Robeco N.V. Annual report 2007

 

 

 

(investment company with variable capital, having

its registered office in Rotterdam, the Netherlands)

Coolsingel 120

Postbus 973

NL-3000 AZ Rotterdam

Tel. +31 - 10 - 224 12 24

Fax +31 - 10 - 411 52 88

Internet: www.robeco.com

 

P.C. van den Hoek, chairman

Gilles Izeboud

Philip Lambert

Dirk P.M. Verbeek

 

Robeco Fund Management B.V.

 

Robeco Fund Management B.V.

Management board:

Mark F. van der Kroft

Pieter F.F.M. Schuurs (as of 17 January 2008)

E.J. Siermann

Edwin de Weerd

Ed B. van Wijk

 

Mark R. Glazener

 

David H. Cross

 

(the holding company of the Robeco Group)

George A. Möller, chairman

Leni M.T. Boeren

Sander van Eijkern

Constant Th.L. Korthout

Frank L. Kusse (from 2 February 2007)

Niek F. Molenaar

 

[1] Robeco (Schweiz) AG, Uraniastrasse 12, CH-8001 Zurich, is the fund's appointed representative in Switzerland. Copies of the prospectus, Articles of Association, annual and semiannual reports and a list of all purchases and sales in the fund's securities portfolio during the reporting period are available from the above address free of charge.UBS AG, Bahnhofstrasse 45, CH-8098 Zurich, is the fund's paying agent in Switzerland.

 

 

The General Meeting of Shareholders will be held on 23 April 2008 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 16 April 2008.

Holders of K shares should lodge their share certificates not later than 16 April 2008 with one of the banks mentioned in the convening notice of 4 April 2008.

Holders of subshares or an account with Robeco Directin Rotterdam or Banque Robeco S.A. in Paris wishing to attend the meeting should inform the management board in writing not later than 16 April 2008.

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 (69), chairman since 2000. 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, Wavin, Robeco Groep N.V. (chairman since 2000), Rolinco (chairman since 2000) and Rorento (chairman since 2000).

 

Dutch nationality. Appointed in 2004 and last reappointed in 2007.

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

 

Dutch nationality. Appointed in 2005.

Former head of Unilever Corporate Pensions N.V. and PLC in London. Supervisory director of Robeco Groep N.V., Rolinco and Rorento.

 

Dutch nationality. Appointed in 2001 and last reappointed in 2006.

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

 

N.B. Only supervisory directorships at listed companies and the Robeco Group are mentioned.

 

 

We herewith present the Robeco N.V. accounts for the financial year 2007 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. Robeco N.V. is managed by Robeco Fund Management B.V., a wholly owned (indirect) subsidiary of Robeco Groep N.V. 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), Edwin de Weerd (Executive Vice President of Finance & Operations Robeco Direct N.V.), Ed van Wijk (Executive Vice President at Robeco Alternative Investments) and Pieter Schuurs (head of Financial Service Center). Mark Glazener is 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 and implementation of 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 and risk management and compliance are discussed at the meetings of the supervisory board of Robeco Groep N.V. An audit and compliance committee and a nomination, remuneration and corporate-governance committee have been appointed by this board. Two members of each of these committees are also supervisory directors of Robeco N.V. Within these committees extensive discussions are held about internal audit, risk-management and compliance issues and the functioning of and remuneration structure for the Robeco Groep N.V. Management Board and other personnel issues. Besides the subjects mentioned, the proposed amendments to the investment profile were thoroughly discussed at the meetings of the supervisory board during the reporting year. 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 0.80 per share in cash.

At the General Meeting of Shareholders on 26 April 2007, Gilles Izeboud was reappointed as a supervisory director of the company with immediate effect. At the General Meeting of Shareholders to be held on 23 April 2008 Mr. P.C. van den Hoek will resign as chairman of the supervisory board. Mr. Van den Hoek has been a member of the supervisory board of Robeco N.V. since 1990 and has acted as chairman since 2000, during which time he fulfilled his duties excellently. Mr. Van den Hoek has placed his considerable legal expertise, management experience and business acumen at the service of the company during these years. We owe him an immense debt of gratitude. Mr. D.P.M. Verbeek will succeed Mr. Van den Hoek as chairman of the supervisory board.

 

Rotterdam, 12 March 2008

 

The supervisory board

 

 

 

 

 

The world economy continued its strong growth in the second half of last year, as was the case in previous years. Growth was mainly supported by the emerging economies. For the first time China's contribution to growth was bigger than that of the US. In the course of the year, the US economy faced increasing headwinds. The euro zone's economic recovery continued to be strong. The recovery in Japan also continued but less convincingly. In the first half of the year, many central banks mainly focused on keeping inflation in check. In many cases actual inflation was moderate. Later in the year inflation increased almost worldwide as a result of sharply increased oil and food prices.

 

Initially prices rose sharply on many equity markets, led by stocks in the emerging markets. This favorable development was caused by the continuing strong growth of emerging economies, ample possibilities for financing and the associated wave of mergers and acquisitions. The scenario changed after July, when it became apparent that financial institutions had suffered considerable losses on assets that were linked to mortgages in the US housing market. This led to more stock-market volatility in the second half of the year and to falling prices on the stock markets of developed economies all over the world. On balance, global equities had a slightly negative return in 2007. The MSCI World Index had a return of -1.2%. Germany was an important exception to this, as there the index rose more than 20% over the year. Emerging markets realized an excellent collective return of more than 25%. The discount on emergingmarket equities relative to their mature counterparts has disappeared.

 

The correction in the US housing market intensified last year, but did not cause a considerable slowdown of the economy as a whole. Although unemployment increased somewhat, household consumption held up rather well for the majority of the year. Healthy growth in the rest of the world, in combination with a depreciating dollar, led to strong export growth. However, the combination of an ongoing correction in the housing market, rising food and energy prices and the uncertainty in the credit markets weakened the outlook for economic growth in the second half of 2007.

After an initial decrease, core inflation started to increase towards the end of last year. Since last September, the Fed has reduced interest rates from 5.25% to 4.25% in response to the problems in the credit markets and their potential impact on economic growth. Bond yields dropped around 70 basis points on balance to 4.0%.

 

The Japanese economic recovery continued, although it was not very spectacular. Growth remained static at around 1.5% and the deflation trend continued. By the end of 2007 inflation was barely positive. The Japanese central bank only dared to increase rates on one occasion; by 25 basis points to 0.5%. Long-term rates were slightly above 1.5% at year end, trading in the same range in which they had traded for most of the year.

 

 

The euro area saw growth of 2.5% to 3% in 2007, which was once again stronger than the trend. Unemployment dropped to the lowest level on record. Inflation amounted to less than 2% until the autumn, but then rose strongly to more than 3% at the end of the year. By the time the problems on the credit markets started to emerge, the European Central Bank (ECB) had raised rates in two steps from 3.5% to 4%. After that, the bank adopted a wait-and-see stance and left rates unchanged due to the increased uncertainty. Bond yields rose less than moneymarket rates, climbing from 3.9% to 4.3% in 2007.

 

The stock markets encountered heavy weather in the first few weeks of 2008. On balance, global stock markets have fallen considerably due to ongoing uncertainty about the credit crisis, large losses suffered by banks and concerns about an economic recession in the US. The latter may occur, but a period of slow growth is more likely. In the course of this year, the economic outlook for 2009 may start to gradually improve. A continuation of the accommodative monetary policy, which has been confirmed by the Fed's two unexpectedly drastic rate cuts totaling 1.25% in January 2008, and fiscal measures will start to give support to the US economy in the course of this year. In the euro area and Japan a limited decrease in economic growth is likely. The ECB may reduce interest rates somewhat in the second half of this year and the BoJ will increase its policy rate modestly in one or two steps. The emerging economies are projected to continue to grow vigorously. Worldwide inflation will probably come down gradually.

The first half of 2008 will not be easy for equities. Volatility will remain high as a result of uncertainty about the consequences of the credit crisis for the economy and corporate earnings. Assuming that the economy will recover in 2009 and the credit and liquidity crisis will not worsen, slightly positive equity returns may be expected for 2008 as a whole, in spite of the weak start of the year for most of the global stock markets. Furthermore, equities are attractively valued from a historical perspective and also when compared to other asset categories. Stock markets in emerging economies are expected to continue to perform relatively well, although the return differential with mature markets is expected to be smaller in 2008 than it was last year. The main risk attached to this outlook is the combination of slower growth and higher inflation rates than foreseen, which would be negative for equity markets across the globe.

 

 

 

[1] Currencies have been converted at rates supplied by World Market Reuters.

[2] Proposed for 2007.

[3] EUR x billion.

 

During 2007, the share price of Robeco fell from EUR 28.87 to EUR 27.93. Assuming reinvestment of the dividend of EUR 0.60 per share distributed in May 2007, this was an investment result of -1.3%. Based on net asset value, which fell from EUR 28.80 to EUR 28.10, and taking into account reinvestment of the dividend, the investment result was -0.4%. The fund's benchmark, the MSCI World Index, fell 1.2% over the same period.

The fund Robeco realized a positive result of 1.9% compared to its benchmark in terms of net asset value before deduction of costs.

Sound stock selection in the various sectors was the driving force behind this outperformance and, of the 1.9% mentioned above, 1.5% was attributable to stock selection, 0.5% to sector-allocation policy and -0.1% to currency policy. After deduction of costs, an outperformance of 0.8% remains.

2007 was a difficult year for stocks in developed markets. The year was clearly divided into two parts. In the firsthalf of the year, Robeco's share price rose 7.5%, however, this gain had evaporated by the end of the year as a result

of the depreciation of the US dollar and the crisis in the international credit markets in the second half.

Stock selection was excellent within the consumerstaples, telecom, information-technology and materials sectors. The performance of the stock selection in the consumer-discretionary and financials sectors lagged the average. Within the other sectors the result was average. The fund Robeco aims to realize a stable out performance relative to the benchmark so its performance is generated by a broad range of stocks rather than just a limited selection. We would nevertheless like to single out some stocks which realized an above-average performance.

The return on Monsanto was 114.3%. The price of this stock received a boost from the growth of the US corn market (corn is also used to produce ethanol) and from increasing its share of this market. Rio Tinto, the mining company with a dual listing in the United Kingdom and Australia, enjoyed a 99.7% return. Prices of commodities that are important for Rio Tinto, such as copper, iron ore and alumina, rose only moderately. However, even if these prices only remain the same it still enables mining companies to generate an enormous free cash flow. At the end of 2007, it also became clear that contract prices for that important commodity iron ore would surge in 2008 and on top of this news came the bid by BHP in November 2007. The return on Nokia was 74.9%. This was the result of an improved market share in emerging markets and of excellent business operations which enable Nokia to convert growth into cash. CIT Group (-55.8%) was among the biggest decliners. CIT draws money from the capital market and lends it to private individuals (in the form of mortgages and student loans) and to companies (in the form of aircraft leasing and corporate loans). The company was active in subprime mortgages and decided to terminate this activity just after the outbreak of the mortgage crisis in the United States. The developments in the US credit market caused the sharp decline in CIT's stock price.

 

 

Robeco's investment policy focuses on global stock selection within business sectors, and on determining the relative weights of the sectors themselves. Regional allocation is, therefore, mainly the result of this selection. During the reporting year 47% of the portfolio was turned over, which is comparable to last year's level and appropriate for a 4-year investment horizon.

 

Oil prices rose almost constantly throughout the year from a level just below USD 60 to almost USD 100. Demand from emerging markets for oil rose steadily. Supply was limited because large oil projects came on stream later and incurred higher costs. These higher costs made companies reluctant to start large, risky projects and OPEC maintained an iron grip on the oil market. Within the oil sector, the fund sold its entire interest in Valero Energy (US refineries). As a result of the economic slowdown, US citizens will make less use of cars or trucks for transport so demand for gasoline will decrease. At the same time, refinery capacity will be increased in the years to come. Regulations will also ensure that an increasing amount of ethanol is mixed with gasoline, which will lead to a decrease in refinery-capacity utilization. In brief, demand will decrease while supply is increasing. This means lower prices and therefore lower earnings. The proceeds of the sale of Valero Energy were invested in Devon Energy, a US oil and gas producer. Halliburton was also added to the portfolio. The high oil price and increasing complexity of new oil fields will further increase demand for oil and gas services. The portfolio holdings in Weatherford and Schlumberger will also benefit from this trend.

 

During the year the fund had an underweight position in materials. The exposure to metals was expanded by including Teck Cominco in the portfolio. Teck Cominco produces copper, zinc and coal. The stock's valuation lagged that of other mining companies, which offers upside potential for its stock price. The interest in International Paper was sold. Paper factories were closed in order to reduce capacity but this did not happen quickly enough and demand for paper was disappointing. The position in Holcim was increased further as demand for cement is increasing sharply in emerging markets. Within this sector we also have interests in agrochemical companies such as Syngenta and Monsanto. Prices for soft commodities, such as grain, soy beans and corn will rise due to increased demand from Asia, but also because these commodities are being used as alternative energy sources. Syngenta's and Monsanto's products help farmers cultivate their land as productively as possible.

 

The industrials sector was overweight throughout the year. Many of our stocks in this sector realized good returns. ABB was one of the stocks which also received a mention in last year's annual report as one of the strongest performers. ABB makes products for electricity transmission, demand for which was sound in almost all parts of the world. After its stock price increased by more than 50% in US dollars, the fund's interest in Parker Hannifin (a US industrial conglomerate) was sold. Siemens was purchased in the last quarter of 2007. This company's margins are lower than the industry average but management is striving to increase these. The interest in Japanese stocks in this sector was reduced by selling positions in Central Japan Railway and Kawasaki Heavy Industries.

 

 

Total is a French integrated oil company with the best prospects for production growth. Royal Dutch Shell is a Dutch/British integrated oil company with a welldiversified portfolio. Cisco Systems sells products used in building data-transport networks all over the world. This is a growth market which is still growing. Oracle supplies software and databases that improve the information supply within companies and institutions. Microsoft is the world's largest software supplier. BHP Billiton is the world's largest mining company and produces commodities such as oil, copper, iron ore, nickel, uranium and coal. Chevron is an integrated oil company with a well-diversified portfolio. AT&T is a US-based telephone company which supplies mobile and fixed-line telephone services. Siemens is an industrial conglomerate with activities ranging from power plants to medical systems. Margins on these various activities are expected to rise. ING Groep is a bank insurer with a favorable combination of cashgenerating activities (such as Dutch insurance and banking activities) and growth areas in emerging markets in Eastern Europe and Asia.

 

The Robeco portfolio is broadly diversified. This is a deliberate strategy, undertaken in order to meet the fund's profile (see 'The fund Robeco'). In the past years, value was mostly created through selecting the right stocks. We want to reinforce this successful policy which is why a Global Stars portfolio was set up within the fund Robeco. This Global Stars portfolio contains those stocks with the best prospects. It is a concentrated portfolio of 29 stocks, all of which are also included in the Robeco portfolio in which they have an above-average weight. The creation of the Global Stars portfolio further increases these weights.

 

Robeco does make use of financial instruments, the associated risks of which are specified in the financial statements. The fund observes liquidity limits based on market capitalization and tradability for the stocks in which it invests. The fund invests in 192 names (excluding the midcap portfolio) spread over 24 countries and 10 sectors resulting in broad diversification and limited price risk. Investments are made within the limits stated in the prospectus. On the basis of reports, the management board has discussed risk-management and compliance issues, subjects which were also covered in meetings with the supervisory board. The crisis that unfolded in financial markets across the world since the summer of 2007 was triggered by problems in the US sub prime mortgage market.

 

 

Price declines in asset backed securities covered by sub prime mortgage pool created a crisis of confidence which extended to other markets and instruments. By the end of 2007 markets were characterized by high volatility,  increasing risk aversion and illiquidity in many market segments, notably in asset backed securities. To react to this crisis, Robeco installed a Crisis Committee with board members of Robeco Fund Management B.V. and other Robeco (management) companies, investment teams, corporate treasury, compliance and risk management. This Committee closely monitored the impact of market developments on all fund's portfolios and, where necessary, took additional measures to safeguard the fund's interests, well within the boundaries of internal and external restrictions applicable to those portfolios. During the crisis, Robeco Fund Management B.V. remained in close contact with local regulators and auditors.

As the portfolios managed by Robeco Fund Management B.V. had no outright exposure to the sub prime market the direct impact of the crisis on portfolios managed by Robeco Fund Management B.V. has been restricted. Careful portfolio composition and oversight ensured that no forced sales occurred as a consequence of cash flows and market developments. Indirect effects of the crisis on the portfolios include the impact of illiquidity and high volatility in almost all market segments.

 

 

The fund Robeco strives to be a reliable partner for investing in global equities in mature markets. This goal should be reflected in a stable outperformance against the MSCI World Index. Within the global equities segments, Robeco Group clients can choose between the following funds: Rolinco (growth stocks), Robeco Global Value Equities (value stocks) and Robeco. Rather than making a choice between value and growth stocks, the Robeco fund unites both worlds in one investment fund.

 

 

The Dutch Financial Supervision Act [Wet op het financieel toezicht (Wft)] became effective on 1 January 2007. This act regulates supervision of the Dutch financials sector. The Wft has replaced existing supervisory legislation (including the Dutch Investment Institutions Supervision Act [Wet toezicht beleggingsinstellingen]).

 

 

The administrative organization and internal control (hereinafter referred to as 'operational management') of the management company Robeco Fund Management B.V. are discussed below insofar as these concern the activities of the investment institution Robeco N.V. The system of operational management is attuned to the size of the organization and meets the requirements of article 121 of the Decree on the Market Conduct Supervision of Financial Enterprises [Besluit gedragstoezicht financiële ondernemingen, or 'Bgfo']. The system of operational management can never offer absolute guarantees, rather it is designed to provide reasonable assurance of the effectiveness of internal-control measures in relation to the risks of the activities of the investment institution. The assessment of the effectiveness and good functioning of operational management is the responsibility of the management company.

 

Within the scope of the application for a license under the 2005 Dutch Investment Institutions Supervision Act  [Wet toezicht beleggingsinstellingen 2005, or 'Wtb'], the structural aspects of operational management applied were assessed and adjusted in accordance with legislation. The relevant risks were identified and corresponding internal-control measures formulated. The effectiveness and good functioning of operational management are assessed in various ways.

The management board is informed periodically by means of control reports which are based on the process descriptions and the internal-control measures included therein. Furthermore, there are incident and complaints procedures. During the reporting period, the effective functioning of the internal-control measures was tested by means of partial tests to verify their design, existence and effectiveness. This involved generic test activities that were carried out in a process-oriented way for the various investment institutions for which Robeco Fund Management B.V. acts as management company. The test activities may therefore differ for the individual investment institutions. The tests were executed by various departments at group and business-unit level, in consultation with internal and external auditors. The tests did not lead to relevant findings for this annual report.

 

Over the reporting period, we assessed the various aspects of the system of operational management. In our assessment we noted nothing that would lead us to conclude that the description of the structural aspects of operational management within the meaning of article 121 of the Bgfo failed to meet the requirements as specified in the Bgfo and related regulations. Neither did we conclude that the internalcontrol measures were ineffective or failed to function according to the description provided.

 

 

Rotterdam, 12 March 2008

 

The management board

 

 

 

 

 

 

The numbers of the items in the . nancial statements refer to the numbers in the Notes.

 

 

 

The numbers of the items in the . nancial statements refer to the numbers in the Notes.

 

 

Robeco N.V. (hereafter also referred to as 'the fund') is a Dutch investment company with variable capital within the meaning of article 28 of the 1969 Dutch Corporate Income Tax Act [Wet op de vennootschapsbelasting 1969] and has the fiscal status of an investment institution. 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.

 

Both the fund and the Manager have a license under the Dutch Financial Supervision Act [Wet op het financieel toezicht, or 'Wft']. The Wft became effective on 1 January 2007 and has replaced the existing supervision laws. An undertaking for collective investment in transferable securities (UCITS), such as Robeco N.V., which has been granted a license on the basis of the Wft may trade its shares in other EC member states in agreement with the EC directive, and its investment policy is subject to a number of restrictions to protect the investor.

 

Robeco Fund Management B.V. is the Manager within the meaning of article 1:1 of the Dutch Financial Supervision Act [Wet op het financieel toezicht, or 'Wft']. It has been granted a license by the Netherlands Authority for the Financial Markets (the 'AFM') as referred to in section 2:65 paragraph 1 and 2 of the Wft. The tasks for which the Manager will be responsible include the execution of the investment policy, management of the fund assets as well as handling the fund's financial administration, marketing and distribution. Robeco Fund Management B.V. belongs to Robeco Group. The agreement between the fund's management board and the Manager includes the stipulation that the Manager will comply with the provisions of the prospectus, the Articles of Association and the directives of the fund's management board, insofar as these are in line with the shareholders' interests, and that the Manager will observe the applicable legislation and regulations. The Manager will also regularly report to the management board on its duties.

The Manager has outsourced the following activities to Robeco Institutional Asset Management B.V. ('RIAM') in accordance with article 4:16 of the Wft:

- management of the fund assets in line with the investment policy

- financial administration of the fund

- marketing and distribution of the fund.

RIAM is affiliated with the Robeco Group and has been granted a license by the AFM, as defined by article 2:96 of the Wft.

 

Both the fund and its manager are included in the AFM register.

 

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. On 26 February 2007, the new trading system for open-end investment institutions on Euronext Amsterdam was introduced. According to the Euronext guidelines, orders can be placed until 16:00 hours (cut-off time). Orders that are placed via Euronext Amsterdam will be processed once a day only and will be executed on the next stock-exchange day at the net asset value, augmented or reduced by a limited surcharge or discount. The only purpose of this surcharge or discount is to cover the costs made by the fund related to the entry and exit of investors. The maximum current surcharge or discount is 0.35%.

Until 26 February 2007 a spread between the bid and offer price was applied to cover costs related to issuance and repurchase of own shares. The issue price was not more than 0.5% higher than the net asset value and the repurchase price was not 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, were for the account and risk of Robeco Investment Consulting B.V., as a result of which Robeco N.V. issued and repurchased its shares at net asset value. Robeco Investment Consulting B.V. distributed any positive spread results to the funds, in proportion to each fund's positive contribution to the spread result. A buffer was maintained to cover any future losses. The remaining spread result has since been distributed.

 

Shares may be held in non-certificated form in Robeco Direct N.V. accounts or via 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.

 

 

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. The transaction date of an investment determines its inclusion in the Balance sheet.

 

Investments for which the legal ownership has been transferred by the fund for a given period of time as a result of securities-lending transactions, will continue to be included in the fund's Balance sheet during this period, given their economic advantages and disadvantages, in the form of investment income and changes in value will be added to or deducted from the fund's result. The way in which collateral ensuing from securitieslending transactions is reported depends on the nature of this collateral. If the collateral is received in the form of investments these will not be included in the Balance sheet as the economic advantages and disadvantages relating to the collateral will be for the account and risk of the counter party. If the collateral is received in cash it will be included in the Balance sheet as, in this case, the economic advantages and disadvantages will be for the account and risk of the fund.

 

Both the fund and its Manager are affiliated to the entities belonging to Robeco Groep N.V. The affiliation with Robeco Groep N.V. stems from its capacity to have decisive control or a substantial influence on the fund's or the Manager'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. The members of the supervisory board of Robeco N.V. are also members of the supervisory boards of Robeco Groep N.V., Rolinco N.V. and Rorento N.V. Besides services of other market parties, Robeco N.V. and the Manager also use 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 own shares, fund-administration services, as well as management activities. Transactions are executed at market rates.

 

The schematic diagram below shows the position of the entities referred to in this report and their mutual relationship within Robeco Groep N.V. Only therelationships that are relevant to the fund are shown.

 

 

Investment results are determined by investment income, rises or declines in stock prices, rises or declines in foreign exchange rates and results of transactions in currencies, including forward transactions, and derivatives. 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.

The value of your investments may fluctuate. Past performance is no guarantee of future results. The net asset value of the fund is affected by developments in the financial markets and may both rise and fall. Shareholders run the risk that their investments may end up being worth less than the amount invested or even worth nothing. General investment risk can be broken down into market risk, concentration risk and currency risk:

The net asset value of the fund is sensitive to market movements. In addition, investors should be aware of the possibility that the value of investments may vary as a result of changes in political, economic or market circumstances.

Based on its investment policy, the fund may invest in financial instruments from issuing institutions that (mainly) operate within the same sector or region, or in the same market. If this is the case, the concentration of the investment portfolio of the fund may cause events that have an effect on these issuing institutions to have a greater effect on the fund assets than would occur with a less concentrated investment portfolio.

All or part of the securities portfolio of the fund may be invested in currencies, or financial instruments denominated in currencies other than the euro. As a result, fluctuations in exchange rates may have both a negative and a positive effect on the investment result of the fund.

The fund minimizes the risks by making a balanced selection with regard to distribution across regions, sectors, individual stocks and currencies.

A counter party of the fund may fail to fulfill its obligations towards the fund. This risk is limited as much as possible by taking every possible care in the selection of counter parties. Wherever it is customary in the market, the fund will demand and obtain collateral. Risk of lending financial instruments

In the case of financial-instrument lending transactions, the fund runs the risk that the borrower cannot comply with its obligation to return the financial instruments on the agreed date or furnish the requested collateral.

The lending policy of the fund is designed to control these risks as much as possible.

As of balance-sheet date,the fund had received collateral ensuing from securities-lending transactions.

More information can be found in the Notes to the balance sheet.

The actual buying and selling prices of financial instruments in which the fund invests partly depend upon the liquidity of the financial instruments in question. It is possible that a position taken on behalf of the fund cannot be quickly liquidated at a reasonable price due to a lack of liquidity in the market in terms of supply and demand. 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 balancesheet 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. The presentation of the market value is based on the liabilities and receivables per counter party. The receivables are reported under Financial investments and the liabilities are reported under Accounts payable. The value of the derivatives' underlying instruments is 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 20 million and the spread of net assets can be found at the end of this report. Shares in an amount of EUR 1,579 million (EUR 922 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 1,745 million (EUR 1,004 million at the end of last year) 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.

 

 

 

Concerns dividends declared but not yet received.

 

This is income receivable ensuing from securities-lending transactions.

 

This includes recoverable dividend tax, tax withheld at source outside the Netherlands on behalf of the Dutch Tax Office, in accordance with article 6 Resolution Investment Institutions, receivables ensuing from class actions, and suspense items.

 

Includes balances in current accounts at banks.

 

These are management and service fees to be paid.

 

Current liabilities such as unpaid expenses, dividends payable and suspense items.

 

 

 

 

 

 

* Based on the average amount of shares outstanding during the reporting year. The average number of shares outstanding is calculated on a daily basis.

 

 

 

Total expense ratio

* This concerns only the custody fee of the securities portfolio.

 

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 cover all current costs resulting from the management and marketing of the fund.

If the Manager outsources its operations to third parties, any costs associated with this will be paid by the Manager and will therefore not be charged to the fund. The management costs also include the costs related to registering shareholders in the fund. Current costs do not include 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 semiannual reports, and the costs relating to the meetings of shareholders. Other costs relate to bank charges and the custody fee charged by third parties for the custody of the fund's

securities portfolio. The custody fee is EUR 1,048 thousand (last year EUR 795 thousand). Costs relating to issue and repurchase of company shares are not included in the total expense ratio.

 

Management costs relate exclusively to the management fee of 1.00% per year. The service fee amounts to 0.12% per year. Formal and operational expenses are paid from the service fee. These are explained in the notes to the total expense ratio. 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 charged by the Manager. The fees 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, bank costs and costs related to issue and repurchase of company shares.

 

Robeco N.V. is not subject to a performance fee.

 

Brokerage costs and exchange fees relating to investment transactions are discounted in the cost price or the sales value of the investment transactions. These costs and fees are charged to the result ensuing from changes in value. The quantifiable transaction costs are shown below. The transaction volume of the quantifiable transaction costs is 98% (previous year 95%) of the total transaction volume.

 

 

 

Various independent research institutions/third parties provide services to the company to support its decisionmaking process. Part of the commissions paid to brokers is used to pay for these services in so-called commissionsharing arrangements. This commission is used exclusively for research services. In the reporting period commissionsharing arrangements represented an amount of EUR 1,747 thousand (last year EUR 1,905 thousand). Furthermore, there are so-called soft-dollar arrangements to pay for financial-service companies' services and products. These services and products are financed from part of the commission paid to brokers for the execution of securities transactions. Only the aforementioned commission-sharing arrangements were used during the reporting year. There were no soft-dollar arrangements and hard commissions during the reporting period.

 

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 used, the amount of the 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. The turnover ratio over 2007 was 47% (previous year 39%).

 

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. Until 1 April 2007, Robeco Securities Lending B.V. received a fee of 40% of the gross income resulting from these securities-lending transactions as compensation for its services. An external agency periodically assesses whether the agreements between the fund and Robeco Securities Lending B.V. are still in line with the market. On the basis of the outcome of the assessment that was carried out, as of 1 April 2007, the percentage was lowered to 30% of the gross income. The proceeds for the fund over the reporting period were EUR 3,958 thousand (last year EUR 3,305 thousand) and for Robeco Securities Lending B.V. EUR 1,913 thousand (last year EUR 2,203 thousand).

 

In 2007, 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 the Robeco Group'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 out of the management fees received. Robeco Nederland B.V.'s remuneration policy for fund managers consists of both fixed and variable income. The secondary conditions of employment are in line with what is common practice in the financialservices industry. The fixed income offers a good and competitive remuneration basis within the Dutch assetmanagement 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 results, including 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 single year, is paid out over a three-year period (60% in the first year, 30% in the second and 10% in the third year). Fund managers are given the opportunity to participate directly in Robeco Groep N.V.'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 strategic targets of the Robeco Group as a whole and the individual's own business unit. The E notes represent a value which is directly linked to Robeco Groep N.V.'s value.

 

Rotterdam, 12 March 2008

 

Paulus C. van den Hoek, chairman

Gilles Izeboud

Philip Lambert

Dirk P.M. Verbeek

 

Robeco Fund Management B.V.:

Mark F. van der Kroft

Pieter F.F.M. Schuurs

Edith J. Siermann

Edwin de Weerd

Ed B. van Wijk

 

 

The ordinary shares of Robeco N.V. are listed on Euronext Amsterdam, Euronext Fund Service segment. 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 0.80 per share for the 2007 financial year (previous year EUR 0.60). If this proposal is accepted, the dividend will be payable on Friday 2 May 2008. With effect from Friday 25 April 2008, Robeco N.V.'s shares will be listed ex-dividend coupon no. 106 on the stock exchange. Shareholders will be offered the opportunity to reinvest the dividend (less dividend tax) in Robeco N.V. 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, Euronext Fund Service segment, on Friday 2 May 2008. 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 32,670)  has been allocated from the profit appropriation for this purpose. The chairman of the supervisory board receives a remuneration of EUR 10,890 (last year this was also EUR 10,890) and an ordinary member of the supervisory board receives a remuneration of EUR 7,260 (last year this was also EUR 7,260).

 

The table below shows the total personal interests in investments of the investment institution held by the directors of the investment institution and/or the management company on 1 January 2007 and 31 December 2007.

Supervisory directors held a joint interest of 4,769 and 4,850 Robeco N.V. shares on 1 January 2007 and 31 December 2007, respectively. The managing directors of the management company held a joint interest of 11,893 and 10,423 Robeco N.V. shares on 1 January 2007 and 31 December 2007, respectively. On 1 January 2007 and 31 December 2007, no options had been granted to supervisory directors; managing directors of the management company held options to acquire 14,999 and 10,880 Robeco N.V. shares on the respective dates. 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 an adviser, acted as an intermediary for various insurance policies concluded at Rabobank Group level, including a Bankers, 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 is 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 Financial Supervision Act [Wet op het financieel toezicht, or 'Wft']/the Dutch Market Conduct Supervision of Financial Businesses under the Wft decree [Besluit Gedragstoezicht financiële ondernemingen Wft, or 'Bgtfo']. These Rules should guarantee that insider trading and mixing of business and private interests, or semblance thereof, is avoided at all times.  At 1 January 2007 and 31 December 2007 the fund manager had an interest of 5,271 and 8,087 Robeco N.V. shares respectively. Furthermore, at these same dates, he held interests in the following 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, 12 March 2008

 

To the General Meeting of Shareholders and

members of the supervisory board

 

 

We have audited the financial statements 2007 of Robeco N.V., Rotterdam, which comprise the Balance sheet as at 31 December 2007, the profit and loss account for the year then ended and the notes.

 

The company's management is responsible for the preparation and fair presentation of the financial statements and for the preparation of the report of the management board, both in accordance with Part 9 of Book 2 of the Netherlands Civil Code and the Dutch Financial Supervision Act [Wet op het financieel toezicht, or 'Wft']. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

 

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes an evaluation of how appropriate the accounting policies and how reasonable the management board's accounting estimates are, as well as an evaluation of the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

In our opinion, the financial statements give a true and fair view of the financial position of Robeco N.V. as at 31 December 2007, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code and the Wft.

 

Pursuant to the legal requirement under 2:393 sub 5 part e of the Netherlands Civil Code, we report, to the extent of our competence, that the report of the management board is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands Civil Code.

 

The Hague, 12 March 2008

 

for Ernst & Young Accountants

 

signed by Joost J. Hendriks

 

 

 

Across countries and currencies

* In addition to investments in stocks, the portfolio may include positions in derivatives. The sum of stocks and derivatives re. ects the true volume of the investments by country and in total. At 31 December 2007 the portfolio contained derivatives, in this case index futures, as was also the case at 31 December 2006. These derivatives have been included in the geographic distribution. The positions in forward exchange transactions have been included in the currency position.

 

 

 

 

 

at 31 December 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of more than EUR 18 million during the financial year