Notes to the consolidated financial statements

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(1)WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7.

(2) Contents. Management report. >. 3. Balance sheet. >. 8. Statement of income. >. 9. Statement of changes in equity. >. 10. Consolidated cash flow statements. >. 11. Notes to the consolidated financial statements. >. 12. Statutory auditors’ report. >. 21. ABC arbitrage 40, rue Notre Dame des Victoires 75002 Paris - France Tel. : 33 (0)1 53 00 55 00 Fax : 33 (0)1 53 00 55 01 Email : abc@abc-arbitrage.com Website : www.abc-arbitrage.com Consolidated financial statements 2006 - Page 2 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. ABC arbitrage.

(3) ABC arbitrage. Management report. 1. Business review The ABC arbitrage Group had an excellent year in 2006, with all performance indicators up sharply. Proprietary trading revenues, our main operating indicator, amounted to €34.3 million, a rise of almost 75% compared to 2005, while net income rose 108% to €14.6 million. Key consolidated figures for 2006 are presented below: Dec. 31, 2006 IFRS. Dec. 31, 2005 IFRS. Evolution. -. -. -. Proprietary trading revenues (1). 34.3. 19.6. 75 %. Net revenues. 34.3. 19.6. 75 %. Payroll costs. (9.8). (6.2). 58 %. Occupancy costs. (0.6). (0.7). (5) %. Other expense. (1.6). (1.5). 9%. Income before tax. 22.3. 11.3. 97 %. Net income. 14.6. 7,0. 108 %. In EUR million Advisory revenues. 1 : Net gains on derivative financial instruments measured at fair value through profit or loss (EUR 38.0m)+ provision (EUR (3.7m)). Operating performance The Group comfortably outperformed the market during the year. Gross return on equity came to 91.23% at December 31, 2006. This compares to the 13.86% gain for the CSFB/Tremont Hedge Fund Index, a benchmark in alternative investment. However, this comparison should be seen in light of the wide range of strategies and very large volume of managed assets reflected in the index. Dec. 31, 2006 IFRS. Equity at January 1, 2006 under IFRS. 29,661. Equity at December 31, 2006 (before 2006 interim dividend). 45,476. Average equity. 37,569. Return on equity. 39.0 %. Gross return on equity. 91.2 %. Cac 40 index. 17.5 %. CSFB /Tremont Hedge Fund Index. 13.9 %. Return on equity = (net income / average (opening equity+closing equity)) x 100. Gross Return on equity = (proprietary trading revenues / average (opening equity+closing equity)) x 100. Equity corresponds to shareholders’ equity plus provisions for contingencies and charges adjusted for deferred taxes. This figure takes account of dividend payments (except for interim dividends) and changes in issued capital, and therefore corresponds to the capital available for investment in the market.. With average volatility still significantly below the level observed in the period 1999 to 2002, we were able to efficiently leverage our business specifics and achieve strong growth by continuously improving our systems and scaling up in both geographic reach and structure. Volatility remained low in the first four months of 2006, in line with 2005, but increased sharply in May and June to reach almost twice the previous year's average. In the second half, it declined steadily reaching a low in December 2006. Against this market backdrop, we continued to scale up our processes. The average number of arbitrage positions during the year rose more than 45%, to 926 versus 632 in 2005, although the increase was partly due to a number of smallscale positions designed to test new strategies. We also moved into some new countries that are less mature than Europe and the United States. We now operate in 37 different marketplaces. Consolidated financial statements 2006 - Page 3 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. In EUR thousands.

(4) In addition, the M&A arbitrage business enjoyed new momentum, driven mainly by positive market conditions in the first half (large number of deals with counterbids). We continued to focus on identifying new targets or new arbitrage strategies with market risk in the equity markets. The new strategies developed in 2005 already represent almost 10% of proprietary trading revenues. Provision expense mainly comprises the impairment charge taken against the Group’s receivables from the Italian Government, given their age and the fact that legal proceedings will have to be initiated to secure their recovery. Although the number of employees remained virtually unchanged, payroll costs rose significantly due to the Group's policy of rewarding employees through incentive plans that establish a direct link between targets, results and bonuses. However, as a result of tight control over other costs, general operating expenses as a whole rose by only 44.1% versus 74.7% for revenues. In 2007, we expect to see an increase of just under €1 million in expenses related to market access (market information and order routing systems). The increase stems from three major sources: - a general rise in rates charged in the marketplaces; - increased payroll expenses due to investment in strengthening our teams; - higher market access and price information costs following our geographic expansion. Advisory services and third party management At its meeting of 6 March 2007, the Autorité des Marchés Financiers agreed to extend the asset manager license granted in December 2004 to ABC arbitrage Asset Management, a wholly-owned unlisted subsidiary of ABC arbitrage. This represents an important step forward in our goal of developing a third party asset management business, as ABC arbitrage Asset Management is no longer restricted to third party mandates but can now sponsor and manage its own offshore investment funds. ABC arbitrage Asset Management intends to seek the necessary consents to set up its first alternative investment fund under Irish law, although the timeframe has not yet been fixed. The fund will use a number of strategies developed successfully by the Group since 1995. Its initial investors will be the parent company, ABC arbitrage, and its two main shareholders, ABC participation et gestion and Aubépar. Later on, the fund will be opened to other qualified investors.. 2. Subsidiaries and holdings A list of subsidiaries and holdings, together with key figures, can be found in note 3.2. to the parent company financial statements.. BC Finanzberatung posted net income of €5 thousand in 2006. It is currently in voluntary liquidation and has no remaining arbitrage business. Its net income principally comprised tax rebates. ABC arbitrage created ABCA Global Fund, a wholly-owned subsidiary, at the end of 2001. This company had no business activity during the year other than prudent management of its own cash.. 3. Human resources The Group employed 56 people at 31 December 2006 against 53 one year earlier. We pursue a selective recruitment policy to ensure that our core business teams have the appropriate skills. Our compensation policy remains unchanged. Its fundamental goals are to encourage performance through a rewarding incentive system and to foster long-term involvement and commitment through employee share ownership. We are convinced that employee share ownership is the best way to retain and motivate our key people and we therefore regularly seek renewal of our authorisations to issue share-based instruments to selected employees. This policy was confirmed in 2006 with the introduction of an ambitious share-based incentive program for executive officers and key employees, called Horizon 2010. We firmly believe that this type of incentive plan is the best way to ensure that our shareholders and employees share the same interests. Consolidated financial statements 2006 - Page 4 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. ABC arbitrage Asset Management, an authorised investment management company, incurred a loss of €9.25 million in 2006. This company manages funds on behalf of ABC arbitrage, its parent company, and had no other clients in 2006. The net loss corresponded mainly to the company's general operating expenses..

(5) Horizon 2010 sets five-year earnings targets and the amount that vests will depend on the company’s performance over the period. The entire amount will vest if aggregate net income over the five-year period reaches €100 million. Horizon 2010 stock options Depending upon results through to 2010, up to 8,845,000 shares could be issued on exercise of the options, representing 26.66% of the issued capital. The initial exercise price has been set at €4 per share. It may be adjusted for dividend payouts but may not be less than €2.51 (excluding adjustments required by law), market price of the ABC arbitrage share at the date of rights issue. At December 31, 2006, the plan concerned twenty-four people. Horizon 2010 founder share warrants Depending on results through to 2010, up to 1,200,000 founder shares could be issued on exercise of the warrants, representing 3.62% of the issued capital. The initial exercise price has been set at €4. It may be adjusted for dividend payouts but may not be less than €2.51 (excluding adjustments required by law), market price of the ABC arbitrage share at the date of rights issue. At December 31, 2006, the plan concerned three people. Horizon 2010 stock grants Depending on aggregate results over the period 2006 to 2010, up to 2,108,000 shares could be issued gradually between 22 May 2008 and the date of approval of the 2010 financial statements, representing 6.35% of the issued capital. At December 31, 2006, the plans concerned twenty-four people. The following incentive plans were already in place before Horizon 2010: Stock options Up to 880,473 shares could be issued on exercise of the options, representing 2.65% of the issued capital. At December 31, 2006, the plans concerned twenty-six people. Founder share warrants Up to 91,348 shares could be issued on exercise of the warrants, representing 0.28% of the issued capital. At December 31, 2006, the plans concerned twelve people. Stock grants 392,555 shares will vest in September 2007, representing 1.18% of the issued capital. Depending on aggregate results over the period 2006 to 2010, up to 211,939 shares could be issued gradually between May 22, 2008 and the date of approval of the 2010 financial statements, representing 0.64% of the issued capital. At December 31, 2006, the plans concerned twenty-five people. The total cost of these plans is deferred over the vesting period with a corresponding amount recognised in equity. It is calculated on the basis of the plan’s total value on the date of grant by the Board of Directors. The expense for 2006 amounted to €340 thousand. During 2006, 470,033 founder share warrants were exercised at an average price of €2.84 and 33,270 stock options at an average price of €2.37.. As required by article L 225-184 of the Code de Commerce, these plans are described in detail in a special report.. Consolidated financial statements 2006 - Page 5 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Since 1995, when the company was first created, share-based compensation plans have contributed 4.15% of issued capital..

(6) Under article L 225-102-1 of the Code de Commerce, we are required to report on total compensation and benefits paid to directors and executive officers of the listed company during the year. The following table shows the amounts other than salary and benefits paid by Group companies to directors and executive officers in 2006: Name. Position. Directors' fees (€). Executive officers (€). 2,000. 105,000. -. 215,300. -. 75,000. -. 5,000. Chairman of the Board of Directors, ABCA Dominique Ceolin. Chairman and CEO, ABCA AM (paid in respect of 2005) Chairman and CEO, ABCA AM (paid in respect of 2006). Jean-Michel Bonnichon. Managing Director, ABCA. Jacques Chevalier. Director, ABCA. 8,000. -. ABC participation et gestion. Director, ABCA. 2,000. -. Jean-François Drouets. Director, ABCA. 4,000. -. Didier Ribadeau Dumas. Director, ABCA. 9,000. -. Aubépar. Director, ABCA. -. -. ABCA: ABC arbitrage ABCA AM: ABC arbitrage Asset Management. The following table shows total salary and benefits paid by Group companies to the executive officers in 2006:. Position. Dominique Ceolin. Jean-Michel Bonnichon. Chairman of the Board of Directors, ABCA. Corporate Secretary, ABCA AM. 175,949. 80,198. 5,748. -. 2005 salary adjustment. 20,900. -. Incentive plan. 15,490. 15,490. Profit-sharing plan. 1,228. 1,044. Employer's top-up contribution. 2,298. 2,298. Villepin bonus. 1,000. 1,000. Gross bonuses in respect of 2005. -. 51,000. Gross bonuses in respect of 2006. -. 70,000. Gross salary Company car. N.B.: Figures in euros ABCA: ABC arbitrage ABCA AM: ABC arbitrage Asset Management. The Group also agreed to pay Jean-Michel Bonnichon a termination benefit of up to €180,000 depending on length of service.. 4. Corporate governance The Board of Directors comprises four Directors, including two independent Directors. The second independent Director, Jean-François Drouets, was appointed by the Board on April 11, 2006 and his appointment was ratified at the Annual Shareholders' Meeting. The Board of Directors invited third parties to attend Board meetings in a consultative capacity on an occasional or regular basis. Didier Ribadeau Dumas and Aubépar, represented by Xavier Chauderlot, were appointed non-voting members of the Board. At the next shareholders' meeting, the Board will propose the election of Aubépar as Director, represented by Xavier Chauderlot. The percentage of issued capital held by employees under group plans is less than 3% and consequently there are no employee-elected Directors. A member of the Works Council attends Board meetings in a consultative capacity. Consolidated financial statements 2006 - Page 6 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Name.

(7) 5. Dividend policy Dividends for the previous three years were as follows: In euros Net dividend. 2005. 2004. 2003. 0.20. 0.60. 0.83. At its meeting of September 28, 2006, based on the Company's results for the first half of 2006 and retained earnings brought forward from prior years, the Board of Directors decided to pay an interim dividend for 2006 in a net amount of €0.13 per share. As for previous dividend payments, shareholders were given the option of receiving their dividends in cash or reinvesting them in shares. At the end of the option period, the overall dividend reinvestment rate was almost 90%. The Board of Directors will recommend a final dividend of €0.20 per share at the Annual Shareholders' Meeting on May 30, 2007, which may be fully or partially reinvested in shares. It has been set at a level that strikes an appropriate balance between the total payout to shareholders and the funds required to meet the Group's future needs. The payment date and method will be announced at a later stage. The total 2006 dividend of €0.33 per share represents a net yield of 9.1% based on ABC arbitrage's share price at December 31, 2006.. 6. Share performance At December 31, 2006, issued capital amounted to €530,840 divided into 33,177,524 common shares, including 2,598,297 new shares corresponding to reinvestments of the dividends paid in 2006 and 503,303 shares issued on exercise of founder share warrants and/or stock options. The aggregate premium on the new shares was €1.4 million. The market-making agreement with Fortis remained in effect during the year. Average daily trading volume came to more than 44,500 shares, representing almost €127 thousand a day in value. ABC arbitrage shares closed the year at €3.62.. 7. Statutory disclosures. Name. % of capital. % of voting rights. ABC participation et gestion. 27.41. 27.43. Aubépar. 18.31. 18.32. At December 31, 2006, ABC arbitrage held 25,580 treasury shares. No shareholders disclosed any change in their interests to above or below any statutory disclosure threshold during 2006. There are no collective employee share ownership plans. The free float represented 46.6% of issued capital at the year-end (the balance- excluding self holding- is held by executive management and independent members of the board).. 8. Outlook The early part of 2007 followed much the same trends as 2006. Our key priorities for 2007 will again be to identify and manage risk and maximise our operational efficiency to achieve our Horizon 2010 targets. Leveraging our core values of discipline, team spirit and innovation, we will seek to increase both the quality and quantity of our trading strategies to support our growth momentum and ensure that we remain an innovative player in the market. The Board of Directors March 8, 2007 Consolidated financial statements 2006 - Page 7 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Under article L 233-13 of the Code de Commerce, the Board of Directors is required to disclose the names of shareholders whose holdings exceed the statutory disclosure thresholds at December 31, 2006..

(8) ABC arbitrage. Balance sheet. Balance sheet - assets Dec. 31, 2006 IFRS. Dec. 31, 2005 IFRS. 10,775. 12,030. Property and equipment. 306,962. 475,638. Current financial assets. 357,160. 418,473. Deferred tax assets. 573,665. 578,036. In EUR. Note. Intangible assets. Total non-current assets. 1,248,562. 1,484,176. 544,204,720. 357,814,566. 3,735,272. 7,292,736. 132,768. 301,638. Total current assets. 548,072,760. 365,408,940. TOTAL ASSETS. 549,321,322. 366,893,116. Dec. 31, 2006 IFRS. Dec. 31, 2005 IFRS. Financial assets at fair value through profit or loss Other accounts receivable Cash and cash equivalents. Balance sheet - liabilities In EUR. Note. Paid-up share capital Additional paid-in capital Retained earnings. 530,840. 481,215. 30,186,147. 22,726,801. 3,355,018. 1,887,079. Interim dividend. (4,109,701). (2,907,770). Net income. 14,637,614. 7,031,687. Total equity attributable to equity holders. 44,599,918. 29,219,012. Minority interests. (138). (115). Provisions for contingencies and charges. 462,933. 442,168. Non-current financial liabilities. 178 ,222. 166,183. Non-current liabilities. 641,155. 608,351. 495,514,992. 332,117,971. Other liabilities. 3,775,587. 2,260,741. Taxes payable. 4,691,249. 2,653,187. Financial liabilities at fair value through profit or loss. Short-term debt. 98,559. 33,968. Current liabilities. 504,080,387. 337,065,867. TOTAL EQUITY AND LIABILITIES. 549,321,322. 366,893,116. Consolidated financial statements 2006 - Page 8 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Equity attributable to equity holders.

(9) Statement of income. Dec. 31, 2006 IFRS. Dec. 31, 2005 IFRS. Net gain/loss on financial instruments at fair value through profit or loss Other revenue. 38,013,190. 20,842,619. 930,823. 895,543. Administrative expenses. (2,814,713). (2,673,588). In EUR. Taxes and duties Payroll costs Depreciation and amortisation expense Other expenses. Note. (450,392). (303,280). (9,285,004). (5,901,517). (283,328). (275,420). (26,435). -. OPERATING INCOME. 26,084,140. 12,584,357. Provision expense. (3,739,709). (1,247,749). INCOME BEFORE TAX. 22,344,431 (7,702,469). 11,336,608 (4,307,232). Deferred taxes. (4,371). 2,278. NET INCOME. 14,637,591. 7,031,654. Attributable to equity holders. 14,637,614. 7,031,687. Current taxes. Attributable to minority interests. (23). (33). 33,177,524. 30,075,924. Earnings per ordinary share. 0.44. 0.23. Diluted earnings per ordinary share. 0.41. 0.23. Number of ordinary shares. Consolidated financial statements 2006 - Page 9 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. ABC arbitrage.

(10) ABC arbitrage. Statement of changes in equity between January 1, 2005 and December 31, 2006. In EUR thousand. Paid-up share capital. At January 1, 2005. 448. Equity instruments and related reserves 18,863. (95). Retained earnings and net income 4,726. nm. 16. -. (4). 12. Elimination of treasury shares Share-based payments. -. -. 34. (21). 13. -. -. -. 43. 43. Appropriation of net income 2004. 18. 2,073. -. (2,796). (704). 2005 interim dividend. 15. 1,775. -. (2,908). (1,118). Elimination of treasury shares. Total equity 23,941. Movements arising from transactions with shareholders Issue of shares. Net income for the year. -. -. -. 7,032. 7,032. At December 31, 2005. 481. 22,727. (61). 6,072. 29,219. Issue of shares. 8. 1,403. -. -. 1,411. Elimination of treasury shares. -. -. (17). 27. 10. Share-based payments. -. -. -. 340. 340. Appropriation of net income 2005. 17. 2,385. -. (3,006). (604). 2006 interim dividend. Movements arising from transactions with shareholders. 25. 3,672. -. (4,110). (413). Net income for the year. -. -. -. 14,638. 14,638. At December 31, 2006. 531. 30,186. (78). 13,961. 44,600. Consolidated financial statements 2006 - Page 10 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. nm : non material.

(11) Consolidated cash flow statements. Dec. 31, 2006 IFRS. In EUR thousand Net income Net allocations to provisions Net allocations to depreciation and amortisation Change in deferred taxes Others Net cash provided by operations before changes in working capital Changes in working capital Net cash provided by operating activities Net cash used by investing activities Issuance of shares for cash Premiums on shares issued for cash Dividends paid Increase in borrowings Net cash used by financing activities Net change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period. Dec. 31, 2005 IFRS. 14,638. 7,032. 3,798. 1,155. 283. 275. 4. 2. 351. 56. 19,074. 8,521. (19,648). (8,406). (573). 115. (53. (197). 49. 12. 7,459. 12. (7,116). (1,823). -. -. 393. (1,810). (233). (1,892). 268. 2,159. (501). 268. Consolidated financial statements 2006 - Page 11 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. ABC arbitrage.

(12) ABC arbitrage. Notes to the consolidated financial statements 2006. 1. Accounting principles and policies Under European Union regulation 1606/2002 of July 19, 2002, the ABC arbitrage Group’s consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board European Union (IASB) as adopted by the European Union. The Group’s fiscal year runs from January 1 to December 31, 2006. The consolidated financial statements are presented in euros. The financial statements have been approved by the Management Board and audited by the Group's two statutory auditors, Ernst & Young et Autres and Constantin Associés. Preparation of the financial statements required ABC arbitrage Group to make estimates and assumptions which could have an impact on the amounts at which assets, liabilities, income and expenses are stated. The estimates, and the assumptions underlying them, have been made on the basis of past experience and of other factors considered to be reasonable in the circumstances. They thus serve as the basis for the judgement made in determining the carrying amounts of assets and liabilities which could not be determined directly from other sources. The definitive amounts that will be stated in ABC arbitrage Group’s future financial statements may be different from the amounts currently estimated. These estimates and assumptions are reviewed on a continuous basis. In view of the highly specific nature of its business, the ABC arbitrage group is probably one of the only independent firms engaged solely in arbitrage trading within a non-banking financial statement presentation. The Group conducts two types of arbitrage strategies: ¾ Arbitrages without market risks (Self-liquidating arbitrage strategies) These are transactions that do not generate any directional risk or any event risk. Positions are fully hedged and are governed by legally binding documentation which guarantees convergence on a fixed date. Exposure is limited to operational risks, such as hedging errors, calculation errors or custodian default. Examples include the purchase of a convertible bond and the simultaneous short sale of a quantity of shares corresponding to the number of shares to be obtained on conversion of the bonds.. Unlike the case of self-liquidating arbitrage strategies, the legally binding documentation governing suspensive clause arbitrage strategies does not guarantee convergence. The various risks involved are systematically identified and hedged using appropriate instruments. A typical example of such a deal is a securities exchange offer. The arbitrage consists in the purchase of the offeree company shares combined with the simultaneous sale of the offeror's shares. The quantities bought and sold reflect exactly the terms of the exchange offering. A suspensive clause can be that the offeror need not proceed with its offer if less than half the offeree company shares are presented for exchange. 1.1. Fair value of financial instruments The Group does not take any speculative directional positions on financial markets. Arbitrage transactions are designed to take advantage of an unjustified price differential between two financial instruments which may converge at a given parity and within a given timeframe. The Group qualifies as "unjustified" only those differentials that can be objectively measured by a mathematical or statistical process. One of the instruments is qualified as the underlying, corresponding generally to the short position. The underlying may, for example, be the shares linked to convertible bonds or the shares of a predator. The other instrument is qualified as the derivative, corresponding generally to the long position. The derivative may, for example, be the convertible bonds linked to shares or the shares of a takeover target. The vast majority of the Group’s arbitrage positions concern equities or equity derivatives, such as warrants, put warrants and convertible bonds. The securities are recorded in the balance sheet at cost, net of brokerage fees. Since 2004, the Group also trades in swaps for which the underlyings are assets listed on regulated markets. Financial instruments are held solely for trading purposes, and are recognised in the accounts at fair value through profit or loss. Consolidated financial statements 2006 - Page 12 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. ¾ Arbitrages with market risks (Suspensive clause arbitrage strategies).

(13) The fair value of financial assets and liabilities is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The primary basis for determining the fair value of a financial instrument is the quoted price in an active market. If the instrument is not traded on an active market, fair value is determined using valuation techniques. A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The market price used is usually the bid price for an asset held or a liability to be issued and the ask price for an asset to be purchased or a liability held. Cash and securities receivable and deliverable are netted off for each market counterparty, provided that they represent amounts that are connected, fungible, certain, liquid and payable. The netting off of such balance sheet items results in a fairer presentation of the Group’s financial position. It has no impact on the income statement. The financial assets and liabilities held for trading purposes are recognised on the balance sheet at fair value under “Financial assets or liabilities at faire value through profit or loss”. Changes in fair value are recorded in the statement of income for the period as “Net gains or losses on financial instruments at fair value through profit or loss”. “Net gains or losses on financial instruments at fair value through profit or loss” correspond to revenues from proprietary trading activities discussed in the Group’s management report, except for provisions. It includes all expenses and costs directly related to the trading business, including: Ö Ö Ö Ö Ö. dividends; gains and losses on disposal of financial assets at fair value through profit or loss; changes in fair value of instruments held or due; securities carrying or lending costs; exchange gains and losses.. 1.2. Share-based payment ABC arbitrage has granted stock options to employees. On exercise of stock options, ABC arbitrage issues new shares or sells to employees shares previously acquired by the Group. Only the gain or loss arising on the sale of these shares is recognised in the financial statements. IFRS 2 “Share-Based Payment”, requires that an expense be recognised equal to the fair value of the services rendered by the employees in return for the equity instruments granted to them.. 1.3. Portfolio revenue Equity revenue is accounted when realized. Tax credits linked to equity revenue are included in ”Portfolio revenue”. 1.4. Provisions A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, provided that it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. When the risk occurs or the expense is incurred, the provision release does not qualify as income as it does not result in a net increase in equity. It is therefore recognised as a reduction of the expense concerned. If the actual expense is lower than the provision and the balance of the provision is no longer required, the surplus then qualifies as income and is booked under the same line item as the original provision charge.. Consolidated financial statements 2006 - Page 13 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Under the first-time adoption requirements set out in IFRS 1 in relation to IFRS 2, only plans concerning options granted after November 7, 2002 and not fully vested at January 1, 2005 are required to be restated. They give rise to the recognition of a payroll expense equal to the fair value of the instruments granted in return for services rendered by employees. The expense is deferred over the vesting period of the equity instruments, as the benefit is contingent upon the employee’s continued presence in the company..

(14) 1.5. Corporate income tax Corporate income tax includes current taxes and adjustments to deferred taxes. Deferred taxes are calculated on all timing differences between the recognition of income and expenses for financial reporting and tax purposes and on consolidation adjustments. Deferred tax assets and liabilities are calculated using the liability method, at the tax rates that are expected to apply when the timing differences reverse. They are not discounted. The probability of deferred tax assets being recovered is reviewed regularly and may, where necessary, give rise to the derecognition of previously recognised deferred tax assets. 1.6. Earnings per share Diluted earnings per share is equal to net income for the year divided by the number of shares outstanding at December 31, 2006 plus the impact of all potentially dilutive instruments.. 2. Consolidation principles All group subsidiaries are fully consolidated. Company. Countries. Proportion of capital held directly or indirectly. France. Parent company. ABC arbitrage. Germany. 100.00%. ABCA Global Fund. France. 100.00%. ABC arbitrage Asset Management. France. 99.99%. BC Finanzberatung GmbH. 3. Notes to the balance sheet 3.1. Property and equipment. Fixtures and fittings. Gross value. Accumulated depreciation. Net value. 1,324. (1,277). 48. Vehicle. 162. (54). 107. Office equipment. 788. (637). 151. Furniture. 410. (409). 1. Total. 2,684. (2,377). 307. Total at December 31, 2005. 2,651. (2,176). 475. 3.2. Other non-current financial assets At December 31, 2006, this item included €308 thousand in deposits (€284 thousand in 2005) and €50 thousand in employee advances (€134 thousand in 2005). These exceptional advances were granted in May 2004, by unanimous decision of the Management Board, to holders of warrants to subscribe for founders shares and holders of stock options, to enable them to exercise their warrants or options. Under no circumstances may the advances be used for any other purpose. 3.3. Consolidated equity Capital increase resulting from exercise of options During 2006, 503,303 new ordinary shares, ranking pari passu with existing shares, were issued to holders of rights to founders' shares and stock options’ grantees. The total issue proceeds included €8,052.85 credited to paid-up capital and €1,402,567.86 credited to additional paid-in capital.. Consolidated financial statements 2006 - Page 14 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. In EUR thousand.

(15) Capital increase resulting from reinvestment of dividends The Annual Shareholders’ Meeting of May 31, 2006 decided to pay a final dividend for 2005 in a net amount of €0.10 per share. At its meeting of September 28, 2006, the Board of Directors decided to pay an interim dividend in respect of 2006 in a net amount of €0.13 per share. For each of these payments, shareholders had the option of receiving cash or reinvesting their dividend in shares. At the end of the two option periods, 1,058,169 and 1,540,128 new ordinary shares, ranking pari passu with the existing shares, were issued at a price of €2.27 and €2.40 respectively per share. The total issue proceeds included €41,572.75 credited to paid-up capital and €6,056,778.08 credited to additional paid-in capital. The new ordinary shares are fully paid. At December 31, 2006, the Parent Company’s share capital was represented by 33,177,524 ordinary shares with a par value of €0.016 each, all fully paid. Treasury stock During 2006, ABC arbitrage sold 59,222 of its own shares. At the same time, 55,710 shares were purchased under the market-making agreement with Fortis. At December 31, 2006, ABC arbitrage held 25,580 of its own shares, acquired at a total cost of €78 thousand (at December 31, 2005, the company hold 29,092 of its own shares, acquired at a total cost of €61 thousand). In accordance with IFRS, treasury stock is deducted from equity. Share-based payment The Board of Directors has introduced an ambitious share-based incentive program for its executive officers and key employees. The plans comprising the program set earnings targets for two to five year periods. The amount that vests each year depends on the company’s annual performance, with the entire amount vesting if aggregate net income over the five-year period reaches €100 million. During fiscal year 2005, the Group granted 399,500 shares to 21 grantees on September 19, 2005. The expense related to stock option plans is recognised over the vesting period. This expense, the credit entry for which is posted to shareholders’ equity, is calculated on the basis of the overall plan value, determined at the grant date by the Board of Directors. In the absence of any market for these instruments, mathematical valuation models are used. The key data and assumptions used to estimate the fair value of these equity instruments are the share price on the grant date, estimated future dividends which will not be received by the grantees, a discount rate equal to the risk-free rate plus a credit risk premium, the probability of the profitability and continued presence conditions being met and, in the case of stock options and warrants to subscribe for founder’s shares, historical volatility and liquidity in ABC arbitrage shares. The benefit is measured at the fair value of the shares at the grant date, which may not be revised subsequently following any changes in ABC arbitrage’s share price. The ultimate cost will depend on whether the performance conditions are met and how many of the beneficiaries are still employed by the group on the vesting date. At December 31, 2006, the payroll expense amounts to €340 thousand.. Consolidated financial statements 2006 - Page 15 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. At its meeting of May 22, 2006, the Board of Directors decided to grant : - 211,939 shares to 16 grantees ; - 2,108,000 shares to 24 grantees ; - 8,845,000 stock options to 24 grantees ; - 1,200,000 warrants to 3 grantees . For the last two groups, the exercise price has been set at €4 and may be revised in light of future dividend payments, with a minimum of €2.514 (average share price on date of Board’s decision)..

(16) 3.4. Financial assets/liabilities at fair value through profit or loss The Group holds financial instruments for trading purposes only. In EUR thousand. Financial assets. Financial liabilities. 541,516. 68,494. Securities to be received (off-balance sheet). -. 88,511. Securities to be delivered. -. (489,788). Securities to be delivered (off-balance sheet). -. (213,984). 2,689. 51,252. Total at December 31, 2006. 544,205. (495,515). Total at December 31, 2005. 357 815. (332,118). Securities to be received. Cash and cash equivalents. Total 698,520 (703,772) 53,941. Details of securities to be received and delivered are provided in note 5.1. Risks. Cash reserves earn interest at variable rates indexed to benchmark market rates. From January 1, 2005, fair value of financial assets and liabilities is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The primary basis for determining the fair value of a financial instrument is the quoted price in an active market. If the instrument is not traded on an active market, fair value is determined using valuation techniques. 3.5. Guarantees given Most financial instruments recorded under “Financial assets at fair value through profit or loss” have been given as collateral to the institutions that provide the financing. 3.6. Other receivables and payables All receivables and payables are due within less than one year. In EUR thousand. Other receivables. Other payables. Trade receivables/payables. 312. (138). Accrued income/expenses. 252. (439). 3,171. (3,199). Accrued taxes and payroll costs Total at December 31, 2006. 3,735. (3,776). Total at December 31, 2005. 7,292. (2,261). Accrued taxes and payroll costs include comprise withholding tax and dividend tax credits. They correspond mainly to bonuses payable to employees and amounts due to social security organizations. 3.7. Provisions for contingencies and risks In EUR thousand Total provisions at December 31, 2005 under IFRS. (442) -. Provisions utilised in 2006 Charge to provisions in 2006. 37 (58). Charge to provisions in 2006 Total provisions at December 31, 2006. (462). Provisions for market risks in 2006 concern a legal dispute involving the Group’s German subsidiary.. Consolidated financial statements 2006 - Page 16 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. A €4,394 thousand tax credit reimbursable by the Italian government was written down in full given its age (1996 through to 2001), the absence of payments during previous years and the Italian government’s block on reimbursements for all operators concerned. The Italian government has made a formal request for further information on this item..

(17) 4. Notes to the statement of income 4.1. Net gains on financial instruments at fair value through profit or loss In view of the highly specific nature of its business, the ABC arbitrage group is probably one of the only independent firms engaged solely in arbitrage trading. The Group has opted for presentation by nature as this is closer to the indicators customarily published in its management report. At December 31, 2006, “Net gains or losses on financial instruments at fair value through profit or loss” came to €38,013 thousand, an increase of almost 82% compared with €20,843 thousand at December 31, 2005. This item corresponds to revenues from proprietary trading activities discussed in the Group’s management report, except for provisions. It includes all expenses and costs directly related to the trading business. 4.2. Other revenue Other revenue comprises revenue from sub-letting premises and amounted to €931,000 versus €896,000 in 2005. 4.3. Administrative expenses Administrative expenses principally comprise data mining and processing costs, together with administrative and communications costs. This item totalled €2,815,000 in 2006 versus €2,674,000 in 2005. 4.4. Payroll costs The average number of employees was 54 in 2006 versus 54 in 2005. Payroll costs include €6,559,000 in fixed and performance-related compensation together with statutory and discretionary profit-sharing (€4,211,000 in 2005), payroll taxes of €2,412,000 (€1,643,000 in 2005) and share-based payments of €340,000 (€43,000 in 2005). Payroll-based taxes amounted to €345,000 (€195,000 in 2005). The Group does not provide any post-employment benefits (supplementary pensions or health insurance). Other longterm benefits are provided under defined contribution plans which do not give rise to a future liability as the Group’s only obligation is to make regular contribution payments. During 2006, the following amounts were paid by Group companies to the executive officers of the parent company:. Directors’ fees. 425,300. Salary and other benefits. 261,895. Gross bonuses. 181,748. 4.5. Provision expense Provision expense amounted to €3,740,000 in 2006 versus €1,248,000 in 2005. The charge for the year principally concerned a €3,569,000 impairment loss against a receivable from the Italian government and an impairment loss against various receivables from other governments, where the recovery process is likely to be long and time-consuming.. Consolidated financial statements 2006 - Page 17 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. In EUR.

(18) 4.6. Corporate income tax The difference between the theoretical corporate income tax charge determined by applying the standard French tax rate to pre-tax income and the actual tax charge – corresponding to an effective tax rate of 34.49% - can be explained as follows:. Standard French tax rate. 34.43 % 0.16 %. Impact of differences in foreign tax rates Impact of tax credit. (0.01) %. Impact of the revenue recognition method. (0.09) %. Effective tax rate. 34.49 %. ABC arbitrage elected for group tax relief with ABC arbitrage Asset Management on January 1, 2004. The tax group has signed an agreement whereby each member of the group (subsidiary and parent) recognises in its accounts the income tax that would be payable if it was taxed on a stand-alone basis. The charge is therefore calculated on their own taxable profit after deduction of any prior year losses. Any tax savings made by the tax group through the utilisation of tax losses are retained by the parent company and treated as an immediate gain in the year. The parent company will therefore incur a tax charge in the year in which the subsidiary becomes profitable.. 5. Other information 5.1. Risks Market risks. 3 Equities risks. Type of arbitrage (in EUR thousand). Total long positions. Total short positions. Borrowed securities not yet sold or symmetrical exposure. 160,460. (160,460). Arbitrage without market risks. 400,628. (432,243). Arbitrage with market risks. 137,433. (111,069). Total for arbitrage transactions. 698,520. (703,772). -. The first line corresponds to expositions to assets and liabilities that are strictly identical. They are not netted off because they concern different counterparties. The only risk on these positions is a counterparty risk;. -. The arbitrage transactions shown on the second line are defined in the “Arbitrage strategies without market risks” note (1). -. The arbitrage transactions shown on the third line are defined in the “Arbitrage strategies with market risks” note (1).. The Group never takes any directional arbitrage positions on the Financial markets. The only risks incurred are on suspensive clause arbitrage strategies. The risk is never related to an unfavourable movement in market prices, for example a stock market crash, but can arise from an unfavourable event related to one of the above operations. By definition, risks associated with “suspensive clause arbitrage strategies” are never related amongst the different arbitrage positions and can therefore be spread. In order to mutualism risks, the Group enters into as many transactions as possible all over the world.. Consolidated financial statements 2006 - Page 18 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. The following table summarizes the positions taken on markets at December 31, 2006:.

(19) 3 Interest rate risk Overall interest rate risk is constantly monitored. For most arbitrage transactions, the amount of the long position is the same as the amount of the short position and the risk is therefore not material. If a specific arbitrage transaction carries a material interest rate risk, this risk is systematically hedged.. 3 Currency risk Currency risks are systematically hedged by borrowing or investing cash surpluses in the appropriate currency. The only risk is of a secondary nature – the profit realized in a given currency may vary if it is not converted into euros. The Group regularly converts profits into euros and its exposure to currency risk is therefore marginal. Credit and counterparty risk This is the risk of a counterparty being unable to honour its contractual obligation to make a cash payment or to deliver a certain quantity of securities to the Group, due to a deterioration in its financial position. The ABC arbitrage Group deals solely with credit institutions and investment companies. All of these counterparties are subject to specific controls by the authorities in the countries in which they operate, to ensure that they are able to honour their commitments. In addition, the Group conducts transactions with a large number of different counterparties, in order to spread the related risks. Liquidity risk This is the risk that the Group will be unable to convert its assets into cash sufficiently quickly to meet demands for repayment received from creditors. The assets of the ABC arbitrage Group consist almost exclusively of highly liquid securities quoted on organized markets and its liabilities mainly comprise debts towards banks or investment companies that are secured by the securities held as assets. Authorized financing volumes are contractually based on the assets lodged as collateral. The Group's actual liquidity position, taking into account existing financing agreements and guarantees given to partner banks, is constantly monitored to ensure that the Group benefits from considerable flexibility in conducting its business as well as substantial cash reserves. Operational risk Arbitrage activities are governed by strict written procedures, backed up by rigorous internal controls. 5.2. Segment information. All revenues are derived from proprietary transactions. The Group had no external advisory activity during 2006. Note: In the following tables, positions correspond to long positions valued at the convergence price, adjusted for the value of any payments to be made or received to close out the transaction. Breakdown of arbitrage transactions by type of risk Average number of arbitrage transactions. Average positions (value). Year. 2006. 2005. 2006. 2005. Arbitrages without market risks. 67%. 74%. 82%. 73%. Arbitrages with market risks. 33%. 26%. 18%. 27%. 100%. 100%. 100%. 100%. Total. Consolidated financial statements 2006 - Page 19 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. Revenues by business segment.

(20) Breakdown of arbitrage transactions by geographic area Average number of arbitrage transactions Year. 2006. 2005. Euro zone (excluding France). 19%. 19%. France USA Other markets Total. 6%. 7%. 62%. 61%. 13%. 13%. 100%. 100%. Breakdown of arbitrage transactions by geographic area and type of risk 1er half 2006. Arbitrages without market risks. Arbitrages with market risks. Total. 16%. 4%. 20%. Euro zone (excluding France) France. 34%. -. 34%. USA. 27%. 5%. 32%. Other markets. 10%. 1%. 14%. Total. 87%. 13%. 100%. Arbitrages without market risks. Arbitrages with market risks. Total. 25%. 7%. 32%. 2nd half 2006 Euro zone (excluding France). 3%. 4%. 7%. USA. 33%. 9%. 42%. Other markets. 16%. 3%. 19%. Total. 77%. 23%. 100%. France. 5.3. Related party transactions There were no material transactions with ABC participation et gestion in 2006. 5.4. Note to the statement of cash flows. Consolidated financial statements 2006 - Page 20 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. The change in net cash and cash equivalents reflects the cash flows arising from the administrative management of Group companies. Cash flows relating to operating activities and their financing appear as changes in working capital..

(21) ABC arbitrage. Statutory Auditors’ report. on the consolidated financial statements Year ended December 31, 2006. To the shareholders, In accordance with the terms of our appointment at the General Shareholders’ Meeting, we have examined the accompanying consolidated financial statements of ABC arbitrage for the year ended December 31, 2006. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. I.. Opinion on the consolidated financial statements. We conducted our audit in accordance with the professional standards generally accepted in France. Those standards required that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made in the preparation of the financial statements, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements present fairly the assets and liabilities, financial position and results of the companies included in the consolidated group, in accordance with the International Accounting Standards and International Financial Reporting Standards adopted by the European Union. II.. Basis of opinion. In accordance with Article L.823-9 of the Commercial Code requiring the auditors to explain the basis of their opinion, we report the following information: - As explained in note 1.1, effective, the Group has determined the market price of financial instruments measured at fair value based on the bid price for assets held and liabilities to be issued and on the ask price for assets to be purchased and liabilities held. We assessed the data and assumptions used to determine these prices, reviewed the Group’s calculations and assessed the appropriateness of the related disclosures made in the notes to the financial statements. - As explained in note 3.6, the Group recognised an impairment loss on an amount reported under “Other receivables”. We assessed the data and assumptions used to determine the amount of the impairment, as well as the appropriateness of the disclosures made in note 3.6. The assessments were made in connection with our audit procedures on the consolidated financial statements, taken as a whole, and contributed to the formulation of our unqualified audit opinion expressed in the first section of this report. Specific procedures and information. We also reviewed the information about the Group given in the report of the Management Board in accordance with the professional standards generally accepted in France. We are satisfied that this information is fairly stated and agrees with the consolidated financial statements. Paris and Neuilly-sur-Seine, March 29, 2007 The Statutory Auditors CONSTANTIN ASSOCIES Brigitte Drême. ERNST & YOUNG et Autres Olivier Durand. Consolidated financial statements 2006 - Page 21 of 21. WorldReginfo - ace05cf5-a071-4c39-898c-5773cc2f5cf7. III..

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