cc/BROCHURE INSTRUMENTS DE PLACEMENT ENG.DOC – IPL – 26/04/2007

INVESTMENT INSTRUMENTS

VERSION 2007 – PART 1

TEXT SUBMITTED TO WEBEDIT IN FEBRUARY/MARCH 2007 FOR PUBLICATION ON THE FEBELFIN WEBSITE

TABLE OF CONTENTS

1. DEPOSITS AND ACCOUNTS HELD WITH BANKS (TO BE UPDATED BY DC)

1.1. Deposit accounts 1.2. Savings accounts

1.2.1. General features 1.2.2. Regulated savings accounts 1.2.3. Non-regulated savings accounts

2. BONDS (PART 2)

2.1. General features 2.2. Bonds by issuer

2.2.1. Bank savings certificates 2.2.2. Linear bonds (OLOs) 2.2.3. Government savings certificates 2.2.4. Corporate bonds .................................... 2.2.5. Eurobonds

2.3. Bonds by type 2.3.1 Convertible bonds 2.3.2. Bonds cum warrant 2.3.3. Reverse convertible bonds (RCBs) 2.3.4. Structured notes

3. SHARES (part 1) (incl. 3.1. Trackers)

4. FINANCIAL DERIVATIVES (PART 1) 4.1. General features 4.2. Options ................................................... 4.3. Warrants .................................................. 4.4. Futures ..................................................

5. COLLECTIVE INVESTMENT UNDERTAKINGS (CIUS) (PART 2)

5.1. What is a CIU? 5.2. General features of CIUs 5.3. Pros and cons of CIUs 5.4. Risks associated with CIUs 5.5. CIU by legal form

5.5.1. Investment companies 5.5.1.1. SICAVs 5.5.1.2. SICAFs

2

5.5.1.3. PRICAFs 5.5.1.4. Sociétés d’investissement en créances (SICs) 5.5.2. Fonds de placement

5.6. CIU by distribution policy

5.6.1. Income shares and units 5.6.2. Accumulation shares and units

5.7. CIU by investment strategy 5.7.1. Bond market funds

5.8.1.1. Fixed funds 5.7.2. Medium-term funds 5.7.3. Money market funds 5.7.4. Equity funds

5.8.4.1. Index funds 5.7.5. Funds with capital protection (incl. index funds with

capital protection) 5.7.6. Hybrid funds 5.7.7. Pension savings funds 5.7.8. Fund of

PPM hedge funds

5.8. Tax treatment of CIUs: General principles 5.8.1. Taxation of CIUs as tax-liable entities 5.8.2. Taxation of distributions made by CIUs in Belgium 5.8.3. Taxes due from investors on income from CIUs 5.8.3.1. Belgian withholding tax 5.8.3.2. Stamp duty 5.8.3.3. Country of residence deduction 5.8.3.4. Table for investors summarising the tax treatment of

CIUs

5.9. CBFA list of public CIUs organised under Belgian and foreign law

6. INSURANCE-RELATED INVESTMENT PRODUCTS (PART 1)

6.1. Branche/Tak 21 – Insurance bonds 6.2. Branche/Tak 23 ............................................

7. REAL ESTATE INVESTMENT (PART 1)

7.1. Real estate certificates 7.2. SICAFIs: real estate SICAFs

8. SOCIALLY RESPONSIBLE AND SUSTAINABLE INVESTMENT (PART 1)

8.1. General features 8.2. Ethical savings products 8.3. Socially responsible investment (SRI) funds

3

9. GOLD, GOLD MINES AND OTHER PRECIOUS METALS (part 1)

APPENDIX:DEFINITIONS OF RISKS ASSOCIATED WITH INVESTMENT INSTRUMENTS (PART 1)

4

2. BONDS

2.1. General features

Generally speaking, a bond is an IOU on the part of the issuer; it

represents a participation in a long-term loan for which the bondholder

receives interest.

The issuer can be:

- a Belgian or foreign public corporation;

- a Belgian or foreign private enterprise;

- an international organisation;

- a credit institution (bank savings certificates).

Bonds are one of the world's most popular financial instruments. Their

principle is simple: an interest rate which gives entitlement to the

payment of a periodic coupon, a loan term, a purchase price, and a

redemption price at maturity.

Presentation

A bond usually consists of a certificate and a coupon sheet. The

certificate represents the borrowed capital. Upon maturity of the bond,

the borrowed amount is repaid on presentation of the certificate. The

certificate includes the following details: the issuer's identity, the

total amount of the loan, the amount lent or nominal amount, the interest

rate, the redemption date and price, and the conditions of issue.

The coupon sheet contains coupons which represent the interest. The

bondholder detaches the coupon every year and cashes it in, not earlier

than the date specified.

This description corresponds to the physical presentation of a bond (or

in paper form), but a bond can also be presented in dematerialised form,

in which case it remains in a custody account held with a credit

institution.

Bond markets

A bond is always issued in the primary market, which is the market for

issuing new securities. Investors can only subscribe for a newly issued

bond during a limited period, called the issue period. This is determined

by the issuer and can be shortened or extended depending on how popular

5

the bond is with market investors. This is known as subscription, which

is carried out in accordance with the conditions of issue.

Investors wishing to acquire a bond after the issue period must go via

the secondary market, which is the market for trading securities; this

may be a regulated market such as Euronext.

Prices vary daily in the secondary market: when interest rates rise,

prices drop; on the other hand, when interest rates drop, prices rise.

Quality of the issuer – Rating

The rating provides both individual and institutional investors with a

point of reference as regards the quality of the debtor (whether

companies, countries or international organisations). This is because

individual investors are generally unable to formulate their own opinion

as to the solvency of the company or public authority wishing to finance

itself in the international bond markets. The rating is determined by the

quality of the debtor, but is also mostly linked to a specific issue or

to a number of bonds issued by the same debtor.

The rating is a standardised code consisting of letters and figures which

gives an independent assessment of the debtor's credibility. The higher

the rating (e.g. AAA), the lower the debtor risk.

Ratings are awarded by specialist companies (rating agencies), the most

well-known of which are of US origin: Moody’s, Standard & Poor’s, Thomson

Bank Watch, and International Bank Credit Analysis (IBCA).

A rating can be revised. This is because, following the issue period, the

rating agencies continue to track the debtor very closely and are

sometimes forced to upgrade or downgrade a rating, which reflects the

debtor's position at a given time.

The debtor risk (or credit risk) is a contributing factor to determining

the final return on a bond loan.

Issue/Redemption price

The issue price of a bond is not necessarily equal to its nominal value.

It may be adapted in order to be more in line with market conditions.

Bonds may be issued at par (issue price = nominal value; the subscriber

pays the full price: 100% of the nominal value); below par (issue price

below the nominal value, the difference between the two constituting the

discount, which actually increases the return for investors; this

discount is taxable in certain cases); or above par (investors pay more

than the nominal value of the bond).

6

The redemption value at maturity is usually 100% of the nominal value,

but the bond loan may stipulate a redemption premium if the issuer

decides to redeem at a price exceeding 100%. This premium is subject to

15% tax if the issue was carried out after 1 March 1990, and to 25% tax

if the issue was before this date.

Term

The term is determined when the bond is issued. So everyone knows the

final date when the initial capital will be repaid. However, the

conditions of issue may stipulate redemption before due date (date of

redemption different from date of maturity).

Monetary erosion of bonds

At the time of redemption at final maturity, the real value of the

principal may have decreased owing to inflation. This monetary erosion is

even greater when inflation is running high and the bond is long-dated.

If the nominal rate is more than the average rate of inflation during the

life of the bond, the monetary erosion may be offset.

Types of current bonds

- Ordinary bonds: have a fixed term coupled with a fixed rate throughout

this term. Holders of ordinary bonds are not eligible for any special

rights; if the issuer goes into liquidation, they are reimbursed after

all preferential creditors.

- Priority bonds: holders of priority bonds are reimbursed as a priority

if the issuer goes into liquidation. The repayment of capital and

interest is guaranteed from certain assets of the debtor.

- Subordinated bonds: if the issuer goes into liquidation, holders of

subordinated bonds are only reimbursed after all other bondholders

(preferential and ordinary creditors).

- Zero-coupon bonds: no coupon (interest is not paid annually, but

capitalised until maturity); below-par issue, i.e. investors pay less

than the nominal value at the time of issue (the issue price is largely

less than the redemption price as it is equal to the current nominal

value on the issue date and at the fixed rate).

- Indexed bonds: bonds whose yield is linked to the trend in one or more

indices (e.g. inflation, gold price, stock exchange index or share price,

specific exchange rate); various indexation clauses may be stipulated:

for instance, only the redemption price is indexed and no coupon is paid.

7

- Variable-yield bonds: the coupon amount is not fixed but revised

periodically.

- Convertible bonds: these bonds can be converted into equities (see

section 2.3.1.).

- Bonds cum warrants: a bond cum warrant is linked to a share; a warrant

confers the right to buy the underlying share in advance at a fixed price

(see section 2.3.2.).

- Reverse convertible bonds (RCBs): are redeemed either in cash or in

equities, but always at the bond issuer's option. Owing to the inherent

risks, the Belgian Banking, Finance and Insurance Commission (CBFA) has

requested that credit institutions no longer use the term "obligation"

(bond) for this type of instrument (see section 2.3.3.).

- Bonds also have certain specific features depending on the issuer:

(Belgian or foreign) governments, international organisations, (Belgian

or foreign) companies in the private sector.

TAX TREATMENT

In Belgium, interest on bonds is currently subject to 15% withholding

tax. Interest on bonds issued in Belgium before 1 March 1990 is subject

to 25% withholding tax.

FOR FURTHER INFORMATION ON BONDS WWW.LECHO.BE/MES_INVESTISSEMENTS/GUIDE_BOURSIER/OBLIGATIONS/ www.budget-net.com/map/show/2511/src/33330.htm

8

2.2. Bonds by issuer

2.2.1. Bank savings certificates

DESCRIPTION

Bank savings certificates are bonds issued by a credit institution.

Traditionally, these are bearer securities representing an IOU by means

of which a credit institution (the borrower) declares that it has

received a specific sum from the lender (the investor buying the bank

savings certificate) and undertakes to reimburse this sum following an

agreed period, while paying interest also agreed in advance.

A bearer security is an anonymous document that can be transferred to a

third party at any time. The holder of a bank savings certificate is

assumed to be the owner of it. At the request of the depositor, however,

a bank savings certificate may be registered.

Bank savings certificates are a popular investment vehicle in Belgium.

More and more investors are depositing their bank savings certificates in

a custody account. In this case, they become completely dematerialised

and, more importantly, bearer securities as they are recorded in book-

entry ("scriptural") form on the custody account of the person concerned.

Investing in bank savings certificates is usually done in round figures.

The minimum denomination is EUR 250. Denominations of EUR 250, EUR 1,000,

EUR 2,500 and EUR 10,000 are the most common.

The term of bank savings certificates is generally from one to five

years, but some credit institutions offer a term of ten years or more.

These certificates are issued through continuous sales, i.e. they can be

subscribed for at any time: some banks have facilities that allow

immediate delivery of bearer-type bank savings certificates opted for by

customers (term, amount, etc.).

Bank savings certificates consist of a certificate and a coupon sheet.

The certificate represents the lent capital: it includes the name of the

credit institution, the amount of capital, the interest rate, the term,

the payment date of the coupon, and the date of maturity. The coupons on

the appended sheet represent the interest. Every year the owner of the

bank savings certificate detaches the corresponding coupon and cashes it

in at the issuing credit institution. Upon maturity of the bank savings

9

certificate, the bearer recoups his capital on presentation of the

certificate. The last coupon is generally included in the certificate.

Bank savings certificates are issued at par, i.e. at their full nominal

value. The issue price of bank savings certificates is therefore equal to

their nominal value. For example, a EUR 250 bank savings certificate will

therefore cost EUR 250.

There are different types of bank savings certificates:

- ordinary bank savings certificates have a predetermined annual fixed

rate; owners can detach and cash in a coupon every year.

- step-up bank savings certificates have an interest rate that increases

over time. Holders of these certificates usually have the option of

recouping their capital as early as the date of the first coupon. The

gradual rise in the interest rate acts as an incentive to keep the bank

savings certificate until maturity.

- investment growth bonds: annual interest is not paid but added each

time to the initial sum (capitalised); this type of bank savings

certificate consists of only a certificate. Upon maturity, the

certificate holder recoups his initial outlay plus all the capitalised

interest. The bank will deduct withholding tax (15%) from this interest.

- bank savings certificates with optional capitalisation or growth bonds

give holders the option of capitalised interest or the payment of this

interest on presentation of the coupon; as a result of this possibility

to choose, interest is capitalised at a rate that is less than the normal

return on ordinary bank savings certificates.

- bank savings certificates with periodic payment of interest (monthly,

quarterly, half-yearly); this vehicle appeals to certain investors who

want a regular income, e.g. pensioners.

TAX TREATMENT

The income earned on bank savings certificates is subject to 15%

withholding tax, which is deducted upon maturity of the coupons; coupons

are paid net.

PROS AND CONS OF BANK SAVINGS CERTIFICATES

PROS

- Definite return known in advance: certainty of recouping capital upon maturity, plus interest.

- Interest rate fixed when the investment is made and remains fixed throughout the agreed term of the investment.

10

- WIDE RANGE OF BANK SAVINGS CERTIFICATES AND OPTIONS FOR INVESTORS.

CONS

- Interest increases apply only to newly issued bank savings certificates, not to current certificates.

11

RISKS ASSOCIATED WITH BANK SAVINGS CERTIFICATES

1. Insolvency risk Negligible as bank savings certificates are issued by credit institutions which are closely supervised by the CBFA. Credit institutions are obliged to adhere to the "System for the protection of deposits and financial instruments" which indemnifies investors if any credit institution goes into liquidation. This indemnification is limited, per holder, to EUR 20,000 for deposits. Bank savings certificates are only indemnified if they are registered or on open deposit.

2. Liquidity risk Fairly liquid investment instruments. Bank savings certificates are not officially tradable on the stock exchange. If investors want access to the money invested in a bank savings certificate earlier than planned, they can: - either look for a buyer; - or ask their bank to redeem the bank savings certificate, with the redemption price being agreed with the bank; in practice, most banks redeem their own bank savings certificates at a price that is often fairly favourable in view of the actuarial return and generally pay the proceeds of the sale to the customer on the same day.

3. Exchange risk Nil as bank savings certificates must be denominated in euro (financial institutions do not issue bank savings certificates in other currencies).

4. Interest rate risk Nil as the interest rate is determined when the investment is made and remains fixed throughout the agreed term of the investment.

12

2.2.2. Linear bonds (OLOs)

DESCRIPTION

Launched in 1989, OLOs currently represent the Belgian federal

government's main public debt instrument. OLO is an abbreviation of

"Obligation Linéaire-Lineaire Obligatie" (linear bond).

OLOs are bonds that are:

- medium, long or very long-dated (up to 30 years),

- denominated in euro,

- issued mainly by the Belgian Treasury (more rarely by the

communities and regions),

- mainly allocated by auction based on a bidding system,

- in dematerialised form,

- issued in successive monthly tranches within a line (where

the term "linear bonds" comes from),

- characterised by an identical nominal interest rate and

maturity within the same line,

- fixed-yield debt securities (except for a line with variable

interest linked to the three-month Euribor).

Transactions in the primary market are settled through the National Bank

of Belgium's (NBB) clearing system.

OLO placement and market liquidity are provided by a body of Primary and

Recognised Dealers. Only Primary and Recognised Dealers are authorised to

participate in auctions.

The auction relates to the price bid by subscribers.

The minimum bid is EUR 1 million which must be expressed in multiples of

EUR 100,000. The Treasury decides on a minimum price. All higher bids are

knocked down in full to the bid price.

All residents and non-residents, regardless of their legal status, can

acquire OLOs in the secondary market. They are admitted for listing on

Euronext. This vehicle is mainly targeted at professionals, but the OLO

market is also accessible to individuals through the NBB's "X/N"

accounts1. OLOs can be purchased at a discount through specialist

brokers.

1 The NBB's X-N clearing makes a distinction between those holders who are liable to pay withholding tax and those who are not. This means that buyers and sellers need not worry about the tax status of their counterparty. This objective is achieved by making a distinction between those custody accounts which are exempt from Belgian withholding tax ("X" accounts) and those which are not ("N" accounts).

13

TAX TREATMENT

As OLOs are dematerialised securities, the X-N clearing system takes care

of the tax aspect of OLO transactions.

There is no deduction of Belgian withholding tax on interest paid to

holders of X accounts (which are exempt from withholding tax). Tax is

only deducted from interest paid to holders of N accounts (which are not

exempt from withholding tax). These holders include resident individuals

and not-for-profit organisations. OLO transactions are not subject to

stamp duty.

FOR FURTHER INFORMATION ON OLOS

See the Federal Public Debt Service's website:

www.debtagency.fgov.be/fr_products_olo.htm

PROS AND CONS OF OLOS

PROS

- Liquidity: buoyant secondary market; OLOs are readily tradable in the secondary market. A relatively large volume is in circulation for each OLO line. The OLO secondary market is also sustained by Primary Dealers.

- Security: as guaranteed by the State.

- The ten-year OLO rate is the benchmark for the capital market. By acquiring an OLO in the secondary market, an individual is certain to have an investment that adheres to market conditions.

- OLOs are not coupled with a call option, so there is no risk of redemption before the due date.

CONS

- Private investors can only acquire OLOs via the secondary market, which entails certain costs.

- High amount of denominations traded in the secondary market (minimum denomination: EUR 1,000).

- OLOS ONLY EXIST IN DEMATERIALISED FORM AND SO MUST BE DEPOSITED IN A CUSTODY ACCOUNT.

- Compulsory registered subscription for Belgian residents liable to pay

withholding tax.

RISKS ASSOCIATED WITH OLOS

1. Insolvency risk Nil. In OECD countries, the State is regarded as the best debtor (sovereign risk).

14

2. Liquidity risk Nil owing to the high volume of long-term public debt, the major activity in the secondary market, and the role played by market makers.

3. Exchange risk Nil (OLOs are denominated in euro).

4. Interest rate risk resulting in a drop in the price of the security Yes. Investors will sustain a capital loss in the event of selling in the secondary market when the market rate is more than the nominal rate of bonds forming part of a "line". This is because the bond price will fall to a level at which the yield (interest rate in relation to the price) equals the return on a new issue in the primary market. In the opposite scenario (market rate less than the nominal rate), savers will realise a capital gain.

2.2.3. Government savings certificates

DESCRIPTION

Government savings certificates are fixed-yield securities with an annual

coupon, issued by the State in euro. An investment vehicle offered by the

Belgian State since mid-1996, government savings certificates are

targeted at individual investors and resemble many of the aspects of bank

savings certificates (see section 2.2.1.).

The Belgian Treasury issues government savings certificates four times a

year in March, June, September and December through an advertising

campaign conducted by banks. Government savings certificates are placed

via a panel of placing institutions approved by the Finance Minister. The

regulatory body responsible for government savings certificates is the

Fonds des Rentes/Rentenfonds (Belgian Securities Regulation Fund).

Individuals can buy government savings certificates in the primary market

at the time of subscription or in the secondary market. Government

savings certificates are quoted daily on Euronext; their price is

published in most daily newspapers.

Government savings certificates have not been available in physical form

since the June 2007 issue.

TAX TREATMENT

Interest earned on government savings certificates is subject to 15%

withholding tax.

15

FOR FURTHER INFORMATION

See the Federal Public Debt Service's website:

treasury.fgov.be/interdette.

PROS AND CONS OF GOVERNMENT SAVINGS CERTIFICATES

PROS

- Highly negotiable: holders of government savings certificates can sell them whenever they want, simply by asking their financial intermediary to resell them on the stock market (availability of invested money). Government savings certificates are easy to resell before maturity subject to proper conditions.

- Issuer quality: the State is regarded as the debtor with the best rating (security).

- Annual coupons

- Minimal outlay (EUR 200)

- Acceptable yield, roughly equivalent to the return on bank savings certificates.

16

CONS

wCan be subscribed for only four times a year for a period lasting ten days (whereas bank savings certificates issued through continuous sales can be permanently subscribed for).

RISKS ASSOCIATED WITH GOVERNMENT SAVINGS CERTIFICATES

1. Insolvency risk Nil. In OECD countries, the State is regarded as the best debtor (sovereign risk).

2. Liquidity risk Nil. Government savings certificates are a readily negotiable instrument and are easy to resell on the stock market before maturity subject to proper conditions.

3. Exchange risk Nil as government savings certificates must be denominated in euro (no government savings certificates in other currencies).

4. Interest rate risk Nil as the interest rate is determined when the investment is made and remains fixed throughout the agreed term of the investment.

5. Interest rate risk resulting in a drop in the price of the security Yes. Savers will sustain a capital loss in the event of selling in the secondary market when the market rate is more than the nominal rate of government savings certificates.

17

2.2.4. Corporate bonds

DESCRIPTION

A bond issued by a company is a debt security that represents

participation in a long-term loan issued by a company in the private

sector.

It gives entitlement to interest calculated on the nominal value, payable

on specified due dates. The interest rate and the coupon maturity are

fixed at the time of issue.

Bonds are redeemable on fixed dates, through a stock-market purchase by

the issuing company, or by lot (if this option was initially provided

for).

Investors can purchase corporate bonds in both the primary (i.e. upon

issue) and secondary markets.

For the general features of corporate bonds, please refer to section

2.1. (Bonds: general features)

TAX TREATMENT

Interest is subject to 15% withholding tax.

PROS AND CONS OF CORPORATE BONDS

PROS

- Interest fixed in advance: usually higher than for other investments (e.g. government savings certificates, bank savings certificates) to offset a greater credit risk.

- Negotiable, in principle in the secondary market.

CONS

- Monetary erosion: inflation reduces the real value of the principal at the time of redemption on the final due date.

18

RISKS ASSOCIATED WITH CORPORATE BONDS

1. Insolvency risk Depends on the quality of the issuing company. Quality is assessed by rating agencies which award ratings to companies (see section 2.1.). The higher the rating, the lower the risk. However, rating agencies are not infallible.

2. Liquidity risk Depends on the existence and functioning of a secondary market for the security. The greater the transaction volumes, the lower the liquidity risk.

3. Exchange risk Nil for euro-denominated bonds. Yes, for other currencies: the exchange risk will depend on the value of the bond currency which may rise or fall against the euro.

4. Interest rate risk resulting in a drop in the price of the security Yes. Savers will sustain a capital loss in the event of selling in the secondary market when the market rate is more than the nominal rate of bonds. This is because the bond price will fall to a level at which the yield (interest rate in relation to the price) equals the return on a new bond issued (usually at par) in the primary market. In the opposite scenario (market rate less than the nominal rate), savers will realise a capital gain.

5. Other risks Bonds can be coupled with a call option, which allows the issuer to redeem the loan before the due date at a specified price and on a specified date.

19

2.2.5. Eurobonds

DESCRIPTION

Eurobonds are bonds issued internationally (in several countries at the

same time) by private companies, public institutions, sovereign states,

and international organisations, outside the country of the currency in

which they are issued. They are usually denominated in different

currencies.

Eurobonds are placed through an international banking consortium of

credit institutions and can be purchased by investors worldwide.

Investors can purchase Eurobonds in both the primary (i.e. upon issue)

and secondary markets. They can be transferred and traded at any time.

Some Eurobonds are admitted to the listing of a regulated market.

The currency of the issue (exchange risk), the quality of the company

issuing the loan (the issuer), the yield, and the option to redeem before

the due date are factors that should be given careful consideration by

investors in their choice of Eurobonds.

Until the Directive concerning the prospectus 2003/71/EC is implemented,

the issue of Eurobonds is often only accompanied by a brochure that is

usually written in English, rather than a detailed prospectus drawn up

for Belgian investors.

Following implementation of the Directive, the offer of Eurobonds will

also be subject to the drafting of a full prospectus for investors,

approved by the CBFA.

Special categories of Eurobonds

- Eurobonds with foreign exchange option

An exchange rate, usually between two currencies, is established

throughout the term of the loan. The issuer reserves the choice of

currency at the time of issue and generally also at the time of

redemption, on the basis of the exchange rate set at the time of issue.

- Convertible Eurobonds

Eurobonds that can be converted to equities subject to certain conditions

(see section 2.3.1. Convertible bonds).

- Eurobonds cum warrants

Eurobonds to which a warrant is attached, which entitles bondholders to

buy one or more shares at a specific time and against cash payment,

without relinquishing the bond (see section 2.3.2. Bonds cum warrant);

20

bond warrants allow the purchase of other bonds (rather than of shares)

whose features are akin, or even similar, to those of basic bonds.

- Floating-rate notes (FRNs)

Bonds whose interest rate is refixed at regular intervals for the next

period (e.g. every six months for the next six months).

- Zero-coupon Eurobonds

Eurobonds which do not pay any annual interest; interest is capitalised

until maturity. The issue price is the current nominal value on the issue

date at the fixed rate.

- Indexed Eurobonds

Eurobonds whose yield is linked to changes in one or more benchmark

indices.

TAX TREATMENT

- For individuals residing in Belgium, coupons are subject to 15%

withholding tax when collected in Belgium. In principle, the tax is

deducted at source.

When coupons are cashed in abroad, there is no deduction of withholding

tax at source. However, all coupons collected abroad which are not

subject to the deduction of withholding tax must be declared.

PROS AND CONS OF EUROBONDS

PROS

- Interest fixed in advance (except for FRNs: see above).

- Guaranteed annual return throughout the life of the Eurobond (the term may be reduced in the event of redemption or by lot: the issuer has the option of redemption before the due date).

- Attractive return for issues denominated in certain currencies; investors should be aware, however, that a high return will generally be coupled with a high risk.

- THE MONETARY RISK CAN BE SPREAD BY INVESTORS AS EUROBONDS ARE INVESTMENTS THAT ARE DENOMINATED IN FOREIGN CURRENCIES.

- Broad range of Eurobonds on offer to investors, thanks to the globalisation of financial markets.

- No central market: prices vary from one intermediary to the other.

CONS

21

w Most of these issues are handled solely outside regulated markets. This can make it difficult to carry out a proper valuation of an issue.

w The conversion to euro entails exchange expenses. These can be avoided when the proceeds from the sale are reinvested in another security denominated in the same currency.

- Monetary erosion: inflation reduces the real value of the principal at the time of redemption on the final due date.

22

RISKS ASSOCIATED WITH EUROBONDS

1. Insolvency risk Depends on the quality of the issuer, assessed by rating agencies which award a rating to companies (see section 2.1.). The higher the rating (e.g. AAA), the lower the risk. Companies operating in the Eurobonds market generally enjoy a good reputation, but rating agencies are not infallible.

2. Liquidity risk Depends on the existence and functioning of a secondary market for the security. Loans issued by sound debtors or presenting a large issue volume have slightly more liquidity than loans issued by less reputable debtors or presenting a more limited volume.

3. Exchange risk Depends on the currency. If when the capital is repaid the foreign currency has depreciated, the conversion to euro will result in a loss. The exchange risk must also be borne when paying each coupon.

4. Interest rate risk resulting in a drop in the price of the security Yes. If traded in the secondary market, the return on the investment is determined by the market rate. For example, if the market rate has dropped in relation to the Eurobond rate, there will be a capital gain. In the opposite scenario, investors will sustain a capital loss. This is because the bond price will fall to a level at which the yield (interest rate in relation to the price) equals the return on a new bond issued in the primary market.

5. Other risks Eurobonds can be coupled with a call option, which allows the issuer to redeem the loan before the due date at a specified price and on a specified date (option used when the market long rate has become significantly less than the bond rate).

23

2.3. Bonds by type

2.3.1. Convertible bonds

DESCRIPTION

A convertible bond is a bond issued by a company that is coupled with the

right to convert to equities of this or another company, for a specified

period and subject to predetermined conditions. If the company issues

more than one class of shares, the type of shares these bonds can be

converted to must be determined in advance. Once the conversion has been

made, interest on the bonds no longer accrues and investors are entitled

to dividends. The conversion is irreversible.

Convertible bonds should not be confused with "reverse convertible" bonds

(see section 2.3.3.) which are redeemed upon maturity either in cash (at

par if there has been a sharp rise in the underlying share) or in

underlying shares (if the share price has plummeted), at the issuer's

option.

"Subordinated" convertible bonds may also be issued which rank after all

present and future creditors if the issuing company is wound up.

Conversion is possible during the conversion period.

The issuer fixes the conversion price when the convertible bonds are

issued. This is the price to be paid in convertible bonds (at the nominal

value) at which the issuing company will transfer shares during the

conversion period.

This is how the conversion ratio is fixed, which corresponds to the

number of shares obtained as a result of converting a bond (based on the

nominal value). It is sometimes pointed out that the conversion ratio,

from which the bondholder benefits, becomes less favourable when it

delays the conversion.

A conversion price must be calculated on a regular basis owing to market

fluctuations of the price of the convertible bond and of the underlying

share. The conversion price is obtained by dividing the current

convertible bond price by the conversion ratio fixed at the time of

issue.

The conversion premium is the percentage difference between the

conversion price and the current share price. A positive conversion

24

premium implies that the share could be purchased at a price that is less

than x% by buying it direct in the market, rather than converting the

convertible bond, assuming that the conversion is immediate. A negative

conversion premium implies that the share can be obtained at a price that

is less than x% via a convertible bond, rather than buying it direct in

the market.

The convertible bond price generally changes more in line with the

issuing company's share price than with the interest rate as it

constitutes a potential share, less the fixed rate and redemption at par.

During conversion, pro rata interest from 1 January of the current year

is disregarded, but shares obtained following conversion benefit from the

entire dividend for the period.

NB: it is also possible to invest in convertible bonds through a SICAV

that makes investments in this type of bond: investors then benefit from

the specific strong points of a SICAV (diversification, liquidity,

administrative follow-up by specialists, proactive management).

TAX TREATMENT

Interest is subject to 15% withholding tax. Conversion to shares is

exempt from income tax.

PROS AND CONS OF CONVERTIBLE BONDS

PROS

- Fixed return until conversion, even if this is generally less than the return on ordinary bonds.

- Prospect of attractive capital gains by exercising the conversion right if the issuing company's share price rises.

- Expected total return (interest + any capital gain) greater than that on an ordinary bond (but less than on a share).

- Security: possibility of taking advantage of the rise in the share price but with downward protection as the principal is in any case repayable at final maturity if the issuing company is extremely solvent.

CONS

- Return until the conversion date is generally less than the return on ordinary bonds.

- Complex product requiring special monitoring and targeted at well-informed investors.

- Limited liquidity: the convertible bonds market is often fairly restricted, which means that resale is not always possible under favourable conditions prior to final maturity.

25

- Debtor solvency: generally, convertible bonds are issued by companies in a growth phase wishing to raise finance at an attractive cost. These bonds do not always have a rating that is as good as that for bonds issued by large corporates.

RISKS ASSOCIATED WITH CONVERTIBLE BONDS

1. Insolvency risk Depends on the quality of the issuer; this is assessed by rating agencies. The higher the rating (e.g. AAA), the lower the risk. Companies operating in this market usually enjoy an excellent reputation, but rating agencies are not infallible and accidents occur from time to time. There is a very large number of – often not well-known – companies issuing convertible bonds in foreign currency: professional advice is generally useful for making a prudent choice.

2. Liquidity risk Can be high as the secondary market for this type of investment is generally restricted.

3. Exchange risk Nil for euro-denominated bonds. In the case of convertible bonds in other currencies, the risk depends on the value of the bond currency which can rise or fall against the euro. If when the capital is repaid the foreign currency has depreciated, the conversion to euro will result in a loss. The exchange risk must also be borne when paying each coupon.

4. Interest rate risk resulting in a drop in the price of the security In principle, rather limited as the rate is generally considerably less than the rate of an ordinary bond. However, if a share is considerably discounted, a convertible bond will become an ordinary bond, which implies that it can bear the interest rate risk associated with it.

5. Risk of price volatility resulting in a capital loss Relatively high as the convertible bond price tracks the share price fairly closely.

6. Risk of no income Interest is paid until conversion.

26

2.3.2. Bonds cum warrant

DESCRIPTION

A bond cum warrant is a mixed investment vehicle which consists of a dual

investment instrument:

- a warrant entitles the holder to subscribe at a later date, against

cash payment;

- the bond itself resembles an ordinary bond with a low coupon.

A bond cum warrant allows the purchase of a subsequently issued bond of

the same type and with the same maturity.

A bond cum warrant allows a share to be issued by the same company to be

subscribed for at a price that is determined when the bond is issued.

As a rule of thumb, a warrant can be traded separately and quoted on the

stock exchange. As long as the warrant remains attached to the bond, this

is quoted "cum warrant". Following conversion of the warrant, the bond

continues to exist and is then quoted "ex warrant". It becomes an

ordinary bond coupled with a fixed interest rate and a relatively low

coupon. It has a fixed final maturity upon which the borrowed capital is

repaid in its entirety.

During the issue period of the bond or share to which the warrant gives

entitlement, bondholders may, at their own discretion, exercise their

subscription right or sell their warrant. For example, they will exercise

their right if the interest rate of the new bond, or the price of the new

share, is attractive.

TAX TREATMENT

Interest earned on bonds is subject to 15% withholding tax.

Exercising the warrant does not generate taxable income: it merely allows

securities to be acquired. The capital gain realised when selling the

acquired securities by exercising the warrant is not taxable income if

realised within the scope of normal private wealth management.

27

PROS AND CONS OF BONDS CUM WARRANTS

PROS

- Tradable: bonds cum warrant, bonds ex warrant and the warrants themselves are quoted on the stock exchange which makes them tradable. As bonds and warrants are quoted separately, either one can always be sold.

- A warrant represents a right and not an obligation; holders are not obliged to exercise this right if the conditions are not favourable.

- A warrant allows a company's shares to be obtained at a discount if the exercising conditions are favourable. Investors can take advantage of a share price rise but are in the meantime guaranteed a certain return.

CONS

- The interest rate of bonds cum warrants is usually less than that of ordinary bonds.

- Monetary erosion: when the bonds are kept until final maturity, the real value of the principal at the time of redemption will generally have decreased as the nominal interest rate is fairly low which does not offset the average rate of inflation.

RISKS ASSOCIATED WITH BONDS CUM WARRANTS

1. Insolvency risk Depends on the quality of the issuer; this is assessed by rating agencies. The higher the rating (e.g. AAA), the lower the risk. Companies operating in this market generally enjoy a good reputation, but rating agencies are not infallible and accidents occur from time to time.

2. Liquidity risk Depends on the size of the secondary market which can be limited for a bond issued by an unknown company, and when interest rate changes (where a warrant gives entitlement to a new bond) or stock market fluctuations (where a warrant gives entitlement to a new share) are unfavourable.

3. Exchange risk Nil for bonds denominated in euro. In the case of bonds cum warrants in other currencies, the risk depends on the value of the bond currency which can rise or fall against the euro. If when the capital is repaid the foreign currency has depreciated, the conversion to euro will result in a loss. The exchange risk must also be borne when paying each coupon.

4. Interest rate risk resulting in a drop in the price of the security In principle, rather limited as the rate is generally less than the rate of an ordinary bond. However, if the attached warrant giving entitlement to a new share or bond loses value,

28

the bond becomes an ordinary bond with the interest rate risk associated with it.

5. Risk of price volatility resulting in a capital loss Can be fairly high for a bond cum warrant which allows a new share to be acquired as its price partly tracks the share price.

6. Risk of no income Interest is paid until final maturity of the bond.

29

2.3.3. Reverse convertible bonds (RCBs)

DESCRIPTION

An RCB is a standard short-dated debt security that offers a relatively

high coupon. This coupon should be regarded as remunerating the option

reserved by the issuer (usually a bank) of redeeming RCBs upon maturity,

whether in cash at the nominal value of the securities in question, in

shares, or at their exchange value in cash.

From a technical point of view, an RCB is a hybrid product that couples a

normal bond with the purchase, by the issuer of the RCB, of an equity2 or

indexed put option. Investors can therefore be regarded as the sellers of

a put option.

Unlike convertible bonds, it is the issuer, rather than the investor,

that decides whether to convert an RCB into equities upon maturity. Upon

maturity, the issuer reserves the right to repay the nominal value:

weither in cash (100% of the initial capital), as for an ordinary bond;

wor in a predetermined number of shares of a listed company: the investor

then becomes a shareholder.

If the price of the shares linked to the loan has fallen below a certain

level, the issuer will repay the investor in shares. However, the issuer

will repay in cash if the share price has risen. The issuer protects

itself, as it were, against a falling share price.

RCBs often pay a high coupon but expose investors to a drop in the price

of the underlying share. Investors are rewarded by a high coupon for

taking the risk of being paid in depreciated shares. For example, an RCB

linked to a telecoms share is often much more risky than an RCB relating

to a distribution sector share. The coupon paid on the first will be

higher than on the second.

Investors opting for an RCB should pay careful attention to the quality

of the underlying share as the RCB is likely to be repaid in shares upon

maturity.

Investors should be fully aware of the high level of risk associated with

this investment.

2 An option to sell or "put": entitles the buyer of the option to sell a certain amount of an underlying asset at an agreed price. The seller of the option is obliged to buy a certain amount of these assets at the agreed price.

30

Alternative vehicles

- RCB linked to a stock market index

The coupon paid on these securities is usually slightly less as the risk

is "diluted" by the diversified nature offered by the index.

- RCB linked to a basket of shares (whether or not in the same sector)

The RCBs and the quantity of each share making up the portfolio are

predefined.

- Exchange rate RCB

In this case, RCBs have an exchange rate as their underlying value.

TAX TREATMENT

In common with ordinary bonds, the interest coupons of RCBs are subject

to 15% withholding tax.

PROS AND CONS OF RCBS

PROS

- High yield: the coupon paid on RCBs is considerably higher than on ordinary bonds, in return for the risks taken by investors.

CONS

- Investors run the risk of not recouping their capital (in full): if shares have fared badly, the issuer will repay investors in depreciated shares; when repaying the bond in shares, investors may receive a share value which, based on the current market price, could be less than the nominal value of the RCB. If the company in question goes into liquidation, investors risk losing their entire outlay.

- Investors do not have a choice: upon maturity, bondholders are obliged to accept shares if the issuer wishes to discharge its debt in this way.

RISKS ASSOCIATED WITH RCBS

1. Insolvency risk Almost nil for the issuer (usually a bank). However, there is a high risk that the price of the underlying share will drop considerably (and in extreme cases close to zero).

2. Liquidity risk Can be high as the secondary market for this type of investment is generally restricted.

3. Exchange risk Nil for bonds denominated in euro. In the case of bonds in other currencies, the

31

risk depends on the value of the bond currency which can rise or fall against the euro. If the foreign currency has depreciated upon maturity, conversion to euro will result in a loss. The exchange risk must also be borne when paying each coupon.

4. Interest rate risk resulting in a drop in the price of the security Depends on changes in the underlying share. A rate rise usually has a negative impact on share price fluctuations.

5. Risk of price volatility resulting in a capital loss Fairly high as investors are exposed to a drop in the price of the underlying share, which can fluctuate considerably depending on the company, the trends in its industry segment, and the general tone of the stock market.

6. Risk of no income No. Investors benefit from a bond investment (usually short-dated) whose interest is more than that of an ordinary bond.

7. Capital (or redemption) risk Yes. Investors run the risk of being repaid in shares at a value that is less than the nominal value of these shares and of losing some of their capital. If on the day the option closes the issuer decides to repay investors in shares which have zero market value, the repaid amount will also be zero. In theory, such a risk may result in a loss that is as much as the capital invested. However, if the issuer decides not to repay in shares, the RCB is then repaid in cash, as with an ordinary bond.

32

2.3.4. Structured notes

DESCRIPTION

Structured notes are bonds with a fixed maturity, usually with protection

of subscribed capital and offering a potentially higher coupon.

A number of (combined) alternatives is possible; a general idea is given

below:

1. with or without guaranteed capital: most structured notes make

provision for an amount that is at least equivalent to the subscribed

capital, i.e. paid upon maturity. There are also structured notes that

offer absolutely no capital protection. Subscribers are remunerated by a

higher coupon owing to the greater risk.

2. with or without distribution of an interim coupon. In the latter case,

coupons are capitalised and the capital gain is paid upon maturity

(capitalisation). Otherwise the coupon is distributed at regular

intervals (distribution). The value of the coupon is normally linked to

changes in the underlying (see below) and is fixed/guaranteed, variable

or a combination of both. In the case of a guaranteed minimum coupon, we

talk about a "floor". When participation in the increase in the

underlying is limited, we talk about a "cap".

3. based on the underlying: structured notes are differentiated on the

basis of the underlying asset. The underlying can be funds (in particular

hedge funds), a group (basket) of equities, share indices, fixed-income

financial instruments, commodities (indices), or the spread between two

indices.

4. with or without a call option: the issuer is entitled to redemption

before the bond matures. The moment from when the bond can be redeemed or

"called" (e.g. from year 2) is specified in the conditions. Another

option is to stipulate a "lock-up" period during which the issuer

undertakes not to redeem before the due date. This period is often

characterised by a higher guaranteed coupon (e.g. 5% during the first two

years). This acts as a major incentive for customers.

Redemption before the due date occurs when the cost of the loan is less

than the interest on the structured note for the issuer. At the time of

redemption before the due date, customers receive the capital initially

invested. Any other remuneration must be stipulated beforehand.

At the time of redemption on the due date, customers receive the capital

initially invested, plus the last coupon or the capital gain (in the case

of capitalisation).

33

Structured notes are a relatively new vehicle. Consequently, and despite

daily listing, a secondary market is often not guaranteed. This depends

on the issuer.

This product is aimed at well-informed investors owing to its degree of

complexity.

TAX TREATMENT

A 15% withholding tax applies to the interest and capital gain.

PROS AND CONS OF STRUCTURED NOTES

PROS

- Possibility of a potentially higher yield than with traditional bonds.

- Protection of subscribed capital upon maturity, regardless of trends in the financial markets.

- Possibility of limiting the downward risk in the case of a minimum coupon (floor).

- If redeemed before the due date, the yield is more than that for traditional bonds.

CONS

- Redemption before the due date prevents investors from benefiting from the entire rise in the market.

- The capital is not protected throughout the term, only upon maturity.

- When the markets are trending downwards, the final return can be limited to the initial capital.

RISKS ASSOCIATED WITH STRUCTURED NOTES

1. Insolvency risk Depends on the quality of the issuer. The quality is assessed by rating agencies which award ratings. The higher the rating (e.g. AAA), the lower the risk. Companies operating in the market generally have a good reputation, but rating agencies are not infallible and problems cannot be ruled out. In most cases, however, structured notes are issued by banks. Therefore, the risk is almost non-existent.

2. Liquidity risk Upon maturity: none. Before maturity: depends on whether or not the issuer organises a secondary market.

3. Exchange risk None for notes denominated in euro. In the case of structured notes in other currencies,

34

the risk depends on the value of the currency in which the note is denominated which may appreciate or depreciate against the euro. If the foreign currency has depreciated at the time of repayment of capital, conversion to euro will show a loss. The exchange risk comes into play, therefore, for the payment of each coupon.

4. Interest rate risk resulting in a drop in the price of the security This risk is generally slightly higher than for a normal bond owing to the underlying structure.

5. Risk of price volatility resulting in a decrease in value The volatility of a structured note is not attributable to a single factor. A number of factors can come into play to a greater or lesser extent at a given moment: the underlying, the volatility of the underlying, the residual term to maturity, the level, trend and volatility of interest rates in general. All these factors can reinforce or else offset each other (by correlation).

6. Risk of no income Interest/coupons is/are paid annually, upon maturity or at the time of redemption before the due date.

7. Capital risk According to the conditions stipulated for structured notes, the capital risk can vary from 0% (full capital protection) to 100% (no capital protection). The latter is fairly exceptional. Most issuers provide minimal capital protection.

35

3. SHARES

DESCRIPTION

A share is a certificate of ownership of part of a company's capital.

Issuing shares has the effect of distributing the company's share capital

among a number of owners: shareholders therefore own the company in

proportion to the number of shares they possess.

Unlike bonds which are debt securities representing a loan granted for a

specific term, and so are coupled with a maturity, shares usually have no

maturity as they are certificates of ownership of a permanent provision

of funds.

Unlike bonds which pay periodic interest on the granted loan, shares do

not earn any fixed income. The entire "return" on a share consists of any

dividend and price fluctuation (capital gain).

Shares have no nominal value and no fixed value: in principle, a share

certificate does not include any amount indicating the value of the

share3. The value of a share depends on many factors, including the net

assets available to the company, anticipated profits, interest rate

levels4, changes in the exchange rate, economic growth, and the stock

market climate. This value constantly fluctuates in line with the

company's prospects and the general market trend.

The stock market continuously assesses the risks associated with each

share.

The price of a share is a trade-off between income (dividends and capital

gains) and risks. These risks are due to numerous factors which are both

intrinsic to the company (such as its financial position, underwriting

and commercial situation, investment policy, its prospects and those of

its economic sector, etc.) and external as the stock market is affected

by political events and the economic and monetary situation (on both an

international and a national scale), and by emotional or irrational

factors that can intensify market price fluctuations in an upward or

downward direction. All these complex factors affect the share price and

can make it fairly volatile in the short term. Consequently, shares

should be regarded as a long-term investment.

3 The amount of the initial outlay is sometimes mentioned for information purposes. This is the "nominal" value of the share as stated under the "share capital" item of the company's accounts.

4 When rates are low, shares are attractive; when they are high, fixed-rate investments – essentially bonds – become more popular.

36

Rights attached to shares

- right to dividends: if the company has made a profit and the general

meeting resolves to allocate this profit, either wholly or in part (and

not to reinvest it or to appropriate it to reserves), the shareholders

are entitled to a portion of this profit, known as the dividend. The

dividend may vary from one year to the next, depending not only on the

profit made but also on the profit allocation policy. If the financial

year closed with a loss, it may mean that no dividend will be

distributed. The dividend is therefore never guaranteed.

The dividend is generally distributed in cash. Sometimes shareholders

also have the option of receiving the dividend in the form of new shares

(stock dividend) according to a predetermined proportion.

- voting right at annual general meetings and extraordinary general

meetings for approval of the annual financial statements, the appointment

and resignation of directors, and approval of the dividend amount

distributed to shareholders; shareholders therefore have a right of

control over management.

- right to information: before a general meeting, shareholders may peruse

the company's balance sheet, the content of its securities portfolio, the

auditor's report, and other regular or occasional information

communicated by the company; shareholders may request explanations of the

company's position.

- right of apportionment: in the event of liquidation, shareholders are

entitled to a share of the registered capital.

- right of subscription (priority for new shares) in the event of a

capital increase decided with the shareholders' agreement. Shareholders

not wishing to participate in a capital increase can sell their

subscription right on the stock exchange if the shares are listed.

Certain companies sometimes allot free or "bonus" shares.

- right of transfer: in the case of listed companies, shareholders can

sell their shares on a stock market.

Classes of shares

- Shares representing the company's capital

There are three types:

Bearer shares are materialised in the form of a certificate. These

securities may be transferred directly to third parties, without any

special administrative procedure.

37

Bearer shares can be deposited in a custody account or held in

physical form. In the latter case, shareholders will have to detach

the coupon and submit it for payment to receive their dividend.

Note: it will not be possible to issue bearer securities after 31

December 2007.

Registered shares are represented by registration in the register of

shareholders kept by the company or its authorised agent. Ownership is

transferred by updating the register. Registered shares are sometimes

represented by a "certificate representing registration of registered

shares". However, this certificate has no value and is not tradable;

only registration in the register of shareholders is tantamount to

ownership.

At the time of incorporation, a company may decide to pay shareholders

only part of the share value (partly paid-up capital); when it

requires the balance of the share payment, it will call on these same

shareholders whose details are contained in a special register. Unlike

partly paid-up shares, callable shares are fully paid-up.

Dematerialised securities are represented by a book entry on an

account held with an approved institution5 on behalf of their holder.

Shares can also have the following features:

Voting and non-voting shares: voting shares allow shareholders, as

joint owners, to participate in general meetings, voting, and

management of the company.

Non-voting shares give entitlement to a dividend which cannot be less

than that granted to voting shares.

Preference shares may give entitlement to a share of the annual

profits before all other shares. If the company goes into liquidation,

they are redeemed before all other shares.

Shares with VVPR strip: available since 1 January 1994 through public

issues, these typically Belgian shares can, under certain conditions,

generate dividends that are subject to reduced withholding tax of 15%.

Bearer securities can be presented by a certificate coupled with two

coupon sheets: one ordinary coupon sheet attached to the certificate,

one presented separately, and jointly designated as a VVPR strip

sheet. In this case, and where Belgian shares are concerned, the VVPR

strip coupon gives entitlement to reduced withholding tax, provided

5 These concepts are outlined in the document on dematerialisation.

38

that it is presented for collection not later than 30 November of the

year during which dividends are distributed (in the case of dividends

declared after 31 August, before 31 March of the following year), and

at the same time as the ordinary coupon bearing the same sequence

number.

- Shares not representing the company's capital

To be differentiated from shares: founders' shares do not represent the

share capital or a material contribution and cannot have a nominal value.

They are issued in return for a non-financial contribution to the

company, in other words a contribution that cannot be evaluated. They

give entitlement to a portion of the profit during the life of the

company and/or if the company goes into liquidation. Holders can only

exercise their voting rights in certain cases.

- Listed shares

Only bearer shares and fully paid-up registered shares are admitted for

listing.

Certain conditions laid down by the regulatory authorities must be

fulfilled before a share can be admitted for listing (including minimum

size, publication of regular and detailed information, rules of corporate

governance, etc.).

- Tracking stocks

Tracking stocks are a class of share created in the US and introduced in

Europe a few years ago. These are shares whose right to participate in

the profit is linked to the performance of a specific activity of the

company which either continues to form a legal part of the company or

constitutes the issuer's participation in a wholly-owned subsidiary. Once

tracking stocks have been created, there are then two types of

shareholders in the company: those having special rights and ordinary

shareholders. The latter are entitled to participate in the company's

overall profits less the performance of the division concerned.

- Shares by profile

From the point of view of market investment, a distinction can be made

between four profiles:

- cyclical shares (construction, commodities, chemicals);

- growth shares (telecoms, pharmaceuticals, IT);

- financial shares (banks and insurance companies);

- defensive shares centred around consumables and retail services

39

(production and distribution).

TAX TREATMENT

In principle, share coupons give entitlement to the payment of dividends

which are subject to 25% withholding tax.

However, this rate is reduced to 15% for dividends of shares issued after

1 January 1994:

- through public issues (VVPR);

- which, since being issued, have been registered with the issuer or

placed on open deposit with a credit institution in Belgium, where these

shares correspond to cash contributions.

In Belgium, capital gains on shares realised by individuals are not taxed

if realised within the scope of normal private wealth management.

In the case of foreign shares, Belgian withholding tax is deducted on the

basis of cross-border income, i.e. the amount paid abroad at the time of

the actual deduction.

PROS AND CONS OF SHARES

PROS

- In financial terms, it has been demonstrated that, over a long period, the return on shares is more than that on bonds. This is explained by the risk premium demanded by investors. Unlike bonds, the return on shares mainly consists of the capital gain acquired over time rather than just the income (dividend) it distributes.

- Liquidity: shareholders can sell listed shares through a stockbroker on a daily basis. The "liquidity" of a share indicates the ease with which it can be bought or sold. Liquidity depends on a number of criteria: - the amount of the share being sold: the higher the company's market cap, the broader – and so more liquid – the market for its shares; - shareholder diversification; the more diverse, the greater its degree of liquidity; - shares making up share indices are generally more liquid; - trends at the underlying company will also affect the degree of liquidity of its shares.

CONS

- Shares represent a risky investment: - unlike fixed interest earned by bonds, dividends are variable income that depend on the company's performance; - the share value in the market fluctuates in line with the company's prospects and the general market trend.

RISKS ASSOCIATED WITH SHARES

40

1. Insolvency risk Shares constitute risk capital: the company issuing them is, therefore, not obliged to redeem them. In the event of liquidation, shares can lose almost their entire value.

2. Liquidity risk Liquidity is assured by the existence of an organised market, i.e. the stock exchange. It essentially depends on the volume of trading for the security: the higher the company's market cap, the broader – and so more liquid – the market for its shares.

3. Exchange risk Nil for shares in euro. In the case of other currencies, the risk depends on their volatility: risk of exchange loss when the shares are resold. Exchange rate fluctuations can have both a negative and a positive impact on the return on share investments. Even if shares are listed in euro, an exchange risk exists when some of the company's assets or turnover are denominated in foreign currency. A distinction can be made between five major regions from the point of view of "currency" risk: the euro zone, European countries outside Euroland (UK, Switzerland, Sweden, etc.), the dollar zone, Japan, and the emerging countries (Asia excluding Japan, Latin America and Central Europe).

4. Interest rate risk resulting in a drop in the price of the security An interest rate rise in the markets usually has a negative impact on the trend in share prices.

5. Risk of price volatility resulting in a capital loss Depends considerably on the quality of the company, the trend in its industrial segment, and the general market tone. So-called "speculative" shares have a higher risk of price volatility than shares of a company with stable activities.

6. Risk of no income Dividends represent variable income. The company may decide, for various reasons, not to distribute dividends some years.

7. Capital (or redemption) risk There is always a risk of reselling shares at a loss (i.e. at less than the purchase price). This risk is high, especially in the short term.

8. Other risks The market risk (uncertainty about interest rate trends, inflation, and the economic and political situation, not to mention unforeseen events) can never be dismissed in the equities markets. In the case of foreign stock exchanges, there is a specific risk as trends may be more adverse overall than on Euronext.

41

3.1. TRACKERS

DESCRIPTION

A tracker is an index fund quoted on the stock exchange. It allows

investors to invest in a single transaction in a diversified equities

portfolio. There is no need to buy different shares making up the index

as, by investing in a tracker, investors invest directly in the

performance of the index.

A tracker combines the benefits of shares (simplicity, continuous

quotation, etc.) with those of traditional funds (diversification, access

to a broad range of securities):

• any investor can benefit from the performance of an economic sector,

country or region in a single transaction;

• as trackers are marketable index funds in the same way that shares

are, any investor can acquire them rapidly under price conditions that

are the same as those for shares. In common with other shares, trading

goes on throughout the day and is sustained, among others, by

liquidity providers who ensure that there is always a market and

prices at which to counter-trade.

The tracker price reflects a portion of the underlying index, also called

the benchmark, and represents, for example, 1/10th, 1/100th, etc. of the

index level. For example, if the index level is 500 and the tracker

represents 1/10th of the index value, the price of one tracker share will

be approximately EUR 50.

A tracker "tracks" the index throughout the day. This type of tracker

fund is managed passively and aims to track the index as effectively as

possible, no more no less.

Trackers can track all sorts of indices: a sector-based index (e.g.

Select Spector SPDR Energy), a national index (e.g. iShares MSCI-Belgium)

or a broad-based index (e.g. Diamonds).

Trackers are quoted on Euronext (www.euronext.com) in the NextTrack segment,

which offers a range of diversified and open-ended tracker funds.

Euronext publishes information (including the level of the benchmark) on

its website (with a 15-minute delay), which keeps investors continuously

updated on the performance of their tracker.

The intrinsic value of the tracker (or the net asset value, NAV) is the

fund's assets less its liabilities, divided by the outstanding tracker

shares. The NAV is calculated once a day on the basis of the benchmark's

42

closing position on the previous trading day. An indicative NAV is also

calculated for each tracker based on the NAV for the previous trading

day. A new indicative NAV is calculated every 15 seconds.

Trackers are also quoted on other stock exchanges (Amex, London, etc.).

Features of trackers

- Easy instrument to use and understand: instead of relating to a single

share at the same time, investment is made in a group of companies,

otherwise known as an index or a basket of shares. Investors can

therefore have access to a diversified portfolio in a single transaction.

- Transparent instrument: the daily publication of the fund composition

and NAV and the rolling publication of the guide NAV of each tracker give

investors a clear view of how their investment is performing. As the

tracker price reflects a portion of the index level (1/10th, 1/100th), it

is even easier to track its performance.

- Versatile instrument: trackers cater for all sorts of investments for

any type of investor: first stock market investment, long-term

investment, index fund management strategies, cash management, combining

derivatives of the same underlying, hedging tool, arbitraging strategies,

etc.

- Economic instrument: buying or selling a tracker is more favourable

than buying or selling each share making up the underlying basket.

Brokerage fees are also similar to the cost of shares, and charges for

managing the fund are low.

- Liquid instrument: a diverse range of strategies generating natural

liquidity: trading of the basket, futures and options transactions, tone

of the market, and long-term investment.

There are three types of trackers:

- an open-end index tracker: dividends are reinvested in the fund

from the day they are received. These dividends are distributed

quarterly. In the interim, the tracker price will deviate slightly

from the price of the underlying index;

43

- unit investment fund tracker: these trackers are obliged to give a

true reflection of their index. Dividends are held in cash and

distributed quarterly;

- grantor fund tracker: the composition of this fund does not change

(unless affected by corporate shares). Dividends are not reinvested

but immediately distributed among holders of the tracker.

FOR FURTHER INFORMATION

www.euronext.com/fr/products/trackers/information

www.euronext.com/editorial/wide/0,5371,1679_1200077,00.html

TAX TREATMENT

Owing to the fact that trackers can have different legal forms, it is not

possible to give a general rule regarding tax treatment.

This information appears in the prospectus for each tracker.

PROS AND CONS OF TRACKERS

PROS

- A quick, simple and economic investment in a diversified equities portfolio representing a country, economic sector or region; buying one tracker unit immediately implies investment in a whole basket of companies.

- Spreading of the risk.

- Easy access to pan-European and international shares at local prices.

- Shares can be split by buying a tracker which also absorbs the cost of the split.

- The continuous quotation and functioning of liquidity providers ensure a high degree of liquidity in the tracker market.

- Trackers regularly distribute dividends which therefore represent a second source of income, on top of any exchange profit.

CONS

- A tracker tracks an index but does not offer direct capital protection.

RISKS

1 Insolvency risk A tracker is always issued by a specific fund manager. There is a fairly minimal risk that the fund manager will not fulfil its obligations.

2 Liquidity risk Very limited, trackers can be traded all day long,

44

and liquidity providers ensure that trading can take place at any time.

3 Exchange risk Depends on the underlying portfolio (see prospectus). Trackers track a specific index and so are also subject to price fluctuations. These fluctuations will be more or less significant depending on the underlying index. Nil risk if the underlying shares are denominated in euro. May be significant for those denominated in other currencies.

4 Interest rate risk An interest rate rise usually has a negative impact on share prices, and therefore on indices, and so also on the price of trackers which are baskets of shares.

5 Risk of price The price of a tracker may fluctuate, just like the price of a share. As the index is based on a diversified basket of shares, however, a tracker is not subject to excessive fluctuations.

6 Risk of no income Most trackers regularly distribute dividends (see tracker prospectus).

7 Capital risk Trackers behave in the same way as shares and so do not offer capital protection.

FOR FURTHER INFORMATION: www.euronext.com/fr/products/trackers/information

45

4. FINANCIAL DERIVATIVES

4.1. General features

WHAT IS A FINANCIAL DERIVATIVE?

Financial derivatives have been developed to hedge the risks associated

with exchange and interest rates and, primarily, volatility. They are

called derivatives in the sense that they are "derived" from the

underlying financial instruments they are intended to hedge. They can be

used for hedging or speculative purposes.

A financial derivative gives its holder the right, or the obligation, to

buy or sell an underlying asset (e.g. a share, currency, stock market

index) at a fixed price prior to and during a specific period.

A derivative should not be confused with an investment in the underlying

asset. On expiry of its exercise period, it loses all its value.

The main categories of financial derivatives are: options, warrants and

futures.

GEARING

Financial derivatives allow considerable returns to be made in relation

to the outlay. This is known as gearing. For example, paying the premium

is all that is required to invest in options; the potential returns can

be substantial. However, the associated risk is also significant: the

entire outlay may be lost.

Gearing operates, therefore, in both directions. Investors should never

forget that the hope of high returns is coupled with a high risk.

Investors selling an option will receive the premium but, in return, may

expose themselves to unlimited risk (selling a call option without having

the underlying at their disposal).

FOR INVESTORS DARING TO TAKE RISKS

Financial derivatives are high-risk investments: the return on investment

varies considerably and recouping the invested amount is far from

certain. Derivatives should, therefore, represent only a limited part of

the total portfolio.

46

The specialist financial markets offer standardised contracts and

coordinate the listing, which means that anyone can buy or sell contracts

by systematically locating a counterparty.

EURONEXT AND FINANCIAL DERIVATIVES

Euronext, the first pan-European stock exchange set up in 2000 following

the merger of the Amsterdam, Brussels and Paris Bourses, joined forces

with the Lisbon stock exchange in 2002. Alongside the integration of the

Belgian, French, Dutch and Portuguese markets, Euronext took over the

London International Financial Futures Exchange (LIFFE), focusing its

entire activity on derivatives at Euronext.liffe.

Euronext.liffe is a single derivatives trading platform that offers

equity, index and interest rate derivatives.

47

4.2. Options

DESCRIPTION

An option is a financial instrument that can be used for various

purposes, including protecting a portfolio against risk, making

additional returns or speculating on both upward and downward trends of

various assets such as commodities (oil, wheat, metals, gold, etc.),

interest and exchange rates, and equities.

An option is a contract between a buyer (also called the holder) and a

seller (also called the writer) that entitles the holder of the option to

trade a certain quantity of an underlying asset at a predetermined price

(strike price) on a specific date (European-style option) or during an

agreed period (US-style option).

The option confers a right on its buyer/holder, but an obligation on its

seller/writer: if the holder of the option expresses the desire to carry

out a transaction, the seller is obliged to do so. In exchange for such

an obligation, the seller receives a premium.

Call option (bull contract)

- confers on its holder the right to buy a certain quantity of an asset

(size of contract) at a specific or agreed price during a specific

period or on a specific date;

- the seller of the option is obliged to issue the agreed quantity of the

asset at the strike price if the holder wishes to exercise his right;

- ANYONE BUYING A CALL OPTION HOPES FOR A RISE IN THE PRICE (OF THE

UNDERLYING SHARE, FOR EXAMPLE).

Put option (bear contract)

- gives its holder the right to sell a certain quantity of an underlying

asset at an agreed price;

- the seller of the option is obliged to buy a certain quantity of this

asset at an agreed price;

- anyone buying a put option hopes for a drop in the price (of the

underlying share, for example).

On expiry, the buyer may exercise his right, but is not obliged to do so.

The seller's obligation lapses if the buyer does not exercise his right.

The premium received by the seller remunerates him for the obligation,

and so for the risk that he agrees to take on.

The premium is the option price and reflects what the market is prepared

to pay for the exercise right it represents. It is not fixed for the

entire life of the option but varies every day in practice. The premium

depends on two factors, namely the intrinsic value and the time value of

48

the option (an option will be all the more expensive as it has a long

life; moreover, all things being equal, its price will decrease,

accelerating as the expiry date gets nearer until reaching zero at that

point).

Options can be traded in a secondary market. To facilitate their

marketability, each organised stock market has standardised the

contractual terms. As such, in the case of shares, the life of an option

is generally three, six or nine months, the contract relates to 100

shares, and the strike price is expressed per share.

Many options are not linked to one specific share but to a basket of

shares whose performance is measured by a stock market index. In

Brussels, therefore, there are options relating to the Bel 20 index which

represents the top 20 Belgian shares quoted on the Brussels stock

exchange.

Options are quoted on separate exchanges. Most financial centres have an

organised futures exchange and provide interested investors with

informative brochures outlining the instruments used and how they

function.

Euronext, the European stock exchange which provides services to the

regulated equities and derivatives markets in Belgium, France, the

Netherlands, Portugal and the UK (only derivatives), focuses its entire

derivatives business at Euronext.liffe. It has harmonised the

specifications of equities options contracts (size of contract, expiry

dates, last quotation day, and style (European or US).

OPTIONS CAN BE BOUGHT THROUGH ANY BANK OR STOCKBROKER. EXAMPLES

Example of a call option

Let us consider the case of a call option which, for the next three

months, allows the purchase of share "x" at a price of EUR 50, and let us

assume that the current share price is EUR 45 and that the option costs

EUR 1.50. The buyer, who has paid EUR 1.50 for this option, hopes that

share "x" will have sufficiently risen in three months, so that it is

more worthwhile exercising the option (i.e. paying EUR 50 to obtain one

share) than buying the share on the stock exchange. In this case, the

total cost will be EUR 51.50 (strike price of EUR 50, plus the option

price of EUR 1.50).

If the share is worth EUR 55 three months later, the investor will make a

gain of EUR 3.50 (EUR 55 – EUR 51.50) by exercising his option and

49

reselling the share directly on the stock exchange. Prices above cost

(EUR 51.50) will make an increasingly higher gain for the option.

The value of a call option increases, therefore, with the probability

that the market price will exceed the strike price; this is all the more

likely as the option has a long life and the share is considerably

volatile.

However, if share "x" is worth less than EUR 50, the investor will not

exercise the option; he will incur a loss (representing a gain for the

seller of the option), but it will be limited to not more than his

initial investment, namely the price of the option, i.e. EUR 1.50.

Considering the purpose for which it is bought, a call option is

therefore a bull contract.

Example of a put option

A put option allows share "x" to be sold at EUR 50 in three months' time,

and let us assume that the price of the option is EUR 1.

If on expiry the share loses ground and falls to EUR 45, the holder of

the option will exercise his right and make a gain of EUR 4 [EUR 50 – EUR

45 (price of the share) less EUR 1 (price of the option)], by selling an

option at EUR 50 which he can buy for EUR 45 on the stock exchange. If,

however, the share price exceeds EUR 50 at expiry, the holder of the

option will let his option lapse without exercising it, and the

transaction will show a loss limited to the amount of the paid premium,

i.e. EUR 1.

In practice, an option is rarely exercised as it results in the purchase

or sale of shares at the strike price, on which standard stock exchange

fees are charged. This is because market positions can be settled by

closing trades, which is considerably less expensive. The holder of the

option therefore waives his right by a closing sale, and the seller can

terminate his obligation to deliver by a closing purchase.

TAX TREATMENT

Exercising options does not generate taxable income per se.

PROS AND CONS OF OPTIONS

PROS

- Effective instrument protecting the value of certain components of a large portfolio against a drop in the price of financial assets (especially in the case of a put option). Makes the management of a share portfolio more dynamic.

50

- Instrument also used for speculative purposes to take advantage of short-term fluctuations in the price of a financial asset, in return for a limited investment (especially in the case of a call option). In comparison with a low invested amount, possibility of making enormous profits. In common with warrants, options can boost profits thanks to high gearing.

CONS

- Instrument for well-informed investors who are completely familiar with the rules of the game and closely track market trends. Intelligent management calls for intense technical tracking and the taking of major risks.

- When price fluctuations run counter to investors' expectations, options can give profits a boost owing to gearing. So that losses are minimised and an organised market can run smoothly, the options writer is required to provide a margin (security) to ensure that commitments are fulfilled.

51

RISKS ASSOCIATED WITH OPTIONS

1. Writer risk Investors should ensure that the writer is solvent. If the writer is a controlled institution, the risk is fairly low, but exists all the same.

2. Liquidity risk Options can be traded in organised secondary markets (see Euronext) or over the counter directly with a credit institution. However, liquidity is relative: obtaining a good price when reselling is not guaranteed.

3. Exchange risk Nil for options denominated in euro. The exchange risk can be high for options denominated in other currencies, especially those that are volatile.

4. Interest rate risk Interest rate fluctuations have an impact on share prices and, indirectly, on the price of options.

5. Risk of price volatility Extreme price volatility reflecting the fluctuations and expectations of underlying assets.

6. Risk of no income An option does not generate income, only a potential capital gain depending on the price of the underlying security.

7. Capital (or redemption) risk There is no redemption. The return on investment varies considerably and recouping the invested amount is far from certain. The option becomes worthless on expiry.

8. Other risks If the underlying asset displays an unfavourable trend, the option can become worthless (for the buyer of the option, loss limited to the paid premium). Potential unlimited risk when selling options.

52

4.3. Warrants

DESCRIPTION

A warrant is a contract which gives the right to buy ("call" warrant) or

sell ("put" warrant) an underlying security at a predetermined price

during a specific period.

It is actually a longer-dated option.

Any financial product can be coupled with a warrant: shares, bonds,

currency, stock market indices, etc.

A warrant is a right, but not an obligation. This right may be exercised

at the holder's earliest convenience, either during the specified period

(US-type warrant) or on expiry of it (European-type warrant).

The contract specifies the amount of securities to be received or sold

when exercising the warrant. The exchange will be carried out in cash or

in the underlying security.

There are two types of warrants: covered and uncovered.

Covered warrants allow the possibility of subscribing for new shares in

accordance with the terms and conditions laid down at issue.

Uncovered warrants, which have existed for a few years, differ from

covered warrants in that they relate to existing shares and are issued by

financial institutions (essentially banks).

The warrant price changes in line with specific parameters: the price and

volatility of the underlying, the residual life until expiry, the strike

price of the warrant, the interest rate for the period, and any interest

earned on the underlying. As the trend in the underlying is an important

factor, it is imperative for investors to pre-empt this trend.

The life of a warrant is usually specified: it is exercised during a

specific period (the exercise period); a warrant becomes worthless after

the expiry date. So it is preferable to trade it beforehand.

In most cases, a warrant has its own existence. It is marketable and

quoted on the same stock exchange as the share concerned. Its value

varies in line with the actual share price. Warrant prices are included

on the list of securities quoted on Euronext Brussels under a separate

heading.

The cost of buying (or reselling) warrants is the standard stock exchange

charge for share deals, which may vary depending on the bank or

stockbroker.

53

Investors can buy and sell warrants via their usual financial

intermediary as with any shares.

TAX TREATMENT

Exercising warrants does not generate taxable income per se.

PROS AND CONS OF WARRANTS

PROS

- A warrant gives the right, on its due date, to acquire one or more company shares at a preferential price if conditions are favourable, while at the same time minimising the initial outlay (a warrant is, by definition, less expensive than a share or bond).

- warrant offers the possibility of speculating for a rise or fall of a share or another asset, increasing the hope of gains.

- A warrant generates high returns over a short period of time, but with the risks associated with a highly speculative security.

- Representing a right, a warrant in no way obliges its holder to exercise it when the conditions are not favourable.

- Makes the management of an equities portfolio more dynamic.

CONS

- Taking of major risks: highly speculative security which fluctuates much more than the securities or indices to which it relates: a warrant may become worthless in a few days.

- Requires intense technical tracking as it is a highly volatile instrument.

RISKS ASSOCIATED WITH WARRANTS

1. Issuer risk Investors should ensure that the issuer is solvent. The risk is fairly low if the issuer is a controlled institution and only covered warrants are concerned, and if the issuer has taken the trouble to fund the underlying that it may be forced to deliver if the warrants are exercised.

2. Liquidity risk Depends on the volume of transactions concerning the warrant.

3. Exchange risk Nil for warrants giving the right to subscribe for new shares or bonds in euro.

4. Interest rate risk An interest rate rise generally has a negative impact on the trend in the price of shares and, indirectly, on the price of the warrant.

54

5. Risk of price volatility A warrant is a speculative instrument; its price is generally more volatile than that of shares or bonds of the same company.

6. Risk of no income A warrant does not give the right to any income.

7. Capital (or repayment) risk There is no capital to be repaid.

8. Other risks When exercising a warrant, the conditions may be less favourable than at the time it was issued (interest rate of the new security less than the market rate in the case of a bond or purchase price less than the market price in the case of a share). In this case, a warrant may become worthless.

4.4. Futures

DESCRIPTION

A "future" is a forward contract under which two parties undertake to buy

or sell a specific quantity of an underlying security (including

currency, bonds, stock market indices) at a fixed price and on a specific

future date. In contrast with options, futures contracts contain the

notion of an obligation on both parties: the buyer of the future

undertakes, on expiry of the contract, to receive the underlying, in

return for payment to the seller of a sum called the "amount due". For

its part, the seller of the future enters into a commitment to deliver

the underlying on expiry of the contract, in exchange for the amount due.

Futures contracts originally related solely to commodities such as wheat,

coffee, cotton, oil, etc. They were used by merchants looking to cover

themselves against potential price fluctuations. "Financial futures"

relating, among others, to interest rates, currency and stock market

indices appeared on the scene in the 1970s owing to international

monetary instability.

The term "future" implies that the contract is traded on a futures

exchange. In other words, the specific feature of a futures contract as a

forward contract lies in the terms and conditions governing its

implementation as organised by a stock exchange (futures markets have for

a long time formed part of stock exchange activities).

The specific features of a futures contract result directly from two

concerns of any futures exchange, namely the security and liquidity of

its market. Each futures exchange lays down its own operating structures

and contract features so as to fulfil both these objectives.

55

- With regard to security, a so-called "margins" system is imposed on

buyers and sellers as a guarantee against a potential loss on contracts

bought or sold due to price fluctuations. For any transaction (purchase

or sale), an initial margin deposit representing a percentage of the

value of contracts bought or sold must be paid into a margin account

opened for that purpose. At the end of each day of trading, the exchange

revalues contracts which results in a transaction on the margin account:

either a debit, owing to a margin call, for the losing counterparties or

a credit for the counterparties recording a gain. The exchange therefore

shows counterparties' daily gains and losses, which avoids any risk of

major payment default for both its customers and itself.

- The negotiability of a future is favoured by the existence of fixed

terms and conditions: size of contract, term, payment procedure.

Europe's largest futures market is Euronext.liffe.

PROS AND CONS OF FUTURES

PROS

- A future is also an instrument that protects the value of the portfolio.

- The buying and selling of futures can be used by investors looking to benefit from forecasts of rising or falling futures prices. A future is therefore also a speculative instrument as a fairly modest outlay (initial margin and daily variation margins) means that long positions can be taken (gearing).

CONS

- Like options, futures appeal to the experienced investor who is completely familiar with the rules of the game. They are sophisticated financial management instruments.

- Owing to gearing, futures transactions in the market can also result in major losses for investors who are devoted to speculation and make an error in their forecasts. The initial margin system aims to minimise these losses.

In the case of futures buying, the loss is limited to the amount of the purchase (it is not possible to lose more than the value of the security if this were to fall to zero). However, in the case of a short futures sale (without having the security in the portfolio), there is no theoretical limit to the potential loss: if the security sold short rises considerably, the loss can be very high as the seller will have to repurchase the sold security at a very high price to fulfil his obligation.

56

RISKS ASSOCIATED WITH FUTURES

1. Counterparty risk Risk that the counterparty will not fulfil its commitments.

2. Liquidity risk Futures are highly tradable in organised markets.

3. Exchange risk Nil for contracts denominated in euro. The exchange risk can be high in the case of volatile currencies.

4. Risk of price volatility Depends on the volatility of underlying assets.

5. Risk of no income A future does not give the right to income.

6. Capital (or repayment) risk There is no capital to be repaid.

7. Other risks In principle, losses can be unlimited where speculators make an error in their forecasts.

57

5. COLLECTIVE INVESTMENT UNDERTAKINGS (CIUS)

5.1. WHAT IS A CIU?

Collective investment undertaking (CIU) is a general term designating an

entity, with or without legal personality, that receives funds from the

public and invests them collectively in a group of transferable

securities, in accordance with the risk-spreading principle. CIUs are a

form of collective portfolio management.

When we refer to CIUs in Belgium, we mainly think of SICAVs, which have

become a popular investment vehicle among Belgian savers.

However, the term CIU covers a range of products that have a specific

legal character:

- SICAVs (sociétés d’investissement à capital variable) [open-end

investment companies];

- fonds de placement [investment funds] (including Belgian pension

savings funds);

- SICAFs (sociétés d’investissement à capital fixe) [closed-end

investment companies], including SICAFIs (sicaf immobilières)

[closed-end real estate investment companies];

- PRICAFs [closed-end investment funds for venture capital];

- SICs (sociétés d’investissement en créances) [debt securitisation

funds].

The table at the end of point 5.1. gives a breakdown, by legal status, of

the number of CIUs distributed to the public in Belgium as at the 2005

year-end.

Legal framework

As CIUs make a public offering of shares, they are subject to specific

legislation and prudential supervision by the regulatory body: the CBFA.

The transposition into Belgian legislation of the European Directives

UCITS III (Undertakings for Collective Investments in Transferable

Securities) 2001/107/EC and 2001/108/EC is aimed at implementing a legal

framework for CIUs in order to facilitate marketing in the EU:

• Law of 20 July 2004 relating to certain forms of collective investment

portfolio management;

• Royal Decree of 4 March 2005 relating to certain public CIUs;

58

• Royal Decree of 4 March 2005 ratifying the CBFA regulation concerning

the shareholders' equity of companies managing CIUs.

Newly-created CIUs will from now on be subject to the Law of 20 July 2004

relating to certain forms of collective investment portfolio management.

Existing CIUs must adapt to the new regulation by not later than the end

of 2007.

Lists of public CIUs organised under Belgian and foreign law, approved by

the CBFA for distribution in the Belgian market, are shown on the CBFA's

website www.cbfa.be.

Management of CIUs

A CIU can be "self-managed", i.e. it decides to carry out its own

management. In this case, there is no separate management company.

If the CIU is not self-managed, a management company is appointed. In

this case, it is always a so-called UCITS III management company. The

introduction of a European status for management companies has resulted

in the creation of a company that is essentially specialised in CIU

management, specifically appointed for that purpose by CIUs.

However, any CIU, whether or not self-managed, has the option of

delegating numerous tasks to a management company.

Number of CIUs distributed to the public in Belgium

Year-end 198

0 198

5 199

0 199

5 200

0 200

4 200

5

CIUs organised under

Belgian law 8 15 41 84 151 160 158

including investment companies

SICAVs (1) - - - 62 103 108 108 Real estate

SICAVs (2) - - - 2 13 11 12

SICs (3)

- - - 0 9 9 7

PRICAFs (4) including fonds de placement

- - - - 1 2 2

pension savings funds (5)

- - 13 14 11 12 12

59

Other 8 15 28 6 14 18 17

CIUs organised under foreign law

14 14 114 215 264 245 216

including investment companies

- - 89 148 188 184 170

including fonds de placement

14 14 25 67 76 61 46

Total number of CIUs

distributed to the public in Belgium

22 29 155 299 415 405 374

Source: CBFA. (1)

Created by the law of 4 December 1990; in 1991, most of the standard Belgian fonds communs de placement (FCPs) [investment funds]

were converted to SICAVs. (2)

Investment companies that invest in real estate and are approved under the Royal Decree of 10 April 1995.

. (3)

Approved under the Royal Decree of 29 November 1993.

(4)

Investment companies that invest in high-risk capital and are approved under the Royal Decree of 18 April 1997.

. (5)

Approved under the Royal Decree of 22 December 1986.

5.2. GENERAL FEATURES OF CIUS

• Asset management is entrusted to specialists which invest the amounts

collected in various transferable securities (equities, bonds, money

market instruments, real estate certificates, currency, forward

investments, etc.), while respecting the fund's investment policy

outlined in the prospectus. Investors are not at all entitled to look

at the investment policy adopted by the CIU. In order to find out

whether a CIU meets investors' needs, they should refer to the fund's

issue prospectus.

• CIUs reinvest the funds entrusted to them by the public according to

the risk-spreading principle.

• CIUs are managed in the exclusive interests of participants.

• Each CIU must choose from different categories of authorised

investments. A CIU must comply with the investment limits imposed by

the law concerning the spreading of financial assets, as provided for

in Article 34 of the Royal Decree of 4 March 2005 relating to certain

public CIUs. Compliance with investment rules by CIUs organised under

Belgian law is overseen by the CBFA.

60

• CIUs are obliged to comply with the provisions concerning investor

information. As such, they publish a (simplified) issue prospectus the

main information of which (such as investment policy, cost structure,

etc.) is continuously updated and also provide constant information by

publishing annual and half-yearly reports. They also ensure that the

NAV of their participation rights is regularly published in the

financial press.

• Subject to authorisation in their country of origin, CIUs meeting the

harmonised UCITS criteria of the European Directive may be distributed

unconditionally in other EU Member States (known as the "European

passport").

Non-harmonised CIUs must follow an approval procedure laid down by the

local regulatory authority in each country where the funds are

marketed.

• CIUs are subject to monitoring by:

- the depository bank6;

- the auditor(s);

- the CBFA.

6 Bank that holds the securities

61

5.3. PROS AND CONS OF CIUS

PROS

- Diversification: CIUs allow investors to form a diversified portfolio

with spreading of the risks.

- Managed by professional fund managers: greater returns and more

efficient; professionals can react more quickly to market events. CIUs

are an ideal solution for investors who do not have the time, inclination

or requisite know-how to conduct their own portfolio management,

including buying and selling shares at the right time, choice and

arbitrage of bonds, etc.

- Lower charges – economies of scale: in view of the scale of the funds

employed, it is possible to benefit from reduced charges (e.g. on stock

market transactions) and to obtain better returns.

- Investments tailored to investors' requirements: the broad range of

CIUs available and the specific character of each one effectively meet

investors' diverse and particular requirements.

- Possibility of investing modest amounts: investors can participate in

several markets, or several currencies, even with a modest outlay;

diversified portfolio with a modest amount.

- Access to specific markets which are difficult to access or are not at

all accessible to remote individuals (e.g. Asian markets) or to

sophisticated financial products such as futures and options.

- Transparent liquidity: the NAV (in the case of SICAVs), or the market

price (in the case of SICAFs), is calculated at least twice a month and

often even daily. In addition to the compulsory information disseminated

to investors (prospectus and annual and half-yearly reports which must be

submitted beforehand to the regulatory authority), many websites of

financial institutions publish comprehensive information in the form of

technical fund sheets and brochures. This freely accessible information

enables investors to easily track their investments and the overall

economic and financial situation.

CONS

- Charges: units and shares in a CIU generally give rise to the

collection of management charges (the main component of the fee), initial

and exit charges (which can vary considerably depending on the CIU's

specific features and on the financial institutions marketing them), and

stamp duty. The UCITS III European Directive imposes the publication of

the total expense ratio (TER), which combines all the recurring annual

charges. Publication of the TER makes it easier to compare costs.

62

63

5.4. RISKS ASSOCIATED WITH CIUS

A risk classification system has been developed for CIUs in consultation

between the CBFA and the Belgian Asset Managers Association (BEAMA). The

synthetic risk indicator gives an indication of the risk associated with

the investment in a CIU or a subfund of a CIU. The risk classification

system has been implemented for two existing categories of CIUs:

- CIUs with no fixed term or capital protection,

- CIUs with a fixed maturity and capital protection.

There are seven classes of risk for both CIU categories. The risk scale

goes from 0 (very low risk) to 6 (very high risk).

The class of risk is stated in the (simplified) issue prospectus

(subfund presentation). Its meaning is explained in a footnote.

The classes of risk applicable are also included in the annual and half-

yearly reports on CIUs.

The risk classification is established on the basis of the standard

variance calculation, which measures dispersion around an average, based

on the annual returns achieved by the CIU during the last five years (or

over a shorter period if the CIU has not existed that long).

The class of risk of a CIU with no fixed term or capital protection that

has existed for less than one year is established on the basis of the

standard variance calculation based on the annual returns achieved

during the last five years by a benchmark representing the investments

stated in the full and simplified prospectuses.

The class of risk of CIUs with a fixed maturity and capital protection

that has existed for less than one year is established on the basis of a

"tree structure" which subdivides the CIU into a number of categories

based on well-defined criteria. The new CIU subfund initially includes

the class of risk of the category of which it forms part.

As soon as the CIU subfund has a one-year history of NAVs, the method

for allocating the class of risk changes. The class of risk is allocated

from this moment on the basis of the calculation of the standard

variance based on annual returns in euro. Any modification of the class

64

of risk following this change will be included in the (simplified) issue

prospectus.

The method used to calculate the risk for CIUs can be consulted on the

CBFA (WWW.CBFA.BE ) and BEAMA (WWW.BEAMA.BE ) websites.

65

5.5. CIU BY LEGAL FORM

C

IUs can take the form of an investment company or a fonds de placement.

From an economic point of view, both forms are closely linked.

The differences can be found on a legal level as only investment

companies have a legal personality, as well as on a tax level.

CIU

Fonds de placement

Investment company

SICAF/ SICAFI

PRICAF

SICAV

Pension savings fund

Open Closed

Other

66

5.5.1. Investment companies

Investment companies have a legal personality.

These are statutory CIUs. They have the form of a société anonyme (SA)

[public limited company] or a société en commandite par actions (SCA)

[limited partnership]. Each investor becomes a shareholder and

receives a number of shares in proportion to his contribution. Each

share is remunerated in proportion to the income collected by the CIU.

This income is either redistributed to shareholders or capitalised

(i.e. reinvested in the CIU). Examples: SICAVs, SICAFs.

Investment companies can be open-ended or closed-ended.

Open-ended: SICAVs can increase capital on a daily basis (issue of

new shares) or reduce it (redemption of existing shares).

Investment income can be paid in the form of dividends or

capitalised. Their sole objective is to invest funds received from

the public in transferable securities or money market instruments,

according to the diversification principle. Different subfunds can

be created within the same SICAV, each with its own portfolio mix

and investment objectives.

For more information on SICAVs, see section 5.5.1.1.

Closed-ended: closed-end investment companies, or fixed-capital

companies, have an independent legal personality whose capital is

determined at the time of issue; they also have a fixed number of

units. They do not regularly redeem their own shares and must be

quoted on the stock exchange. A distinction is made between SICAFs

and PRICAFs in fixed-capital companies.

SICAVs: a SICAV's objective is to invest the funds received from

the public in transferable securities, while respecting the

principle of diversification. At present, only real estate

SICAFs, or SICAFIs, operate in the Belgian market. See section

5.5.1.2. for more information on SICAFs and section 7.2. on

SICAFIs.

PRICAFs, or Private Equity SICAFs, invest exclusively in

unlisted companies and growth enterprises. They must be listed

and have specific investment rules (Royal Decree of 18 April

1997).

For more information on PRICAFs, see section 5.5.1.3.

Sociétés d’investissement en créances (SICs) [Debt securitisation funds]

67

An organisme de placement en créances (OPCC) is a vehicle for collective

investment in receivables assigned by third parties. Securitisation is a

refinancing technique whereby a bank converts receivables into liquid

funds resulting from the granting of a loan, while assigning them to a

special-purpose vehicle (SPV) (bond issue, OPCC).

An OPCC can have the form of a fonds de placement en créances (FPC),

without legal personality, or an SIC. At present, only SICs exist in the

Belgian market.

68

5.5.1.1. SICAV

DESCRIPTION

"SICAV" stands for Société d’Investissement à Capital Variable (open-

ended investment company).

- Main feature: investors can join or leave a SICAV at any time; SICAVs

can continuously increase their capital, without any formalities, by

issuing new shares or, conversely, reduce their capital by selling

existing shares. Each transaction is carried out at the current NAV.

- The NAV corresponds to the market value per share of the portfolio's

net assets. This NAV is calculated periodically, more often than not

daily, and is published in the financial press. There is a slight delay

in publication: this is because the value of portfolios on a specific day

can only be calculated the next day when all the market prices are known.

- SICAVs can be divided into subfunds: this means that a SICAV can

consist of different types of securities, each corresponding to a

separate part of the company's assets. When each subfund is issued, a

prospectus is provided to investors outlining its specific investment

policy. Investors can easily switch to another subfund for a minimal

cost.

- Compliance with the investment rules is monitored by the CBFA.

The legislator imposes rules as regards minimum diversification of the

portfolio (see Art. 34 of the Royal Decree of 4 March 2005 relating to

certain public CIUs). Th CBFA must also agree to each issue (of a new

subfund) of a SICAV created under Belgian law and approve the compulsory

prospectus.

- Investors can opt for one of two schemes: income distribution (the

SICAV redistributes investment income) or accumulation (income is

reinvested and generates further income; with the accumulation method,

the value of units increases which allows investors to realise a capital

gain at the time of resale).

- Charges: joining or leaving a SICAV entails charges and stamp duty at

the time of redemption. When investors switch between subfunds in the

same SICAV, or between SICAVs issued by the same credit institution, they

are often granted a discount.

Management and consultancy fees are also usually charged annually.

The UCITS III European Directive imposes publication of the total expense

ratio (TER). The TER combines all the recurring annual charges. In

addition to management charges, administrative and marketing fees are

69

charged. The management charges represent the main fee component, but

other charges can at times also mount up considerably. Publication of the

TER makes it easier to compare costs.

TAX TREATMENT

Dividends paid by a Belgian (income distribution) SICAV are subject to

15% withholding tax.

Capital gains realised on the sale of shares of a Belgian SICAV are

exempt.

Dividends of foreign (income distribution) SICAVs are subject to 15%

withholding tax, provided that they are SICAVs, or subfunds of SICAVs,

created after 1 January 1994.

70

5.5.1.2. SICAFS

DESCRIPTION

"SICAF" stands for Société d’Investissement à Capital Fixe (closed-ended

investment company).

- Main feature: in principle, the capital is fixed: it can only be

increased or reduced in the same way as for any other company; shares

must be listed. Subscribers can only join or leave a SICAF via the stock

exchange.

- The NAV, also called the intrinsic value, is published at regular

intervals (quarterly, half-yearly or annually). In contrast to SICAVs,

the market quotation of a SICAF may differ considerably from its

intrinsic value. This is because the price is determined by supply and

demand. Market approval and public interest play a major role in this

process. When the market price is higher than the intrinsic value, we

refer to an "agio" or premium. When the market price is less than the

intrinsic value, we refer to a "disagio" or discount. Joining and leaving

a SICAF can only be done at the market price.

- SICAFs are traded on the stock exchange. There are no specific initial

and exit charges, but standard commission and stamp duty must be paid as

when trading (ordinary) shares.

- The latest SICAFs are those that invest in real estate, known as

SICAFIs (see section 7.2.).

TAX TREATMENT

Dividends paid by Belgian SICAFs are subject to 15% withholding tax.

Capital gains realised on the sale of shares of Belgian SICAFs are not

taxed.

71

5.5.1.3. PRICAFS

DESCRIPTION

PRICAFs are fixed-capital companies investing in unlisted companies and

growth enterprises. They are also called Private Equity companies. The

fund invests in young, promising companies that need venture capital and

in companies that want to place some of their shares with private

investors pending a flotation.

To increase the liquidity of the portfolio, some of the portfolio can be

invested in companies that are already listed.

TAX TREATMENT

No withholding tax for the portion of dividends distributed by a PRICAF

when this portion comes from capital gains realised by the PRICAF.

5.5.1.4. Sociétés d’investissement en créances (SICs)

DESCRIPTION

These are debt securitisation funds which purchase bank receivables

(often in "packages") and finance these operations by issuing

transferable securities. In this context, "securitisation" is frequently

involved. Securitisation is a refinancing technique whereby a bank

converts receivables into liquid funds resulting from the granting of a

loan, while assigning them to an SPV (bond issue, OPCC).

TAX TREATMENT

Dividends paid by an SIC are subject to a deduction of 15% withholding

tax.

72

5.5.2. Fonds de placement

DESCRIPTION

Fonds de placement are contractual-type CIUs which do not have legal

personality. They are the indivisible property of all the participants (=

co-owners) who have contributed funds and are managed on their behalf by

a company.

One of the drawbacks of fonds de placement is that it is legally

impossible to divide the fund into subfunds. This is significant in view

of the savings made possible by switching between subfunds. Other

drawbacks are that they do not have legal personality and are

indivisible. In fiscal terms, they do not exist. This means that tax

transparency applies.

TAX TREATMENT

The principle of tax transparency applies to fonds de placement; income

is regarded as having been received directly by the actual participant.

Interest and dividends paid by a fonds de placement are subject to

withholding tax of 15% or 25%. In principle, this income is not subject

to further taxation on leaving the fund.

Under Article 321bis of the Belgian Income Tax Code:

"Those companies managing collective investment undertakings referred to

by Article 3 (11) of the Law of 20 July 2004 concerning certain forms of

collective investment portfolio management or by similar provisions of

foreign law shall be obliged in particular to provide the amount, by

category, of income allocated or paid, in accordance with the rules laid

down by the King."

Indien deze bepaling niet wordt nageleeft voorziet het wetboek in

bepaalde gevallen een taxatie als interest tegen 25% (MA).

Si cette disposition n’est pas suivie, le code des impôts prévoit dans

certains cas une taxation comme intérêts à 25%. (If this provision is not

complied with, the Tax Code stipulates, in certain cases, taxation as

interest of 25%)

73

5.6. CIU BY DISTRIBUTION POLICY

A distinction is made between income shares on the one hand, and

accumulation shares on the other. Some investment companies leave the

choice between both types to investors.

5.6.1. Income shares

Entitle investors to receive a regular dividend. All or part of the

income earned is paid to the owners. The dividend is usually distributed

annually, but certain SICAVs distribute the income earned half-yearly or

even quarterly.

TAX TREATMENT

SICAVs with income shares are subject to 15% withholding tax in Belgium;

some SICAVs organised under Luxembourg law are subject to 25%. Any

capital gains realised are exempt.

5.6.2. Accumulation shares

The income received is not distributed to shareholders but automatically

added to the invested capital and reinvested. There is no distribution of

income or dividends. Investors only see a return on their investment when

their units are sold: this is why the income is in the form of a capital

gain.

TAX TREATMENT

See tax treatment of investment companies with accumulation shares (point

5.8.3.).

74

5.7. CIU BY INVESTMENT STRATEGY

Today there is a vast number of CIUs – primarily SICAVs – offering

different risk profiles, ranging from more specialised to more

diversified, and from more sophisticated to more straightforward. CIUs

can be grouped together depending on the type of securities held in the

portfolio (liquid assets, bonds, equities, precious metals, real estate

certificates, or a combination of any two or more).

Please find below the various categories and subcategories as defined by

the Belgian Asset Managers Association (BEAMA).

- Bond market funds (5.7.1.): invest mainly in fixed-yield securities

with a maturity of more than three years; a distinction is made between

bond market funds without a fixed term and those with a fixed term

("fixed funds").

- Medium-term funds (5.7.2.): invest in fixed-yield securities (bonds)

with a maturity of between one and three years;

- Money market funds (5.7.3.): invest mainly in liquid assets and short-

term securities (less than one year), such as fixed-term deposits,

Treasury bonds, short-dated bonds, commercial paper, and certificates of

deposit;

- Equity funds (5.7.4.): invest primarily in company shares and

secondarily in derivatives such as warrants, options, etc.;

- Funds with capital protection offer complete or partial protection of

the initial investment (5.7.5); a distinction is made between two

categories of funds with capital protection: those linked to equities on

the one hand, and those linked to interest rates, loans and currency on

the other;

- Hybrid funds (5.7.6.): invest in both equities and bonds. Funds that

hold liquid assets but invest mainly in one of the other categories are

not regarded as hybrid funds;

- Pension savings funds (5.7.7.): Pension savings funds were introduced

by the Royal Decree of 22 December 1986 providing for a favourable tax

regime for these specific pension funds within the scope of the formation

of individual pension reserves. They are obliged to comply with a

specific investment policy; the investment conditions are stated in the

Law of 17 May 2004 modifying, with regard to pension savings, the 1992

Income Tax Code (published in the Belgian Official Gazette on 10 June

2004). The new provisions are also in keeping with the Belgian

government's policy of encouraging small and medium-sized enterprises

75

(SMEs) from a European perspective. The new law came into force on 1

April 2004.

- Real estate funds: invest mainly in real estate. This category includes

funds that invest solely in other real estate funds or in land

certificates; (SICAFIs: 7.2.)

- PRICAFs (5.5.1.3.): are fixed-capital investment companies that invest

in unlisted companies and growth enterprises;

- Fund of funds (5.7.8.): are CIUs that invest in other CIUs. They are

included in the investment category in which these underlying CIUs

invest.

- PPM hedge funds (5.7.8.): deregulated funds using so-called

"alternative" portfolio strategies with the aim of hedging market or

speculative fluctuations (also called absolute return funds). Some of

these funds also seek to implement "gearing" as part of these strategies,

which considerably increases the risks. However, low-risk hedge funds

also exist. Whereas hedge funds used to be mainly marketed in English-

speaking countries, regulators in certain European countries are

gradually beginning to allow the opening up of hedge funds to individual

investors, subject to certain conditions. The Law of 20 July 2004

concerning certain forms of collective investment portfolio management

provide for the limited marketing of funds or hedge funds with capital

protection in Belgium.

Net assets of CIUs organised under Belgian and foreign law distributed to the public in Belgium

(EUR billions)

Year-end 1993 1995 2000 2004 2005

Bond market funds 21.8 22.5 29.9 35.3 52.9 Medium-term funds 5.2 2.5 1.0 1.8 1.5 Money market funds 9.7 8.7 3.8 6.2 5.9 Equity funds 4.7 5.3 40.3 27.9 39.7

Funds coupled with capital protection 0.3 1.0 27.6 41.4 41.7

incl. linked to shares 0.3 n.d. n.d. 29.0 29.6

incl. linked to interest rates - n.d. n.d. 12.4 12.1

Loans and foreign exchange

Hybrid funds 2.4 3.9 24.7 23.4 25.6 Pension savings funds 3.1 3.8 7.7 8.7 10.3

76

Real estate funds 0.3 0.4 3.0 4.4 5.6 PRICAF - - 0.1 0.1 0.1 Other - - 0.1 0.1 0.5 Total 47.6 48.3 138.2 149.3 183.8 incl. fund of funds 0.3 1.1 9.7 7.7 16.9

Total excl. fund of funds 47.3 47.2 128.5 141.6 166.9

Source: BEAMA

77

5.7.1. Bond market funds

DESCRIPTION

Bond market funds invest mainly in fixed-yield securities with a maturity

of more than three years, in the case of both government and private

company loans. This category is itself divided into bond market funds

without a fixed term (unlimited duration) and those with a fixed term

(limited duration): "fixed funds" are therefore bond market funds with a

limited duration (see 5.7.1.1.). The currency, term and geographical

breakdown of bond market funds vary according to the sought objective.

From a legal point of view, bond market funds can be both investment

companies and fonds de placement. The advantage for investors is that

they participate indirectly in a diversified bond portfolio at a low

cost.

The investment policy is outlined in the prospectus for bond market

funds. The investment policy may therefore impose restrictions on the

choice of bonds in which the fund invests: for example, in terms of

currency (euro, a particular currency, or several currencies), debtor

(exclusively corporate bonds, high-yield bonds, or blue-chip bonds) or

maturity (limited or unlimited).

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

PROS AND CONS OF BOND MARKET FUNDS

PROS

- Risk limitation: the debtor risk is limited owing to the dispersion among a large number of bonds.

- Professional management: the portfolio is updated daily.

- Large degree of liquidity: the price is calculated daily and published; investors can join and leave the fund on any day at the NAV for that day.

CONS

- Charges: initial, exit and management charges, in addition to stamp duty at the time of redemption.

78

RISKS ASSOCIATED WITH BOND MARKET FUNDS

1. Insolvency risk Negligible. The risk of a bond market fund failing is practically out of the question. The diverse nature of securities in the portfolio considerably reduces the debtor risk. The debtor risk is obviously more significant for bond market funds which specialise in loans to high-risk debtors.

2. Liquidity risk Low. These securities can always be sold at market conditions.

3. Exchange risk Depends on the investment policy (see prospectus). Non-existent for funds investing solely in Eurobonds. High for funds investing in volatile currencies.

4. Interest rate risk Same as that of an ordinary bond with a residual maturity equal to the average maturity of the bond portfolio of the bond fund. The interest rate risk exists throughout the investment period.

5. Risk of price volatility The longer the (residual) maturity and the lower the coupon, the higher the risk.

6. Risk of no income No payment in the case of accumulation shares/units.

79

5.7.1.1. Fixed funds

DESCRIPTION

A distinction is made between bond market funds with an unlimited term

and those which are set up exclusively for a specific term, which are

called "fixed funds" in current parlance.

The organisation issuing this type of fund morally undertakes to

distribute a specific amount upon maturity. Investors know from the

outset how much they will recoup upon maturity.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

There is another specific aspect in the case of bond market funds with a

limited term exceeding eight years. These funds are exempt from the

payment of withholding tax. This explains why many bond market funds are

set up with a term of eight years and one day or eight years and one

month.

PROS AND CONS OF FIXED FUNDS

See 5.7.1. Bond market funds.

RISKS ASSOCIATED WITH FIXED FUNDS

See 5.7.1. Bond market funds.

80

5.7.2. Medium-term funds

DESCRIPTION

Medium-term funds invest in fixed-yield securities (bonds) with a

maturity of between one and three years.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

PROS AND CONS OF MEDIUM-TERM FUNDS

See 5.7.1. Bond market funds.

RISKS ASSOCIATED WITH MEDIUM-TERM FUNDS

See 5.7.1. Bond market funds.

81

5.7.3. Money market funds

DESCRIPTION

Money market funds invest mainly in liquid assets and short-term

securities (less than one year), such as fixed-term deposits, Treasury

bonds, short-dated bonds, commercial paper, and certificates of deposit.

Some money market funds invest in euro, others in currency. Some even

select baskets of currencies: for example, strong currencies or

currencies with high interest rates. The investment policy is outlined in

the fund prospectus.

Money market funds can be set up under Belgian or Luxembourg law and

issue accumulation or income shares. In the case of income shares,

investors receive regular dividends. In the case of accumulation shares,

dividends are added to the invested capital and reinvested.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

PROS AND CONS OF MONEY MARKET FUNDS

PROS

- Owing to the scale of the amounts collected, individual investors can obtain more remunerative rates (e.g. those of the wholesale market).

- Individuals can indirectly acquire instruments to which they have no direct access (e.g. Treasury bonds or commercial paper).

- High degree of liquidity in relation to other investment instruments, such as fixed-term deposits.

CONS

- Charges: initial and exit charges associated with the acquisition or resale of shares; management charges, which are often low owing to the relatively flexible tracking of the SICAV portfolio; stamp duty at the time of redemption. All these charges make money market fund investments unattractive in the short term.

- Generally fairly poor return.

82

RISKS ASSOCIATED WITH MONEY MARKET FUNDS

1. Insolvency risk Negligible: the risk of a money market fund failing is practically out of the question. The debtor risk of the underlying assets is low.

2. Liquidity risk Money market funds redeem their shares at their NAV. Owing to the specific nature of their short-term investments, money market funds are generally highly liquid.

3. Exchange risk Nil for funds investing exclusively in euro. Low to high risk for other currencies depending on the pegging of the currency concerned to the euro.

4. Interest rate risk Low. During exceptionally high rate rises, the NAV may plummet for a while.

5. Risk of price volatility Non-existent: the risk of making a loss when reselling a money market fund is nil as it only invests in short-dated, fixed-yield instruments.

6. Risk of no income Accumulation shares do not distribute dividends. The dividend from an income share varies in line with the income received on the assets held.

83

5.7.4. Equity funds

DESCRIPTION

Equity funds invest mainly in company shares and correlated instruments.

There are "general" equity funds, i.e. invested in all sectors worldwide,

equity funds that specialise either geographically (Belgian, European or

international) or on a sector (growth or high-tech activities such as

telecoms, IT, multimedia, healthcare, biotechnology; more traditional

activities, often regarded as defensive, such as finance, distribution,

convenience goods, luxury products, and local services (e.g. electricity,

water, waste collection)). The investment policy is outlined in the fund

prospectus.

Equity funds are managed by specialist equity fund managers whose job

involves conducting a continuous analysis of economic and financial

information.

The management may be:

- passive: i.e. tracking a specific index;

- active: the fund manager attempts to outperform a stock market index,

or "the market", by cherry-picking shares.

From a legal point of view, equity funds can take the following forms:

- SICAV, set up under Belgian or foreign law;

- SICAF: in Belgium, this form of investment only exists in the form of a

PRICAF (5.5.1.3.), whereas in the US and UK a broad range of country and

sector-based funds is marketed under the general label "closed-end

funds".

Closed-end funds can invest in listed and unlisted shares. Venture

capital funds, which come under this category, provide venture capital to

young, promising companies, often involved in technological activities.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

84

PROS AND CONS OF EQUITY FUNDS

PROS

Compared with a direct equities investment, equity funds display the following major advantages:

- effective risk diversification;

- numerous possibilities for minimising risks and sheltering realised gains (e.g. ratchet SICAVs);

- the possibility of investing in markets or sectors that are difficult for individuals to access and for which no information is available (e.g. the emerging countries);

- modest initial outlay;

- good liquidity: the NAV of SICAVs is calculated and published daily; investors can join and leave the fund at any time at the NAV of the SICAV; SICAFs can always be traded at the market price;

- lower charges than when buying individual shares;

- favourable tax treatment: in the case of equity funds consisting of income shares, dividends will be taxed at 15% (for funds organised under Belgian law), rather than 25% as for ordinary shares. In the case of equity funds consisting of accumulation shares, capital gains realised on shares are not taxed;

- simplified administration as dividends are automatically paid. During any transaction relating to shares held in the portfolio (e.g. securities trading), fund managers carry out all the necessary procedures.

CONS

- the regional and/or geographical spread of actively-managed equity funds can basically be modified in line with the fund manager's expectations concerning the market trend and diversified in relation to investors' requirements;

- shares display a volatile trend, at least in the short term.

- charges: initial and exit charges associated with the acquisition or resale of shares; management charges.

RISKS ASSOCIATED WITH EQUITY FUNDS

1. Insolvency risk Negligible. The risk of an equity fund (SICAV/SICAF) failing is out of the question. The debtor risk of the underlying assets is low.

2. Liquidity risk Low for SICAVs. These securities can always be sold at market conditions. Variable for SICAFs: despite their stock exchange listing, liquidity varies considerably from one fund to the other and over time. When the market is in the doldrums, disagios are sometimes high, making it difficult to sell.

85

3. Exchange risk Depends on the underlying assets. Nil for funds invested exclusively in eurozone equities. High for funds invested in equity markets with a volatile currency.

4. Interest rate risk A rate rise generally has a negative impact on the price of shares.

5. Risk of price volatility Determined by the general investment climate of the stock exchange on which the fund invests. Volatility is less than for an individual share as the risk is spread over a number of shares. In the case of SICAFs (which must be listed), the interest of the general public also contributes to price volatility.

6. Risk of no income An accumulation fund does not distribute dividends.

7. Other risks In the case of SICAFs, the investment policy is not always very transparent.

86

5.7.4.1. Index funds

DESCRIPTION

Index funds invest exclusively in shares and aim to track the entire

market. An index is a measuring instrument reflecting the general trend

of listed shares. It relates to all listed shares or to some of them.

For example, an index SICAV is an accumulation SICAV that buys shares

included in an index. The trend in the value of the SICAV closely tracks,

therefore, the average performance of the stock exchange concerned. Index

SICAVs are found on the Belgian Bourse and on most of the stock exchanges

in the OECD countries.

Belgian index SICAVs are eligible for a more favourable tax regime than

that applicable to individuals who reinvest dividends after 25%

withholding tax has been deducted. This is because index SICAVs receive

dividends gross and reinvest them; these funds are subject to only

limited corporation tax.

This explains why their yield outperforms the stock market index as the

latter is calculated by taking into account dividends net of withholding

tax.

To be profitable, these funds should therefore be considered for a fairly

long-term investment as, in the short term, the market trend – which is

closely tracked by the index SICAV (downwards as well as upwards) – can

be somewhat temperamental and not allow repayment of the initial outlay,

also in view of any initial, management and exit charges.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

PROS AND CONS OF INDEX FUNDS

PROS

- Risk diversification: as with other SICAVs, an index SICAV enables individuals who do not have sufficient know-how and time to manage their own portfolios to achieve better results than when buying shares directly. This benefit is even more noticeable for investors wishing to invest in foreign markets (index SICAVs track the world's leading stock exchanges).

- High yield: statistical research seems to highlight that, on average, portfolios faithfully reflecting the market mix offer a greater yield than portfolios, composed according to other criteria, of shares in this

87

market. Consequently, of the SICAVs investing in shares, it is index SICAVs that perform best in the long run.

- Reasonable management charges: as it is fairly straightforward to track the portfolio of an index SICAV, the management charges are less than for most other equity SICAVs.

CONS

- The shares in an index SICAV remain a risky investment, even if this risk is more limited than that associated with an individual share.

- Investing in index SICAVs relating to certain foreign stock exchanges can entail fairly high initial, management and exit charges.

RISKS ASSOCIATED WITH INDEX FUNDS

1. Insolvency risk Nil as, in principle, these funds are less likely to fail.

2. Liquidity risk Low, in general, owing to the specific nature of an index SICAV.

3. Exchange risk Nil for euro-denominated shares of an index SICAV. The exchange risk can be low to high for shares denominated in other currencies.

4. Interest rate risk A rate rise generally has a negative impact on the price of shares and, indirectly, on that of an index SICAV.

5. Risk of price volatility Depends essentially on the general trend of the (Belgian or foreign) stock exchange on which the SICAV invests. Volatility is less than that of an individual share.

6. Risk of no income An index SICAV is an accumulation fund that does not distribute income.

88

5.7.5. Fund with capital protection

DESCRIPTION

Funds with capital protection offer complete or partial protection of

capital: upon maturity, they guarantee the repayment of at least the

initial NAV.

A distinction is made between two categories of funds with capital

protection: firstly, those linked to shares, and secondly, those linked

to interest rates, loans and currency.

A fund with capital protection does not have shares as its primary

investment. It focuses more on fixed-yield securities. This is because

investments must ensure that the initial outlay will be recouped.

Funds with capital protection offer two guarantees: firstly, repayment of

the initial outlay upon maturity, and secondly, linking of the fund's

performance to the trend of an underlying.

MAIN FEATURES OF FUNDS WITH CAPITAL PROTECTION

Guaranteed repayment of the initial outlay (less charges) upon final

maturity

The protection offered relates to the initial value of the product, i.e.

the price paid on joining the fund during its subscription period.

Following this period, the NAV fluctuates. If units are purchased at a

value that exceeds the initial value, total capital protection is no

longer offered. Moreover, the offered protection only applies if units

are retained until the planned maturity. If units are sold prior to

maturity, they will be traded at the NAV at the time, which may be less

than the initial value (plus the exit charges will sometimes be very

high). Some products coupled with capital protection actually offer only

partial protection of the initial capital (e.g. 90%).

Some guaranteed-capital funds even offer a guaranteed minimum return.

This guarantee is possible because the fund invests most of its portfolio

in hedging products such as swaps, options, etc.

- Specific term: the date of maturity is known from launch (whereas other

types of funds have an unlimited term); if leaving the fund prior to

maturity, the exit charges are clearly higher than when leaving a

traditional fund.

- Pegged to one or more stock market indices: the fund's performance (and

so the repayment amount of the initial capital) is linked to the

89

performance of an index; i.e. a Belgian or foreign stock market index

(basket of shares).

- Acquisition often only possible during a limited period, known as the

issue period; outside this period, it is often not possible to obtain

shares without having to pay high charges.

A distinction is made between two categories of funds with capital

protection: "ratchet funds" and "other funds".

• RATCHET FUNDS: in order to minimise the risk of the index falling

upon final maturity, some funds with capital protection can have

one or more "ratchets". The ratchet system allows gains to be

definitively blocked, either at a specific level or at a specific

time, regardless of the fund's subsequent performance.

- ratcheting at a specific level: the investor is sure that, once a

specific level has been reached by the underlying index, the profit

will be gathered in, blocked; however, there is no guarantee that

the level will be reached.

- ratcheting at a specific time: upon maturity, the investor will

receive the total of any increases realised at specific times,

established when the fund was launched.

- if the ratchet was not applied during the term of the fund,

investors are assured of recouping their initial capital (less

charges).

NB: ratchet funds have more in common with risk-free investments

than equity investments. As with bank savings certificates, they

have a specific term, guarantee repayment of the initial outlay

(excluding charges and taxes), and must be retained until maturity.

On the plus side, their performance (unknown in advance) is linked

to a stock market index which the investor hopes is considerably

higher than the nominal interest rate (currently fairly low) of

bank savings certificates or bonds.

• OTHER FUNDS: The second category of funds with capital protection

includes traditional funds, which ratchet gains upon maturity

rather than at intermediary periods. A certain percentage of the

increase in the underlying index is taken into account (less than

100%, 100%, or more than 100%); there are numerous alternatives).

As with ratchet funds, the full effect of passed-on increases is

not felt until maturity.

TAX TREATMENT

90

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

91

PROS AND CONS OF FUNDS WITH CAPITAL PROTECTION

PROS

- Capital protection upon maturity: investors can take advantage of a market rally without the risk of losing capital.

- Realised capital gains are exempt from withholding tax, provided that the funds are not so-called "European passport" funds.

- For those funds pegged to a foreign stock market index, but denominated in euro, the exchange risk is nil.

- The advantage of a ratchet fund is that the ratcheted increase is definitively acquired, on condition, however, that the fund is retained until maturity.

CONS

- Investors participate solely in price rises of the benchmark index and are not entitled to company dividends.

- Investors must normally remain in the fund until the date of maturity: the guarantee of recouping the initial capital and the performance bond apply only upon maturity; leaving the fund prior to maturity can be expensive.

The NAV of the fund is calculated at market conditions. The capital protection is only valid on the date of maturity and, in the meantime, the NAV will not always track the benchmark index.

Participation in the price rise of the benchmark index is not always complete; a ceiling may be applied to the maximum return on investment.

RISKS ASSOCIATED WITH FUNDS WITH CAPITAL PROTECTION

1. Insolvency risk Negligible. The risk of a fund failing is practically out of the question. The debtor risk of the underlying assets is low.

2. Liquidity risk These securities can always be sold at market conditions, on payment of exit charges.

3. Exchange risk Depends on the currency in which the fund offers capital protection. Nil if the fund is invested solely in euro; high if the fund invests in volatile currencies without hedging exchange risks, and where the capital protection is not expressed in euro. There are no exchange risks in index funds with capital protection.

4. Interest rate risk In general, a rise in the market rate has a negative effect on the price of these securities. The capital protection is valid only upon maturity.

92

5. Risk of price volatility Determined by the general trend in the market where the fund invests.

6. Risk of no income Accumulation units do not distribute dividends.

93

5.7.6. Hybrid funds

DESCRIPTION

Hybrid funds invest their portfolio in both equities and bonds, without

specialising in any one type.

Funds that hold liquid assets and also invest mainly in one of the other

categories are not regarded as hybrid funds.

A distinction is made between several types of hybrid funds, depending on

their risk profile:

- "defensive" (low) hybrid funds devote most of their assets to risk-free

investments (e.g. 75% is invested in bonds, mostly denominated in stable

currencies);

- "neutral" (medium) hybrid funds distribute their assets more or less

evenly between risky investments (equities, etc.) and non-risky

investments (bonds, etc.);

- "dynamic" or "aggressive" (high) hybrid funds devote most of their

assets to risky investments (e.g. 75% is invested in equities).

The investment policy of each of these funds is outlined in the

prospectus.

TAX TREATMENT

For the general principles concerning taxes due by private investors: see

point 5.8.3.

For further details, also see the legal form of the fund (point 5.5.) and

the type of share/unit (accumulation or income) (point 5.6.).

PROS AND CONS OF HYBRID FUNDS

PROS

- A simple way of maintaining a balanced and diversified portfolio, in line with the desired risk profile.

Hybrid funds are often used in financial planning: regularly saving and investing in the savings phase and not saving during the dissaving phase, e.g. following retirement.

- Hybrid funds often make up the core of the portfolio, but investors can also place their own preferences using other forms of investment.

CONS

- Charges: initial and exit charges; management charges; stamp duty at the time of redemption.

RISKS ASSOCIATED WITH HYBRID FUNDS

94

1. Insolvency risk Negligible. The risk of a fund failing is practically out of the question. The debtor risk of the underlying assets is low.

2. Liquidity risk Low as these securities can always be sold at market conditions, on payment of exit charges.

3. Exchange risk Depends on the portfolio mix.

4. Interest rate risk Both bonds and equities are sensitive to interest rate fluctuations.

5. Risk of price volatility Higher for "dynamic" than "defensive" hybrid funds.

6. Risk of no income Accumulation units do not distribute dividends.

95

5.7.7. Pension savings funds

DESCRIPTION

Certain investment vehicles have been favoured by the authorities to

promote individual pension savings (Royal Decree of 22 December 1986

establishing a pension savings scheme). The new investment conditions

governing pension savings funds are referred to in the Law of 17 May

2004, modifying the 1992 Belgian Income Tax Code with respect to pension

savings.

Anyone aged between 18 and 64 who is liable to pay personal income tax

may invest a maximum amount (EUR 810 in 2007) in a pension savings plan

and deduct this amount from his income on his tax return. On reaching the

age of 60, the invested capital can be recouped subject to a one-off,

final tax payment. Anyone wishing to leave the fund earlier (before

retirement) must pay more tax.

Pension savings funds are fonds de placement (see 5.6.) that enjoy a

preferential status and have proved popular among Belgians. They are

hybrid fonds de placement (see 5.3.4.) as they invest in both equities

and bonds. The investment policy of this type of fund is also subject to

certain legal restrictions.

To sum up:

- maximum 75% in bonds, including 60% in public loans;

- maximum 75% in equities;

- maximum 10% in cash;

- minimum 80% in euro.

TAX TREATMENT

Pension savings funds have a specific and preferential tax regime with

the aim of sustaining long-term savings, which has also made them

popular.

Provided that the conditions stipulated by law are met (inter alia

minimum of five payments and any amount paid must be invested for a

minimum term of five years), pension savings funds give entitlement to

tax relief which, depending on the level of income, represents 30-40% of

an amount limited to EUR 810 in 2007.

Final tax: the capital recouped on retirement will be taxed at 16.5% on

96

the part corresponding to payments made prior to 1993 and at 10% on the

remainder.

97

PROS AND CONS OF PENSION SAVINGS FUNDS

PROS

- Thanks to a modest annual investment, investors can build up a large amount of capital which will enable them to top up their statutory pension at a later date.

- Pension savings are eligible for an attractive tax regime: investors can save a few hundred euros in tax when making the investment.

CONS

- The amount that can be invested was limited to EUR 800 in 2006.

- These funds are registered and only exist as the accumulation scheme.

- They cannot be resold until the participant reaches retirement age; if he leaves earlier, he is penalised: i.e. a higher rate of withholding tax is charged.

RISKS ASSOCIATED WITH PENSION SAVINGS FUNDS

1. Insolvency risk Negligible. The risk of a pension fund failing is practically out of the question.

2. Liquidity risk Nil. The securities can be resold at any time at market conditions. However, a higher rate of withholding tax is charged if leaving the fund early (before retirement).

3. Exchange risk Low. The investment policy of pension funds is subject to statutory limitations, with a maximum of 10% in foreign shares.

4. Interest rate risk A rate rise will generally have a negative impact on the price of a pension savings fund.

5. Risk of price volatility In the short term, the price of a pension savings fund may fluctuate considerably, in line with the general investment climate. Price fluctuations are smoothed in the long term, and investors can expect a higher return than that for fixed-rate investments.

6. Risk of no income An investment in pension savings funds does not generate regular income. Income is only distributed at retirement age, but investors make huge tax savings.

98

5.7.8. Fund of funds

DESCRIPTION

Funds of funds are CIUs that invest in other CIUs.

They are actively managed funds: managers of funds of funds make a

rigorous selection from the top fund managers on the basis of strict

criteria and gather these funds in the same basket. The selected funds

are regularly re-evaluated.

A "fund of hedge funds" deserves particular mention.

In finance, "hedging" means reducing the financial risks. As part of

their strategy, some of these funds also implement "gearing", which

considerably increases the risks. However, low-risk hedge funds also

exist.

Ordinary fonds de placement do not generally hedge and run an "open"

risk. This means that an ordinary bond fund bears the entire risk of

interest rate fluctuations and the debtor risk. Hedge funds, on the other

hand, conduct a completely different strategy. They aim for absolute � rather than relative � performance, regardless of the economic situation or the trend of a component in the underlying market.

Although the hedge funds conduct a relatively conservative policy (low-

risk strategy), the objective is to achieve a return between that of

ordinary bonds and ordinary shares. The aim, in this context, is for

regular growth in the NAV, together with as few fluctuations and negative

returns as possible.

Funds of hedge funds were set up for individual investors with the aim of

a broad spread over various hedge funds, enabling fund managers to

combine different investment styles. Initially, individual investors in

Belgium could only acquire units in hedge funds in the form of

"branche/tak 23" insurance products. Until 2003, hedge funds were not

possible in the form of SICAVs owing to the restrictions that must be

taken into account in the investment policy of SICAVs. Hedge funds have

recently been authorised in Belgium in the form of SICAVs, including for

individual investors, subject to compliance with certain conditions. Yet

the term must be limited in time, and capital protection must be

provided. Speculative funds are, however, reserved for well-informed

investors. The minimum amount to be invested in these funds in the case

of private investors is usually EUR 250,000.

99

PROS

- Diversification: an investment in a fund of funds can be regarded as an investment by way of international diversification (which can be both geographical and sector-based). Investing in a fund which itself is invested in other funds gives investors access to thousands of shares, yet without having to worry about the quality and performance of each one.

- Minimised risks: the sector-based and regional spread minimises the risks.

- Active management: the selection of funds making up the basket of funds of funds is reviewed on a regular basis in order to respond to specific investment opportunities in line with market trends; moreover, thanks to a large volume of assets under management, the fund manager can buy and sell funds at the best terms.

CONS

- Charges: initial and exit charges; management charges; stamp duty in the event of redemption.

100

5.8. TAX TREATMENT OF CIUs: GENERAL PRINCIPLES

There are several types of taxation to consider when referring to the tax

treatment of CIUs: - taxes paid by the CIU as a company (5.8.1.);

- taxes concerning the distribution made by CIUs in Belgium (5.8.2.);

- and taxes payable by investors on income received from funds invested

in CIUs (5.8.3.).

As this brochure looks at products from the point of view of investors,

paragraphs 5.5. and 5.6. (main types of CIU) and the sections on pension

savings funds (5.7.7.) deal with the tax treatment of investors in more

detail. However, we should briefly point out the other taxes that may be

payable by a CIU. These are dependent upon the NAV and so also affect

investors. This is why a CIU can sometimes have a more specific tax

status within the scope of corporate taxation.

5.8.1. Taxation of CIUs as tax-liable entities

Belgian fonds de placement and investment companies are subject to

various rules of taxation.

1. Fonds de placement are formed in joint ownership and do not have legal

personality. They do not exist in tax terms: they are what is known as

fiscally transparent. Income paid from a fonds de placement is subject to

the same tax regime as the tax that would be applied directly to the co-

owner, i.e. 25% on share dividends and 15% on bond coupons. In other

words: the fund is subject not only to foreign tax at source on income,

but also to Belgian withholding tax. The same income is not taxed twice.

2. Investment companies (SICAVs) are subject to Belgian corporation tax.

However, the taxable amount is limited to all exceptional benefits and

non-deductible business expenses and disbursements. These companies are

also exempt from Belgian withholding tax in the case of income from

loans, deposits and foreign private equity, except for dividends earned

on Belgian shares. However, these companies can recover the deduction

made on Belgian dividends.

They must also pay foreign withholding tax, but, in principle, benefit

from reduced rates under double taxation agreements.

5.8.2. Annual tax payable on CIUs

CIUs publicly distributed in Belgium, whether organised under Belgian or

foreign law, are taxed annually on the basis of the NAV of their assets

as at 31 December of the previous year.

101

The tax is collected on the net assets distributed in Belgium as at 31

December of the previous year.

The tax rate has been 0.08% since 1 January 2007. The funds/classes of

underlying shares for institutional investors will pay 0.01%.

In accordance with the March 2004 guidelines for the CIU sector

concerning the calculation of annual tax, BEAMA has proposed a

certificate for the number of CIU units held by non-Belgian residents in

order to determine the taxable amount for annual taxation as at 31

December 2004: "the total number of CIU units less the number of units

for which the distributing institution can produce a certificate showing

that the units were purchased by non-Belgian residents, multiplied by the

net asset value as at 31 December."

The certificate was forwarded in December 2004 to the Office of the

Finance Minister. It was emphasised that this was merely an internal

annual document which CIUs should retain and only forward at the request

of the inspection services.

5.8.3. Taxes due from investors on income from CIUs

5.8.3.1. Belgian withholding tax

1. Fonds de placement

Fonds de placement are fiscally transparent; deductions are made by the

fund itself.

In the case of fonds de placement organised under Belgian law, investors

receive net income.

In the case of fonds de placement organised under foreign law, income is

also paid net in Belgium.

A deduction must still be made from income where no withholding tax has

yet been paid by the fund itself.

Withholding tax exempts individuals and non-profit-making organisations

from the obligation of stating their income on their tax return.

When the income from a foreign fund is paid abroad, Belgian investors

must state this on their tax return. In this case, a separate tax rate is

applied. Aggregation will be carried out if this seems more favourable to

the investor.

No tax is payable on capital gains recorded by the funds after securities

have been sold.

Any Belgian aged between 18 and 65 who participates in a pension savings

plan is entitled to tax relief calculated on the basis of a tax rate of

102

30% minimum to 40% maximum on an annual investment not exceeding EUR 810

in 2007 (Law of 26 December 1992).

2. Investment companies

SICAVs are not entirely transparent; withholding tax of 15% is payable on

distributed dividends (since 1 January 1994).

Non-residents can obtain exemption from, or reimbursement of, the

withholding tax, except for the part of the dividend originating from

Belgian shares held by the investment company.

When an individual invests in a foreign investment company, Belgian

withholding tax of 15% is payable if the dividend is paid in Belgium. If

the dividend is paid abroad to a Belgian resident, an individual investor

will not have to pay withholding tax, but he will have to declare this

income on his tax return; a separate tax rate will be applied to this

income (cf. fonds de placement).

In the case of accumulation shares of investment companies, capital gains

are exempt from tax as far as individuals and companies not subject to

tax, such as pension funds, are concerned. Since the Law of 20 March 1996

was adopted, withholding tax of 15% is, however, payable in the case of

accumulation shares of fixed-maturity bond SICAVs, for a period not

exceeding eight years, for shares issued after 7 April 1995.

Since the Law of 27 December 2005 was adopted, withholding tax of 15% is

also payable by Belgian private investors in the case of accumulation

shares of "European passport" SICAVs investing more than 40% in fixed-

income securities (bonds, Treasury bonds, etc.). Only the interest is

taxed. This component is formed from the portion of income originating

from receivables of the CIU concerned, which comes, directly or

indirectly, from interest payments. If the fund does not have a detailed

statement, a flat interest rate will be applied as the basis. This

measure has been taken by the Belgian authorities by analogy with the

European Directive on non-residents (see below under "European deduction

from income").

These new measures apply until 31 December 2007 inclusive. With effect

from 2008, the whole income (interest + capital growth) of the portion of

receivables will be taxed, while the stamp duty charged on stock market

transactions applicable since 2006 (see below under "Stamp duty") will

once again be reduced from 1.1% to 0.5% when redeeming accumulation

shares of SICAVs. However, the public authorities may decide not to apply

these measures by virtue of a Royal Decree.

103

5.8.3.2. Stamp duty

With regard to stamp duty when issuing new securities, Belgium was fined

by the European Court of Justice on 15 July 2004 for violating Council

Directive 69/335/EEC concerning indirect taxes affecting the pooling of

capital (primary market). Consequently, stamp duty, which was until then

collected on subscriptions and conversions in the CIU sector, was

abolished as from 25 July 2005.

However, stamp duty on the redemption of accumulation shares of CIUs has

been maintained.

The redemption limit was also abolished by the Finance Act of December

2004.

On 21 January 2005, the Council of Ministers approved a draft bill

concerning limiting stamp duty which had been maintained by the Finance

Minister for transactions not resulting from the primary market.

This draft bill provides for the reintroduction of the stamp duty limit

(EUR 750), which had been abolished by the Finance Act, with retroactive

effect to 31 December 2004.

Since 1 January 2006, the stamp duty applicable to SICAVs has risen from

0.5% to 1.1% for the sale of accumulation shares (subject to a limit of

EUR 750). This applies to all categories of investor. As far as the

subfunds of fixed-maturity SICAVs are concerned, stamp duty is only

payable if selling before the date of maturity. Stamp duty is not payable

in the case of fonds communs de placement (FCPs).

5.8.3.3. Country of residence deduction

The EU Savings Directive came into force on 1 July 2005 for certain

savings and investment products, including CIUs. Since then, a European

withholding tax can be deducted when distributing dividends and capital

gains on the shares of a CIU, where the payment is made to a non-resident

of another EU Member State or associated or dependent territory.

Distribution of

dividends

Capital gains

realised on shares

Investment company (SICAV)

with European passport

Potentially in

scope

Potentially in scope

Fonds de placement with

European passport

Potentially in

scope

Potentially in scope

Investment company (SICAV)

without European passport

Out of scope Out of scope

Fonds de placement without Out of scope Out of scope (unless

104

European passport (unless opted to

be in scope)

opted to be in

scope)

Pension savings fund Out of scope Out of scope

OPCCs Potentially in

scope

Potentially in scope

Private Equity Fund (PRICAF) Out of scope Out of scope

SICAFIs Out of scope Out of scope

105

5.8.3.4. Table for investors summarising the tax treatment of CIUs

Belgian withholding tax Stamp duty

When buying

When selling

Switching between subfunds

BELGIAN FONDS DE PLACEMENT Fiscal transparency (deductions are made by the fund itself; investors receive net income)

- - -

SICAVs

Income SICAVs

• Belgian investors pay 15% withholding tax

- - -

• Luxembourg investors pay 15% or 25% withholding tax

- - -

Belgian and Luxembourg

• accumulation SICAVs + European passport and having invested at least 40% of its portfolio in fixed-income investments (except bonds issued before 1 March 2001)

for SICAVs sold between 1 Jan 2006 and 31 Dec 2007: interest on fixed-income investments taxed at 15% (interest received since 1 July 2005) for SICAVs sold from 1 Jan 2008: total capital gains taxed at 15% (i.e. the yield from fixed-income investments plus any rise or fall in the price of bonds in the portfolio; however, the public authorities may decide not to apply these measures by Royal Decree).

- 1.1%; max. EUR 750 (could drop to 0.5% in 2008)

1.1% (ditto)

• Belgian and Luxembourg (other)

savers do not pay withholding tax

- 1.1%; max. EUR 750 (could drop to 0.5% in

1.1% (ditto)

106

2008)

• with capital protection or "obli-fix" SICAV

savers pay 15% of the income from the SICAV (guaranteed-yield accumulation SICAVs are tax-exempt - purchased before 7 April 1995 - for a period of more than eight years - guaranteeing no more than repayment of the outlay

1.1% on leaving if selling before maturity (could drop to 0.5% in 2008)

107

5.9. CBFA LIST OF PUBLIC CIUS ORGANISED UNDER BELGIAN AND FOREIGN LAW

Official lists of CIUs, together with their subfunds, can be found on the

CBFA website: www.cbfa.be/fr/cs/OPC/li/OPC_li.asp.

108

6. INSURANCE-RELATED INVESTMENT PRODUCTS

6.1. Branche/Tak 21

DESCRIPTION

Branche/Tak 21 combines life insurance products offering a guaranteed

return.

The insurer gives the insured a guarantee of a fixed return on each

premium paid for as long as it remains invested in the policy. This

policy can be formed from a single premium (a single payment) or from

successive premiums (a number of payments), as the case may be. In

general, the guaranteed fixed return is increased annually by means of

profit-sharing granted by the insurance company, which varies in line

with the insurer's performance.

We refer to "assurance en cas de vie" where the aim of the policy is to

pay a capital sum (or an annuity) to the insured person on a specific

date (usually at retirement age) if he or she is still alive.

We refer to "assurance en cas de décès" where the aim of the policy is to

pay the beneficiary designated in the policy a capital sum or an annuity

upon the death of the insured person.

We refer to "mixed insurance" where both events are covered.

Since 1 January 2006, a 1.1% tax has applied to life insurance premiums.

Branche/Tak 21 products

These include "pension insurance", which is equivalent to pension savings

offered by banks. There are also "universal life" products, which are

pure life insurance policies; these often require the payment of

successive premiums in order to form a capital sum which will be used at

retirement age; subject to certain conditions, these policies offer

special tax breaks (long-term savings).

Insurance accounts, which appeal to investors wishing to protect their

capital at all costs, also form part of the branche/tak 21 product range.

We should also highlight insurance bonds, which are looked at below.

INSURANCE BONDS

109

DESCRIPTION

Insurance bonds bear a strong resemblance to bank savings certificates,

but are actually life-insurance policies with a named policyholder,

beneficiary and insurance company. They are subscribed for a fixed period

(generally three to ten years) and guarantee a fixed return (without

profits). Only a single premium is payable.

PROS AND CONS OF INSURANCE BONDS COMPARED WITH BANK SAVINGS CERTIFICATES

PROS

+ Insurance bonds are not subject to stamp duty.

+ Insurance bonds are exempt from withholding tax, on condition that they have a term of more than eight years and one day or provide death benefit equal to at least 130% of the single premium, and that they are subscribed by the policyholder on his life and in his favour.

+ No exchange risk from when the bonds are issued in euro.

+ No interest rate risk as this is determined when the bond is

subscribed.

CONS

- Insurance bonds are an illiquid product. It is only possible to get out of the contract before its due date by paying penalties.

- Insurance bonds are registered.

- Insurance companies do not have a system that is similar to that protecting deposits and financial instruments in the banking sector, which indemnifies investors if a credit institution goes into liquidation; this means that insurance bonds bear an insolvency risk.

- A 1.1% tax is levied on premiums at subscription.

TAX TREATMENT

Insurance bonds are subject to 1.1% tax on life insurance premiums.

Insurance bonds are exempt from withholding tax, on condition that they have a term of more than eight years and one day or provide death benefit equal to at least 130% of the single premium, and that they are subscribed by the policyholder on his life.

RISKS ASSOCIATED WITH INSURANCE BONDS

110

1. Insolvency risk Yes. As with all insurance products, insurance bonds bear an insolvency risk as they are issued by insurance companies and do not have a system that is similar to that protecting deposits and financial instruments in the banking sector, which indemnifies investors, up to certain amounts, if a credit institution goes into liquidation. The risk of Belgian insurance companies failing is, however, very low as they are subject to highly rigorous prudential monitoring by the CBFA.

2. Liquidity risk Insurance bonds are a highly illiquid product.

3. Exchange risk Nil from when insurance bonds are issued in euro.

4. Interest rate risk Nil as the interest rate is determined when the bond is subscribed and remains fixed throughout the agreed term of the investment (unless reselling prior to maturity; there is then a risk of loss in value, as with all fixed-income securities).

111

6.2. Branche/Tak 23

DESCRIPTION

This range includes life-insurance products with a return linked to one

or more investment funds. A Royal Decree of 17 December 1992 authorised

insurers to create this type of product with effect from 1 January 1993.

Branche/Tak 23 products have certain features in common with two existing

products: firstly, branche/tak 21 for the insurance component; secondly,

CIUs for the units of account component. Therefore, this is a life

insurance policy linked to an investment fund without any guarantee of

return.

However, branche/tak 23 life insurance displays two major differences

when compared with the branche/tak 21 range:

winsurance premiums invested in branche/tak 23 products are not expressed

in monetary units (euro), but in units of account of a fonds de

placement. In contractual terms, therefore, customers acquire units of

account of a fonds de placement whose value changes over time;

wthe insurer is not bound by a performance bond. There is no guaranteed

return: the value of the investment changes, both up and down, in line

with financial market trends; the return depends on the yield of the

underlying fund. It is the policyholder who bears the policy risk. When

the policy matures (agreed term or in the event of death), the

beneficiary will receive the then current value of the units of account.

In common with CIUs, there are different types of policy depending on the

underlying funds:

- funds with a limited subscription period or closed-end funds;

- permanently offered funds and open-end funds.

Closed-end funds include those with the objective of protecting capital,

provided that investors wait for their policies to mature.

TAX TREATMENT

On leaving the fund, this product is not subject to withholding tax.

In the case of closed-end funds looking to protect future capital, the

withholding tax exemption will apply if redemption/maturity takes place

after eight years and one day.

112

Since 1 January 2006, branche/tak 23 products have been subject to 1.1%

tax on life insurance premiums.

PROS COMPARED WITH SICAVS

w As with any life insurance, it is possible to designate a beneficiary; upon the death of the insured, the death benefit is not passed on by the deceased's estate (however, death duties are payable).

w No stamp duty.

CONS COMPARED WITH SICAVS

w Less flexible than SICAVs as regards withdrawals: when making a withdrawal during the first few years of the policy, exit penalties must usually be paid.

w A 1.1% tax is levied on premiums at subscription.

RISKS

There are various levels of risk depending on the portion of the

portfolio that the funds invest in high-risk equities and low-risk

liquidities and bonds. The price of funds fluctuates in line with the law

of the market, which implies that the beneficiary is exposed to market

risks except in the case of funds with capital protection (see above).

FOR FURTHER INFORMATION ON BRANCHE/TAK 23 PRODUCTS (TO BE COMPLETED, CF. ASSURALIA)

Assuralia website

www.assuralia.be

Contact the main insurance companies. You will find a list of them

on the Assuralia website

www.assuralia.be/fr/organisation/members/index.asp?name=a.

Budget net website:

www.budget-net.com/map/show/2511/src/283220.htm#bookmark283260

113

7. REAL ESTATE INVESTMENT

7.1. Real estate certificates

DESCRIPTION

A real estate certificate, defined by the Law on financial markets and

transactions of 4 December 1990 and the Royal Decree of 4 March 1991, is

a transferable security representing acknowledgement of debt which

entitles its holder to a share of the rent and sale price of a building

(or a group of buildings) that it has served to (re)finance.

The principle is as follows: an issuing company, the issuer, calls on the

investor market to finance a construction project or to refinance one or

more existing assets.

Examples of financing by real estate certificates:

office buildings (Diegem Kennedy);

retail centres (Woluwé Shopping Centre);

medium-sized commercial areas (Machelen, Kuurne, etc.);

semi-industrial premises and warehouses (Genk Logistics);

accommodation (Louvain-La-Neuve, Park De Haan).

The issuing company issues acknowledgements of debt, known as real estate

certificates, handed over via a financial intermediary to investors in

return for their injection of funds.

The issuer – or the company associated with it within the scope of the

internal company regime (formerly known as a special partnership) – is

officially the legal owner of the real estate, whereas the holder of the

certificate is only the beneficial owner.

From a legal and tax point of view, a real estate certificate is regarded

as a bond.

The amount of coupons generally includes the net rental income, after

deduction of management charges and operating expenses and, in certain

cases, part of the repayment (redemption) of the funds invested at the

time of issue. At the time of distribution, withholding tax is

114

automatically deducted from the income component of the gross amount of

the certificate coupon.

From the outset of the transaction, it is stipulated in the prospectus,

approved by the CBFA in the case of a public offering, that the real

estate will be resold on a certain date (usually between 15 and 25 years

for a rental certificate, more in the case of a leasing certificate).

After deduction of selling costs, the proceeds from the sale will be

distributed to holders who then hand over the certificate in exchange.

Real estate certificates are traded on Euronext Brussels. Older

certificates, which have usually entered the settlement phase, are traded

at Weekly Public Sales. More recent certificates issued from the

beginning of the 1980s are more liquid as, in principle, they are quoted

several times a week.

Many existing real estate certificates relate to one building, but the

issue of certificates for more than one building is also possible,

provided that all the real estate forms part of the issue from the

outset. An issue such as this automatically diversifies the investment

risk more effectively. At present, all the real estate concerned by the

issue of certificates subject to Belgian legislation is situated in

Belgium. However, there are also certificates subject to Luxembourg law

which have served to refinance real estate located in Luxembourg.

Types of real estate certificates

Each certificate is an individual case concerning its own financial

package. However, there are numerous formulae that allow the certificates

to be grouped together in two main categories.

• Leasing certificates: relate to real estate let on a long lease

(which cannot be cancelled: from 27 to 99 years) and including an

option to buy for the lessee;

• rental certificates: in this case, the lease is an ordinary or

commercial civil lease (3, 6 or 9 years); consequently, there may

be temporary non-occupancy of the real estate and so a lack of

rental income, but also modification of the basic rental concluded

with new tenants.

115

TAX TREATMENT

Income from real estate certificates is classed as interest and so

subject to withholding tax (25% for issues prior to April 1990; 15% for

subsequent issues). This levy is in full discharge of withholding tax for

individual beneficiaries; it is chargeable and reimbursable for

companies.

As when reselling real estate, there is no registration fee (10% in the

Flemish Region and 12.5% in the Brussels-Capital and Wallonian Regions)

when selling a certificate. However, any sale of premises that triggers

the settlement procedure for the issue transaction will result in the

collection of transfer duty payable by the acquirer, the amount of which

will depend on the sale method adopted by the parties and the

geographical location of the property.

PROS AND CONS OF REAL ESTATE CERTIFICATES

PROS

• Limited outlay: in return for a modest outlay of funds, investors can gain access to this method of real estate financing (and to its more profitable asset classes) regarded as a "safe-bet" investment during periods when the market is in trouble and/or interest rates are low.

• Convenience: no material concerns that are specific to the premises (construction, repair, leasing, management and resale).

• Indexed remuneration: rent indexation generally allows rental income to be indexed; real estate certificates can therefore offer a protected, higher return than that on a company share.

• Diversification of real estate risks where certificates are (re)financing a number of properties.

CONS

• Uncertain yield: unlike conventional bonds, the income from a real estate certificate is variable. This depends on the type of real estate, the lessee's solvency, the occupancy rate – and so the letting of the premises – the situation in the property market, the rate of inflation – "health index" for all types of lease, except for long leases where the consumer price index (CPI) can be used – and so the amount of the rent index.

• THE VALUE OF THE CERTIFICATE AT FINAL MATURITY IS UNKNOWN AS THIS IS DEPENDENT ON ANY CAPITAL GAIN OR LOSS REALISED WHEN THE PREMISES ARE SOLD.

116

• Limited market: many real estate certificates have a low cap (on average, barely more than EUR 25 million) and, as a result, reduced liquidity.

• Lack of diversification of real estate risks where certificates (re)finance a single building: relying on one building can be very risky as it exposes the investor to the possibility of a rental void or a dispute with a tenant.

RISKS ASSOCIATED WITH REAL ESTATE CERTIFICATES

1. Insolvency risk Depends on the quality of the issuing company. This risk can be minimised by use of the internal company regime (formerly known as a limited partnership), which brings together the company owning the premises, the managing agent of the internal company, and the issuing company whose corporate object is restrained.

2. Liquidity risk Some certificates are not quoted on Euronext Brussels, but can be traded at Weekly Public Sales. With regard to quoted certificates, liquidity depends on the volume of transactions. The number of real estate certificates issued is generally fairly limited. When the market is thin, an order to buy or sell can have a considerable effect on the price where there are few counterparties.

3. Exchange risk Nil for real estate certificates denominated in euro.

4. Interest rate risk Yes. Sensitivity to interest rate fluctuations (in principle, a rise in market rates results in a drop in the value of the certificate, as with company shares). As real estate certificates are long-term investments, their return partly depends on long rates. This is partly because the rates rise could be fuelled by renewed inflation which would be expressed by the indexation of rental income.

5. Risk of price volatility Yes. Depends to a large extent on the trend in the property sector and on characteristics specific to the premises (location, age, compliance with current air-conditioning standards, quality of materials, signature of tenants, and changes to lease terms and conditions, etc.).

6. Risk of no income The income distributed is variable: it depends, among other things, on the occupancy rate of the

117

premises and the rent indexation. The coupon may also include repayment of the initial outlay.

7. Capital (repayment) risk A capital gain or loss may be realised when the premises are sold; the value of the certificate at final maturity is therefore unknown.

118

7.2. SICAFIs (real estate SICAFs)

DESCRIPTION

A SICAFI is a real estate fixed-capital investment company (see section

5.5.1.2.). This concerns securitised real estate, i.e. investors acquire

real estate – not directly, but indirectly – through the purchase of

shares of a company with a special status (SICAFI) whose sole assets are

real estate or similar (see below).

SICAFIs were created in Belgium by the Royal Decree of 10 April 1995,

published in the Belgian Official Gazette of 23 May 1995. This precise,

rigorous legislation aims to protect investors and imposes the compliance

with certain conditions on real estate funds wishing to use the SICAFI

status.

SICAFIs are obliged to invest in a range of real estate to comply with

the principle of a diversified portfolio: no more than 20% of its assets

in one property complex7. "Property complex" is understood to mean one or

more properties whose investment risk is regarded as a sole risk for the

SICAFI. The same tenant of several properties, even where they are

geographically dispersed, cannot represent, therefore, more than 20% of

the assets8.

It can be any type of real estate: offices, commercial premises, semi-

industrial premises and logistic platforms, accommodation, and mixed

7 The Royal Decree of 21 June 2006 provides for an exception to this rule for the portion of the investment risk covered by a long-

term commitment of a Member State of the European Economic Area (EEA) as the lessee or user of the assets referred to.

Institutes of International Public Law, which comprise one or more EEA Member States, and the regional authorities of a Member

State are also given the same status as an EEA Member State.

8 This provision – contained in the Royal Decrees of 10 June 2001 (Belgian Official Gazette of 19 June 2001) and of 21 June 2006

(Belgian Official Gazette of 29 June 2006), which raised the upper debt limit from 33% to 50%, and from 50% to 65%, respectively –

applies on a consolidated basis and is based on an expert's latest assessment.

However, on condition that the level of indebtedness of the SICAFI is less than or equal to 33%, the CBFA may grant dispensation

from the 20% limit

for a maximum period of two years, effective from the date of registration on the official SICAFI listing;

if such dispensation is in the interest of shareholders;

if the dispensation is justified by the specific features of the investment.

If the level of indebtedness is more than 33%, the CBFA can only grant the first type of dispensation (for a maximum period of two

years).

119

portfolios. SICAFIs can also hold real estate certificates, provided that

they relate to a public offering, shares of affiliated real estate

companies, and option rights on the real estate.

To be approved as such, a SICAFI must also meet other criteria: apart

from its limited indebtedness (no more than 65% of assets when entering

into the loan agreement), it is required to distribute 80% of its

"adjusted profit"9, less the amounts corresponding to the net reduction

of its debts during the period.

SICAFIs must be listed. Its valuation, therefore, is not linked to the

value of its assets, but is based on its listed price, as for other

quoted companies. If its price exceeds its NAV, it will show a premium in

relation to its NAV; conversely, we will refer to a discount.

As a listed company, it is obliged to comply with the applicable rules

concerning regular information (publication of an annual and half-yearly

report) and evaluation of the real estate portfolio (quarterly by an

independent expert and quarterly publication of the investment value of

its portfolio and of the NAV).

A SICAFI values its real estate assets at fair value, without applying

depreciation. This fair value must be understood from the vendor's point

of view, less transfer duty10 (in technical terms, pursuant to

International Accounting Standard (IAS) 40).

9 The "adjusted profit" is obtained by means of a calculation based on the net profit for the period. Various items on the income

statement (P&L) are then added or removed in order to obtain the adjusted profit. Where applicable, the "net capital gains on

realisation of real estate not exempt from the distribution obligation" must also be added. See Royal Decree of 21 June 2006, Art. 6

& 7. Also Chap. III of the Appendix to this Royal Decree which includes the calculation model and comments on the model.

10 In principle, transferring property ownership is subject to transfer duty collected by the State, which constitutes the main part of

transaction charges. The amount of this duty depends on the transfer method, the purchaser's status, and the property's

geographical location.

120

TAX TREATMENT

Dividends distributed by SICAFIs to investors are subject to withholding

tax at the rate of 15%; this levy is in full discharge of withholding tax

for individuals and pension funds. This distributed income is not regarded

as definitively taxed income in the case of profit-making companies.

However, this withholding tax is not payable if the SICAFI invests at

least 60% of its real estate assets in accommodation located in Belgium.

PROS AND CONS OF SICAFIS

PROS

- Particularly favourable tax status

- Diversification of risks: no more than 20% of a SICAFI's assets in a single property.

- Indexation of rental income

- Transparency of information, thanks to the publication of an annual report and regular monitoring of the real estate portfolio by an independent expert.

- Limited level of indebtedness and financial expenses

- Minimum level of profit allocation

CONS

- Interest rate sensitivity which has an impact on prices when there is an upward trend.

- Uncertain return: annual income depends on the rental income from premises and any maintenance and repair costs. Although rental income tracks the rise in the health index, this is dependent upon the occupancy rate of the premises and on the outcome of lease (re)negotiations. A temporary rental void can arise if the premises are vacated or where it is necessary to agree to rent-free periods to persuade an occupier to stay.

RISKS ASSOCIATED WITH SICAFIS

1. Insolvency risk Nil as SICAFIs cannot fail.

2. Liquidity risk The liquidity of a SICAFI depends on the volume of transactions. Some small and medium-sized SICAFIs have fewer transactions. As it happens, when the market is thin, an order to buy or sell can affect the price if there are too few counterparties. In recent years, however, a significant increase in volumes and velocity rates has been observed for most SICAFIs, not

121

least thanks to monitoring by financial analysts, the growth in the float, and the fact that this investment method has matured.

3. Exchange risk Nil as SICAFIs are denominated in euro.

4. Interest rate risk Yes. Sensitivity to interest rate fluctuations (in principle, a rise in market rates results in a drop in the value of the SICAFI). As SICAFIs are long-term investments, their return is partly dependent upon long rates. Partly (see also point 6 below) as the rise in rates could be fuelled by renewed inflation which would be expressed by the indexation of rental income.

5. Risk of price volatility Yes. Depends to a fairly large extent on the trend in the property sector and on characteristics specific to the premises (location, age, compliance with current air-conditioning standards, quality of materials, signature of tenants, etc.).

6. Risk of no income The distributed dividend is variable as it depends, among other things, on the occupancy rate of the premises, the terms and conditions for (re)negotiation of leases, and the rent indexation.

7. Capital risk No, apart from the risk of price volatility as, in principle, a SICAFI has an unlimited term and there is no planned repayment of capital on any date.

List of SICAFIs as at 28 March 2007 (see updated list on www.cbfa.be PUBLIC COLLECTIVE INVESTMENT UNDERTAKINGS ORGANISED UNDER BELGIAN LAW, III Real Estate Investment Trusts (REITs)

aedifica www.aedifica.be

Ascencio www.ascencio.be

Befimmo www.befimmo.be

Cofinimmo www.cofinimmo.be

Home Invest Belgium www.homeinvestbelgium.be

Offices Intervest www.interinvest.be

intervest Retail www.interinvest.be

leasinvest Real Estate www.leasinvest.be

Montea www.montea.eu

Retail Estates www.retailestates.be

122

Serviceflats Invest www.sfi.be

Warehouses De Pauw www.wdp.be

Warehouses Estates Belgium www.w-e-b.be

Wereldhave Belgium www.wereldhavebelgium.com

For further information on SICAFIs

Banking, Finance and Insurance Commission (CBFA): www.cbfa.be

Belgian Asset Managers Association (BEAMA): www.beama.be

123

8. ETHICAL INVESTMENT AND SOCIALLY RESPONSIBLE AND SUSTAINABLE INVESTMENT 8.1. General features of socially responsible investment (SRI)D

Although "ethical investment" is an increasingly popular talking point,

the broader concept of socially responsible and sustainable investment is

currently catching on. It denotes financial products which, apart from

the purely financial return, also aim to make "gains" in the areas of the

environment, culture and/or social economy, corporate governance, and

respect of human rights. These investments make frequent reference to the

concept of sustainable development11.

The definitions of this type of investment have followed one after the other.

• A solidarity financial product is an investment whose prime objective is

to finance environmental or social projects (such as job creation and/or

as part of combating exclusion). Investors forfeit all or some of the

income generated by their investment (interest and dividend) in favour of

a social project.

• Some financial products apply exclusion criteria to screen out a number of

practices: child labour, the production and distribution of arms, nuclear

energy, tobacco, etc.

• Themed financial products focus on a positive approach of a particular

theme (e.g. "green" funds to promote respect of the environment).

• More recently, global and positive approaches in sustainable

development have resulted in socially responsible and sustainable

investment products. An SRI financial product invests its capital in

companies which, apart from traditional financial criteria, respect

precise social and environmental values. With this in mind, investors

consider corporate governance, human resources, human rights, respect

of the environment, and non-financial aspects which form part of

companies' financial analysis.

11 Sustainable development is development that meets present-day needs without compromising the capability of future generations to meet theirs.

124

Criteria defining whether or not a product is an SRI

Ethics is not a universal given, it varies according to the culture,

convictions, era, and location. The range of SRI products is also

ethically diverse and variable.

Even though the main ethical concepts are often shared by most

individuals of the same culture, each person also has his own criteria

and will decide whether this or that investment meets them. It is up to

each individual to make choices that are specific to him according to the

values to which he subscribes and to be mindful of the quality of the

ethics proposed to him. The social and environmental criteria taken into

consideration in the case of socially responsible and sustainable

investment often form the subject of precise and detailed information,

and the investor responsible will therefore be able to check whether the

criteria used are suitable. A major aspect of this type of product is,

therefore, its considerable transparency with regard to the management

and allocation of investments.

Several categories of SRI criteria have been predefined to classify SRI

products.

• negative or exclusion criteria screen out from the investment

portfolio those companies whose business, services or products are

linked to activities that are deemed to be sensitive (e.g. arms

dealing, tobacco, nuclear energy, alcohol, oil, etc.), or companies

in undemocratic countries or which abuse human rights (e.g. not

hesitating to use children).

• positive criteria select companies in the portfolio based on their

attitude towards the environment, social policy, production programme

(waste recycling both upstream and downstream of the production

chain), according to whether they respect human rights or depending

on the place reserved for women and minorities.

125

The "socially responsible and sustainable" screening can be based on one

or more positive or negative criteria, or a combination of both.

Who is responsible for the ethical or socially responsible content of an

SRI product?

The ethical or socially responsible content of an SRI product can be the

responsibility of:

- either its promoter or manager which allocates the funds entrusted to

it, while complying with the ethical terms of reference it has laid down;

as a rule of thumb, it will provide the manager with the services of a

specialist internal or external consultant agency. The screening of SRI

funds is being increasingly entrusted to internal analysis and research

sections of the managed institution, in return for completely independent

verification by a consultative committee or an auditor.

- or an independent organisation specialising in the non-financial

evaluation and rating of so-called "sustainable" securities; research in

the field of SRI is conducted by national and international specialist

research centres.

SRI financial products in Belgium

Investors will find a number of SRI ranges in the Belgian market.

wethical savings products (link with section 8.2.)

wSRI funds (link with section 8.3.)

FOR FURTHER INFORMATION ON ETHICAL OR SOCIALLY RESPONSIBLE AND SUSTAINABLE INVESTMENT

• Réseau Financement Alternatif

[Alternative Financing Network], which includes a Products Database,

to find out about all the ethical and/or solidarity financial products

available on the Belgian market www.reseau-alterfinance.org

• Principles of Responsible Investment see www.unpri.org/principles/

126

• Eurosif Transparency Code for SRI Funds (available to the general public) see www.eurosif.org/pub2/2activ/initvs/transp/index.shtml

• Investors’ Statement on Transparency in the Extractives Sector see www2.dfid.gov.uk/pubs/files/eitidraftreportinvestors.pdf

• Carbon Disclosure Project see www.cdproject.net/

• Netwerk Vlaanderen, on the "Duurzaam sparen en beleggen" [Sustainable

saving and investment] site

duurzaam.netwerk-vlaanderen.be

• Belgian Asset Managers Association (BEAMA), a quarterly list of SRI

funds, SRI definition and methodology as agreed by the Belgian CIU

sector

www.beama.be/content/publicaties/index.php?page=ethisch

• "Les placements éthiques et solidaires", Alternatives économiques

Pratique, no. 25 bis, 144 pages, December 2006. In bookshops. Can also

be ordered via the website www.alternatives-economiques.be.

Practical guide on how to invest your money usefully, including

examples that unravel the products available in Belgium. Published in

partnership with Réseau financement alternatif.

127

8.2. Ethical savings products

DESCRIPTION

The ethical savings schemes available in the Belgian market are

relatively straightforward.

These are conventional savings products:

- either regulated savings accounts in which savers make deposits

and receive interest (see section 1.2.1.);

- or deposit accounts (see section 1.1.).

The ethical aspect of these savings products stems from the purpose for

which the bank will use the deposited funds and/or from the fact that it

is possible for savers to decide to forfeit some of their interest in

favour of an association of their choosing.

The Belgian ethical savings market is fairly limited. In recent years,

there has been little change in the range and innovation of products, as

well as in the number of institutions operating in this segment. Very few

Belgian banks currently offer ethical savings accounts.

For more information on the ethical savings schemes available in the

Belgian market, please consult the Products Database on the website

www.reseau-alterfinance.org. (see heading "Saving and investing").

TAX TREATMENT

The tax treatment of ethical savings products is identical to that of

conventional savings products:

-for regulated savings accounts, see section 1.2.1.

- for time deposits and deposit accounts, see section 1.1.

PROS AND CONS OF ETHICAL SAVINGS PRODUCTS

PROS

- Same benefits as for conventional savings accounts: liquidity, flexibility, favourable tax regime up to a limit of EUR 1,600 in interest (2006 tax year).

- Possible for savers to favour ethical or solidarity investments.

CONS

128

- Poorly remunerated as with conventional savings products.

RISKS ASSOCIATED WITH ETHICAL SAVINGS PRODUCTS

Identical to those of a regulated savings account or a standard deposit account (see sections 1.1. and 1.2.).

129

8.3. SRI funds

DESCRIPTION

SRI funds have the same features as other funds (see section 5); it is

just that their investment choices are guided by non-financial concerns

(social, ecological, societal, ethical, corporate governance, etc.), in

addition to financial performance.

A distinction is made between various approaches:

1. Sustainable funds: involved in SRI subject to multi-aspect screening.

This model is based on the principle that, to be durable, a company's

economic growth must take account of the interests of parties on the

receiving end of its activity: employees, society, the environment,

customers, shareholders, suppliers.

2. Themed funds: involved in SRI subject to screening based on a specific

theme.

• Investment that makes a contribution to society: issuers are first and

foremost selected on the basis of their positive contribution to

society or with regard to sustainable development, and only then on

the basis of the expected return (e.g. microfinancing fund).

• Investment based on exclusion criteria: issuers involved in certain

activities or practices deemed to be contrary to ecological, social,

societal or ethical investment principles are screened out. For

example, funds that do not invest in companies associated with the

tobacco industry.

Investment with single-aspect control: the investment policy considers

the services provided by the issuer from a single non-financial aspect or

a number of related aspects (e.g. social, ecological, societal or

ethical). For example, funds that only include in their portfolio those

companies contributing to environmental conservation.

130

3. Solidarity funds: these are not SRI funds in the strict sense as there

is no screening of the portfolio based on SRI criteria. However, they

allow investors to give back some of their income to a good cause.

SRI funds represent the SRI financial segment that has observed the

biggest expansion. They represented EUR 5.5 billion at the end of 2006.

Belgium is the leader in Europe as regards the share of SRI funds in the

overall CIU market (3.2% at the end of 2006).

Considerable innovation characterises the SRI funds segment: there were

two funds in 1992, rising to 13 in 1999, 26 in 2002, and topping 53

subfunds of sustainable funds at the end of 2006. Currently in vogue, SRI

has become a veritable market trend anchored in a long-term perspective.

List of SRI funds

For the list of SRI funds, please consult the website www.beama.be. (see

heading "Publications SRI").

TAX TREATMENT

The tax treatment of SRI funds is identical to that of other CIUs

organised under Belgian law (see section 5.6.).

PROS AND CONS OF SRI FUNDS

PROS

• SRI funds favour companies involved in social, environmental or cultural projects.

• Increased significance of sustainability.

CONS

- Charges: as with other CIUs (see section 5.6.), joining or leaving an SRI fund entails initial and exit fees. Management fees (sometimes higher than for standard CIUs) are also charged.

RISKS ASSOCIATED WITH SRI FUNDS

1. Liquidity risk Low. These securities can always be sold at market conditions, on payment of exit charges.

131

2. Exchange risk Nil for ethical funds in euro.

_________________________________________________________________________

______

3. Interest rate risk Depends on the mix of the SRI fund. Both equities and bonds are sensitive to interest rate fluctuations.

132

9. GOLD, GOLD MINES AND OTHER PRECIOUS METALS

DESCRIPTION

Precious metals have been regarded as means of investment from time

immemorial.

Gold is the most popular precious metal for investment purposes. It has

for a long time been regarded as a safe-bet investment in the event of

exceptional circumstances (such as war and political instability).

Compared with other forms of investment, it has the advantage of being

easily tradable throughout the world at a known price when expressed in

accordance with international standards.

The benchmark price of gold is stated in US dollars (USD) per ounce (1

ounce = 31.1035 grams). This relates to gold in account, i.e. not in

physical form. Gold is mainly traded in the form of futures and options.

Alongside this, there is also a large physical market expressed in local

currency (euro, etc.) and, where applicable, in units of local weight

(kilogram, ounce, tael).

Today it is the physical market that follows the trend set by the futures

and options market. Fluctuations can be significant, and euro-based

investors should not underestimate the currency risk.

There is no official listing in Belgium, but reference prices expressed

in euro are communicated daily by specialist financial intermediaries.

HOW TO INVEST IN GOLD

Physical gold

in ingot form corresponding to international standards (i.e. with the

stamp of an internationally recognised caster and a fineness of at

least 995, the standard being 9999). The reference ingot is 1 kg but

can be broken down into 500, 250, 100, 50, 20, 10 and 5 grams. Former

"standard" bars of approx. 12.5 kg are no longer regularly traded

owing to their weight and value.

in coin form: this includes:

- current coins, some of which are still minted (South African

Krugerrand, Canadian Maple Leaf, US Eagle, Australian Nugget). The

coins referred to represent one ounce of fine gold. They are traded

around their intrinsic value, i.e. the value of the gold content.

- old coins: these coins, minted primarily during the second half of

the 19th century and the first half of the 20th century, served as

133

legal tender in their day. They can sell at a premium depending on

demand, rarity and condition. Ultimately, they are always worth their

intrinsic value.

Gold shares: gold mines issue shares and distribute any dividends just

as any other company. In addition to their economic activity, gold

mines are also valued by the potential gold reserves they hold.

Consequently, they can create high gearing for these potential

reserves if the gold price rises. As these companies are today mainly

in the US or South Africa, there is a correlated currency risk (US

dollar (USD) or South African rand (ZAR)). They may therefore prove to

be highly volatile and are also subject to the general market climate.

Some SICAVs are composed solely of gold shares.

Futures and options

Investment will be made primarily in USD via the US markets, creating

a currency risk for euro-based investors.

TAX TREATMENT

As far as gold is concerned, any transaction (delivery, import, intra-

Community acquisition or services performed by an authorised

intermediary) relating to the "gold investment" has been exempt from VAT

since 1 January 2000.

Any transaction that does not relate to the "gold investment" is subject

to VAT at the standard rate of 21%.

Transactions relating to antique coins continue to be subject to VAT at

the rate of 6%.

Within the scope of normal private wealth management, capital gains or

losses realised by the sale of gold are not taxable or deductible.

As far as gold shares are concerned, the tax treatment is the same as

that applicable to other shares.

OTHER PRECIOUS METALS

Other precious metals, whose markets are highly speculative and not

recommended to small-scale investors, mainly include:

- silver: household assets (silverware), coin and medal collections;

- platinum: used to a large extent in jewellery but also in industry,

likewise palladium, for the manufacture of catalytic exhaust pipes;

- iridium and rhodium: used in platinum alloys.

134

These metals are mainly traded in US dollars in the US markets. Under

normal market conditions, they are not generally available in physical

form.

PROS AND CONS OF GOLD INVESTMENTS

PROS

- Gold constitutes protection against inflation. Investing some assets in gold (3-5% according to experts) can be regarded as a type of insurance and diversification for the remaining assets.

- The role of gold as a safe investment tends, however, to disappear: its price is determined less and less by the physical demand of investors during periods of uncertainty (which causes the price to rise) and more and more by the interplay of supply and demand on the derivatives markets.

CONS

- they are "sterile" investments: gold and precious metals do not generate any income. This opportunity cost is particularly high when interest rates are high. The only possibility of profit is the capital gain when reselling, but fluctuations in the gold price are subject to numerous factors (rate of inflation, actual interest rates, firmness of the dollar, real economic growth).

- Owing to their highly speculative nature, gold shares must be bought and sold quickly, which requires fairly advanced technical know-how – a rare quality among investors acting in good faith. It is important to know the state of their reserves and the amount of their production costs.

RISKS ASSOCIATED WITH GOLD INVESTMENTS

1. Liquidity risk Fairly low for physical gold, except for certain specialised gold coins. In the case of gold shares, this depends on the volume of transactions.

2. Exchange risk As the gold price is fixed in dollars in the international markets, fluctuations in this currency can offset or accentuate a drop in the gold price.

3. Risk of price volatility resulting in a capital loss The gold price and the price of gold shares are highly volatile. So there is a significant risk of reselling at a loss, at a market price below

135

that of the purchase, especially in the short term.

4. Risk of no income Holding physical gold does not generate any income. Gold shares give entitlement to a dividend, with variable income not being able to be distributed some years.

5. Capital (or repayment) risk Significant risk of reselling at a loss, at a market price below that of the purchase. Holding physical gold covers the repayment risk.

136

APPENDIX: DEFINITIONS OF RISKS ASSOCIATED WITH INVESTMENT INSTRUMENTS

1. Insolvency risk The insolvency risk is the probability, for the issuer of the transferable security, that the debtor will no longer be able to meet its commitments. The quality of the issuer of a transferable security is very important as the issuer is responsible for repayment of the initial capital. It is imperative to assess this risk effectively. The poorer the issuer's financial and economic position, the greater the risk of not being repaid (or of only being partly repaid). The interest rate offered by this type of issuer will of course be higher than that offered by a debtor of better quality for similar paper. One way of responding to this problem is to award a rating (risk assessment established by an independent body).

2. Liquidity risk It may be that an investor wishes to recoup his money (capital + any interest) before the investment matures, either out of necessity or to reinvest in a product with a greater return. The liquidity risk is the probability, for the investor, of encountering difficulties when recouping his funds before the fixed maturity (if there is one). The liquidity of an investment is affected by a number of factors, namely: - the volume of transactions in the market in which the product is traded; prices fluctuate more in a limited market where a large order can result in a significant price variation. The deeper the market, the lower the liquidity risk; - the costs associated with leaving an investment; - the time necessary to recoup funds (payment risk).

3. Exchange risk If investing in a currency other than euro, there is inevitably an exchange or currency risk. The exchange risk is the probability that an adverse trend in the currency being invested in will reduce the return on investment. If the trend in the currency is unfavourable, the return will be eroded following the failure to gain due to the conversion to euro. If the trend is positive, the investment will enjoy a "normal" return, as well as a capital gain due to the favourable exchange rate.

4. Interest rate risk This is the risk associated with a change in interest rates in the market, resulting in a drop in the share price. In the case of fixed-rate investments, such as bonds, the interest rate risk is expressed by the probability

137

that a change in rates will not result in a change in the market price of the bond and, therefore, in a capital gain or loss. If selling in the secondary market prior to maturity when the market rate is more than the nominal rate of the bond, the investor will incur a capital loss; on the other hand, if the market rate is less than the nominal rate, the investor will realise a capital gain. Example: a ten-year bond issued in 2001, whose rate is fixed at 5%, will see its value decrease if the market rate rises to 6% in 2002. However, its value will increase if the rate falls to 4%. In the case of variable-rate investments, such as shares, an interest rate rise generally has a negative impact on the price of shares.

5. Risk of price volatility The volatility risk is the probability that the price of a variable-yield investment will be subject to more or less severe fluctuations, resulting in a capital gain or loss. An investor will record a capital loss if the price drops, and a capital gain if it rises.

138

6. Risk of no income The risk of no income is the probability that the investor cannot withdraw income from his investment. This will result in an absolute loss owing to inflation and a relative loss compared with a remunerative investment (opportunity cost).

7. Capital (or repayment) risk This is the probability that the investor will not recoup his entire initial outlay upon maturity or on leaving his investment. When investing in shares for example, the capital risk is significant as the invested capital fluctuates in line with the company's financial and economic position.

8. Other risks Risks specific to a type of investment.