A S S O C I AT I O N L U X E M B O U R G E O I S E D E S F O N D S D ’ I N V E S T I S S E M E N T

L U X E M B O U R G I N V E S T M E N T F U N D S A S S O C I AT I O N

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At its General Membership Meeting held on Thursday, 21 June 2001, the LuxembourgInvestment Funds Association has elected a new Board of Directors. The new Board haselected Mr Guy Legrand as president. He succeeds to Rafik Fischer whose mandate hascome to an end after a three years period. This article gives a résumé of the new president's program for the two years to come.The renewal of the ALFI board of directors and the appointment of a new president occurafter three years of deep evolution of both the investment fund sector in Luxembourg andthe Luxembourg Investment Funds Association.First of all, the fund industry has grown rapidly:The total volume of Luxembourg funds reached EUR 874 billion at the end of the year 2000after having peaked at EUR 924 billion in October 2000, which makes the Luxembourg investment fund market the number One European market and the second market worldwide.The fund industry is one of the central pillars of the Luxembourg financial center; this sector currently employs nearly 7000 people, and in terms of direct employment, it represents approximately 3% of Luxembourg wage employment. In spite of the deceleration recorded during the first half of the year 2001, the prospectsfor the future remain extremely favorable.The same applies to ALFI:

ALFI's staff strengthenedDuring the period 1998-2000, under the presidency of Rafik Fisher and its board of directors, the Luxembourg Investment Funds Association has changed a lot.It was structured and reinforced, on the level of its fund specific competences and of its legal andtax competences, as well as on the level of the services rendered to its members.It has become an essential partner of the financial life in Luxembourg that can't be ignored.ALFI gave an immense visibility to the whole of our activities; it took part in a proactiveand determining way in all major issues and important decisions relating to our sector during the last three years.Given the level of the stakes and the industry's growth prospects, setting up a 2001-2003program is thus an important task:

on the one hand this task is facilitated by the fact that the way was clearly marked outand that ALFI is well armed today to take up the challenges it has to face. On the other hand it is difficult because an association representing a rapidly growingand changing industry can only be proactive and evolutionary itself.

The program proposal for the 2001-2003 presidency will thus have two governing ideas:consolidation and evolution.

Numerous working areasWe are actually working on numerous issues:First of all on technical files:With regard to the subscription tax, the ultimate goal of any step in this field remains theabolition of this tax paid by the investment funds.The efforts made by ALFI to obtain a progressive reduction of the above mentioned taxwill thus be continued. This reduction would be compensated on the level of the government budget by the additional receipts generated by the growth recorded by theindustry in the past and by its expected evolution over the years to come. It will make itpossible to reduce and to remove in the long term the disadvantage the financial centre hasstill to deal with compared to its direct competitors.In the same field, the efforts made to see the tax authorities reformulate their position onthe taxation of percentages paid to non resident members of investment fund Boards mustbe continued.Moreover, the great subjects such as the taxation of savings and the follow-up of theEuropean Directives will remain ALFI's major concerns. Here, ALFI should join any global initiative of the Grand Duchy to deal with these topics in Brussels.

Consolidation and Evolution Inside this issue

22 Consolidation and Evolution

33 Editorial: Presence and

Permanence

44 Automated Compliance

Checking Systems in

Luxembourg

44 ALFI’s New Board

55 Development of the

Investment Fund Industry in

the Central & Eastern Europe

55 ALFI's New Executive

Committee

66 FEFSI Survey: Taxation of

UCITS - The Principles

66 Fund Supermarkets Reshape

European Distribution

77 New Funds

88 Investor’s confidence remains

unshaken despite market

turbulence

© ALFI Newsletter is published by ALFI.While we strive to make the content of this newsletter reliable and accurate,the information provided therein is given without the responsibility of the publisher.

Editor-in-charge:Jean-Jacques PICARDTel: 22 30 26 Fax: 22 30 935, rue Aldringen L-1118 LUXEMBOURGe-mail: picard@alfi.lu http://www.alfi.lu

Agency:Kneip Communication

3

Investor informationA second working area relates to supplying investor information.Nowadays, no financial center and no investment activity focused either on institutional orprivate investors can be conceived without a powerful system to transmit prices and infor-mation relating to the various products.In this field, the evolution of the statute of CCLux is close to our hearts, and the installation of an electronic on-line data base containing the prospectuses and managementreports of the Luxembourg domiciled funds will be a priority.Lastly, the efforts made in order to improve Luxembourg's attractivity for hedge funds andto work out a new legislation for venture capital funds will be continued.

Presence on the labour market: promotion, information,trainingAs I mentioned in my introduction, the fund industry accounts for approximately 7000jobs in Luxembourg and the fast development of some of its activities should make thisfigure grow in an extremely significant way during the next few years.One of the major risks of our industry at the present time is to be victim of its own successby lacking for qualified staff.The absence of trained staff in a sufficient number on any level can have a fundamentalimpact on service quality and costs. Moreover, whereas we entered into a period of fundengineering, the need to attract "talents" which otherwise could turn towards other jobswithin the banking sector or to other financial centers is more obvious than ever.It will be one of ALFI's priorities to further intensify the global promotion of our industry,both among those who will enter the labour market and those willing to reorientate theircareer towards our industry.

Corporate governance and ethicsNow that private and institutional investors expect promoters and managers to offer transparency, a steadily growing quality of the information dispatched, precise details onoperational procedures and an exemplary deontology, the Luxembourg fund industry musttake care of these elements. In order to do so, ALFI's recently set up technical committees "corporate governance" and"ethics" have an important role to play and will be monitored very closely.

ALFI's organizationIn order to increase its means of action, ALFI has recruited a General Manager a fewmonths ago, which will considerably modify the role of its President.This new presidency will be the occasion to organize the operation of the General Manager/ President binomial in order to achieve a good sharing out of the tasks and an excellent global synergy.On the other hand, the role of the various technical committees and the contribution theymade over the years are obvious; it is advisable to encourage them, to motivate them, to recognize the merit of the participants and to keep the committees in good working order sothat they continue to play their role and to provide their technical contribution in the future.Lastly, the modification of the statutes of our association in April 2000 opened Alfi to allthe professionals working in and for the investment fund industry, be they established inLuxembourg or abroad. The consequence of this modification was that ALFI could welcome numerous new members over the last months.One of the objectives of the new presidency will obviously be to integrate them, to ensurethe representativeness at the level of the technical committees and to take into accounttheir interests and desideratas.

Guy LEGRANDPresident

Presence and Permanence

While ALFI's board of directors and president havechanged, the Association's ambitions remainunchanged. We want to

be responsive to our members, understand theirmotivation, follow up on their evolution, anticipatetheir needs, reconcile possibly conflicting interests,identify common stakes beyond the drivingforces of competition and the market,communicate with the Luxembourg authorities, private and political organisations, liase with thesupervisory body, but also with professional associations and agencies that cover other profes-sions of the financial sector, contribute actively inview of the promotion of our financial centre,be vigilant in respect of international developments,extend bilateral relationships to sister associations,above all those that cover jurisdictions where themajor sponsors of Luxembourg based funds originate, contribute to the building of the singleEuropean market while ensuring that Luxembourg'svital interests are being taken into account, supportthe action of FEFSI,anticipate and prepare the future by putting inplace training programs for the young professionals of our industry, by educating theinvestors, by implementing the code of ethics andguidelines for auto-regulation, by working outmeaningful statistical data and feasibility studies.

Our essentially international, composite and heteroge-neous Luxembourg fund industry with its global structures and local distribution networks serves boththe collective savings and private undertakings andenterprises. It creates new jobs and generates tax revenues. It is about to become omnipresent whilereassembling the components of the very tissue of thefinancial world and by intervening directly in thefinancing of the economy. The industry is fully awarethat the actors bear high responsibility. Its importancewithin the Luxembourg economy is well established. Its international role is recognised.

Based on the guidelines given by our board of directors,the Secretariat General together with the numerous vol-unteers within our technical committees will endeavourto accomplish with determination the objectives of theassociation: the defence of the members' interestsand the efficiency of the investors' protection.

Robert HoffmannGeneral Manager

Editorial

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Guy Legrand,

DEXIA-BIL, president

Pierre Ahlborn, Banque de Luxembourg

Jacques Bofferding, Banque Générale du Luxembourg

Freddy Brausch, De Bandt, Van Hecke, Lagae, Loesch

Christoph Cramer, Union Investment

Jacques Elvinger, Elvinger Hoss & Prussen

Rafik Fischer,Kredietbank Luxembourg

Yves Francis, JP Morgan Fleming

Jean-Michel Gelhay, Banque Degroof Luxembourg

Richard Goddard, ABN AMRO Investment Funds S.A.

Manuel Hauser, UBS Fund Services (Luxembourg) S.A.

Claude Kremer, Arendt & Medernach

John Li, KPMG

William Lockwood, Franklin Templeton International Services S.A.

Iain MacLeod, Credit Suisse Asset Management

Julian Presber, State Street Bank Luxembourg S.A.

Marc Saluzzi, PricewaterhouseCoopers

Guy Schmit, Bayern LB International Fund Management S.A.

Thomas Seale, European Fund Administration (EFA)

Paul Suttor, Crédit Européen

Eric van de Kerkhove, Deloitte & Touche

Patrick Weydert, Deka International S.A.

Julien Zimmer, DG Bank Luxembourg S.A.

Patrick Zurstrassen, Crédit Agricole Indosuez Luxembourg S.A.

The fund management business has never before been under the spotlight as it is currently.Regulators are taking a higher degree of interest in activities than ever before and clientsare placing increasingly onerous restrictions on what fund managers and administratorscan or cannot do on their behalf. Add to this a squeeze on margins and you have irresistible pressure towards automation and the need for that buzz-phrase of the late1990's - Straight Through Processing - STP.

This is nowhere more true than in the area of compliance. Compliance has long been theCinderella of the fund management ball, if not the downright ugly sister. Long considereda mere cost centre, removed from the focus of STP, and upstream from the decision support and order generation process, compliance systems have suffered from lack of systems resources. And yet, change is sweeping through the market and increasing interest is being shown in automated compliance systems.

Organisations are waking up to the potential cost of inefficient or absent compliance capability, not just in terms of the manpower that is occupied by this function, but also thereal cost of errors or deliberate investment breaches.

In Luxembourg, where the predominant market need is for administrative post-tradechecking, there is a particular set of requirements. So what are the things that you need tolook for when assessing the capability of systems and suppliers in the field of automatedinvestment restriction checking?

Support of the regulations and understanding of the local market

Fully documented CSSF rule coverage is a must. The supplier needs to have the necessary expertise to discuss your interpretations of the rules. In addition, the regulations for funds domiciled in other jurisdictions but administered in Luxembourgshould also be covered by the prospective product.

Support for all types of investments

Most systems test equities adequately. What about your balanced funds with a mix offixed income, equities, money market instruments and derivatives? Can you test thetrue potential underlying instrument and issuer exposures?

Support for all types of funds

Flat funds are one thing, but what about funds-of-funds structures? Can the system performa 'look-through' to give you the effective overall exposure of the fund product?

Support for complex rules

Does the system pre-structure the types of rule you can build or do you have flexibilityeasily to build any rules through the combination of simple concepts?

Support for the management of breach resolution

Once the system has detected a breach, how easy is it to track how the breach is beingresolved - i.e. whose responsibility is it, how long will it take, etc? The compliance system should combine this information with details of the original breach to providea complete history of each incident.

Ease of systems integration

Has the compliance product been designed with easy links to any administration oraccounting system?

In addition to these qualifying questions to be asked of a prospective supplier, there are anumber of things to look at internally to assess how difficult it will be to implement automated restriction checking:

Are your client mandates in an electronic form already (e.g. simple database)?

Automated Compliance CheckingSystems in Luxembourg

ALFI's New Board

5

Guy Legrand,

DEXIA-BIL, president

Rafik Fischer, KBL, vice-president in charge of national relations

Patrick Zurstrassen, Crédit Agricole Indosuez Luxembourg S.A., vice-president in charge of international relations

Pierre Ahlborn, Banque de Luxembourg, Treasurer

Manuel Hauser, UBS Fund Services (Luxembourg) S.A., Swiss Fund Promoters

Julien Zimmer, DG Bank Luxembourg S.A., German Fund Promoters

William Lockwood, Franklin Templeton International Services S.A.,Anglo-Saxon Fund Promoters

Claude Kremer, Arendt & Medernach, chairman Legal Committee - National Affairs

Freddy Brausch, De Bandt, Van Hecke, Lagae, Loesch, chairman Legal Committee - International Affairs

Jacques Elvinger, Elvinger Hoss & Prussen, chairman Fiscal Committee

Jacques Bofferding, Banque Générale du Luxembourg, chairman Internet Committee

Lucien Euler, Fastnetchairman Training Committee

Henry Kelly, KellyConsultchairman Operational Techniques Committee

Thomas Seale, European Fund Administration (EFA), chairman Marketing Committee

Dominique Valschaerts, CCLuxchairman Statistics Committee

Are the mandates in a form, which can be represented by a set of checks - or are some'subjective'. An example of the latter is 'No investment in illiquid stocks'. This requiresa definition of liquidity, which might be the holding as a % of the average daily tradedvolume, but is this data available?

Data availability and accuracy is the single biggest challenge to effective restrictionchecking. Some rules, which at first glance appear to be easy to check, without reliable data become unreliable or impossible. Issuer data is a particularly commonsource of problems - especially if you are looking for exposure that includes cash andmoney market instruments.

These points also lead to another reason to choose a supplier who has broad experience atmandate review and rule creation. The supplier's business consultants should be able toadvise as to whether, in their experience, such information is available from suppliers andwhich is the best supplier for a particular type of data.

So, who to turn to, to help you choose which way to go?

The two approaches are to either employ third party consultants to manage the system andsupplier selection process, or to manage it directly yourselves. If you choose the latter,there are several suppliers positioned in the market with various products. These suppliersinclude LatentZero (a product developed in the UK and now marketed in Luxembourg),MacGregor, LineData, Charles River, etc.

Henry KellyKellyConsult Sàrl

kellyconsult@pt.lu

ALFI's NewExecutive Committee

The year 2000 marked the 10th anniversary of political and economic changes evidencedwithin central and eastern Europe since the parliamentary victory of the Solidarity movement in Poland, the success of the Velvet revolution in the Czech Republic, Germanunification and the symbolic collapse of Berlin wall in 1989.Over the past decade central & eastern European countries started to differentiate themselves and re-group into three separate sub-regions, being Central Europe (CzechRepublic, Hungary, Poland, Slovakia and Slovenia), Baltics (Estonia, Latvia, Lithuania),and the Balkans (Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Macedonia, Romaniaand Yugoslavia). Depending on political stability and economic recoverability there mightalso be future changes within Russia and the CIS.The countries of central Europe (CE) - Czech Republic, Hungary, Poland, Slovakia andSlovenia - can be characterized by their strong and clear political and economic aspirations tojoin the EU. Three of them: Czech Republic, Hungary, Poland have already joined NATO. Itis likely that some of them (if not all of them) will join the EU in the first wave of accession. This article describes the current status of the investment fund industry and perspectivesfor further development in three countries of central Europe: Czech Republic, Hungaryand Poland. With the biggest capital markets in the central European region and goodfinancial infrastructure, the investment fund industry is most advanced in thesecountries. Furthermore, their accession to the EU will further stimulate growth of theinvestment fund industry.

Development of the InvestmentFund Industry in the

Central & Eastern Europe

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Economic fundamentals and infrastructureDuring the last 10 years or so, the Czech Republic, Hungary and Poland together managed toattract US$ 74 bn of foreign direct investment (FDI). Together with the processes of privatization and restructuring and employment of required know-how, this has enabled themto transform their economies. In terms of the financial services industry, the banking industry was the first to go throughthe restructuring and privatization process. This process, combined with the introductionof the regulatory requirements of The Basel Capital Accord, has resulted in significantimprovement of its condition. Now, after a decade, the banking industry has reached a consolidation stage in some of these countries. Development of the insurance industry followed (particularly on the life insurance side), in conjunction with the introduction ofpension system reforms. At the same time the National Stock Exchanges were establishedor re-established, and securities markets legislation and related regulatory regimes wereintroduced which enabled the development of domestic capital markets. This has fuelled economic growth. In the year 2000 the Czech Republic eventually overcameits recent recession with the 2.5% p.a. GDP growth. In Poland GDP growth continued atapproximately 5% p.a. over the whole decade, and in the case of Hungary, growth has beenat 5% p.a. since 1996. On the other hand government spending and budget deficits remainhigh, unemployment is rising (Poland -14.5%) and inflation remains a problem.

Market sizeInvestment fund laws and regulatory regimes were introduced in each of the three countries and were subsequently adjusted to conform with EU legislation as a part of anoverall requirement for national legislation to comply with the "acquis communautaire".Supervisory power over regulation and supervision of the industry was placed with theCzech Securities Commission, the Hungarian Banking and Capital Markets SupervisionBoard and the Polish Securities & Exchanges Commission. As of 31st December 2000 market capitalization of the three largest stock exchanges in theregion (Warsaw-WIG, Budapest-BUX and Prague - PX50) amounted to US$ 42.7 bn. Assetsunder fund management domiciled in these countries amounted to US$ 3.5 bn (139 funds)indicating that 8.2% of market capitalization was under fund management at this date.By comparison this figure represents just 0.4% of total net assets under management in Luxembourg. So the natural question is: what is the central European potential for development of the investment fund industry?Eventually, population size and its associated savings will constitute the region's comparativeadvantage. EU accession will lead to a fall in a risk premium and increase in market valuations. In the transition period it is the development of contractual savings that shifts thestructure of demand for financial assets towards longer maturities.

Domestic market playersCurrently, domestic markets are very concentrated with only a few dominant players, andthose being a mixture of national and international promoters.Although there are about 15 fund managers based in the Czech Republic, the market is dominated by two players which together have 80% of the market share: Komercni Banka(18%) and Ceska Sporitelna Banka (acquired by Erste Bank - 62%).Similarly in the Hungarian market, the three largest players have 90% of the market: OTPBank (49%), Budapest Bank (acquired by GE Capital - 31%), and CA IB Securities (10%).There are about 15 fund managers in the Polish market and the major promoters includePioneer (49%), Skarbiec (owned by BRE Bank SA and ADIG- 21%), and DWS (15%). It is worth noting that foreign controlled promoters dominate the markets (except forHungary) although none of them has yet managed to build a strong central European regionalpresence. The development of the pension market and availability to distribute foreign domiciled funds may affect the future share of current market players.

FEFSI Survey:Taxation of UCITS -

The Principles

The European Federation of Investment Funds andCompanies (FEFSI) has issued a new survey on theprinciples of taxation of UCITS in 20 FEFSI membercountries. This survey, that has been first launched inearly 1992, is updated annually by members ofFEFSI's Tax Committee. It contains general remarksand its purpose is to provide a country-by-countryoverview of taxation of UCITS.

In 2000/2001, (some minor) changes in the taxation of UCITS were observed in Austria, Belgium, CzechRepublic, France, Germany, Greece, Ireland, Italy,Luxembourg, Norway, Portugal, Spain, Sweden,Switzerland, United Kingdom. Poland participated inthe survey for the first time since joining FEFSI. No changes were noted in Denmark, Hungary, and theNetherlands.

FEFSI is considering posting the survey on its website (http://www.fefsi.org).

Fund SupermarketsReshape European

Distribution

Fund supermarkets in Europe - distribution platformsthat blend a wide range of retail-oriented packagedinvestment products with turnkey administration andrecord-keeping capabilities - could represent as much as25% of net new inflow into Europe's fund industry by2005, according to the latest report in The CerulliReport™ series, European Fund Supermarkets.The report states that fund supermarkets will representbetween 10% (in Spain) and 25% (in the UnitedKingdom and Germany) of net new inflow into mutualfunds by year-end 2005. As a result, CA's admittedlyoptimistic forecasts call for Europe's fund supermarketsto hold nearly 275 billion in assets by 2005, representing at least 4% of the region's mutual fundindustry and a blistering 75% compound annual growthrate. (The current level in the U.S. is roughly 6% ofassets and 16% of net new sales in long-term funds.)According to the report, fund supermarkets will represent the product choice and open architectureEuropean consumers are increasingly demanding.

Development of the investmentfund industry... (continued)

7

BANQUE DEGROOF LUXEMBOURGPart I SICAV Bankpyme Strategic Funds SICAV,Big House, EUR, 60% equities, 40% bonds, onethird at least of the equity investment consisting inequities of companies directly or indirectly involvedin the real estate business; European Fund, EUR,securities issued by issuers of European (60%) andnon European (40%) OECD countries.

BANQUE GÉNÉRALE DU LUXEMBOURG S.A.Part I SICAV DAB Adviser I Fund: D & P WeltPortfolio, EUR, international equities of companiespresenting a high growth potential; FidentusBiotech, EUR, equities of biotechnology and phar-maceutical companies; Elite Global Equities, EUR,equities of international companies having shown asolid growth in the long run and equities of " NewEconomy " companies.Part I SICAV Fortis L Fund, Fortis L Fund BondConvertible Europe, EUR, equities worldwide.

BNP PARIBAS FUND ADMINISTRATIONPart I SICAV Parvest: Parvest US High Yield Bond,USD, below investment grade bonds issued on theUS markets or by US issuers; Parvest WorldTechnology, USD, securities issued by companiesactive in technology related sectors (telecommuni-cation, Internet, EDP services), Parvest EuropeanCorporate, EUR, investment grade bonds of privateissuers, issued on the European markets or byEuropean issuers.

CITIBANK INTERNATIONAL PLC (Luxembourg branch)Part I SICAV Axa World Funds: European SmallCap Equities, EUR, small and medium sized companies domiciled in European countries;European Opportunities, EUR, European undervaluedstocks with growth or re-value potential; FinancialSector Equities, EUR, equities issued by companiesbelonging to or involved in the banking, insuranceand/or diversified financial sectors worldwide; EuroHigh Yield Bonds, EUR, invested primarily in sub-investment grade bonds denominated in Euros,with an emphasis on lower rated bonds.

KREDIETBANK LUXEMBOURG S.A.Part I SICAV MC Premium: Global Power Fund,EUR, equities of electricity, gas and water supplyingcompanies.Part I SICAV Vitruvius: Italian Equity, EUR, SwissEquity, EUR / CHF, equities of Italian / Swiss companies with high growth potentials in the long view.Part II SICAV Schoellerbank Funds: ValueProtection, EUR, trading assets; Value Hedge /Value Hedge Protect, EUR, fund of funds.Part I SICAV Urquijo Fondos KBL: GlobalBiotechnology, USD, biotechnology sector.Part II SICAV Sigma Fund: Enhanced, EUR, fundof funds.

ProductsIn terms of domestic products (apart from existing balanced, bond, equity, money market, andprivatization funds) one can observe the effects of a recent regulatory concession allowinginvestment funds to move away from domestic securities and enabling the emergence of somemore global or European outlook funds (Hungary, Poland). The first "tracker funds"(Hungary) and "guaranteed funds" (Poland) were introduced to the market and the conceptof "fund of funds" was recognized in the Czech Republic.As far as the distribution of foreign domiciled funds is concerned the markets are currentlyquite closed in terms of the public distribution of foreign domiciled funds. Distribution of suchfunds is either: not possible (Hungary); possible through a registration process which requiresto meet national prospectus and reporting requirements (Poland); or possible through a registration process which recognizes European passport (Czech Republic).

Foreign market playersCentral and eastern European capital markets also attracted foreign promoters who set upfunds domiciled outside the region, which invested in central & eastern European securities(including Russia). As at 30th June 2000 there were US$ 5.6 bn of assets managed by 114such funds, of these US$ 3.4 bn (61%) were invested by funds domiciled in Luxembourg.

Further developmentsFuture development of the investment fund industry will be stimulated by three main factors:

European Union enlargementGrowth in market capitalizationPension system reform

EU accessionAs new members accede to the European Union they are expected to adopt all relevant EUlegislation. The current EU calendar assumes that accession will not start prior to 1st January 2003. The accession process will lead to the harmonization of national legalsystems with the EU UCITS Directive, which will automatically enable a distribution ofthe Part 1 UCITS in the central Europe. The Czech Republic and Poland have alreadyadopted laws providing for recognition of European passport for UCITS. In the case ofPoland this law will become effective when Poland joins the EU. Similarly, Hungary foresees changes to its legislation in the course of this year. The ongoing harmonization ofnational legal and regulatory systems will lead to a decrease of market entry costs andeventual elimination following the EU accession.

Market capitalizationCurrently the Polish stock exchange is the largest in the region with a capitalization of US$ 25.5bn, followed by US$ 9.4 bn in Hungary and US$ 7.8 bn in the Czech Republic. Macroeconomicadvantages, ongoing privatization and the development of pension funds should contribute tofurther growth of domestic capital markets. The opening of capital markets following the EUaccession process should have a positive effect on market valuations.

Pension system reformsPrivate pension funds regulations and infrastructure (modeled on Latin American solutions) have recently been introduced in the Czech Republic, Hungary and Poland. Inthe near future we should see further development of contractual savings associated withthe mandatory and voluntary elements of the pension systems reforms. In Poland alone itis expected that there will be approximately US$ 1 bn annual cash inflow associated withthe second pillar of the pension fund.All these factors will lead to a further opening up of the markets within these countries andincreasing macroeconomic stability within them. This in turn will most likely lead to adecrease in risk premium and stimulate further economic growth. For the investment fundindustry these outcomes will constitute positive developments, as they, in turn, will lead toincreases in liquidity flows into the capital markets of Central Europe.

Dariusz NowakDariusz Nowak is a partner of PricewaterhouseCoopers. He can be reached on: +352 49 48 48 2520 or e-mail: dariusz.nowak@lu.pwcglobal.com

New Fund / Sub-Fund Launches

At the close of the year 2000, assets under management with the Luxembourg domiciledinvestment funds amounted to 874.6 bn. In October, they had reached a peak of

924.13 bn, before declining stock prices started to push them down.

It is true that the year 2000 growth rate of "only" 19.1% was relatively low compared to the 51 per cent increase achieved in 1999, but the growth in assets of 140.1 billion in absolute figures in 2000 was the second most important boost achieved by the industry since the beginning of the 1990s, after the record addition of some

247.7 billion in 1999.

Further to this, net inflows of fresh money also reached a record level of euro 168.2 bn.On the other hand, strong declines of stock prices made that financial markets accountedfor a loss in value of 28.1 bn on an annual basis, which is the largest decline in net assetsdue to financial markets' performance ever suffered by the Luxembourg fund industry. Netsubscriptions however remained positive even during the last four months of the year,when the so called New Economy Markets brought a lot of bad news.

Over the year 2000, the record number of 278 new funds have been added to the officiallist of funds domiciled and registered in Luxembourg. The number of new sub-fundslaunched by the increasingly popular multiple compartment funds grew by 1,119, so thatthe Luxembourg investment fund industry offered the investor a choice of no less than6,995 different fund portfolios at the close of the year.

During the first four months of 2001, the overall trend remainded positive, but the evolution of assets under management continued to be heavily affected by stock marketperformance. Whilst total net subscriptions amounted to 42 bn, financial markets had anegative impact of 20.74 bn. The 21.26 bn increase of assets under management represents a 2.75 growth over the 2000 year end total. The number of fund units increasedby 232 to 7.227.

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New Part II BSI - New Biomedical Frontier(SICAV), USD, companies with a high growthpotential in research and development in biomediacltechnologies.New Part II SICAV Sinope Alternative Funds:Long Short Global Bond Fund 300 Eur, EUR, LongShort Global Bond Fund 300 USD, USD, marketneutral investment policy.New Part II SICAV Jefferies Equity Fund: PrivateEquity.New FCP KBC Life Priviledged Portfolio Fund,Defensive, Dynamic, Neutral, EUR, fund of funds.New Part II Miralt SICAV: Europe Multitech, USD,fund of funds.New Part II SICAV C-Quadrat European Pro-Funds: Blue Chip, Special, Balanced, EUR,fund of funds.

LLOYDS TSB BANKLloyds TSB Bank has integrated its LloydsAmericas Asset Management SICAV (LAAM)sub-funds Brazil International Fixed Income Fundand Argentina International Fixed Income Fund asnew sub-funds into its Lloyds TSB InternationalLiquidity SICAV under the denomination LILBrazil (US Dollar) Fund and LIL Argentina (USDollar) Fund respectively, while its LAAM sub-funds US Large Cap Equity Fund and Brazil ActiveEquity Fund have been integrated as new sub-fundsinto its Lloyds TSB International PortfolioSICAV. The LAAM US Small Cap Equity Fundcompartment has been integrated into an existingLIP fund under the denomination LIP - SmallerCompanies Fund, while LAAM sub-fund ArgentinaEquity Fund has been liquidated, which lead to thedissolution of LAAM.

Investor's confidence remainsunshaken despite market turbulence