Robeco's operating profit rose 48% to EUR 233.6 million in 2005. The positive developments in the stock markets in 2005 and the improving dollar rate have had a favorable effect on operating income. Cost control and the transfer of Rabo Beleggingsadvies to Rabobank have resulted in the reduction of personnel costs relative to 2004.

Strong growth in assets under management
Robeco's assets under management increased 18.5% in 2005. EUR 13 billion of this EUR 20.5 billion increase can be attributed to strong performance of the markets. EUR 5.8 billion of the increase stems from the strengthening of the dollar and the remaining EUR 1.7 billion of the increase comes from cash inflow from clients. Dividend distributions and interest payments amounted to EUR 0.7 billion.

Institutional activities generated a disappointing cash flow with an outflow of EUR 3 billion, largely due to the departure of a New York team responsible for investments in low-yielding municipal bonds. Inflow from retail clients was EUR 4.7 billion, which can mainly be ascribed to fixed-income funds, structured products such as Robeco Hattrick Bond (mainly in Europe and Japan) and the US investment funds of Harbor Capital Advisors.

Institutional investors account for EUR 65.4 billion of the total assets under management of EUR 131.6 billion and retail investors account for EUR 66.2 billion.

Cash flow set to improve in 2006
The outlook for 2006 is positive, not only for the markets but also for Robeco's corporate developments. Robeco expects the markets to continue their upward trend in 2006, albeit more gradually than in 2005. Banks and other fund distributors will increasingly offer third-party products, which will provide Robeco with many new distribution options outside the Netherlands. The appetite for 'traditional' funds will further recover and emerging markets in particular - such as the BRIC countries (Brazil, Russia, India and China) - are set to become increasingly popular with private investors. Finally, structured or capital-protected products will remain in high demand in 2006, particularly in Europe and Asia. Based on the healthy performance of the Robeco funds and the reinforcement of sales staff and account management, Robeco is optimistic about a further recovery in cash flow in 2006. Cash inflow from clients over the first two months of 2006 amounted to approximately EUR 1.6 billion.

Strong equity performance
At the Group level, 97% of the assets under management (88% after deduction of management fees) outperformed their respective benchmarks over a twelve-month period. In 2005, 98% of Robeco's equity funds outperformed their respective benchmarks thanks to the strong performance of our US subsidiaries and a solid recovery of the performance of our European fund managers. Over a three-year period, 54% of the equity portfolios managed in Europe posted outperformance relative to their benchmarks. At the corporate level, this percentage is 75%. Over 2005, assets under management as a whole realized an average excess return of 4.9 percentage points over benchmarks. The Robeco fund (EUR 7.2 billion) realized an outperformance of 2.3 percentage points, Rolinco (EUR 1.6 billion) beat its benchmark by no less than 7.8 percentage points and Robeco Emerging Markets Equities (EUR 1.3 billion) outperformed its benchmark by 5.5 percentage points. In the US, the USD 8.3 billion Capital Appreciation and the USD 11.8 billion International Funds substantially outperformed their benchmarks by 9.1 and 7.4 percentage points, respectively, in 2005. Both are large retail funds managed by Harbor Capital Advisors in Ohio, a wholly owned Robeco subsidiary.

Fixed income remains at high level
After a very strong 2003 and 2004 in which Robeco became one of the top bond houses in Europe, 2005 also proved to be a year of outperformance. The average excess return was 0.6 percentage points. The three-year track record is outstanding, which is reflected in an average Morningstar rating of 3.7 (on a scale of 1 to 5) for our bond funds. No less than 95% of the fixed income securities realized an outperformance over this three-year period. Flagship funds Rorento (EUR 3.1 billion) and Lux-o-rente (EUR 4.1 billion) outperformed their benchmarks in 2005 by 1.4 percentage points and 0.9 percentage points, respectively. The Harbor Bond fund (USD 2.0 billion) realized an outperformance of 0.7 percentage points.


Alternatives
The Enhanced Risk Diversified Trend Program of Transtrend (EUR 1.0 billion) realized a return of 6.0% in 2005 and an average return of 9.1% per annum over the last three years. Robeco Hattrick Bond, successfully launched in March 2005, had a difficult start. In terms of the net asset value, Robeco Hattrick Bond achieved a lower-than-expected return of -0.15% over its first nine months. The Robeco-Sage International fund had an absolute return of 8.4% in 2005, resulting in an excess return of 0.9 percentage points over its peer group average. Robeco Private Equity's net asset value rose 32% in 2005, as a result of which the fund outperformed the main index for listed stocks, the MSCI World Index, which rose 26.8%.

2006 and beyond: 'Invest in Europe, grow in the US, seed in emerging markets'.
Robeco has translated its mission into a number of core values and an ambition for the coming years. The core values are: client focus, result orientation, quality orientation, integrity, and cooperation. These values are essential for the successful implementation of our strategy.

In 2009, Robeco wants to be a leading international asset manager, with a strong pan-European base and prominent operations in the US. Robeco wants to serve its clients by delivering best-in-class asset management capabilities in the major financial centers and selected emerging markets worldwide. We have committed ourselves to realize this ambition through organic growth, which may include specific acquisitions in Europe funded from our own resources.

Robeco will also start activities in certain promising emerging markets. By moving into emerging markets at this juncture we can create a strategic competitive edge in the mediumtolongterm. Our motto for the coming years is: 'Invest in Europe, grow in the US, seed in emerging markets'.

Corporate social responsibility
For years Robeco has expected all its employees to take individual responsibility in the area of sustainability both as professionals and as private citizens. As a consequence of this basic principle, many responsibilities in this domain have been shifted to the operational level. The impact of companies' core products and processes on society is especially important in this respect. In order to sufficiently anticipate the extent of this impact, Robeco's CEO is responsible for the overall policy with regard to corporate social responsibility (CSR).
Robeco has formulated two main objectives for 2006: strengthening its reputation in the field of socially responsible investing (SRI) and increasing SRI assets under management (such as SRI niche and overlay products), and improving the transparency of its products and processes. At the operational level, several other objectives have been drawn up concerning environmental and social policy and social involvement.

CSR in existing products and services
Robeco developed a new product, 'engagement', in 2005, Engagement stands for an active dialogue on corporate governance and sustainability with the management of the companies in which Robeco invests. This product will be rolled out to the first clients in 2006. Robeco also aims to exercise its voting rights on stocks in the portfolios of its investment funds throughout the world. Robeco does this because it is convinced that good corporate governance is beneficial to shareholder value in the long-term and is, therefore, in our clients' interest. Assets under voting rose from EUR 10 billion in 2004 to EUR 18 billion at the end of 2005. Robeco now votes for more than 95% of its Rotterdam-based retail and institutional equity funds and each quarter it publishes a summary and a full account ofits voting behavior per fund on its website.

Internal control functions
The internal riskmanagement framework was further strengthened in 2005. The development and implementation of new regulations has led to increased pressure on monitoring and oversight capacity in recent years. The everincreasing complexity of financial instruments continues to demand innovative controls and oversight. During the year, Compliance, Internal Audit and Risk Management rolled out their global mandates by appointing local officers or contact persons and developing a global approach. Policies and methodologies were aligned throughout the organization but continue to respect differences in local laws and regulations.

Robeco has established a Product Quality Committee to evaluate all product proposals across business units in order to ensure the quality and consistency of the Robeco Group's entire product range.