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Annual report & accounts |  |
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| ROLINCO N.V. ANNUAL REPORT 2006 % ROBECO CONTENTS General information 3 Report of the supervisory board 5 Report of the management board 6 Financial statements 12 Balance sheet 12 Profit and loss account 13 Cash-flow summary 13 Notes 14 Other data 24 Spread of net assets 27 List of securities 29 Purchases and sales 31 GENERAL INFORMATION ROLINCO N.V. 1) (investment company with a 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 Supervisory Board Paulus C. van den Hoek, chairman Gilles Izeboud Philip Lambert Dirk P.M. Verbeek Management Board Robeco Fund Management B.V. (as of 27 April 2006) Arnout van Rijn (until 27 April 2006) Volker Wytzes (until 27 April 2006) Manager Robeco Fund Management B.V. (as of 1 January 2006) Management board: Mark F. van der Kroft Edith J. Siermann Edwin de Weerd (as of 12 January 2006) Eduard B. van Wijk (as of 1 November 2006) Fund Manager Arnout van Rijn Secretary of the Company David H. Cross Management Board of Robeco Groep N.V. (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 2 Niek F. Molenaar GENERAL MEETING OF SHAREHOLDERS The General Meeting of Shareholders will be held on 26 April 2007 at 11:30 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 19 April 2007. Holders of K shares should lodge their share certificates not later than 19 April 2007 with one of the banks mentioned in the convening notice of 5 April 2007. Holders of an account with Robeco Direct N.V. 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 19 April 2007. This report is also published in Dutch, French and German. Only the original Dutch edition is binding and will be submitted to the General Meeting of Shareholders. SIMPLIFIED AND FULL PROSPECTUS A simplified prospectus with information on Rolinco 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. 2As of 2 February 2007. REPORT OF THE SUPERVISORY BOARD We herewith present the Rolinco N.V. accounts for the financial year 2006 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 Rolinco 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 members of the two boards, in practice this presents no difficulties. Rolinco 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 (Manager of Robeco Fund Services Center) and Ed van Wijk (Executive Vice President at Robeco Alternative Investments). Arnout van Rijn is the fund manager of Rolinco N.V. The purpose of an investment institution such as Rolinco 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 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 Rolinco 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 human-resource issues. Besides the subjects mentioned, no special issues were 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 0.40 per share in cash. At the General Meeting of Shareholders on 27 April 2006, Dirk Verbeek was reappointed as a supervisory director of the company with immediate effect. According to schedule, Gilles Izeboud will resign at the General Meeting of Shareholders to be held on 26 April 2007. Mr. Izeboud is available for reelection. It is proposed that he be reappointed as a supervisory director of the company with immediate effect. Rotterdam, 22 March 2007 The supervisory board SUPERVISORY BOARD Paulus C. van den Hoek, chairman (68) 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 (1981/84). Supervisory director of ASM International, Bührmann, Wavin, Robeco Groep , Robeco and Rorento. Gilles Izeboud (64) Dutch nationality. Appointed in 2004. Former partner and director at PricewaterhouseCoopers. Deputy justice of the Enterprise Section of the Amsterdam Court of Appeal. Supervisory director of Buhrmann, Robeco Groep, Robeco and Rorento. Philip Lambert (60) Dutch nationality. Appointed in 2005. Former head of Corporate Pensions of Unilever N.V. and PLC in London. Supervisory director of Robeco Groep , Robeco and Rorento. Dirk P.M. Verbeek (56) Dutch nationality. Appointed in 2001 and last reappointed in 2006. 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 , Robeco and Rorento. N.B. Only supervisory directorships at listed companies and the Robeco Group are mentioned. REPORT OF THE MANAGEMENT BOARD GENERAL INTRODUCTION An excellent year for the world economy The past year has been an excellent one for the world economy, with growth recorded at around 5%. However, the composition of growth was somewhat different from past years. Growth in the United States slowed down in the course of the year, while Japan and the euro area recorded higher growth rates. The emerging economies continued their process of catching up with the developed economies. Inflationary pressures increased worldwide after oil prices rose to well above USD 70 per barrel early in the year. Actual inflation remained contained under the influence of tighter monetary polices in many countries. The fact that oil prices moved back to levels around USD 60 per barrel later in the year contributed to a more benign development of inflation, in combination with restrained wage increases in many countries. A very favorable year for equity markets The combination of high economic growth and modest inflation was a splendid one for equity markets. Generally corporate earnings continued strongly, while price/earnings ratios were reasonable at the beginning of the year. Many central banks around the world hiked interest rates in the course of the year. On balance, long-term government yields also increased, although less so than the short-term interest rates. However, bond yields remained low from a historical perspective, as a result of which yield developments were no threat for equity markets. The second quarter saw a correction, which was more than reversed in the remainder of the year. In the end most equity markets have recorded double-digit increases in their indices. After the strong increase in 2005 the Japanese stock market index recorded a relatively small increase in 2006. Although the US stock markets had a favorable year, the outcome for investors with euro-denominated investments was not that good, because the dollar depreciated by more than 10% against the euro. The stock markets in the euro area had a better than average performance. The US economy In the course of the year, the US economy slowed down. The interest-rate hikes by the US central bank (the Fed) since mid 2004 started to take their toll. The Fed funds rate ended the year 2006 at 5.25%. On balance, long-term interest rates increased to around 4.7% by the end of the year. The housing market in particular was responsible for the slowdown in US growth. The marked increase of prices and volumes in the housing market came to an end in the past year. For the time being the US consumer appeared to be unaffected by the developments in the housing market. Consumption continued to grow at a healthy pace, further facilitated by strong conditions in the labor market. Initially, core inflation went up, but fell to just above 2% in the final months of the year. Japan Last year, the Japanese economy continued its recovery. This led the Bank of Japan to abandon its zero interest-rate policy. The policy rate was increased once by 25 basis points. The recovery was not convincing in all respects. The Japanese consumer remains hesitant to spend. Inflation is still very low. Under these circumstances, the long-term interest rates fluctuated mainly within a bandwidth of 1.5% and 1.75%. The euro area Last year, economic performance in the euro area was strong. Economic growth amounted to more than 2.5%. Initially inflation increased on the back of higher oil prices, but ended the year at a level just below 2%. Strong economic growth, a substantial increase in money supply and credit growth, and just over 2% projected inflation over the medium term prompted the European Central Bank (ECB) to increase interest rates from 2.25% to 3.5%. Long-term rates increased by no more than 60 basis points. Outlook The world economy is continuing to grow rapidly, albeit at a slower pace than last year. The emerging economies are maintaining their catching-up course, and Japan and the euro area will record growth rates of some 2%. For the US economy, a slowdown of growth to around 2% is being penciled in. The ECB and Bank of Japan have not yet finished their hiking cycle and this is also true for a number of other central banks. The Fed will probably start to ease its monetary policy as inflation gets under control. The development of long-term rates will remain moderate. All in all this year more or less average returns of around 8% are to be expected. Investment result Overview 2002-2006 (in %) Average over last 2006 2005 2004 2003 2002 5 years Based on: - market price 6.9 33.8 2.6 7.7 -32.9 1.2 - net asset value 6.2 33.6 3.8 7.2 -32.3 1.4 Benchmark1) 4.8 25.4 3.3 8.6 -32.2 -0.1 Dividend in euros2) 0.40 0.36 0.28 0.28 0.28 0.32 Total net assets3) 1.6 1.6 1.3 1.4 1.3 1) S&P/Citigroup World Growth Primary Market Index (Total Return). MSCI World Index until 1 November 2002. Currencies have been converted at rates supplied by World Market Reuters. 2) Proposed for 2006. 3) EUR x billion. During 2006, the share price of Rolinco rose from EUR 23.73 to EUR 25.01. Assuming reinvestment of the dividend of EUR 0.36 per share distributed in May 2006, this was an investment result of 6.9%. Based on net asset value, which rose from EUR 23.84 to EUR 24.96, the investment result was 6.2%. The fund's benchmark, the S&P/Citigroup World Growth Primary Market Index (Total Return), rose 4.5% over the same period. 2006 was once again a good year for equity investors. The major stock markets all booked gains over the year in local currency terms, ranging from 5% in Japan, 11% in the United States and the United Kingdom to 19% in the Netherlands and as much as 33% in Spain. Rolinco's absolute return came under pressure as a result of the strength of the euro. This was the only reason that the fund did not achieve double-digit returns in 2006. Nevertheless an investment in Rolinco was still a good choice as returns were once again considerably higher than those achieved on a savings account. Although stock markets have risen significantly over the last few years, sentiment now is totally different to how it was in the rising markets at the end of the nineties. Then people paid high prices for the long-term future profitability of technology companies, whereas now investors can only drum up enthusiasm for companies which are offering high dividends right now. To summarize a Rabobank advertisement: People now would rather have a 'bird in the hand' whereas then they preferred to have 'two birds in the bush'. Currently there is only slight interest for the companies with attractive growth profiles that growth fund Rolinco likes to buy. This made 2006 a slightly disappointing year for investors in growth stocks as these stocks once again underperformed the broader market completing a biblical seven years of famine. Rolinco achieved a sound relative performance. After a fantastic year in 2005 the fund again substantially outperformed the benchmark in 2006. Stock selection was the most important factor behind this and, especially in the technology sector, Rolinco's stock picks showed an above-average performance. Another driving force behind the strong performance was the position in emerging markets, where most stock markets continued to perform well. On the other hand the large position in Japan only performed moderately. We expected domestic investors there to push the market higher as the low interest rates offered few attractive alternatives. A scandal involving one of Japan's most well-known entrepreneurs was, however, enough to make Japanese investors shy away. Sector allocation made a negative contribution to the result. As a growth fund Rolinco was overrepresented in the health-care sector where there are still many new developments, but underrepresented in stable but slow-growing utilities and cyclical materials. In 2006 utilities, telecommunications and materials were the best-performing sectors, primarily because of the considerable merger and acquisition activity. INVESTMENT POLICY Many investors are too hasty in their actions and have too short an investment horizon. Rolinco moves nice and slowly and has an investment horizon of 3 to 5 years. The fund's policy in 2006 can be summed up by the motto: Be skeptical, do little, have patience. During the year any changes that were made were well thought out and limited in size. Turnover in the portfolio, without taking into account the sale and purchase of the fund's own shares, amounted to about 50%. The general strategy was to slowly reduce the risks in the portfolio. Many stocks that had performed very well in 2005, had little further upside potential. So in the first few months of the year we reduced the position in energy. Oil will remain scarce, but the exaggerated stories that were circulating at the time (USD 100 per barrel) seemed overoptimistic. Moreover, many speculators had plunged into oil, which made the market vulnerable. Our sector weight was gradually reduced by more than 2%. We used the correction in the Japanese market to buy our first Japanese bank for the portfolio. Resona (formally Daiwa bank) was the lucky candidate. This bank should be in an ideal position to benefit from the gradually rising deposit rates in Japan. The return on this investment is still in negative territory because the process of increasing interest rates in Japan has been disappointingly slow. Throughout the year the position in financial conglomerate Citigroup was markedly increased. The bank had been penalized for investing heavily in its future growth. Many investors searched for more attractive growth stories but had to pay considerably more for them - we did not! Citigroup moved into our top ten. Following extensive research, in the spring we bought a position in the trendy shoe manufacturer Crocs. Investors thought that growth in the US had peaked and built up a large short position in the stock. We, however, believed in the underestimated demand from Europe and Asia which did come through, quickly pushing up the stock by 50%. It transpired that high-growth companies can also disappoint when the US senate unexpectedly made gambling online impossible. The English companies Partygaming and 888.com generated a large proportion of their turnover from poker with Americans and their stock prices collapsed like a house of cards as a result of this news. We do believe that the European market still does offer sufficient growth prospects to keep holding the stocks at these low levels. Another disappointment was Neurocrine Biosciences. Contrary to our expectations its insomnia drug Indiplon failed to be passed by the approvals committee and the stock price fell by more than 80%, In the Dutch part of the portfolio publisher VNU was sold when it's private equity buyers came forward with a higher bid. The fund also took a position in Philips. Many still see the company as a shapeless conglomerate, but under the leadership of Kleisterlee it has been considerably restructured. Following the sale of the semiconductor division, the emphasis has been shifted further on to the future growth in the medical and lighting divisions. We also bought Dupont because the company has geared its portfolio far more towards structural growth, without the market taking this into account in terms of the stock's valuation. We at Rolinco like to take advantage of prejudices and misconceptions. In the information-technology sector the sector weight was reduced towards the end of the year by selling positions in Nokia, Toshiba, SAP and Qualcomm. The rationale behind this was a combination of unrealistic expectations and quantitative factors. In 2006 Cisco systems was the best performer in the top ten by a considerable margin. Having initially been too optimistic the market then became too apprehensive about this stock. When growth picked up again the stock regained the spotlight. In the second half of the year the weight of the US was increased by about 4% at the expense of Europe. The differences in valuation between the two regions became much smaller as a result of better performance by the European stock markets. The fund's weight in Japan and emerging markets remained stable throughout the year. In the spring the position in the US dollar was reduced in two steps, from 53% to 44%. Our models lost their confidence in the dollar which had been so surprisingly strong in 2005. In 2006 the euro became the strongest currency again. In May a position was taken in Robeco Global Telecom Opportunities, a hedge fund that focuses solely on stocks in the telecom sector and is therefore ideally positioned to find good investment opportunities. Rolinco makes use of financial instruments, the associated risks of which are specified in the financial statements. The fund uses liquidity limits based on market capitalization and tradability for the stocks in which it invests. The fund invests in 85 names diversified over 17 countries and 10 sectors resulting in wide 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. Top 10 stocks Country Interest in Performance in % % 01/01-31/12/2006 31/12/2006 In euros In local currency 1. Total France 3,1 7,8% 7,8% 2. Cisco Systems United States 2.4 42.8% 59.6% 3. Citigroup United States 2.1 6.9% 19.6% 4. Microsoft United States 1.9 3.6% 15.8% 5. Nestlé Switzerland 1.8 8.9% 12.8% 6. Astellas Pharma Japan 1.8 6.1% 19.7% 7. Roche Holding Switzerland 1.7 8.3% 12.2% 8. Wyeth United States 1.7 1.0% 12.9% 9. Fannie Mae United States 1.6 11.2% 24.3% 10. Novartis Switzerland 1.6 -0.1% 3.4% Notes to the top 10 stocks Total is a French integrated oil company with the best prospects for production growth. Cisco Systems is global market leader in the field of computer-network technology. Citigroup is one of the world's largest financial conglomerates. Microsoft is the world's largest software supplier. Nestlé produces and sells food products all over the world. Astellas Pharma is a Japanese drug manufacturer. Roche Holding develops and produces drugs and is the market leader in diagnostics. Wyeth is an American pharmaceutical company. Fannie Mae collects and packages mortgages in the US. Novartis is a Swiss pharmaceutical company. OUTLOOK The growth stocks in which Rolinco invests will come into their own as soon as the economy begins to experience difficulties and interest rates start to rise. The Rolinco portfolio has been carefully constructed to include a high proportion of companies that are relatively insensitive to the economic cycle. As long as interest rates remain low investors will continue to favor stocks. For 2007 we do not, for the time being, envisage any major obstacles. It is important to keep a close eye on wage inflation because this can be the driving force behind structurally higher interest rates. However in the coming reporting period, from a demographic perspective, there will probably be little evidence of this. Earnings disappointments are another possible stumbling block. However as long as globalization continues, companies will still be able to further reduce their cost base and benefit from the advantages of computerization. For these reasons we believe that 2007 looks like another good year for growth stocks. TEXT BOX: INVESTMENT PHILOSOPHY Since the beginning of 2005, the Rolinco team has been made up of three people: Arnout van Rijn, Maarten de Kok and Michiel van Voorst. We are convinced that we can operate decisively, creatively and contrarily with a small team, and in doing so beat the market. The greatest risk for growth investors is that they pay too much for growth. We therefore use detailed valuation models before we buy a stock. In addition, we are highly aware of what the market is thinking. It is possible for less popular stocks to realize the highest returns if growth turns out better than expected. Finally, we think that by investing in a limited number of companies and by implementing relatively few changes, we can pay sufficient attention to each of our investments and guarantee the fund's long-term horizon. The fund Rolinco Rolinco, established in 1965, is a global equity fund aimed at generating capital growth for its shareholders. The fund invests in growth stocks which are expected to show above-average or accelerating earnings growth in the coming years. This growth can be realized either by high turnover growth or by rapid margin growth and is only dependent on the macroeconomic climate to a limited degree. Rolinco's portfolio contains a relatively small number of interests and as such has a high risk profile. Dutch Financial Supervision Act The Dutch Financial Supervision Act [Wet op het financieel toezicht, or 'Wft'] became effective on 1 January 2007. This act regulates supervision of the Dutch financials sector. The Wft has replaced existing supervision legislation (including the Dutch Investment Institutions Supervision Act [Wet toezicht beleggingsinstellingen]). Declaration regarding administrative organization and internal control General The administrative organization and internal control of the Management Company Robeco Fund Management BV are discussed below insofar as these target the activities of the investment institution. Administrative organization and internal control are both geared to the size of the organization and meet the requirements of article 8 of the 2005 Dutch Investment Institutions Supervision Decree [Besluit toezicht beleggingsinstellingen 2005, or 'Btb']. Administrative organization and internal control can never offer absolute guarantees, rather they are 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 administrative organization and internal control is the responsibility of the Management Company. Activities 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 the administrative organization and internal control applied were assessed and adjusted to the Wtb. The relevant risks were identified and corresponding internal-control measures formulated. The effectiveness and good functioning of administrative organization and internal control 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. In 2006, 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. Report on administrative organization and internal control In 2006, we assessed the various aspects of administrative organization and internal control. In our assessment we noted nothing that would lead us to conclude that the description of the structural aspects of administrative organization and internal control within the meaning of article 8 of the 2005 Dutch Investment Institutions Supervision Decree failed to meet the requirements as specified in said decree and related regulations. Neither did we conclude that the internal-control measures were ineffective or failed to function according to the description provided. Rotterdam, 22 March 2007 The management board Robeco Fund Management B.V. Financial statements Balance sheet before profit appropriation, EUR x thousand 31/12/2006 31/12/2005 Investments Financial investments Stocks 1 1,536,917 1,512,999 Investments in Robeco Group mutual 2 125,233 97,449 funds Derivatives 3, 13 7,977 911 Total investments 1,670,127 1,611,359 Accounts receivable Dividends and interest receivable 4 391 445 Receivable on securities transactions 10,128 - Receivables on affiliated companies 5 954 440 Sundry debtors 6 6,759 4,848 18,232 5,733 Other assets Cash 7 80 206 Accounts payable Obligations arising from derivative 3, 13 352 1,001 instruments Payable on securities transactions - 2 Payable to credit institutions 25,722 4,836 Payable to affiliated companies 8 2,835 1,438 Sundry creditors 9 2,621 913 6¿% convertible bond loan 10 9,051 9,525 40,581 17,715 Accounts receivable and other assets -22,269 -11,776 less accounts payable Shareholders' equity 11 1,647,858 1,599,583 Composition of shareholders' equity Issued capital 12 65,863 66,949 Other reserves 11 1,471,879 1,116,055 Net result 11 106,157 413,094 Assets attributable to holders of ordinary 1,643,899 1,596,098 shares 6 ¿% cumulative preference shares 3,959 3,485 1,647,858 1,599,583 Profit and loss account EUR x thousand 2006 2005 Investment income 26,617 20,362 Changes in value 1,2,3 99,415 409,510 126,032 429,872 Costs Management costs 16 16,951 14,171 Service fee 16 1,898 1,617 Other costs 17 424 370 Interest costs 10 602 620 19,875 16,778 Net result 106,157 413,094 The numbers of the items in the financial statements refer to the numbers in the Notes. Cash-flow summary indirect method, EUR x thousand 2006 2005 Cash flow from investment activities Net result 106,157 413,094 Realized and unrealized results -99,415 -409,510 Purchase of investments -417,831 -393,271 Sale of investments 454,903 522,592 Increase(-)/decrease(+) accounts receivable -12,526 -2,930 Increase(+)/decrease(-) accounts payable 1,644 -55 32,932 129,920 Cash flow from financing activities Received for shares subscribed 394,668 121,659 Paid for repurchase of own shares -427,475 -233,824 Profit distribution -25,549 -19,982 Increase(-)/decrease(+) accounts receivable 27 -27 Increase(+)/decrease(-) accounts payable 1,459 -602 -56,870 -132,776 Net cash flow -23,938 -2,856 Currency and cash revaluation 2,926 -2,696 Increase(+)/decrease(-) cash -21,012 -5,552 Cash at opening date 206 1,823 Accounts payable to credit institutions at -4,836 -901 opening date Total cash at opening date -4,630 922 Cash at closing date 80 206 Accounts payable to credit institutions at -25,722 -4,836 closing date Total cash at closing date -25,642 -4,630 Notes General Rolinco 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. As a result of the appointment as Manager of Robeco Fund Management B.V., which holds a license from the AFM [the Netherlands Authority for the Financial Markets] under the Dutch Investment Institutions Supervision Act [Wet toezicht beleggingsinstellingen, or 'wtb'], the license in accordance with article 5 of the 1990 Dutch Investment Institutions Supervision Act has been legally cancelled. Manager The fund appointed Robeco Fund Management B.V. as Manager of the fund as of 1 March 2006. 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. is part of the Robeco Group and was granted a license by the Netherlands Authority for the Financial Markets to act as manager on 29 December 2005. 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. At the General Meeting of Shareholders held on 27 April 2006 Robeco Fund Management B.V. was appointed as director of the company. Models 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. Open-end fund Rolinco N.V. is an open-end investment company, meaning that, barring exceptional circumstances, Rolinco 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 0.5% 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., as a result of which Rolinco N.V. issues and repurchases its shares at net asset value. Robeco Investment Consulting B.V. will distribute any positive spread results to the funds, in proportion to each fund's positive contribution to the spread result. A buffer is maintained to cover any future losses. As of 26 February 2007, the new trading system for open-end investment institutions on Euronext Amsterdam will be implemented. For the company this means that the bid and offer system described above will no longer be valid. 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 company related to the entry and exit of investors. Non-certificated participation in the Netherlands 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. Outsourcing core tasks Until 1 March 2006, the administration was outsourced to Robeco Nederland B.V., a 100% subsidiary of Robeco Groep N.V. These costs were covered by the service fee. Agreements have been made with the aforementioned party relating to the provision of information and performance standards. As a result of the appointment of the Manager, outsourcing of the administration has been terminated as of 1 March 2006. Accounting principles General Unless stated otherwise, items shown in the annual financial statements are included at nominal value and expressed in thousands of euros. Financial investments Unless stated otherwise, financial investments are included at fair value. The fair value of stocks is determined on the basis of market prices or other market quotations at closing date. For derivatives such as forward exchange transactions, this value is based on currency rates and reference interest rates at closing date. Transaction costs incurred in the purchase and sale of investments are included in the purchase or sale price as appropriate. Securities lending 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, since 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 securities-lending 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 counterparty. 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. Affiliated parties Both the fund and its Manager are affiliated to 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 business policy of the fund and the Manager respectively. 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 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, Rolinco N.V. also uses the services of one or more of these affiliated entities including transactions relating to securities, treasury, derivatives, custody, securities lending sale and purchase of its own shares, fund-administration services, as well as management activities. Transactions are executed at market rates. Structure of the Robeco Group The schematic diagram below shows the position of the entities referred to in the annual report and their mutual relationship within the Robeco Group. Only the relationships that are relevant to the investment institution have been included in the flow chart. Determination of the result General 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 derivative instruments. The results are accounted for in the Profit and loss account. Investment income Net cash dividends declared during the year under review, the nominal value of stock dividends declared, interest received and proceeds from loan transactions. Accrued interest at balance-sheet date is taken into account. Movements in value Realized and unrealized capital gains and losses on securities and currencies. Foreign 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. FINANCIAL INSTRUMENTS Risks 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. Price risk 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 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. As of balance-sheet date collateral ensuing from securities-lending transactions was received. More information can be found in the Notes to the balance sheet. Liquidity risk 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. Insight into actual risks 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. Risk management 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. Policy regarding the use of derivative instruments 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. Derivatives 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 counterparty. 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. Notes to the balance sheet 1 Stocks Movements in the stock portfolio EUR x thousand 2006 2005 Book value (market value) at opening date 1,512,999 1,211,971 Purchases 378,954 365,293 Sales -434,833 -407,477 Realized and unrealized results: stocks 174,328 265,272 currencies -94,531 77,940 Book value (market value) at closing date 1,536,917 1,512,999 A breakdown of the portfolio and overviews of purchases and sales exceeding an amount of EUR 4.5 million and the spread of net assets can be found at the end of this report. Shares in an amount of EUR 107.5 million (EUR 233.6 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 131.9 million (EUR 254.6 million at the end of last year) was demanded and obtained EUR 1.9 million of this amount concerns cash collateral. This amount is reported and explained under cash. Other collateral is not included in the Balance sheet. Share swaps Synthetic share swaps are customized products that offer investors the opportunity to obtain the economic return of equity investments without actually investing in the underlying value. There are various ways to offer over-the-counter (OTC) exposure to equities, for instance in the form of warrants, notes, option combinations and share swaps. A share swap is a customized contract concluded between the investor and the swap seller, which gives economic exposure to an underlying share, a related security, basket of stocks or index. In a swap contract two parties agree to swap the capital gains of, or the total return on, one certain share. In a typical long-side swap transaction, for instance, the investor receives all the positive performance of the reference share and pays all the negative performance plus interest based on LIBOR. At balance-sheet date, Rolinco held a share swap ensuing from a securities-lending transaction, with a market value of EUR 1.9 million. This position is marked in the List of securities with an asterisk. 2 Investments in Robeco Group mutual funds Part of the portfolio is invested in funds offered by the Robeco Group. Movements in investments in Robeco Group mutual funds EUR x thousand 2006 2005 Book value (market value) at opening date 97,449 116,343 Purchases 32,611 27,978 Sales -20,070 -84,934 Realized and unrealized results: stocks 16,826 38,034 currencies -1,583 28 Book value (market value) at closing date 125,233 97,449 A list of these investments is given below. Rolinco N.V. can enter and exit daily at net asset value in the abovementioned Robeco Group mutual funds Robeco Institutioneel Emerging Markets Fonds and Robeco Institutioneel European Opportunities Fund. These funds do not have an entry charge and have an exit charge of 0.50%, as included in the Terms and Conditions of Management and Custody of the said funds. For Robeco Global Long Short Quant Fund and Robeco Global Telecom Opportunities 1 limited class (EUR), entry and exit is possible once a month at net asset value; for Robeco Capital Growth Funds - Robeco European Opportunities I EUR entry and exit is possible daily. These funds do not charge any costs. +---------------------------------------------------------------------------------------------------------------------+ |Investments in Robeco Group mutual funds | |---------------------------------------------------------------------------------------------------------------------| | | Market value| | Interest in| | Net asset value| | Return| | Total expense| | | | | fund| | 1)| | | | ratio 2| |--------------------+-------------------+---+--------------+--+-----------------+--+--------------+--+---------------| | | EUR x thousand| | In %| | EUR x 1| | In %| | | |--------------------+-------------------+---+--------------+--+-----------------+--+--------------+--+---------------| | | 31/12| 31/12| | 31/12| 31/12| | 31/12| 31/12| | | | | | | | | 2006| 2005| | 2006| 2005| | 2006| 2005| | 2006| 2005| | 2006| 2005| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| | | | | | | | | | | | | | | | | |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| |Robeco | | | | | | | | | | | | | | | |Institutioneel | | | | | | | | | | | | | | | |Emerging Markets | | | | | | | | | | | | | | | |Fonds 3 | 78,504| 69,071| | 3.5| 3.3| | 88.18| 76.57| | 17.4| 62.4| | 0.87| 0.86| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| |Robeco Captial | | | | | | | | | | | | | | | |Growth Funds - | | | | | | | | | | | | | | | |Robeco European | | | | | | | | | | | | | | | |Opportunities I EUR | | | | | | | | | | | | | | | |4, 6 | 17,001| -| | 72.2| -| | 103.31| -| | 3.3| -| | 0.34| -| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| |Robeco Global | | | | | | | | | | | | | | | |Telecom | | | | | | | | | | | | | | | |Opportunities 1 | | | | | | | | | | | | | | | |limited Class (EUR) | | | | | | | | | | | | | | | |5, 7 | 15,339| -| | 85.7| -| | 102.26| -| | 2.3| -| | 0.07| -| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| |Robeco Global Long | | | | | | | | | | | | | | | |Short Quant Fund 5, | | | | | | | 107.| | | | | | | | |8 | 14,389| 14,967| | 75.0| 75.0| | 2010| 99.7410| | 7.510| -0.310| | 0.03| 0.00| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| |Robeco | | | | | | | | | | | | | | | |Institutioneel | | | | | | | | | | | | | | | |European | | | | | | | | | | | | | | | |Opportunities Fund | | | | | | | | | | | | | | | |3, 9 | -| 13,411| | -| 72.2| | -| 103.40| | 27.4| 3.4| | 1.67| 0.14| |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| | | | | | | | | | | | | | | | | |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| | | 125,233| 97,449| | | | | | | | | | | | | |--------------------+----------+--------+---+-------+------+--+--------+--------+--+------+-------+--+-------+-------| | | | | | | | | | | | | | | | | |---------------------------------------------------------------------------------------------------------------------| |1 Per share/participating unit. | |---------------------------------------------------------------------------------------------------------------------| |2 The management fee, the service fee and the performance fee will be restituted to Rolinco N.V. by the manager of| |the funds mentioned. | |---------------------------------------------------------------------------------------------------------------------| |3 This fund is managed by Robeco Institutional Asset Management B.V. and is not regulated. The annual report for the | |period ending on 31 December 2006 will be available at the offices of Rolinco N.V. after publication. | |---------------------------------------------------------------------------------------------------------------------| |4 This fund has a UCITS III status and is regulated by the Luxembourg authorities. The annual report of the fund for| |the period ending on 30 June 2006 and the semiannual report for the period ending on 31 December 2006 will be| |available at the offices of Rolinco N.V. after publication. | |---------------------------------------------------------------------------------------------------------------------| |5 This fund is not regulated. The annual report of the fund for the period ending on 31 December 2006 will be| |available at the offices of Rolinco N.V. after publication. | |---------------------------------------------------------------------------------------------------------------------| |6 Relates to the period 20 November 2006 through 31 December 2006. | |---------------------------------------------------------------------------------------------------------------------| |7 Relates to the period 27 April 2006 through 31 December 2006. | |---------------------------------------------------------------------------------------------------------------------| |8 Relates to the period 29 November 2005 through 31 December 2005. | |---------------------------------------------------------------------------------------------------------------------| |9 Relates to the period 1 December 2005 through 24 November 2006. The fund was terminated on 24 November 2006. | |---------------------------------------------------------------------------------------------------------------------| |10 In USD. | |---------------------------------------------------------------------------------------------------------------------| | | +---------------------------------------------------------------------------------------------------------------------+ 3 Derivatives Movements in derivatives EUR x thousand Forward exchange transactions 2006 2005 Book value (market value) at opening -841 date -90 Expirations 6,266 -30,181 Realized and unrealized results 1,449 30,932 Book value (market value) at closing date 7,625 -90 The presentation of derivatives in the Balance sheet is based on the liabilities and receivables per counterparty. Presentation of derivatives in the Balance sheet EUR x thousand Under financial Under accounts investments payable 2006 2005 2006 2005 Type of derivative Forward exchange 7,977 911 352 1,001 transactions 4 Interest and dividends receivable Concerns dividends declared but not yet received. 5 Receivables on affiliated companies These are borrowing fees and receivable restitution of management, service and performance fees. 6 Sundry debtors 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 [Besluit toezicht beleggingsinstellingen, or 'Btb'] and suspense items. 7 Cash Includes balances in current accounts at banks and call money. This item also includes the cash collateral received (EUR 1.9 million) from securities-lending transactions. 8 Payable to affiliated companies These are debts arising from issuance and repurchase of own shares and management and service fees to be paid. 9 Sundry creditors Includes unpaid expenses. 10 6¿ % convertible bond loan Since bonds which have not been converted on 1 July 2007 will be redeemed on that same date, the loan is included under Accounts payable. Previously it was included under Long-term debt. The comparative figures have been adjusted accordingly. The bonds may be converted into 6¿% cumulative preference shares at a ratio of 1:1 at any time. During the 2006 financial year NLG 1,044,000 were converted (previous year NLG 57.700). The loan is valued at nominal value. 11 Shareholders' equity Composition of and movements in shareholders' equity EUR x thousand 2006 2005 Issued capital Situation at opening date 66,949 72,590 Received on shares issued 16,610 5,927 Paid for shares repurchased -17,696 -11,568 Situation at closing date 65,863 66,949 6¿% cumulative preference shares 3,959 3,485 Other reserves Situation at opening date 1,116,055 1,188,195 Received on shares issued 378,058 115,732 Paid for shares repurchased -409,779 -222,256 Net result from previous financial year 413,094 54,366 Profit distribution -25,549 -19,982 Situation at closing date 1,471,879 1,116,055 Net result 106,157 413,094 Shareholders' equity 1,647,858 1,599,583 The company's authorized share capital amounts to EUR 400 million, divided into 380,000,000 ordinary shares with a nominal value of EUR 1 each and 500,000 cumulative preference shares with a nominal value of EUR 40 each. EUR 4 million of the cumulative preference shares has been placed. 12 Assets, shares outstanding and net asset value per share Assets, shares outstanding and net asset value per share 31/12/2006 31/12/2005 31/12/2004 Assets EUR x thousand 1,647,858 1,599,583 1,318,610 Shares issued in financial 16,610,485 5,926,741 7,291,123 year Shares repurchased in -17,696,102 -11,568,345 -12,446,962 financial year Number of shares outstanding 65,862,564 66,948,181 72,589,785 Net asset value per share in 24.96 23.84 18.12 EUR 13 Commitments not shown in the balance sheet The forward exchange transactions current at closing date represent purchases of AUD 36 million, CAD 32 million, EUR 76 million, GBP 25 million and USD 12 million, against sales of CHF 120 million and JPY 12,884 million. 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. Notes to the profit and loss account 14 Performance +-------------------------------------------------------------------------+ |Performance | | | | | | | | | | | |per share* | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |EUR x 1 | 2006| | 2005| | 2004| | 2003| | 2002| | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| | | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |Investment | 0.38| | 0.30| | 0.29| | 0.26| | 0.27| | |income | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |Change in | 1.41| | 5.95| | 0.60| | 1.08| | -8.00| | |value | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |Management | | | -0.23| | -0.17| | -0.15| | -0.17| | |costs, | | | | | | | | | | | |service fee | -0.27| | | | | | | | | | |and other | | | | | | | | | | | |costs | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |Interest | | | -0.01| | -0.01| | -0.01| | -0.01| | |payable | -0.01| | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| | | | | | | | | | | | | |-------------+-------+---+-------+---+-------+---+-------+---+-------+---| |Net result | 1.51| | 6.01| | 0.71| | 1.18| | -7.91| | |-------------------------------------------------------------------------| |*) Based on the average number of shares outstanding during the reporting| |year. The average number of shares outstanding is calculated on a daily | |basis for the years 2006, 2005 and 2004, and on a monthly basis for the | |preceding years. | +-------------------------------------------------------------------------+ Costs 15 Total expense ratio Total expense ratio 2006 Maximum 2005 In % prospectus Cost item Management costs 1.00 1.00 1.00 Service fee 0.11 0.12 0.1 1 Other costs 0.02 0.02 0.03 Costs relating to investments in Robeco - 0.02 Group mutual funds Total 1.13 1.14 1.16 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. In addition to the costs charged directly to the fund assets, the total expense ratio includes the costs indirectly charged to the fund assets via the underlying funds. The total expense ratio as shown does not include transaction costs. The total expense ratio was 1.13% 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 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 197 thousand (previous year EUR 196 thousand). The total expense ratio takes into account the costs of intra-group investments, as presented in the etable on page 17. As the management fee and the service and performance fees are restituted to Rolinco, only the other costs of intra-group investments are included in the total expense ratio. These costs are less than 0.01%, which is why they are not presented in the table. The interest on the convertible bond loan is no longer reported because of a change in regulations which means that interest on bonds no longer has to be included in the total expense ratio. The comparative figures have been adjusted accordingly. 16 Management costs and service fee 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% per year; for assets exceeding EUR 5 billion the service fee is 0.08% per year. Up to 1 March 2006 the management fee and service fee were charged by Robeco Nederland B.V., from this date onwards these fees have been charged by Robeco Fund Management B.V. 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. 17 Other costs This includes bank charges and custody costs. 18 Performance fee Rolinco N.V. is not subject to a performance fee. 19 Transaction costs 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 88.5% (previous year 96.6%) of the total transaction volume. Transaction costs EUR x thousand 2006 2005 Transaction type Stocks 991 1,762 20 Commission-sharing arrangements, soft-dollar arrangements and hard commissions Various independent research institutions/third parties provide services to the company to support its decision-making process. Part of the commission paid to brokers is used to pay for these services through commission-sharing arrangements and in such cases the commission is exclusively for research services. In 2006 commission-sharing arrangements represented an amount of EUR 270 thousand (last year EUR 72 thousand). Furthermore, there are so-called soft-dollar arrangements to pay for financial-service companies' services and products. These services and products are covered by part of the commissions paid to brokers in connection with the execution of securities transactions. Only the aforementioned commission-sharing arrangements were used during the reporting year. There were no soft-dollar arrangements (previous year EUR 64 million) or hard commissions during the reporting year. 21 Turnover ratio 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 2006 is 3% against 40% in the previous year. 22 Transactions with affiliated parties 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. Transactions with affiliated parties Part of the total volume in % 2006 2005 Transaction type Robeco Group mutual funds 100.0 100.0 Stocks 4.1 11.0 Forward exchange transactions 2.6 5.1 Deposits - 100.0 23 Securities lending Robeco Securities Lending B.V. is the intermediary for all Rolinco 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 B.V. are still in line with the market. In 2006 the proceeds for the fund amounted to EUR 507 thousand (last year EUR 341 thousand). For Robeco Securities Lending B.V. this was EUR 352 thousand (last year EUR 227 thousand). 24 Voting policy for stocks in the investment portfolio In 2006 Rolinco 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 Group's Internet site, www.robeco.com. 25 Personnel costs Rolinco N.V. does not employ personnel. Robeco Nederland B.V. is the employer of Rolinco 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 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 results, including performance results, and competencies. The variable income offers the fund manager 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 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'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 Robeco 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, 22 March 2007 Supervisory board P.C. van den Hoek, chairman G. Izeboud Ph. Lambert D.P.M. Verbeek Management board Robeco Fund Management B.V. Other data Stock-exchange listings The ordinary shares of Rolinco N.V. are listed on Eurolist by Euronext Amsterdam N.V. in Amsterdam, the Netherlands. In addition, Rolinco N.V. has a stock-exchange quotation for its ordinary shares in Paris, Brussels, London, Luxembourg, Berlin, Dusseldorf, Frankfurt, Hamburg, Munich, Vienna and Zurich. The cumulative preference shares are listed on the exchanges of Amsterdam and Luxembourg. Articles of Association rules regarding profit appropriation According to sections 39 and 40 of the Articles of Association, a distribution from the profit to the cumulative preferred shareholders will be effected first. Thereafter, the profit less allocations to the reserves deemed desirable by the management board in agreement with the supervisory board will be at the disposal of the General Meeting of Shareholders. Proposed profit appropriation We propose to declare a dividend of EUR 0.40 per share for the 2006 financial year (previous year EUR 0.36). If this proposal is accepted, the dividend will be payable on Friday 11 May 2007. With effect from Monday 30 April 2007, Rolinco shares will be listed ex-dividend coupon no. 47 on the stock exchange. Shareholders will be offered the opportunity to reinvest the dividend (less dividend tax) in Rolinco shares at the expense of the company. The price used to calculate this is the opening price of the shares on the stock market of Euronext Amsterdam N.V. on Friday 11 May 2007. 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. Supervisory directors' fee An amount of EUR 18.378 (previous year EUR 18.378) has been allocated from the profit appropriation for this purpose. The chairman of the supervisory board receives a remuneration of EUR 6,126 and an ordinary member of the supervisory board receives a remuneration of EUR 4,084. Directors' interests Statement pursuant to article 45, paragraph 3, of the 2005 Dutch Investment Institutions Supervision Decree [Besluit toezicht beleggingsinstellingen, or ' Btb']. Interests in investments of Rolinco N.V. Description Supervisory Managing Total directors directors Quantity Quantity Quantity At 1 January 2006 ING Groep stocks 20,294 - 20,294 Intel stocks 5,000 - 5,000 Nestlé stocks 315 - 315 Pfizer stocks 1,000 - 1,000 Novartis stocks 1,962 - 1,962 Royal Dutch Shell stocks 14,785 400 15.185 A Telenor stocks 15,000 - 15,00 Total stocks 610 - 610 VNU stocks 6,294 - 6,294 At 31 December 2006 ING Groep stocks 13,200 - 13,200 Intel stocks 5,000 - 5,000 Nestlé stocks 315 - 315 Novartis stocks 3,062 - 3,062 Philips stocks Electronics 11,385 - 11,385 Royal Dutch Shell stocks A 18,692 400 19,092 Telenor stocks 15,000 - 15,000 Total stocks 3,700 - 3700 The table below shows the personal interests in the investments of the investment institution held by the directors of the investment institution and/or the management company on 1 January 2006 and 31 December 2006. Supervisory directors held a joint interest of 5,645 and 5,708 Rolinco N.V. shares on 1 January 2006 and 31 December 2006, respectively. The managing directors of the management company held a joint interest of 2,992 and 4,041 Rolinco N.V. shares on 1 January 2006 and 31 December 2006, respectively. On 1 January 2006 and 31 December 2006, no options had been granted to supervisory directors; managing directors of the management company held options to acquire 21,858 and 17,845 Rolinco N.V. shares on the respective dates. Under the option scheme, Robeco Groep N.V. grants the right at its own expense to purchase Rolinco N.V. shares for five years, the value of the shares being at least the opening price on the first trading day following the day the options are granted. Aon Risk Services International, of which Dirk P.M. Verbeek is a director, acted as an intermediary of 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 business relations between supervisory directors and the company other than that of their membership of the supervisory board during the period under review. Interests of the fund manager 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 Securities Transactions Supervision Act. These Rules should guarantee that insider trading and mixing of business and private interests, or semblance thereof, are avoided at all times. On 1 January 2006 and 31 December 2006 the fund manager held an interest of 3,076 and 3,947 Rolinco N.V. shares respectively. Futhermore, at these same dates he had the following interests in Rolinco N.V. investments: 500 shares of Royal Dutch Shell A. Statement for the London Stock Exchange The members of the supervisory board and the management board of Rolinco 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, 22 March 2007 Statement concerning the 6¿% bond loan originally amounting to NLG 22,670,000 issued by Rolinco N.V., convertible into 6¿% cumulative preference shares In pursuance of article 17 of the trust executed before H. Lambert, civil-law notary in Rotterdam, on 6 June 1967, we declare: that from the date of the original contract for the bond loan up to 31 December 2006, 5 bonds of NLG 50,000 nominal value, 2,184 bonds of NLG 1,000 nominal value and 2,907 bonds of NLG 100 nominal value were converted; that all these bonds were cancelled by us; that at 31 December 2006, the total bonds outstanding amounted to NLG 19,945,300; that we have found no circumstances requiring comments or action. Amsterdam, 12 January 2007 B.V. Algemeen Administratie- en Trustkantoor To the General Meeting of Shareholders and members of the supervisory board Auditor's report Report on the financial statements We have audited the financial statements 2006 of Rolinco N.V., Rotterdam, which comprise the balance sheet as at 31 December 2006, the profit and loss account for the year then ended and the notes. Management's responsibility 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 Investment Institutions Supervision Act. 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. Auditor's responsibility 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'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. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Rolinco N.V. as at 31 December, 2006, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code and the Investment Institutions Supervision Act. Report on other legal and regulatory requirements 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, 22 March 2007 for Ernst & Young Accountants signed by Joost Hendriks Spread of net assets Across countries and currencies Across countries Across currencies Stocks[1] 31/12/2006 31/12/2006 31/12/2005 31/12/2006 31/12/2005 EUR x thousand In % In % In % In % North America (43.51%) United States 673,858 40.89 37.23 43.18 52.97 Canada 43,164 2.62 3.77 3.90 5.24 Europe (29.31%) Switzerland 110,821 6.73 7.43 2.39 2.65 United Kingdom 110,427 6.70 6.84 8.96 9.10 France 95,905 5.82 5.44 - - Netherlands 58,282 3.54 3.33 - - Germany 24,577 1.49 3.30 - - Norway 20,707 1.26 1.04 1.26 1.04 Belgium 19,440 1.18 0.73 - - Spain 17,938 1.09 0.87 - - Robeco Capital 17,001 1.03 0.84 - - Growth Funds - Robeco European Opportunities I EUR Greece 7,680 0.47 0.35 - - Austria - - 1.11 - - Finland - - 0.53 - - Europe - - - 22.74 22.74 Emerging markets (4.76%) Robeco 78,504 4.76 4.32 - - Institutioneel Emerging Markets Fonds 2) Asia (21.50%) Japan 294,773 17.89 18.38 13.36 11.50 Singapore 23,539 1.43 1.19 1.43 1.19 Hong Kong 17,435 1.06 0.98 1.48 1.78 South Korea 11,477 0.70 1.27 - - China 6,894 0.42 0.79 - - Australia (0.00%) Australia - - - 1.30 1.37 Others (1.80%) Robeco Global 15,339 0.93 - - - Telecom Opportunities 1 limited class (EUR) Robeco Global 14,389 0.87 0.94 - - Long Short Quant Fund2) Other assets -14,292 -0.88 -0.68 - - and liabilities (-0.88%) ___________ ___________ ___________ ___________ ___________ Total 1,647,858 100.00 100.00 100.00 100.00 1) In addition to investments in equities, the portfolio may include positions in derivatives. The sum of equities and derivatives reflects the true volume of the investments by country and in total. As was the case at 31 December 2005 the portfolio only contained forward exchange transactions at 31 December 2006. These forward exchange transactions have been included in the currency position. By sector In % 31/12/2006 31/12/2005 Financials 19.9 17.6 Health care 15.1 16.5 Information technology 13.8 16.3 Consumer discretionary 12.9 12.6 Energy 12.1 13.9 Industrials 9.4 8.0 Consumer staples 8.7 8.7 Materials 4.7 3.1 Telecommunication services 3.7 3.5 Utilities 0.6 0.5 Other assets and liabilities -0.9 -0.7 Total 100.0 100.0 2) In terms of currencies, the investments have been included under the item euro. Exchange rates 31/12/2006 31/12/2005 31/12/2006 31/12/2005 EUR 1 EUR EUR AUD 1.6731 1.6080 AUD 1 0.5977 0.6219 CAD 1.5344 1.3779 CAD 1 0.6517 0.7257 CHF 1.6095 1.5546 CHF 1 0.6213 0.6433 CNY 10.2881 9.5192 CNY 1 0.0972 0.1051 GBP 0.6738 0.6871 GBP 1 1.4842 1.4554 HKD 10.2564 9.1457 HKD 1 0.0975 0.1093 JPY 157.1339 139.2223 JPY 100 0.6364 0.7183 KRW 1,226.9939 1,192.3482 KRW 100 0.0815 0.0838 NOK 8.2102 7.9870 NOK 1 0.1218 0.1252 SGD 2.0231 1.9614 SGD 1 0.4943 0.5098 USD 1.3186 1.1796 USD 1 0.7584 0.8478 LIST OF SECURITIES at 31 December 2006 Market value Market value AMERICA (43.51%) EUR USD United States (40.89%) 19,570,534 25,806,684 Accenture CL/A 23,387,555 30,840,000 Adobe Systems 17,631,669 23,250,000 Amdocs 22,166,495 29,229,849 Amgen 22,550,336 29,736,000 Avon Products 16,933,986 22,330,000 Brunswick 39,378,910 51,927,000 Cisco Systems 34,636,939 45,674,000 Citigroup 26,190,422 34,536,000 ConocoPhillips 14,295,833 18,851,200 Covance 7,371,175 9,720,000 Crocs 15,236,416 20,091,500 CVS 16,992,075 22,406,600 Du Pont de Nemours 26,725,838 35,242,026 Fannie Mae 13,053,123 17,212,500 Intel 22,169,643 29,234,000 Ishares Nasdaq Biotechnology Index 10,497,478 13,842,500 Kinetic Concepts 24,961,724 32,915,778 Metlife 31,638,715 41,720,392 Microsoft 11,970,576 15,785,000 Mirant 16,332,840 21,537,300 Monsanto 25,244,442 33,288,584 Morgan Stanley 2,370,606 3,126,000 Neurocrine Biosciences 12,660,676 16,695,000 News Corp-Class B 20,262,390 26,719,000 Office Depot 19,497,213 25,710,000 Oracle System 16,695,105 22,015,000 Pfizer 5,899,973 7,780,000 Plug Power 16,493,232 21,748,800 Schering-Plough 19,158,988 25,264,000 Schlumberger 24,775,338 32,670,000 Time Warner 8,299,397 10,944,000 Tyco International 23,231,942 30,634,800 United Technologies 0 0 Venture Associates 18,499,147 24,393,900 Wellpoint 27,077,014 35,705,104 Wyeth EUR CAD Canada (2,62%) 22,004,624 33,766,095 Canadian Natural Resources 21,159,987 32,470,000 Petro-Canada/Variable Vtg. Shares EUR EUR Others (1.80%) Robeco Global Telecom Opportunities 1 15,338,925 15,338,925 Limited Class (EUR) EUR USD 14,388,899 18,973,922 Robeco Global Long Short Quant fund EUROPE (29.31%) EUR CHF Switzerland (6.73%) 15,515,795 24,975,000 Adecco Cheserex 30,262,790 48,712,500 Nestle 26,185,817 42,150,000 Novartis 28,506,197 45,885,000 Roche 10,350,853 16,661,250 UBS EUR GBP United Kingdom (6.70%) 6,883,117 4,637,500 888 Holdings 12,218,182 8,232,000 AstraZeneca (GBP) 24,551,020 16,541,250 Diageo 11,083,544 7,467,538 Kingfisher 2,445,751 1,647,825 Partygaming 17,933,210 12,082,500 Petrofac 21,192,547 14,278,478 Reckitt Benckiser 14,119,481 9,513,000 Rio Tinto EUR EUR France (5.82%) 3,538,813 3,538,813 Air Liquide Air Liquide - Act. Nom. Pime de fidelite 10,883,590 10,883,590 2007 2,248,750 2,248,750 Air Liquide 19,731,500 19,731,500 Saint-Gobain 50,619,125 50,619,125 Total 8,883,000 8,883,000 Vivendi EUR EUR Netherlands (3.54%) 21,497,600 21,497,600 ING Groep 17,999,100 17,999,100 Philips Electronics 18,785,496 18,785,496 Royal Dutch Shell A EUR EUR Germany (1.49%) 24,576,900 24,576,900 Metro EUR NOK Norway (1.26%) 20,706,969 170,012,500 Telenor EUR EUR Belgium (1.18%) 19,440,000 19,440,000 RHJ International EUR EUR Spain (1.09%) 12,726,000 12,726,000 Banco Santander Central Hispano 5,212,500 5,212,500 Gamesa Corporacion Tecnologica EUR EUR Luxembourg (1.03%) Robeco Capital Growth Funds - Robeco 17,001,089 17,001,089 Europe Opportunities I EUR EUR EUR Greece (0.47%) 7,680,000 7,680,000 Public Power Asia (21.50%) EUR JPY Japan (17.89%) 6,718,524 1,055,640,000 Aozora Bank 29,611,046 4,652,600,000 Astellas Pharma 18,335,860 2,881,000,000 Canon 21,605,893 3,394,800,000 Daikin Industries 22,377,259 3,516,000,000 Fanuc 19,742,394 3,102,000,000 Honda Motor 16,949,055 2,663,100,000 KDDI 14,033,520 2,205,000,000 Millea 17,820,343 2,800,000,000 Mitsubishi 16,269,973 2,556,400,000 Mitsui Fudosan 14,288,096 2,245,000,000 Nomura 14,739,969 2,316,000,000 Obayashi 18,615,894 2,925,000,000 Resona Bank 14,558,966 2,287,560,000 Sekisui House 10,596,740 1,665,000,000 Seven & I Holdings 19,475,673 3,060,091,800 Sony 19,033,399 2,990,600,000 T&D EUR SGD Singapore (1.43%) 14,197,608 28,724,600 DBS 9,341,637 18,900,000 Venture EUR HKD Hong Kong (1.06%) 17,434,632 178,800,000 Sun Hung Kai Properties EUR USD South Korea (070%) 11,476,889 15,134,000 Samsung Electronics/GDR 1/2 vgt.s -144A- EUR HKD China (0.42%) 6,893,895 70,700,000 Semiconductor Manufacturing EMERGING MARKETS (4.76%) EUR EUR Emerging markets (4.76%) Robeco Institutioneel Emerging Markets 78,503,744 78,503,744 Fonds * Concerns share swap of EUR 1,876,090 PURCHASES AND SALES of more than EUR 4.5 million during the financial year Shares Amount PURCHASES EUR United States 230,000 5,449,567 Adobe Systems 150,000 4,622,515 Brunswick 420,000 16,457,476 Citigroup 200,000 10,278,093 ConocoPhillips 460,000 14,817,142 Du Pont de Nemours 250,000 4,620,082 Intel 90,000 5,399,529 Ishares Nasdaq Biotechnology Index 350,000 11,173,187 Kinetic Concepts 500,000 10,326,947 Mirant 750,000 11,964,247 News Corp-Class B 400,000 8,186,245 Pfizer 920,000 14,856,978 Schering-Plough 360,000 8,345,969 Tyco International Others Robeco Global Telecom Opportunities 1 Limited 150,000 15,000,000 Class (EUR) Switzerland 180,000 8,283,232 Adecco Cheserex 150,000 6,618,335 Novartis Netherlands 630,000 16,861,133 Philips Electronics France 26,242 4,509,953 Total Belgium 600,000 11,440,628 RHJ International Spain 250,000 4,502,063 Gamesa Corporacion Tecnologica Luxembourg Robeco Capital Growth Funds - European 165,075 16,471,181 Opportunities I EUR Japan 2,280,000 8,643,831 Aozora Bank 211,000 5,174,284 Daikin Industries 9,000 25,230,709 Resona Bank 140,100 4,778,219 Sony Quantity Shares SALES EUR United States 280,000 5,981,293 Constellation Brands 340,000 22,064,078 Guidant 302,800 7,021,250 Microsoft 360,000 9,954,149 Qualcomm 400,000 18,435,513 Valero Energy 1,000,000 22,168,777 Warner Music 120,000 6,321,920 Wellpoint Canada 356,700 15,722,002 Canadian Natural Resources Switzerland 67,000 13,267,005 Nobel Biocare 40,000 5,589,256 Roche 295,000 14,391,066 UBS Netherlands Robeco Institutional European Opportunities 129,353 16,448,699 Fund 221,889 5,925,340 Royal Dutch Shell A United Kingdom 150,000 6,563,119 AstraZeneca (GBP) France 123,686 9,648,609 LVMH Moet Hennessy Louis Vuitton Germany 1,050,000 14,852,822 Deutsche Telekom 110,000 17,476,879 Sapag Norway 550,000 7,010,951 Telenor Spain 350,000 5,063,658 Banco Santander Central Hispano Finland 550,000 8,548,408 Nokia/A Austria 360,000 18,828,224 OMV Japan 400,000 4,816,266 Dai Nippon Printing 370,000 6,736,294 Mitsui Fudosan 1,800,000 9,632,861 Shinsei Bank 3,200,000 16,129,876 Toshiba South Korea 26,874 6,864,975 Samsung Electronics/GDR 1/2 vgt.s -144A- China 40,000,000 4,944,439 Semiconductor Manufacturing 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. |
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