SICAV (mutual fund) ANNUAL REPORT as at 30 December 2011 No subscription can be received on the basis of this report. Subscriptions are valid only if made on the basis of the current prospectus, supplemented by a subscription application form, the latest annual report and the most recent half-yearly report, if published thereafter. Union Bancaire Gestion Institutionnelle (France) 7 Place Vendôme 75001 Paris
CONTENTS UBAM CONVERTIBLES 3 Information concerning investments and management 5 Information concerning corporate officers 6 Report of the Board of Directors 7 Report of the statutory auditor 8 Annual accounts 10 Balance sheet 11 Off-balance-sheet 13 Profit and loss statement 14 Notes to the annual accounts 15 Resolutions 16 UBAM CONVERTIBLES EUROPE 18 Information concerning investments and management 19 Management report of the Board of Directors 26 Annual accounts 28 Balance sheet 29 Off-balance-sheet 31 Profit and loss statement 32 Notes to the annual accounts 33 UBAM CONVERTIBLES EURO 10-40 50 Information concerning investments and management 51 Management report of the Board of Directors 58 Annual accounts 60 Balance sheet 61 Off-balance-sheet 63 Profit and loss statement 64 Notes to the annual accounts 65 2 SICAV Annual Report Year Ended 30.12.2011
UBAM CONVERTIBLES 3 SICAV Annual Report Year Ended 30.12.2011
FINANCIAL MANAGER BY DELEGATION UNION BANCAIRE GESTION INSTITUTIONNELLE (France) 7 Place Vendôme, 75001 Paris DEPOSITORY AND CUSTODIAN CACEIS BANK 1-3 Place Valhubert, 75013 Paris MARKETING AGENT UNION BANCAIRE GESTION INSTITUTIONNELLE (France) 7 Place Vendôme, 75001 Paris STATUTORY AUDITOR ERNST & YOUNG AUDIT Tour First - 1-2 Place des Saisons 92400 Courbevoie, Paris la Défense Cedex 1 BOARD OF DIRECTORS Chairman and CEO Deputy CEO and Director Directors Mr Dominique Leprevots Mr Jean-Édouard Reymond Mr Pierre Berger 4 SICAV Annual Report Year Ended 30.12.2011
INFORMATION CONCERNING INVESTMENTS AND MANAGEMENT CLASSIFICATION: The UBAM CONVERTIBLES SICAV is a SICAV with subfunds. MANAGEMENT OBJECTIVE: The objective of each subfund is defined in its prospectus. Each subfund may be the subject of a request for admission to trading on any regulated stock market, depending upon the regulations in force. The objective of the SICAV is to offer a range of subfunds. As at 30 December 2011, the UBAM CONVERTIBLES SICAV comprised two subfunds: - UBAM Convertibles Europe - UBAM Convertibles Euro 10-40 Shareholders may upon request obtain all information concerning the UCITS from the management company. The net asset value is available through the management company for this purpose. The full prospectus of the UCITS, the most recent annual report and other regularly published reports, the voting policy document and the report on the exercise of voting rights will be sent within one week of receipt of a written request from the shareholder addressed to: Union Bancaire Gestion Institutionnelle (France) - 7 Place Vendôme, 75001 Paris. Tel.: +33 (0)1 44 50 16 16 - E-mail: communication@ubgi.fr AMF (French Financial Markets Authority) approval date: 17 September 1999. Creation date of UBAM Convertibles Europe subfund: 17 September 1999. Creation date of UBAM Convertibles Euro 10-40 subfund: 23 September 2008. 5 SICAV Annual Report Year Ended 30.12.2011
INFORMATION CONCERNING CORPORATE OFFICERS LIST OF FRENCH MANDATES AND POSITIONS HELD IN FRENCH COMPANIES BY EACH OF THESE OFFICERS DURING THE FINANCIAL YEAR 1 : Dominique Leprevots, Chairman and CEO - Chairman of the Executive Board of UBI Union Bancaire Gestion Institutionnelle (France) SA, on the Executive Board and Supervisory Board. Jean-Édouard Reymond, Deputy CEO and Director - Member of the Executive Board, Managing Director of UBI Union Bancaire Gestion Institutionnelle (France) SA, on the Executive Board and Supervisory Board. Pierre Berger, Director - Member of the Executive Board of UBI Union Bancaire Gestion Institutionnelle (France) SA, on the Executive Board and Supervisory Board. 'Information relating to mandates and positions held during the financial year has been sent to the SICAV by each corporate officer under his own responsibility. 6 SICAV Annual Report Year Ended 30.12.2011
REPORT OF THE BOARD OF DIRECTORS ORDINARY SHAREHOLDERS MEETING OF 23 APRIL 2012 Ladies and gentlemen, We have invited you to the Shareholders Meeting to report on the activities of your company during the last financial year and to submit the accounts as at 30 December 2011 for your approval. Following presentation of the consolidated annual accounts, a brief overview of the economic climate and the SICAV management policy during the financial year will be presented for each SICAV subfund. CORPORATE MANDATES As the director s mandate of Mr Dominique Leprevots is due to expire, we propose to renew it for a period of six financial years, i.e. until the Shareholders Meeting that rules on the accounts for the year ending December 2016. As the director's mandate of Mr Jean-Edouard Reymond is due to expire, we propose to renew it for a period of six financial years, i.e. until the Shareholders Meeting that rules on the accounts for the year ending December 2016. As Mr Eric Vanraes has expressed the wish that his director s mandate not be renewed; we do not propose to renew it and we intend to discharge him from his management duties. We believe that the changes we are submitting will meet with your approval and that you will ratify them. The Board of Directors 7 SICAV Annual Report Year Ended 30.12.2011
REPORT OF THE STATUTORY AUDITOR SICAV UBAM CONVERTIBLES Year ended 30 December 2011 Auditor s report on the annual financial statements as at December 30, 2011 This is a free translation into English of the auditors report issued in French in accordance with the requirements of article L. 214-23 of the French Monetary and Financial Code (code monétaire et financier) and with article 33 of the instruction 2011-19 issued by the AMF (French financial markets authority) in accordance with the AMF General Regulation and it is provided solely for the convenience of English speaking users. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France Dear shareholders, In execution of the mission that was entrusted to us by the Board of Directors, we hereby present our report concerning the period ended December 30, 2011 on: The audit of the annual financial statements of the Sicav UBAM CONVERTIBLES, as appended to this report; Justification for our assessments; Verifications and specific information provided for by law The annual financial statements were approved by the Board of Directors. Based on our audit, our role is to express our opinion on these financial statements. I. Opinion on the annual financial statements We have conducted our audit in accordance with the professional standards applicable in France; these standards require that we plan and perform the audit to obtain reasonable assurance about whether the annual financial statements are free of material misstatement. An audit includes examining, on a test basis or via other methods of selection, evidence supporting the amounts and disclosures in the annual financial statements. An audit also includes assessing the accounting principles used, the significant estimates made and evaluating the overall presentation of the financial statements. We believe that the elements we have gathered for our audit provide a reasonable basis for our opinion. We certify that the annual financial statements give a true and fair view, according to French accounting principles, of the results of the period ended as well as of the financial situation and assets of the company at the end of this period. 8 SICAV Annual Report Year Ended 30.12.2011
II. Justification of assessments In accordance with the dispositions of Article L.823-9 of the French Commercial Code, the assessments we have made covered the appropriateness of the accounting principles as well as the reasonable nature of the significant estimates retained. These assessments form part of our audit of the annual financial statements as a whole and therefore contributed to the formation of our opinion expressed in the first section of this report. III. Specific verifications and information We have also carried out the specific verifications provided for by law. We have no matters to report regarding the fair presentation and consistency with the annual financial statements of the information provided in the management report of the Board of Directors and in the documents sent to the shareholders on the financial situation and the annual financial statements. Courbevoie, March 27, 2012 The Auditors ERNST & YOUNG Audit French original signed by Marc Charles 9 SICAV Annual Report Year Ended 30.12.2011
ANNUAL ACCOUNTS 10 SICAV Annual Report Year Ended 30.12.2011
BALANCE SHEET - ASSETS 30/12/2011 31/12/2010 Net fixed assets Deposits Financial instruments 628,847,486.49 621,090,688.64 Shares and similar securities Traded on a regulated market or similar Not traded on a regulated market or similar Bonds and similar securities 601,437,929.49 577,906,196.30 Traded on a regulated market or similar 601,437,929.49 577,906,196.30 Not traded on a regulated market or similar Debt securities 8,298,516.12 Traded on a regulated market or similar 8,298,516.12 Negotiable debt securities 8,298,516.12 Other debt securities Not traded on a regulated market or similar Undertakings for collective investment 14,620,640.88 37,785,579.84 Coordinated European UCITS and general-purpose French UCITS 14,620,640.88 37,785,579.84 UCITS reserved for certain investors - FCPR - FCIMT Investment funds and quoted FCC (mutual debt funds) Investment funds and unquoted FCC (mutual debt funds) Temporary securities transactions Receivables on securities received under a repurchase agreement Receivables on loaned securities Borrowed securities Securities given under a repurchase agreement Other temporary transactions Forward financial instruments 4,490,400.00 5,398,912.50 Transactions on a regulated market or similar 4,490,400.00 5,398,912.50 Other transactions Other financial instruments Receivables 171,342,043.88 165,128,604.88 Forward currency transactions 167,881,334.02 157,574,741.40 Other 3,460,709.86 7,553,863.48 Financial accounts 1,697,252.92 42,687.01 Cash and cash equivalents 1,697,252.92 42,687.01 Total assets 801,886,783.29 786,261,980.53 11 SICAV Annual Report Year Ended 30.12.2011
BALANCE SHEET - LIABILITIES 30/12/2011 31/12/2010 Own capital Capital 609,257,275.31 602,517,315.93 Brought forward 29.57 2.45 Brought forward adjustment 40.67 Profit or loss 16,701,504.83 13,464,834.86 Total of own capital (= sum representing net assets) 625,958,809.71 615,982,193.91 Financial instruments 1,600,150.00 2,364,412.50 Disposal transactions on financial instruments Temporary securities transactions Payables on securities under a repurchase agreement Payables on borrowed securities Other temporary transactions Forward financial instruments 1,600,150.00 2,364,412.50 Transactions on a regulated market or similar 1,600,150.00 2,364,412.50 Other transactions Payables 173,356,055.00 166,387,319.35 Forward currency transactions 168,664,736.49 155,275,020.40 Other 4,691,318.51 11,112,298.95 Financial accounts 971,768.58 1,528,054.77 Current bank account overdrafts 971,768.58 1,528,054.77 Loans Total liabilities 801,886,783.29 786,261,980.53 12 SICAV Annual Report Year Ended 30.12.2011
OFF-BALANCE-SHEET 30/12/2011 31/12/2010 Hedging transactions Commitments on regulated markets or similar Futures contracts Commitments on over-the-counter markets Futures contracts Other commitments CFD Other transactions Commitments on regulated markets or similar Futures contracts EUR EUREX DAX I 0312 33,630,000.00 EUR EUREX EUROS 0312 12,001,600.00 Other 139,757,085.00 Options DJ EURO STOXX 50 03/2012 CALL 2350 29,750,293.38 Other 5,355,708.93 Commitments on over-the-counter markets Futures contracts Other commitments CFD 13 SICAV Annual Report Year Ended 30.12.2011
PROFIT AND LOSS STATEMENT 30/12/2011 31/12/2010 Income from financial transactions Income from deposits and financial accounts 871.63 765.49 Income from shares and similar securities 3,971.31 Income from bonds and similar securities 22,362,700.26 17,310,594.14 Income from debt securities 525,000.00 926,520.49 Income from temporary purchase and disposal of securities Income from forward financial instruments Other financial income Total (1) 22,888,571.89 18,241,851.43 Charges on financial transactions Charges on temporary purchase and disposal of securities Charges on forward financial instruments Charges on financial debts 12,287.67 14,228.58 Other financial charges Total (2) 12,287.67 14,228.58 Profit from financial transactions (1-2) 22,876,284.22 18,227,622.85 Other income (3) Management charges and depreciation provisions (4) 7,036,632.00 5,889,194.37 Net profit for the year (1-2 + 3-4) 15,839,652.22 12,338,428.48 Financial year revenue adjustment (5) 861,852.61 1,126,406.38 Interim payments made in the financial year (6) Profit (1-2 + 3-4 + or - 5-6) 16,701,504.83 13,464,834.86 14 SICAV Annual Report Year Ended 30.12.2011
NOTES TO THE ANNUAL ACCOUNTS ACCOUNTING RULES AND METHODS The annual accounts are set out in accordance with the provisions of Regulation 2003-02 of the Comité de la Réglementation Comptable (French accounting regulation committee) relating to the UCITS chart of accounts. General accounting principles apply: - A true and fair view, comparability and operational continuity. - Lawfulness and accuracy. - Prudence. - Consistency of methods from one financial year to the next. The accounting method used for recording fixed revenue securities income is based on interest received. Entries and disposals of securities are accounted for exclusive of charges. The reference accounting currency for the portfolio is the euro. The UBAM Convertibles SICAV comprises two subfunds: - UBAM Convertibles Europe - UBAM Convertibles Euro 10-40 The aggregation of annual accounts is presented in euros. As there is no inter-subfund holding, no adjustment has been made to assets and liabilities. - Rules and accounting methods (*) - Additional information (*) (*) Please refer to the information concerning each subfund. 15 SICAV Annual Report Year Ended 30.12.2011
RESOLUTIONS Submitted to the vote of the Ordinary Shareholders Meeting of 23 April 2012 FIRST RESOLUTION: The Shareholders Meeting, having heard: - The management report on SICAV activity during the financial year ended December 2011 and on the accounts for this period, and - The general report of the statutory auditor, approves the accounts and balance sheet for the period as presented, as well as the transactions recorded in these accounts and summarised in these reports. SECOND RESOLUTION: The Shareholders Meeting, noting that the earnings to be allocated for the financial year for the UBAM Convertibles Europe subfund is 8,328,137.44, resolves to adopt the proposal of the Board of Directors with regard to its allocation: AC shares (EUR): - Capitalisation: 8,129,637.19 AHC shares (CHF): - Capitalisation: 92,859.37 AHD shares (GBP): - Distribution: 105,631.48 - Retained: 9.40 In consideration of the 279,417.257 AC (EUR) share capitalisation, the 4,092.162 AHC (CHF) share capitalisation and the 3,616.278 AHD (GBP) share distribution existing at year-end, the Shareholders Meeting sets the net dividend for each AHD (GBP) share at 29.21, with an ex-dividend date of 25 April 2012 and a payment date of 30 April 2012. The dividend is broken down as follows: - Element eligible for the 40% deduction:*. None. - Element not eligible for the 40% deduction: 29.21 *To receive the eligible element of the dividend, shareholders who are natural persons may opt for either the income tax system this element then being eligible for the 40% reduction provided for by Article 158-3 of the General Tax Code or the withholding tax option. 16 SICAV Annual Report Year Ended 30.12.2011
The dividends distributed for the three previous financial years for AHD (GBP) shares were as follows (in euros): Financial year Dividend distributed Element eligible for 40% reduction Element not eligible for 40% reduction 2008 - - - 2009 6.34-6.34 2010 31.91-31.91 THIRD RESOLUTION: Noting that the profit to be allocated for the financial year for the UBAM Convertibles Euro 10-40 subfund is 8,373,396.96, the Shareholders Meeting resolves to adopt the proposal of the Board of Directors with regard to its allocation: AC shares (EUR): - Capitalisation: 7,845,616.29 AHC shares (CHF): - Capitalisation: 527,780.67 In accordance with the regulations, the Shareholders Meeting formally records that no dividend was distributed for the three previous financial years. FOURTH RESOLUTION: Having heard the special report of the statutory auditor on transactions covered by Article L. 225-38 of the French Commercial Code, the Shareholders Meeting formally records the conclusions of this report and approves its conditions. FIFTH RESOLUTION: The Shareholders Meeting grants comprehensive powers to the bearer of a copy or extract of the various documents submitted to this meeting and of the minutes of this meeting for fulfilling the legal formalities. 17 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund UBAM CONVERTIBLES EUROPE 18 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund INFORMATION CONCERNING INVESTMENTS AND MANAGEMENT LEGAL STRUCTURE: UBAM CONVERTIBLES subfund, SICAV under French law. CLASSIFICATION: Diversified. EARNINGS ALLOCATION: Shares AC (EUR) AHD (GBP) AHC (CHF) AHC (USD) AHD (USD) ZC (EUR) ZD (EUR) Earnings allocation Full capitalisation of income Full distribution of income Full capitalisation of income Full capitalisation of income Full distribution of income Full capitalisation of income Full distribution of income MANAGEMENT OBJECTIVE: The management objective is to enable the investor to benefit from the specific risk/return ratio of European convertible bonds. Convertible bonds have an asymmetric risk/return profile. (All other things being equal, for a given variation in the underlying securities, upside participation is greater than downside participation; however, a convertible bond usually has a lower yield than a normal bond issued by the same issuer.) UBAM Convertibles Europe aims to profit by more than 50% from European equity market rises while suffering the effects of less than 50% on downward movements, all other things being equal. This special risk/return ratio may be altered by fluctuations in interest rates, credit spreads and implied volatility. BENCHMARK INDICATOR: None The subfund is not linked to any benchmark index or financial market index. Management policy is based on a fundamental and discretionary management of asset allocation and on the selection of convertible bonds or the equivalent, which makes comparison with any specific benchmark index inappropriate. However, for information purposes, the subfund s performance can be measured 50% against the DJ STOXX Europe 50 Price Index, dividends not reinvested, and 50% of Citigroup's EuroBIG BBB index, coupons reinvested. Convertible bonds are mixed products that fluctuate with changes in equity and bond markets. The DJ STOXX Europe 50 Price Index is representative of equity market trends, while the Citigroup EuroBIG BBB index is representative of BBB-rated credit instruments. These two indices are in fact the principal influences on convertible bond price trends and therefore on the performance of the subfund; volatility has a lesser impact, as we do not carry out arbitrage operations and our investment process leads us to buy the cheapest convertibles, all other things being equal. 19 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund INVESTMENT STRATEGY: 1. Strategies used The management policy is based on fundamental and discretionary management of the asset allocation and on a selection of convertible or equivalent bonds without any constraint other than geographical constraints and in compliance with exposure limits. The investment process comprises three stages: 1 - Estimation of the implied volatility of the convertible, exchangeable or indexed bond or bond redeemable in European equities. This first stage makes it possible to position the relative cost of each convertible bond in its environment and in relation to other available implied volatilities (options, etc.). 2 - Analysis of the underlying stock and its earnings prospects. 3 - Consolidation of individual data, construction of a portfolio in accordance with the managers expectations and overall management of exposure to equities, interest rates and foreign currencies. The subfund s sensitivity to equity risk will be a function of: - The characteristics of the convertible bonds, exchangeable bonds, redeemable bonds, etc. available on the market. - Our expectations of market fluctuations. The portfolio s delta may thus vary considerably over time; the delta measures fluctuation in the convertible bond in relation to a variation of 1 in the underlying share. The subfund s sensitivity to interest rate risk will be a function of: - The characteristics of the convertible bonds, exchangeable bonds, redeemable bonds, etc. available on the market. - Our expectations of market fluctuations. Sensitivity may thus change significantly over time. The subfund s sensitivity to credit risk will be a function of: - The characteristics of the convertible bonds, exchangeable bonds, redeemable bonds, etc. available on the market. Credit spreads may change significantly over time. The manager may take positions in the French and foreign regulated futures markets in order to expose and/or hedge the portfolio to/against the indices of the investment zone or to the underlying securities in order to pursue the investment objective and to take advantage of market variations. The subfund may be exposed up to 100% to the equity markets owing to the nature of convertible bonds and the process of investment, with an average exposure of between 20% and 80%. The objective of the subfund is: - To systematically hedge against all exchange rate risk with respect to currencies other than the euro for categories of shares denominated in EUR. Shares denominated in EUR will thus not be exposed to exchange rate risks (or only in a residual manner). - To systematically hedge against all GBP/EUR exchange rate risk for categories of shares denominated in GBP. However, given the technical difficulties in carrying out this hedging, shares denominated in GBP may potentially be exposed to some minor GBP/EUR exchange rate risk due to changes in the value of liabilities (subscription/redemption) or assets (changes in the value of hedged assets). All the costs and risks ensuing from hedging transactions on the GBP/EUR exchange rate risk will be borne by shares denominated in GBP. - To systematically hedge against all CHF/EUR exchange rate risk for categories of shares denominated in CHF. However, given the technical difficulties in carrying out this hedging, shares denominated in CHF may potentially be exposed to some minor CHF/EUR exchange rate risk due to changes in the value of liabilities (subscription/redemption) or assets (changes in the value of hedged assets). All the costs and risks ensuing from hedging transactions on the CHF/EUR exchange rate risk will be borne by shares denominated in CHF. - To systematically hedge against all USD/EUR exchange rate risk for categories of shares denominated in USD. However, given the technical difficulties in carrying out this hedging, shares denominated in USD may potentially be exposed to some minor USD/EUR exchange rate risk due to changes in the value of liabilities (subscription/redemption) or assets (changes in the value of hedged assets). All the costs and risks ensuing from hedging transactions on the USD/EUR exchange rate risk will be borne by shares denominated in USD. The general sensitivity range of the subfund will be between 0 and 6. 20 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund 2. Assets Convertible bonds: The subfund invests at least two-thirds of its total assets at all times in: - Convertible bonds, and/or - Exchangeable bonds, and/or - Bonds redeemable in shares, and/or - Bonds with subscription warrants, and/or - Bonds indexed to shares, or similar securities for which the underlying stock and/or the issuer is a company having its registered office in an OECD Member State or listed on a European market, with a predominant weighting in European countries. The balance will be invested in securities for which the issuer is a company having its registered office in an OECD Member State or listed on a European market. Debt securities and money market instruments and bonds: The subfund may also be exposed in participating securities, tradable debt instruments and bonds (whatever their maturity or the issuer's rating) up to a maximum of 30% of its assets as a driver of performance as well as for cash management. For non-convertible bonds or similar (French medium-term negotiable notes, European medium-term notes or negotiable debt securities), the percentage of investment in non-investment-grade securities will be less than 20%. Shares: The subfund may hold up to 10% in shares of any market cap size and any geographical zone. Non-European shares must result from conversion or exchange. The subfund may invest in shares as a substitute for investment in a convertible bond when market volatility is too high or when the specific characteristics of the share do not make it possible to find a convertible, exchangeable or indexed bond on terms that are beneficial to the investor. 3. Investment in shares of other UCITS and/or investment funds In order to achieve its management objective or to manage its cash flow, the subfund may invest up to 10% of its assets in shares of coordinated French or European UCITS of any classification. These may be managed by UBI or by other management entities. When the subfund invests in the units of UCITS and/or other UCI managed directly or indirectly by UBI, or by a company to which it is linked through common management or common control or through a direct or indirect shareholding of more than 10% of the capital or votes, no subscription or redemption fee may be charged to the subfund for investment in these UCITS or other UCI, with the exception of the commissions retained by the UCITS or other UCI. As regards the subfund s investments in a UCITS or other UCI linked to UBI as described above, there will not be any duplication of the management fees of UBI and the UCITS or other UCI concerned. 4. Derivative instruments The subfund may take positions in forward financial instruments traded on regulated markets in France and abroad and conduct over-the-counter transactions on financial instruments, including interest rate or currency swaps, without seeking overexposure. In this context, the manager may take positions in order to expose and/or hedge the portfolio to/against the indices of the investment zone or to the underlying securities in order to pursue the management objective, take advantage of market variations and generally manage the portfolio s exposure to the stock, bond and interest rate markets (see investment process above). 21 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund These transactions will be carried out within the limit of a maximum exposure of 100% of the assets. - Markets invested in: - French and foreign regulated futures markets. - Over-the-counter markets. - Risks to which the manager seeks exposure: - Interest rates. - Equities and equivalent securities. - Market indices. - Foreign exchange. - Instruments used for both exposure and hedging: - Interest-rate swaps. - Currency swaps. - Futures. - Options. 5. Cash deposits The subfund may make cash deposits in order to optimise its cash flow management. 6. Cash borrowings It is not the aim of the subfund to borrow cash, but it may find itself in the position of debtor due to transactions linked to its cash flow (ongoing investments and disinvestments, subscription/redemption transactions, etc.) within a limit of 10% of the net assets. 7. Purchase transactions and temporary disposals of securities The subfund may conduct temporary securities sale transactions (repurchase transactions) on up to 100% of the assets of the subfund, and temporary securities purchase transactions (reverse repurchase transactions) on up to 10% of the assets. There will be no leverage on these transactions. Additional information is provided under the Fees and commissions heading. RISK PROFILE: Your money will be invested mainly in financial instruments selected by the fund manager. These instruments are subject to the fluctuations and risks of the market. The prices of convertible bonds are subject to a number of influences: - Equity risk: the price of the underlying share. - Interest rate risk: the general level of interest rates. - Credit risk: the level of the issuer s credit risk. - Exchange rate risk: level of foreign currencies, whether that of the issuing currency or of the underlying share. - Volatility risk: volatility of the conversion option. The level of these risks varies greatly over time. Furthermore, the general level of the markets has a significant influence on all these parameters. Interest rate risk: The interest rate risk associated with the inherent nature of convertible bonds is the risk that bond market rates will rise, causing a decline in bond prices and a fall in the net asset value of the subfund. Equity risk: Your investment may be subject to a maximum 100% exposure to the equity markets, because of the inherent nature of convertibles and our investment process. A fall in the equity markets can cause a fall in the net asset value of the subfund. Credit risk: The subfund may be subject to the risk of a downgrading of the credit rating of a debt or to default by an issuer. This risk can affect an individual bond, or the whole of the portfolio if there is a general worsening of credit spreads. The occurrence of such risk may cause a fall in the net asset value of the subfund. 22 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund Capital loss risk: The subfund carries no guarantee or protection, and the capital initially invested may not be returned. Volatility risk: Given an investment strategy that consists mainly of investments in convertible bonds, the net asset value of the subfund is liable to vary with changes in the value of the conversion option (i.e. the possibility of converting the bond into a share). These risks result in the fact that the performance of the subfund does not depend solely on market trends; it is therefore possible that the value of the assets may fall at a time when the stock markets are rising. Liquidity risk: This risk corresponds to the potential difficulty in selling assets due to a lack of sufficient volume in the market, and may occur due to a sharp rise in risk aversion or disruption in the markets. This risk may affect convertible bonds and equivalent securities that are mainly traded on over-the-counter markets. Risk associated with investment in speculative securities: Subscribers attention is drawn to the risk of investment in speculative securities, which have a low rating and are traded on markets whose operation, in terms of transparency and liquidity, may differ substantially from the standards accepted on European stock markets or regulated markets. Downward movements on these markets may therefore cause a faster and more marked fall in net asset value. Counterparty risk: The subfund uses over-the-counter forward financial instruments and/or securities repurchase and securities reverse repurchase transactions. These transactions, which are concluded with one or more eligible counterparties, potentially expose the subfund to a risk of default by one or more of these counterparties, which may lead to a payment default and to a subsequent decrease in the net asset value. Exchange rate risk: Shares denominated in GBP only: Although the GBP/EUR exchange rate risk is fully and systematically hedged, a minor exchange rate risk may remain given the technical difficulties in carrying out the hedging. The value of shares denominated in GBP may thus be partially subject to the effects of fluctuations between the exchange rates of the GBP share s currency and the currencies of the securities making up the portfolio. In the case where EUR falls against GBP, the net asset value of shares denominated in GBP may therefore also fall. Shares denominated in CHF only: Although the CHF/EUR exchange rate risk is fully and systematically hedged, a minor exchange rate risk may remain given the technical difficulties in carrying out the hedging. The value of shares denominated in CHF may thus be partially subject to the effects of fluctuations between the exchange rates of the CHF share s currency and the currencies of the securities making up the portfolio. In the case where EUR falls against CHF, the net asset value of shares denominated in CHF may therefore also fall. Shares denominated in USD only: Although the USD/EUR exchange rate risk is fully and systematically hedged, a minor exchange rate risk may remain given the technical difficulties in carrying out the hedging. The value of shares denominated in USD may thus be partially subject to the effects of fluctuations between the exchange rates of the USD share s currency and the currencies of the securities making up the portfolio. In the case where EUR falls against USD, the net asset value of shares denominated in USD may therefore also fall. Residual exchange-rate risk on currencies other than the euro: Shares denominated in EUR only: The subfund may invest in securities denominated in currencies other than the euro that are systematically hedged against exchange rate risk. A residual risk may remain due to the fluctuation of securities denominated in other currencies. 23 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund SUBSCRIBERS CONCERNED AND TYPICAL INVESTOR PROFILE: Subscribers concerned: Shares AC (EUR) AHD (GBP) AHC (CHF) AHC (USD) AHD (USD) ZC (EUR) ZD (EUR) Subscribers concerned All subscribers All subscribers All subscribers All subscribers All subscribers Reserved for UCITS and institutional investors who have reached a specific remuneration agreement with the Union Bancaire Privée, UBP SA or any other Group entity Reserved for UCITS and institutional investors who have reached a specific remuneration agreement with the Union Bancaire Privée, UBP SA or any other Group entity Typical investor profile: AC (EUR) shares are aimed at clients wishing to benefit from the performance of European convertible bonds and to subscribe in euros. AHD (GBP) shares are aimed at clients wishing to benefit from the performance of European convertible bonds and to subscribe in pounds sterling. AHC (CHF) shares are aimed at clients wishing to benefit from the performance of European convertible bonds and to subscribe in Swiss francs. AHC (USD) shares are aimed at clients wishing to benefit from the performance of European convertible bonds and UCITS revenue capitalisation and to subscribe in US dollars. AHC (USD) shares are aimed at clients wishing to benefit from the performance of European convertible bonds and UCITS revenue distribution and to subscribe in US dollars. ZC (EUR) and ZD (EUR) shares are aimed at UCITS and institutional investors who have reached a specific remuneration agreement with the Union Bancaire Privée, UBP SA or any other Group entity. The amount it is reasonable to invest in this subfund depends on the personal situation of each individual investor. To determine the reasonable amount to be invested, personal wealth, current needs and the recommended three-year duration of the investment need to be taken into account; however, attention must also be paid to the willingness to take risks due to the inherent volatility of the equity markets and the dynamic strategy of the subfund. It is also recommended that investments be sufficiently diversified so as not to expose investors solely to the risks of a single UCITS or UCITS subfund. Recommended investment horizon: Three years. 24 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund INFORMATION ON THE TAX SYSTEM: In the case of capitalisation, the applicable tax system will in principle be that for capital gains on securities in the shareholder s country of residence, according to the rules governing his/her/its situation (natural person, corporate body subject to corporation tax, other cases, etc.). The rules applicable to French resident shareholders are laid down by the Code général des impôts (French Tax Code). In the case of distribution, shareholders tax liabilities will be a function of the nature of the securities held in the portfolio due to the principle of fiscal transparency. Depending on your tax system, any capital gains and income associated with shares held in the SICAV may thus be taxable. The SICAV s shareholders are advised to consult their tax advisor or their usual banking relationship manager in order to determine the tax rules that apply to their particular situation. For further information, the full prospectus is available upon request from the management company. Shareholders may, upon request, obtain all information concerning the UCITS from the management company. The market value is available from the management company for this purpose. The full prospectus of the UCITS, the most recent annual and other regularly published reports, the voting policy document and the report on the exercise of voting rights will be sent within one week of receiving a written request from the shareholder addressed to: Union Bancaire Gestion Institutionnelle (France) - 7 Place Vendôme, 75001 Paris. Tel.: +33 (0)1 44 50 16 16 - E-mail: communication@ubgi.fr AMF (French Financial Markets Authority) approval date: 6 August 1999. Subfund creation date: 17 September 1999. 25 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund MANAGEMENT REPORT OF THE BOARD OF DIRECTORS Ladies and Gentlemen, We have invited you to the Shareholders Meeting to report on the activities of your company during the last financial year and to submit the accounts as at 30 December 2011 for your approval. Following presentation of the accounts, a brief overview of the economic climate and the SICAV management policy during the financial year will be presented. FIRST QUARTER 2011 The first two months were marked by solid growth in Europe before a quite significant correction in March. European share indices closed Q1 with contrasting performance: the Euro Stoxx 50 PI gained 4.23%, against a very slight fall for the Stoxx Europe 50 PI (-0.14%). Overall, sovereign debt markets continued to create uncertainty, with credit spreads widening in Ireland, Greece and Portugal but clear credit-spread contraction in Italy and Spain. Private issue spreads contracted. In Q1, the itraxx Main index (investment-grade issues) shrank by 3 bp (going from 105 bp to 102 bp) while the Crossover index (subinvestment-grade issues) contracted by 53 bp (from 437 bp to 384 bp) and convertible bonds posted a contraction of 51 bp (from 349 bp to 298 bp). Q4 2010 was notably characterised by the reopening of the primary market for European convertible bonds, and Q1 2011 recorded 11 new issues at a total value of 3.5 billion. These new issues posted attractive prices with an average implied volatility of 29%. The attractiveness of this primary market, combined with a resurgence in merger/acquisition activity, allows us to look forward to a whole range of new opportunities. SECOND QUARTER 2011 In Q2, European markets began on a very positive note in April before falling back in May and June. The Euro Stoxx 50 PI share index fell by 2.14%, while the Stoxx Europe 50 PI index lost 0.8%. Uncertainties about Greek debt and possible contagion in Portugal led to a widening of credit spreads, across all sovereign debt markets in peripheral eurozone countries. Private issue spreads followed the stock market trend, with a contraction in April and an expansion in May and June. The itraxx Main index (investment-grade securities) went up by 4 bp (going from 102 bp to 106 bp) and the Crossover index (sub-investment-grade securities) increased by 10 bp (from 386 bp to 396 bp). Spreads in convertible bonds remained steady overall for Q2 at about 300 bp. The European primary market proved to be dynamic, with 12 new issues at a total value of 3.3 billion. These securities were mainly issued at very attractive prices, with an average implied volatility of 23 points, as against 29 points in Q1. The attractiveness of this primary market, combined with a resurgence in merger/acquisition activity, allows us to look forward to new opportunities. THIRD QUARTER 2011 In Q3, European markets continued their downward trend (which began in May), falling sharply in August and remaining volatile in September. European share indices finished Q3 at levels close to those of 2008; the Euro Stoxx 50 PI index fell by 23.48% and the Stoxx Europe 50 PI index by 15.68%. On the other hand, the Citi EuroBig BBB bond index experienced quite a respectable performance with an increase of 2.32%. Market players feared a weakening of global growth, with a possible worsening (and potential spreading) of the sovereign debt crisis and the risk of turbulence on the financial markets having an impact on the real economy. With regard to credit indices, the itraxx Main index (investment-grade) increased by 96 bp to 202 bp and the itraxx Crossover index (sub-investment-grade) climbed by 444 bp to 839 bp. Spreads of convertible bonds followed this trend, increasing by 239 bp to 540 bp. In this context of volatility and low visibility, the primary market for convertible bonds was non-existent. We should, however, note the issue of Glencore stock on the secondary market by a private holder of convertible bonds that decided to put its shareholdings back on the market. We have decided not to subscribe for this convertible bond, as its profile is comparable to that of shares. 26 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund FOURTH QUARTER 2011 The year 2011 started relatively well; however, the second half was characterised by uncertainties involving a possible restructuring of Greek debt, the risks of contagion to other peripheral European countries and the consequences for the real economy. European stock markets displayed a high level of volatility. Exchange rates had a significant impact, and share indices finished the year with appreciably different performance: the Euro Stoxx 50 N. R. index fell by 14.1%, whereas the Stoxx Europe 50 N. R. only dropped by 5.1%. Private issue spreads moved in line with shares. Over the year, the itraxx Main index (investment-grade issues) increased by 65 bp to 170 bp and the Crossover index (sub-investment-grade issues) went up by 325 bp to 760 bp. Convertible bonds increased by 180 bp to 530 bp. The primary market was characterised by very strong activity in the first half of the year with 21 new issues, but only three new issues were recorded in the second half. Nevertheless, the total value of issues registered slightly above 10 billion for the year. Opening (03/01/2011) and closing (30/12/2011) net asset values for UBAM Convertibles Europe shares SICAV Currency ISIN code 03/01/2011 30/12/2011 UBAM Convertibles Europe AC (EUR) EUR FR0000941312 1,391.61 1,245.13 UBAM Convertibles Europe AHD (GBP) GBP FR0010708743 1,237.38 1,085.05 UBAM Convertibles Europe AHC (CHF) CHF FR0010928259 1,325.82 1,177.65 Past performance is not a guide to current or future results. VOTING RIGHTS: Each share entitles its holder to vote and be represented at Shareholders Meetings under the conditions laid down by law and the Articles of Association. PROCEDURE FOR SELECTING INTERMEDIARIES: The selection of intermediaries and counterparties is made at the proposal of managers. The final decision regarding a change to the list of intermediaries belongs to the Executive Board, which ratifies the selection of managers after requesting additional information, if necessary. The change to the list of authorised intermediaries is referenced in the minutes of the Executive Board. A list of intermediaries and counterparties is regularly updated, if necessary. The main criteria for selecting intermediaries are the quality of their performance, the availability of representatives to execute transactions, transaction costs and the quality of research; with regard to counterparties for transactions and off-balance-sheet activities, the decision-making criterion is financial stability, with a minimum rating of A, giving preference to our UCITS depositary banks; the only exception to this rule is UBP, with which we wish to reserve the option of working with. 27 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund ANNUAL ACCOUNTS 28 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund BALANCE SHEET - ASSETS 30/12/2011 31/12/2010 Net fixed assets Deposits Financial instruments 357,765,080.32 440,307,488.97 Shares and similar securities Traded on a regulated market or similar Not traded on a regulated market or similar Bonds and similar securities 343,847,526.24 400,373,131.35 Traded on a regulated market or similar 343,847,526.24 400,373,131.35 Not traded on a regulated market or similar Debt securities Traded on a regulated market or similar Negotiable debt securities Other debt securities Not traded on a regulated market or similar Undertakings for collective investment 10,373,054.08 34,535,445.12 Coordinated European UCITS and general-purpose French UCITS 10,373,054.08 34,535,445.12 UCITS reserved for certain investors - FCPR FCIMT Investment funds and quoted mutual debt funds Investment funds and unquoted FCC (mutual debt funds) Temporary securities transactions Receivables on securities received under a repurchase agreement Receivables on loaned securities Borrowed securities Securities given under a repurchase agreement Other temporary transactions Forward financial instruments 3,544,500.00 5,398,912.50 Transactions on a regulated market or similar 3,544,500.00 5,398,912.50 Other transactions Other financial instruments Receivables 100,635,867.17 112,361,957.99 Forward currency transactions 97,893,101.80 107,736,099.47 Other 2,742,765.37 4,625,858.52 Financial accounts 1,476,173.77 156.12 Cash and cash equivalents 1,476,173.77 156.12 Total assets 459,877,121.26 552,669,603.08 29 SICAV Annual Report Year Ended 30.12.2011
BALANCE SHEET - LIABILITIES UBAM CONVERTIBLES UBAM Convertibles Europe subfund 30/12/2011 31/12/2010 Own capital Capital 348,245,547.29 422,788,425.56 Brought forward 29.57 43.12 Result 8,328,107.87 9,567,223.31 Total of own capital (= sum representing net assets) 356,573,684.73 432,355,691.89 Financial instruments 1,600,150.00 2,364,412.50 Disposal transactions on financial instruments Temporary securities transactions Payables on securities under a repurchase agreement Payables on borrowed securities Other temporary transactions Forward financial instruments 1,600,150.00 2,364,412.50 Transactions on a regulated market or similar 1,600,150.00 2,364,412.50 Other transactions Payables 101,703,286.53 116,423,318.89 Forward currency transactions 98,494,812.30 106,332,327.99 Other 3,208,474.23 10,090,990.90 Financial accounts 1,526,179.80 Current bank account overdrafts 1,526,179.80 Loans Total liabilities 459,877,121.26 552,669,603.08 30 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund OFF-BALANCE-SHEET 30/12/2011 31/12/2010 Hedging transactions Commitments on regulated markets or similar Futures contracts Commitments on over-the-counter markets Futures contracts Other commitments CFD Other transactions Commitments on regulated markets or similar Futures contracts EUR EUREX DAX I 0311 139,757,085.00 EUR EUREX DAX I 0312 33,630,000.00 EUR EUREX EUROS 0312 12,001,600.00 Options DJ EURO STOXX UTIL 03/2012 CALL 280 5,355,708.93 DJ EURO STOXX 50 03/2012 CALL 2350 20,013,833.73 Commitments on over-the-counter markets Futures contracts Other commitments CFD 31 SICAV Annual Report Year Ended 30.12.2011
PROFIT AND LOSS STATEMENT UBAM CONVERTIBLES UBAM Convertibles Europe subfund 30/12/2011 31/12/2010 Income from financial transactions Income from deposits and financial accounts 871.63 744.43 Income from shares and similar securities 3,971.31 Income from bonds and similar securities 13,945,892.11 12,495,022.05 Income from debt securities 350,000.00 507,662.94 Income from temporary purchase and disposal of securities Income from forward financial instruments Other financial income Total (1) 14,296,763.74 13,007,400.73 Charges on financial transactions Charges on temporary purchase and disposal of securities Charges on forward financial instruments Charges on financial debts 8,761.30 7,605.36 Other financial charges Total (2) 8,761.30 7,605.36 Profit or loss on financial transactions (1-2) 14,288,002.44 12,999,795.37 Other income (3) Management charges and depreciation provisions (4) 5,049,704.22 4,394,875.57 Net profit for the year (1-2 + 3-4) 9,238,298.22 8,604,919.80 Financial year revenue adjustment (5) -910,190.35 962,303.41 Interim payments made in the financial year (6) Profit (1-2 + 3-4 + or - 5-6) 8,328,107.87 9,567,223.21 32 SICAV Annual Report Year Ended 30.12.2011
UBAM Convertibles Europe subfund NOTES TO THE ANNUAL ACCOUNTS ACCOUNTING RULES AND METHODS The annual accounts are set out in accordance with the provisions of Regulation 2003-02 of the Comité de la Réglementation Comptable (French accounting regulation committee) relating to the UCITS chart of accounts. General accounting principles apply: - A true and fair view, comparability and operational continuity. - Lawfulness and accuracy. - Prudence. - Consistency of methods from one financial year to the next. The accounting method used for recording fixed revenue securities income is based on interest received. Entries and disposals of securities are accounted for inclusive of charges. The reference accounting currency for the portfolio is the euro. The financial year period is 12 months. A - Asset valuation rules Financial instruments are accounted for according to the historical cost method and recorded on the balance sheet at their current value, which is determined by the latest known market value or, if there is no market, by any external means, or by recourse to financial models. Differences between the current values used in calculating the net asset value and historical costs of transferable securities when they enter the portfolio are recorded in "valuation differences" accounts. Securities that are not in the portfolio currency are valued in accordance with the principle stated below, then converted into the portfolio currency based on the exchange rate on the day of valuation. 1. Deposits: Deposits with a residual lifetime of less than or equal to three months are valued according to the straight-line method. 2. Shares, bonds and other securities traded on a regulated market or similar: For the calculation of net asset value, shares and other securities traded on a regulated market or similar are valued according to the day s closing share price. Bonds and similar securities are valued at the closing price communicated by various financial services providers. The accrued interest of bonds and similar securities is calculated up to the date of the net asset value. 3. Shares, bonds and other securities not traded on a regulated market or similar: Securities not traded on a regulated market are valued by the Board of Directors, using methods based on goodwill value and return and taking into account the prices used during recent significant transactions. 4. Negotiable debt securities: Negotiable debt securities and similar that are not the subject of significant transactions are valued on an actuarial basis using a reference rate as defined below, increased if need be by a margin representative of the intrinsic characteristics of the issuer: Negotiable debt securities for which the maturity date is less than or equal to one year: interbank rate in euros (Euribor). Negotiable debt securities for which the maturity date is more than one year: BTAN rates (Bons du Trésor à intérêts Annuels Normalisés - standard annual interest French treasury bills) or OAT rates (Obligations Assimilables du Trésor - fungible French treasury bonds) with near-term maturity for longer periods. Negotiable debt securities with a residual lifetime of less than or equal to three months may be valued according to the straight-line method. Treasury bills are valued at the market rate communicated daily by the Banque de France. 5. UCITS held: UCITS shares or stocks are valued at the last known net asset value. 33 SICAV Annual Report Year Ended 30.12.2011