco N.V. accounts for the financial year 2005 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. Discussion of the management of Robeco N.V. can 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. As of 1 January 2006, Robeco N.V. is being managed by Robeco Fund Management B.V. (previously this was done by Robeco Nederland B.V.). Robeco Fund Management B.V. is a wholly-owned (indirect) subsidiary of Robeco Groep N.V. In line with the recommendations of the Committee for Modernising Collective Investment Schemes (Winter Committee) to appoint the management company as director of the investment company, it will be proposed at the General Meeting of Shareholders to be held on 27 April 2006 to appoint Robeco Fund Management B.V. as director of the company, to replace Mark Glazener and Volker Wytzes. The management board of Robeco Fund Management B.V. consists of Edith Sierman (Chief Investment Officer Fixed Income), Mark van der Kroft (Chief Investment Officer Equities) en Edwin de Weerd (Manager of Robeco Fund Services). Mark Glazener will still be the fund manager of Robeco N.V. 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 the supervisory board therefore primarily devotes its attention to the investment policy, the realized results and the development of the assets invested, on the basis of frequent and detailed reports. Attention is also paid to matters relating to risk management, such as operational and market risks, and compliance, such as investment restrictions and compliance with requirements of the regulator. In connection with what has already been mentioned regarding the structure of the Robeco Group, matters, such as the risks associated with the investment policy, the application of instruments to manage these risks and compliance issues, 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, risk management and compliance are discussed elaborately at the meetings of the supervisory board of Robeco Groep N.V. An audit and remuneration committee has been appointed from the midst of 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.

In the report of the supervisory board in the 2004 annual report, a reference was made to the report of the Committee for Modernising Collective Investment Schemes which was published on 22 December 2004. The recommendations of this report have not yet been fully laid down in law. We are also waiting for the further recommendations regarding fund governance. As was the case in the 2004 report, this annual report has already taken several of these recommendations in account. Based on the implementation of the revises Investment Institutions Supervision Act as of 1 September 2005, an application will be made to the Netherlands Authority for the Financial Markets for a license as mentioned in that act. The Netherlands Authority for the Financial Markets granted this license to Robeco N.V. on 29 December 2005. As mentioned above, the management board of Robeco N.V. has appointed Robeco Fund Management B.V. as manager as of 1 January 2006. Robeco Fund Management B.V. was also granted a license to act like such by the Netherlands Authority for the Financial Markets on 29 December 2005.

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 0.48 per share in cash.

At the General Meeting of Shareholders on 21 April 2005, Johan Kremers relinquished his position as supervisory director, having 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. At the same meeting Philip Lambert was appointed as a supervisory director of the company with immediate effect, to fill the vacancy arising from the departure of Constant E.M. Beckers as of 4 July 2004. At the General Meeting of Shareholders Paulus C. van den Hoek was reappointed as a supervisory director of the company with immediate effect. The vacancy as a result of Mr. Kremers' resignation has not yet been filled.

According to schedule, Dirk P.M. Verbeek will resign at the General Meeting of Shareholders to be held on 27 April 2006. Mr. Verbeek is available for re-election It is proposed that he be reappointed as a supervisory director of the company with immediate effect.

 

Rotterdam, 16 March 2006

 

The supervisory board

 

Sentiment was positive. After a strong first half, stock markets continued their advance in the second half of 2005. The global economy grew fast and US consumers did not hesitate to continue spending. In Europe the situation was also upbeat. The worst of the pessimism is now behind us and the economy has been exhibiting healthy signs of recovery. In Japan, after several years, the sun finally rose again. Developments in the second half of 2005 have demonstrated that the recovery is structural and prices have been rising for the first time in years. Then there is China and India: emerging markets which showed gilt-edged growth figures of 8% to 9%.

Nor did earnings growth disappoint in the second half of 2005, although investors were hesitant ahead of the publication of new quarterly figures, but these repeatedly met or even surpassed expectations. Thanks to the solid earnings growth, stock markets are still reasonably valued. The P/E ratio is 15 based on an expected earnings growth of 7% for 2006. P/E ratios have not been this low since the end of the 1980s. The sky looks clear, which is why many expect 2006 to be a good year for the stock market. Given all the facts mentioned above, there is reason enough to be positive.

Still, some clouds may appear on the horizon. 2006 may become the year in which US consumers stop spending. For years they have been using the excess value of their houses to finance their spending, but now that house prices are flattening out, excess values are decreasing as well. The rise in short-term interest rates will lead to higher financing costs for short-term mortgages, which may affect consumer spending. Decreasing consumer spending in the US will also mean that European and Asian exports to the US will decrease and we will then see whether the economies of these countries are strong enough to keep growing on their own.

There is also a risk that earnings growth will slow down. Margins on many corporate activities have never been higher thanks to sales growth, cost reductions and higher productivity. Companies are generating a high free cash flow. The consequence of this is that managers start focusing on growth again and have the means to put their plans into action. Capital expenditure will recover and new staff will be hired. M&A activity will also increase. However, first costs have to be made which may initially put pressure on margins.

The US also still needs to solve its deficit problems, which may have positive or negative consequences. Examples of negative consequences include a sharp decline in the value of the dollar against the euro or the establishment of trade barriers by the US government. The stock markets would not appreciate this.

Commodities prices have increased in recent years, short-term interest rates have been raised repeatedly and wage costs have risen. Although we have to admit that, as a result of higher productivity, unit-labor costs have hardly increased and that the rising commodities prices, interest rates and wage costs have not affected bond yields so far,  this might well happen in the future.

Of all the risks described above, a weakening in US consumer spending and disappointing earnings growth are the most realistic scenarios. No one is expecting a huge trade conflict, but because no one is expecting it if it was to occur it may have far-reaching consequences.

For the time being we expect 2006 to be a year of solid returns for the stock markets.

Continuing healthy growth combined with reasonable earnings growth and low valuations are positive fundamental factors but we should be on the lookout for clouds. Finally, the question that we asked in the second half of 2005 is still valid for 2006: 'What is the alternative? A savings account that offers 2.5% interest? A government bond that offers 3.3% interest? Or a corporate bond that offers 3.7%?'

During 2005, the share price of Robeco rose from EUR 21.62 to EUR 27.31. Assuming reinvestment of the dividend of EUR 0.40 per share distributed in May 2005, this was an investment result of 28.6%. Based on net asset value, which rose from EUR 21.74 to EUR 27,38 the investment result was 28,3%.

The fund's benchmark, the MSCI World Index, rose 26.8% over the same period.

The fund outperformed its benchmark. Sound stock selection in the various sectors was the driving force behind this performance. The regional allocation resulting from this stock selection also made a positive contribution.

This was due to the expansion of the position in Japan by purchasing futures on the Nikkei 225 and stocks in the financials and capital-goods sectors. The resulting overweight position in Japan became very profitable as of August. From that moment until the end of the year, the Japanese stock exchange rose 35%, as measured by the Nikkei 225 Index. The contribution from the regional allocation was positively affected by the underweight position in North America and the United Kingdom versus continental Europe. The sector allocation made a slightly negative contribution. Telecommunication was the sector with the worst performance over the entire year. The overweight position in this sector, which was offset by an underweight position in utilities, was responsible for a significant part of the negative contribution. No gains or losses were made on currency decisions.

Stock selection was positive in all sectors, with the exception of information technology. Health care, financials and energy, in particular, generated excellent results.

During the period under review, the active investment policy led to an outperformance of 2.32% (before deduction of the management fee) relative to the benchmark. Of this 2.32%, 2.66% was attributable to the stock-selection policy and -0.32% to the sector-allocation policy.

The fund Robeco aims to realize a stable outperformance relative to the benchmark. The fund's performance therefore does not come from a limited number of stocks, but from a broad selection. We would nevertheless like to single out some stocks which realized an above-average performance. Valero Energy had a return of no less than 128%, thanks to excellent refinery margins and the large price difference between heavy and light oil. Valero has a lot of refinery capacity capable of refining heavy oil into light oil products. Resona, a Japanese bank, also rose 128%, due to a sharp improvement of the credit portfolio and the expectation that the interest-rate margin, i.e. the difference between the costs of borrowing and the proceeds of lending money, will rise in Japan. Aetna, a US health-insurance company, rose 51% on the back of a favorable development of health costs and premiums. These stocks have been in the portfolio since the end of 2004.

 

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 position in North America has been increased during the second half of 2005, but this region is still slightly underweight. Continental European markets rose 25% in 2005. The indicator for the US market, the S&P 500 Index, substantially lagged with a return of 5%. The difference in valuation between the US and Europe has decreased to 1 point in terms of expected price/earnings ratio for 2006 (US 15 versus Europe 14). Japan still had an above-average position in the portfolio at the start of 2006. Japanese stock-market sentiment is positive, but the market is already discounting a lot of good news that is still to come, such as normalization of interest rates and higher dividends. Furthermore, there is no other developed country with a similarly high government debt combined with a rapidly aging population.

Turnover in the portfolio increased slightly compared to last year. The sales volume amounted to 76% of the portfolio during the reporting year. As of 1 January 2005, the fund is no longer being managed by one single person, but by a team of four fund managers, each of whom are focused on specific sectors. Within the sectors, stock selection is adjusted to the views of the new team members. As a result, this led to a one-off higher turnover. The number of stocks in the portfolio has declined.

The fund uses financial instruments. The associated risks are specified in the financial statements.

On the basis of reports the management board spoke about risk-management and compliance issues, and also discussed them with the supervisory board.

 

The weight of energy was reduced at the beginning of 2005. In the course of the year, this weight was increased, once it turned out that oil prices would not stop rising. The position in energy was expanded by purchasing oil-extraction contractor GlobalSantaFe, and oil-services companies Weatherford and Petrofac. Oil-extraction companies continue to make good money because the oil price is expected to remain at its current level. The search for the black gold will become more expensive. This will benefit companies such as GlobalSantaFe and Weatherford, which supply to oil-extraction companies.

Companies which are exclusively dedicated to exploration will face tightening margins because the costs of drilling will increase. For this reason, we bought Canadian Natural Resources and reduced our position in Apache.

Refinery (Valero Energy) remains an attractive segment, as for the short term demand is still strong while the supply is limited.

 

Our position in materials remained constant throughout the year. The interests in commodity-processing industries, such as steel and aluminum, were reduced. We sold Alcan and Arcelor. The capacity of these industries is increasing, especially in China, which offers severe competition for Western listed companies. We purchased nickel producer Inco. Monsanto was also added to the portfolio. This company is at the forefront of genetically modified seed development, which, despite European resistance, is the future of agriculture.

 

The weight of the industrials sector was raised slightly throughout the year. Within this sector, we added several new names, such as Smiths Group, ABB, ITT Industries, TNT, Republic Services and Canadian Pacific, at the expense of early-cyclical companies which have had their best time, such as Eaton and Rockwell Automation. The fund had a relatively high weight in the Japanese capital-goods segment. These companies usually have a large global market share and a favorable earnings outlook (Komatsu, Hitachi Construction, Daikin, Mitsubishi Corporation and Fanuc). We also sold Japanese stocks, such as Nippon Yusen and Asahi Glass.

 

US consumer credit is high, while the savings rate is low. Due to a rise in interest rates, the cost of financing consumer debt will increase. The higher gas prices are also taking their share of consumers' budgets, which will put pressure on spending, which is why we have an underweight position in retail. Within the automotive sector we sold Peugeot and bought Renault, because the latter still has an undervalued interest in Japanese carmaker Nissan. British catering company Compass was sold after a disappointing performance. The sale seems to have been just in time, because more disappointments followed. The proceeds were invested sensibly in the online gaming site Partygaming, which was sold after its IPO and repurchased later at a lower price. At the beginning of the year, Ebay was bought after a sharp correction. Another purchase was Interactive, which was bought before the stock was split into online travel agency Expedia and a part which is still called Interactive and contains Ask Jeeves, a competitor of Google.

 

The weight of this sector was increased during the year. This sector is facing many problems. The purchasing power of retail companies is putting a lot of pressure on the price of brand products. Makers of brand products have to advertise more to sell their products. The fund invests in this sector because of stable earnings growth - which is expected to be a scarce commodity in 2006 - and high free cash flow (the cash remaining after capital expenditure). Free cash flow is also the reason why we are placing emphasis on tobacco companies such as Altria, Imperial Tobacco and Japan Tobacco.

These companies have such high free cash flow, because they are no longer allowed to advertise and they stopped investing. Companies that are related to agricultural commodities are also interesting; examples include Bunge, Archer Daniel Midland and Dean Foods.

The weight in this sector was kept at overweight The portfolio's emphasis was on European pharmaceuticals companies such as Roche, Novartis, GlaxoSmithKline. This strategy turned out well, because these companies outperformed their US rivals. While Roche achieved success after success with the development of new drugs, Pfizer was repeatedly disappointed due to stagnating sales of existing products and a limited number of new products in the pipeline. Throughout the year, we preferred subsectors such as services (Aetna, Wellpoint, Caremark, Omnicare), suppliers (Baxter, Medtronic) and biotechnology (Amgen).

 

The sector was reduced to underweight. The 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, size and refinancing of mortgages), better risk-management systems, a mild recession (with a relatively low number of bad loans) and cost savings, mainly on administrative staff. The question is whether this will go on like this. Short-term interest rates have increased. 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 do not expect this to happen in the coming year, and that is why we have limited the underweight to US banks.

 

The underweight of this sector was reduced during the year. The results of this sector have lagged, due to the emphasis on software at the expense of hardware. Interests in giants such as Microsoft, Oracle and Cisco were expanded throughout the year. These companies now have valuations equal to or below the market average. We purchased Google. Adding Google to the portfolio was a difficult decision, as its price had already risen considerably since its introduction. The addition of Google should allow the portfolio to benefit from the growth in advertising expenditure via the Internet. The stock is expensive, but there is a good reason for this as growth opportunities and the possibilities for converting this growth into cash are substantial.

 

The weight in the telecommunication-services sector was reduced during the year. Telephone rates (fixed or mobile) are still under pressure. The penetration level of cellular phones is relatively low in the US. This is why the fund holds positions in Sprint-Nextel and Telus. There are more growth opportunities for telecommunication services in emerging markets than in developed countries. That is why we prefer stocks of companies with interests in emerging markets, such as Telenor and Singapore Telecom.

 

The utilities sector once again performed well in 2005. Consequently, the fund's underweight here did not yield the desired result. We are maintaining our underweight, particularly now that the sector's valuation has risen again.

 

The fund Robeco strives to be a reliable partner for investing in global equities in mature markets. This goal must be reflected in a stable outperformance against the MSCI World Index. This index contains a large proportion of smallcaps. If these rise sharply, as was the case in recent years, this will negatively impact Robeco's result compared to the index. Smallcaps usually have limited liquidity, which makes it difficult to select a limited number of these stocks to invest in. This is the reason why we started to build up a position in this segment by means of a smallcaps portfolio which was developed especially for the fund Robeco. The stocks in this portfolio are selected using a quantitative model. The stocks in this part of the portfolio are mentioned in the in the List of securities under the heading Smallcaps-midcaps.

 

 

 

 

 

 

Rotterdam, 16 March 2006

 

The management board

before profit appropriation, EUR x million

 

 

EUR x thousand

 

The numbers of the items in the financial statements refer to the numbers in the Notes

indirect method, EUR x thousand

 

 

 

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 [Wet op de Vennootschapsbelasting 1969]. 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. The fund holds a license from the AFM [the Netherlands 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.

The revised Wtb became effective on 1 September 2005.

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 at prices approximating net asset value. A fixed spread between the bid and offer price applies to cover costs related to issuance and repurchase of own shares. The issue price will not be more than 1.0% higher than the net asset value and the repurchase price will not be more than 0.5% lower than the net asset value. The abovementioned margin between the net asset value and the issue and repurchase prices, and the associated costs, are for the account and risk of Robeco Investment Consulting B.V. (RIC), as a result of which Robeco N.V. issues and repurchases its shares at net asset value. RIC will distribute any positive spread to the funds, in proportion to each fund's positive contribution to the spread result.  A buffer is maintained to cover any future losses. Due to the abolition of Dutch capital tax of 1 January 2006, the upper limit of the spread was lowered from 1.0% to 0.5%.

 

Parties with which shares may be held in non-certificated form include Robeco Direct N.V. in the Robeco Group Accounts System or the affiliated branches of Rabobank in the Rabo Securities Account. Participants pay costs on the sum deposited for each purchase, and in the event of a sale a percentage of the sum withdrawn. These participation costs are currently a maximum of 0.4% via Robeco Direct and a maximum of 0.5% via Rabobank, depending on the channel selected. These sums will accrue to Robeco Direct and Rabobank respectively.

 

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 annual financial statements are included at nominal value and expressed in thousands 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 interest rates at closing date 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, fund-administration services, as well as management activities. Transactions are executed at market rates.

 

 

Investment results are determined by income received, rises or declines in stock prices, rises or declines in foreign exchange rates and results of transactions in currencies, including forward transactions, 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 another currency 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 reputable 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 instruments, including 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 and Accounts payable. Liabilities and receivables and the value of the derivatives' underlying instruments are not included in the Balance sheet. If applicable, they are explained under the heading Commitments not shown in the balance sheet.

 

A breakdown of the portfolio and overviews of purchases and sales exceeding an amount of EUR 25 million and the spread of net assets can be found at the end of this report. Shares in an amount of EUR 1,103.8 million (EUR 1,527.8 million at the end of last year) were lent at balance sheet date. To cover the risk of non-restitution, adequate collateral with a value of EUR 1,149.5 million was demanded and obtained; this collateral is not included in the Balance sheet.

The presentation of derivatives in the balance sheet is based on the liabilities and receivables per counterparty. Therefore the derivative instruments are included in the Balance sheet as follows:

 

Concerns dividends declared but not yet received.

 

This includes recoverable dividend tax, tax withheld at source outside the Netherlands on behalf of the Dutch Tax Office, in accordance with article 6 of the Dutch Investment Institutions Decree ['Btb', Besluit toezicht beleggingsinstellingen] and suspense items.

 

Includes balances in current accounts at banks.

 

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.

 

 

The forward exchange transactions current at closing date represent purchases of AUD 75 million, CAD 102 million, JPY 8,432 million and GBP 141 million and USD 307 million, against sales of EUR 459 million and CHF 285 million. Futures contracts purchased at balance-sheet date represent an increase in assets invested of JPY 32,280 million; futures contracts sold represent a decrease in assets invested of EUR 211 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.

 

 

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 1.12% during the reporting period. The management costs relate to all of the fund's current costs, which include the fees paid for registering shareholders and all costs resulting from the management of the fund, with the exception of costs relating to investments and taxes. 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 semi-annual 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, amounting to EUR 752 thousand, and bank charges.

Management costs relate exclusively to the management fee of 1.00% per year charged by Robeco Nederland B.V. The service fee amounts to 0.12% per year and covers formal and operational costs 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 management fee and service fee are calculated on a daily basis, based on the average assets entrusted. Wherever in this report mention is made of the average assets entrusted this is also calculated on a daily basis, unless stated otherwise.

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 ensuing from changes in value. The quantifiable transaction costs are included under the heading Movements in value in the Profits and loss account. The transaction volume of the quantifiable transaction costs is 99.6% of the total transaction volume.

 

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). In 2005 soft-dollar arrangements represented an amount of EUR 2,189 thousand (last year EUR 2,279 thousand).

This shows the turnover of the investments against the average assets entrusted and 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 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. The turnover ratio over 2005 is 76% (versus 56% in the previous year). Since 1 January 2005, the fund is no longer managed by one single person, but by a team of four fund managers. Each team member focuses on specific sectors. Within the sectors, stock selection is adjusted to the views of the new team members. As a result, this led to a one-off higher turnover. The number of stocks in the portfolio has declined.

 

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. An external agency periodically assesses whether the agreements between the fund and Robeco Securities Lending are still in line with the market. In 2005 the proceeds for the fund amounted to EUR 1,821 thousand (last year EUR 2,311 thousand). For Robeco Securities Lending this was EUR 1,214 thousand (last year EUR 1,541 thousand).

 

In 2005, Robeco N.V. voted at the majority of the general meetings of shareholders of the companies in which it invests. If the shares of an investment position have been lent out, the voting rights attached to those shares may not be exercised during general meetings of shareholders. If an important event were to occur, the shares that have been lent out may be recalled in order for the voting rights attached to these shares to be able to be exercised. The voting policy and more information about votes cast can be found on Robeco's Internet site, www.robeco.com.

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 of Robeco N.V. remuneration for his individual, long-term outperformance. Payment 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 single year is paid out over a 3-year period (60% in the first year, 30% in the second and 10% in the last year). A limited group of employees, including several fund managers, are given the opportunity to participate directly in Robeco's future through virtual shares (E-notes). The individual allocation of E-notes is linked to individual performance and the contribution to the realization of the individual's own business unit. The E-notes represent a value which is directly linked to Robeco Groep N.V.'s value.

 

Rotterdam, 16 March 2006

Paulus C. van den Hoek, chairman

Gilles Izeboud

Philip Lambert

Dirk P.M. Verbeek

 

Mark R. Glazener

Volker Wytzes

The ordinary shares of Robeco N.V. are listed on Eurolist by Euronext Amsterdam 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 0.48 per share for the 2005 financial year (previous year EUR 0.40). If this proposal is accepted, the dividend will be payable on Friday, 12 May 2006. With effect from Tuesday 2 May 2006, Robeco shares will be listed ex-dividend coupon no. 104 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 12 May 2006. 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.

 

An amount of EUR 32,670 (previous year EUR 36,905) has been allocated from the profit appropriation for this purpose.

 

Statement in conformity with article 21, paragraph 2, sections b and c, of the Dutch 1990 Investment Institutions Supervision Decree ['Btb', besluit toezicht beleggingsinstellingen 1990].

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 (1990) took place.

At 31 December 2005, supervisory and managing directors held a joint interest of 4,708 and 15,022 Robeco N.V. shares respectively. At end 2005, no options had been granted to supervisory directors ; managing directors held options to acquire 14,319 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 foloowing the day of granting. Aon Risk Services International, of which Dirk P.M. Verbeek is a directorm 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 weren no other business relations between supervisory directors and the company than that of mambers of the supervisory board during the period inder review.

 

JOINT INTERESTS OF DIRECTORS

 

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.

As at 31 December 2005 the fund manager had an interest of 5,047 Robeco N.V. shares. Furthermore, as of that same date, he had the following interest in Robeco N.V investments.: 1,170 Royal Dutch Shell A shares and 3,500 Reed Elsevier Shares.

 

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, 16 March 2006

G.H.C. de Méris