ABC ARBITRAGE

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(1)ABC ARBITRAGE. Group 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. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. CONSOLIDATED FINANCIAL STATEMENTS.

(2) Contents. Management report. >. 3. Balance sheet. >. 7. Statement of income. >. 8. Statement of changes in equity. >. 9. Consolidated cash flow statements. >. 10. Notes to the consolidated financial statements. >. 11. Statutory Auditors’ report. >. 26. Disclaimer This Annual Report and its constituent parts have been translated from the original French versions. For the purposes of interpretation, the French originals will take precedence over the English translation.. Consolidated financial statements 2005 - Page 2 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. ABC arbitrage.

(3) ABC arbitrage. Management report. 1. Business review ABC arbitrage Group delivered a strong performance in 2005, reporting net revenues of €19.6 million, a 23% increase on 2004, and net income up 27% at €7.0 million. Key consolidated figures for 2005 are presented below: Dec. 31, 2005 IFRS. Dec. 31, 2004 IFRS 2004(1). -. nm. 19.6. 15.9. Net revenues. 19.6. 15.9. Payroll costs. (6.2). (5.7). Occupancy costs. (0.7). (0.6). Other expenses. (1.5). (1.3). Income before tax. 11.3. 8.3. 7.0. 5.5. in EUR million Advisory revenues Proprietary trading revenues. (2). Net income. nm: not material (1) Excluding IAS 32 and IAS 39, which were adopted prospectively as of 1 January 2005 without adjusting 2004 comparative information. (2) Net gains on derivative financial instruments measured at fair value through profit or loss (€20.8m) + provision (€(1.2)m).. Operating performance The Group’s performance was highly satisfying against a backdrop of continued strong competition and low volatility in the markets, despite a pick up in volatility in the final quarter of 2005. It was also a difficult time for arbitrage strategies with market risks, as statistical data deviated from historical norms chiefly due to expectations of a rise in interest rates.. in EUR thousands. Dec. 31, 2005 IFRS. Equity at January 1, 2005 under IFRS. 24,253. Equity at December 31, 2005 (before 2005 interim dividend). 30,779. Average equity. 27,516. Return on equity. 25.55%. Gross Return on equity. 71.29%. Cac 40 index. 23.40%. CSFB /Tremont Hedge Fund index. 7.61%. S&P Hedge Fund Index. 2.28%. 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.. Consolidated financial statements 2005 - Page 3 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Gross Return on equity, proprietary trading revenues expressed relative to average Equity, came to an excellent 71.29% at 31 December. This compares to the 7.61% 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..

(4) Leveraging our strengths – our people and our expertise in data mining and processing – we continued to invest in improving our processes, with four key goals: - Reducing market access costs - Diversifying geographically - Increasing transaction volumes and scaling up our management systems - Maintaining the pace of innovation. Management is convinced that overall exposure to risk can be reduced by increasing arbitrage volumes, as there is no automatic correlation between their inherent risks. Accordingly, the average number of arbitrages in the portfolio rose by about 28% in 2005 and the Group traded regularly in some thirty marketplaces, exploiting margins that can sometimes be very small. The breakdown of the portfolio by risk type also evolved during the year, with the proportion of arbitrages without market risks representing about 74% of the total, versus 68% in 2004. Benefiting from our risk management skills and our expertise, we employed greater leverage via our financial partners on this arbitrage category than in previous periods. We also sought to identify new targets or new arbitrage strategies with market risks in the equity markets. The strategies developed in 2005 already represent more than 3% of proprietary trading revenues. Costs increased by 9.2%, much lower than growth in proprietary trading revenues, reflecting continued investment in organic growth, tight control over operating costs and trends in performance-related bonuses. Impact of transition to IFRS Effective January 1, 2005, the Group adopted the International Financial Reporting Standards (IFRS) endorsed by the European Union. In line with the option available under IFRS 1, the Group adopted IAS 32 and IAS 39, together with the fair value option amendment, as of January 1, 2005. This had the effect of reducing opening equity by EUR 1,152 thousand. Other adjustments, which had no material impact on the financial statements, concerned the deduction from consolidated equity of treasury shares held by the Group, and the elimination of provisions for market risks (see note 3.8 to the 2004 financial statements for details) that do not qualify for recognition as liabilities under IAS 37. IFRS 2 - Share-Based Payments requires the recognition of a payroll expense equal to the fair value of equity instruments received by employees in return for services rendered. This standard was applied for the first time in the second half of 2005. Advisory services and third party management. The first contractual funds, which are regulated by the AMF, were created in France and four third-party mandates were negotiated during March 2005. There was much debate during 2005 about the AMF’s regulatory framework for French contractual funds, particularly with respect to the role and responsibilities the regulator wishes to impose on alternative fund depositories, which in practice often delegate all or part of the custody activity to a prime broker. For the strategies selected by ABC arbitrage, these regulatory constraints would lead to major additional costs that would severely reduce our profits; moreover, they do not appear to be compatible with our ability to exploit very tight margins or with the specifics of certain marketplaces. As a result, management has proposed establishing an offshore fund in which the parent company ABC arbitrage would invest part of its equity. The fund’s location and the way in which it would work are currently under review. The third-party asset management project is progressing gradually. However, we would stress that regulations in this field are very recent and still evolving. We do not want to develop this business hurriedly or make decisions that would have an adverse effect our historical business and profitability.. Consolidated financial statements 2005 - Page 4 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. ABC arbitrage Asset Management, which has a restricted asset manager license, had no other client but the parent company during 2005..

(5) 2. Human resources The Group employed 53 people at December 31, 2005 versus 49 one year earlier. The Finance and Internal Control team has been strengthened to deal with the increasingly stringent regulations governing our business. We have also begun to hire selectively for ABC arbitrage Asset Management’s core business teams. 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. The accounting treatment of share-based payments has changed as a result of the transition to IFRS. Under the transition rules applicable to first-time adopters of IFRS 2 as set out in IFRS 1, stock options granted after November 7, 2002 which had not fully vested at January 1, 2005 must be recognised as an employee benefits expense. The expense is based on the fair value of the options and is recognized over the vesting period. At its meeting of September 19, 2005, the Board of Directors unanimously decided to grant 399,555 shares to 21 grantees. The shares will vest after two years, contingent upon the Group achieving certain profitability targets and the grantee’s continued presence in the Group. The purpose of the share grants is to give employees and management the opportunity to share in the company’s future growth. They contribute to: - Diversifying compensation policy and promoting employee share ownership, which is an effective means of ensuring that the interests of our employees coincide with those of our shareholders. - Motivating and involving grantees through profitability targets which must be achieved before the shares vest; - Fostering employee loyalty through medium-term share ownership, as the shares are subject to a two-year lockup after the two-year vesting period. The fair value of a unit of service rendered in return for the shares allotted in 2005 by ABC arbitrage is estimated at €0.88. This estimate is based on the fair value of the shares at the grant date and may not be revised subsequently following any changes in ABC arbitrage’s share price. The total projected cost of the shares grants is estimated at €352,000. The expense recognised in payroll costs and the corresponding increase in equity for 2005 is €43,000. As of December 31, 2005, forty people had been granted stock options on a total of 1,131,631 new shares. Options on 204,327 shares have since been forfeited and the number of new shares that may be issued now stands at 927,304. No options were exercised in 2005. Thirty eight people held warrants to subscribe for a total of 698,403 founder shares. During 2005, 8,840 new founder shares were issued on exercise of these warrants. As the plans had all vested before January 1, 2005, they have not been recognised in the consolidated financial statements. We are convinced that these plans are a useful tool in an independent company with a strong entrepreneurial culture such as ours, and we intend to seek renewal of our authorizations at the next Annual Shareholders’ Meeting.. At its meeting of October 6, 2005, based on the company's results for the first half of 2005 and retained earnings from previous years, the Board of Directors decided to pay an interim dividend in respect of 2005 in a net amount of EUR 0.10 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 61%. Dividends paid in respect of the previous three years were as follows: Figures in EUR Net dividend. 2004. 2003. 2002. 0.60. 0.83. 0.50. We will shortly announce the amount and payment date of the final dividend for 2005 to be recommended at the Annual Shareholders’ Meeting. The final dividend will not be more than €0.13 so that the total dividend does not exceed net earnings per share. It will be determined in light of the equity required for the Group’s development projects.. Consolidated financial statements 2005 - Page 5 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 3. Dividend policy.

(6) 4. Share performance At December 31, 2005, issued capital amounted to €481,215 divided into 30,075,924 common shares, including 2,082,207 new shares corresponding to reinvestments of the dividends paid in 2005 and 8,840 shares issued on exercise of founder share warrants and/or stock options. The free-float represented 46.2% of issued capital. The three-year shareholders’ agreement signed on December 19, 2002 by the main founder shareholders has not been renewed. The market-making agreement with Fortis has been renewed. In 2005, average daily trading volume rose 42% to more than 47,300 shares, representing almost €114,000 a day in value. ABC arbitrage shares closed the year at €2.25.. 5. Corporate governance The Board comprised five Directors, including two independent Directors, until the resignation in the final quarter of 2005 of Didier Ribadeau Dumas and Jean-Michel Bonnichon. The latter has replaced Grégoire Bouguereau as permenant representative of ABC participation et gestion. During the year, the Board of Directors invited third parties to attend Board meetings in a consultative capacity on an occasional or regular basis. Didier Ribadeau Dumas was appointed non-voting Director on October 7, 2005 and Xavier Chauderlot, former Chairman of the Supervisory Board, was regularly invited to attend Board meetings or meetings of Committees of the Board, to provide the company with the continued benefit of his in-depth knowledge of the company and its business. The Chairman also plans to appoint another independent Director during the first half of 2006.. 6. Outlook The early part of 2006 has proved promising. In a slightly more volatile market, the ABC arbitrage group continued its strategy of profitable growth based first and foremost on strong organic growth across all our arbitrage strategies. With our highly motivated teams, strong underlying profitability, robust balance sheet and the support of our shareholders, we are confident in our ability to meet our organic growth targets, and beyond that, to successfully collect external funds.. Consolidated financial statements 2005 - Page 6 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. The Board of Directors March 9, 2006.

(7) ABC arbitrage. Balance sheet. Balance sheet - assets In EUR. Intangible assets. Dec. 31, 2005 IFRS. Dec. 31, 2004 IFRS 2004. 12,030. 24,130. Property and equipment. 475,638. 519,149. Current financial assets. 418,473. 441,717. Deferred tax assets. 578,036. -. Total actif non-current assets Financial assets at fair value through profit or loss Other accounts receivable Cash and cash equivalents. 1,484,176. 984,997. 357,814,566. 211,606,576. 7,292,736. 7,121,863. 301,638. 2,160,029. Total current assets. 365,408,940. 220,888,468. TOTAL ASSETS. 366,893,116. 221,873,464. Dec. 31, 2005 IFRS. Dec. 31, 2004 IFRS 2004. Balance sheet - liabilities In EUR. Paid-up share capital. 481,215. 447,758. 22,726,801. 18,862,821. 1,887,079. 12,889,696. (2,907,770). (12,639,806). 7,031,687. 5,532,474. 29,219,012. 25,092,943. (115). (82). Provisions for contingencies and charges. 442,168. 311,746. Non-current financial liabilities. 166,183. 160,295. Additional paid-in capital Retained earnings Interim dividend Net income Total equity attributable to equity holders Minority interests. Non-current liabilities. 608,351. 472,041. 332,117,971. 192,769,273. Other liabilities. 2,260,741. 1,612,975. Taxes payable. 2,653,187. 1,925,817. 33,968. 498. Current liabilities. 337,065,867. 196,308,563. TOTAL EQUITY AND LIABILITIES. 366,893,116. 221,873,464. Financial liabilities at fair value through profit or loss. Short-term debt. IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement) as adopted by the European Union were applied for the first time as of January 1, 2005. The Group has elected to use the exemption available to first-time adopters under IFRS 1 and has not restated its 2004 comparative information for the impact of IAS 32 and IAS 39. As a result, financial instruments and transactions governed by IAS 32 and IAS 39 are measured and presented under French GAAP in the comparative 2004 figures.. Consolidated financial statements 2005 - Page 7 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Equity attributable to equity holders.

(8) ABC arbitrage. Statement of income. Statement of income Dec. 31, 2005 IFRS. Dec. 31, 2004 IFRS 2004. Net gain/loss on financial instruments at fair value through profit or loss Other revenue. 20,842,619. 15,576,104. 895,543. 875,159. Administrative expenses. (2,673,588). (2,491,518). In EUR. Taxes and duties Payroll costs Depreciation and amortisation expense. (303,280). (313,774). (5,901,517). (5,400,060). (275,420). (266,291). OPERATING INCOME. 12,584,357. 7,979,621. Provision expense. (1,247,749). 332,892. INCOME BEFORE TAX. 11,336,608 (4,307,232). 8,312,512 (2,780,180). Deferred taxes. 2,278. -. NET INCOME. 7,031,654. 5,532,333. Attributable to equity holders. 7,031,687. 5,532,474. (33). (141). Current taxes. Attributable to minority interests Number of ordinary shares. 30,075,924. 27,984877. Earnings per ordinary share. 0.23. 0.20. Diluted earnings per ordinary share. 0.23. 0.20. Consolidated financial statements 2005 - Page 8 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. IAS 32 (Financial Instruments: Disclosure and Presentation) and IAS 39 (Financial Instruments: Recognition and Measurement) as adopted by the European Union were applied for the first time as of January 1, 2005. The Group has elected to use the exemption available to first-time adopters under IFRS 1 and has not restated its 2004 comparative information for the impact of IAS 32 and IAS 39. As a result, financial instruments and transactions governed by IAS 32 and IAS 39 are measured and presented under French GAAP in the comparative 2004 figures..

(9) ABC arbitrage. Statement of changes in equity between December 31, 2003 and December 31, 2005. Paid-up share capital. Equity instruments and related reserves. Elimination of treasury shares. Retained earnings and net income. Net income recognised directly in equity. Total equity. 378. 8,087. -. 27,296. -. 35,761. -. -. (326). 194. -. (132). 378. 8,087. (326). 27,490. -. 35,629. Issue of shares. 7. 961. -. -. -. 968. Elimination of treasury shares. -. -. 231. 22. -. 255. Appropriation of net income 2003. 19. 3,236. -. (14,527). -. (11,272). 2004 interim dividend. 43. 6,579. -. (12,640). -. (6,018). -. -. -. 5,532. -. 5,532. 448. 18,863. (95). 5,877. -. 25,093. -. -. -. (1,152). -. (1,152). 448. 18,863. (95). 4,726. -. 23,941. nm. 16. -. (4). -. 12. Elimination of treasury shares. -. -. 34. (21). -. 13. Share-based payments. -. -. -. 43. -. 43. In EUR thousand. At December 31, 2003 Effect of adoption of IFRSs applicable in 2004 At January 1, 2004. •. Movements arising from relations with shareholders. Net income for the year At December 31, 2004 Effect of adoption of IFRSs applicable at January 1, 2005 At January 1, 2005. •. Movements arising from relations with shareholders. Issue of shares. Appropriation of net income 2004. 18. 2,073. -. (2,796). -. (704). 2005 interim dividend. 15. 1,775. -. (2,908). -. (1,118). -. 7,032. -. 7,032. 481. 22,727. (61). 6,072. -. 29,219. Net income for the year At December 31, 2005. Consolidated financial statements 2005 - Page 9 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. nm: not material.

(10) Consolidated cash flow statements. Dec. 31, 2005 IFRS. Dec. 31, 2004 IFRS 2004. Net income. 7,032. 5,532. Net allocations to provisions. 1,155. (368). 275. 262. In EUR thousand. Net allocations to depreciation and amortisation. 2. -. 56. (73). 8,521. 5,354. (8,406). 10,577. 115. 15,931. (197). (319). 12. 968. (1,823). (17,290). -. -. Net cash used by financing activities. (1,810). (16,321). Net change in cash and cash equivalents. (1,892). (710). 2,159. 2,869. 268. 2,159. 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 Dividends paid Increase in borrowings. Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period. Consolidated financial statements 2005 - Page 10 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. ABC arbitrage.

(11) ABC arbitrage. Notes to the consolidated financial statements. 1. Significant accounting principles 1.1. Introduction Under European Union regulation 1606/2002 of July 19, 2002, companies listed on a regulated stock exchange in one of the member states are required to present their consolidated financial statements for financial years beginning on or after January 1, 2005, in conformity with the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as adopted by the European Union. The published financial statements for 2004 were prepared in accordance with French GAAP. Accordingly, for the preparation of the 2005 IFRS financial statements, ABC arbitrage applied the provisions of IFRS 1: First-time Adoption of International Financial Reporting Standards. 1.2 Principle of first-time adoption of IFRS The ABC arbitrage Group’s consolidated financial statements for the period to December 31, 2004 were prepared in accordance with the French accounting principles contained in regulations 1999-02 of the French Accounting Regulation Committee, which differ in some respects from the IFRSs adopted by the European Union. To permit meaningful year-on-year comparisons, pro forma 2004 accounts have been prepared in accordance with IFRS except for IAS 32 and IAS 39. IFRS 1 provides an exemption from the requirement to restate comparative information for the impact of IAS 32 and IAS 39 and therefore transactions governed by these two standards are recognized and presented under French GAAP in the 2004 pro forma accounts. In accordance with IFRS 1, the impact of first-time adoption on the consolidated balance sheet, consolidated equity and consolidated results is presented in notes 2.1. and 3. These notes describe the method used to prepare the opening IFRS balance sheet at January 1, 2004 and provide details of the impact on the opening financial statements of differences compared to French GAAP. 1.3 Principles applicable to the consolidated financial statement at December 31, 2005. Note 2.2. describes the IFRS recognition and measurement principles used to prepare the consolidated financial statements at December 31, 2005, and provides a comparison with the principles formerly applied under French GAAP. The French accounting principles referred to are described in the 2004 annual report.. 2. Accounting principles and policies The Group’s fiscal year runs from January 1 to December 31, 2005. 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, Barbier Frinault et Autres (member of Ernst & Young) and Constantin Associés. 2.1. Accounting policies December 31, 2004. applied. to. the. financial. statements. for. the. year. ended. The accounting principles described below concern only the differences between IFRS and the French accounting principles previously used.. Consolidated financial statements 2005 - Page 11 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. The 2005 financial statements have been prepared in accordance with the IFRS adopted by the European Union and applicable in 2005, including IAS 32 and IAS 39, which have been adopted as of January 1, 2005 without restating the comparative information. Notes 2.2. and 4. describe the methods used to prepare the opening IFRS balance sheet at January 1, 2005 for transactions governed by IAS 32 and IAS 39..

(12) 2.1.1. Principal adjustments Treasury shares Under French GAAP, in line with opinion 98 D published by the Urgent Issues Task Force on December 17, 1998, treasury shares purchased expressly for the purpose either of allotting them to employees or regulating the share price were previously recognised in the balance sheet as current assets and measured accordingly. In accordance with IFRSs, ABC arbitrage shares held by the Group are recorded as a deduction from consolidated equity irrespective of the purpose for which they are held. Gains on the sale of these shares is eliminated from the consolidated income statement. Provisions for contingencies and charges Provisions for market risks (see note 3.8. to the 2004 financial statements for details) do not qualify for recognition as liabilities under IAS 37. They were cancelled by adjusting retained earnings at January 1, 2004 and charges/reversals made during 2004 were eliminated from profit. Financial instruments Given the European Union’s late endorsement of IAS 32 and 39 on financial instruments and according to IFRS 1, ABC arbitrage adopted these two standards for the first time on January 1, 2005. The impact was recognised in opening equity at January 1, 2005. Share-based payments The Group took advantage of the option not to apply IFRS 2 on share-based payments retrospectively in 2004. All equity instruments granted between November 7, 2002 (date of publication of the IFRS 2 exposure draft) and December 31, 2004 had fully vested at January 1, 2005. Employee benefits The Group has reviewed all retirement and other benefits covered by IAS 19. It does not provide any post-employment benefits (pension top-ups or certain healthcare costs). Other long-term 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. 2.1.2. General presentation of the statement of income 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:. 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. Arbitrages with market risks (Suspensive clause arbitrage strategies) 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. Under IAS 1, the statement of income may be presented either by nature or by function. The Group has opted for presentation by nature as this is closer to the indicators customarily published in its management report. The Group has also adopted the provisions of recommendation 2004-R02 issued by the Conseil National de la Comptabilité.. Consolidated financial statements 2005 - Page 12 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Arbitrages without market risks (Self-liquidating arbitrage strategies).

(13) The main reclassifications are as follows: -. “A new line item, “Net gains or losses on financial instruments at fair value through profit or loss”, has been created in the income statement as the presentation recommended by the Conseil National de la Comptabilité does not include the line items used under French GAAP to identify gains or losses on financial instruments falling within the scope of IAS 39. 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, including: 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.. -. “Expense transfers”: under IFRS, expense transfers are deducted from the original expense account and added to the new expense account, whereas in the French GAAP accounts the transfers were recognised in two steps by recording a revenue entry.. -. “Provision expense”: under French GAAP, provisions are written back to income when the risk occurs or the expense is incurred, in accordance with regulation CRC 99-03 on financial statement presentation. The corresponding expense is booked to the relevant expense account. Under IFRS, the provision 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.. -. “Exceptional items”: the concept of exceptional items does not exist under IFRS.. Note 3.1 “Reconciliation of the first-half 2004 statement of income” shows the reclassifications made between French GAAP and IFRS line items. 2.1.3. General presentation of the balance sheet The Group has applied IAS 32 and IAS 39 as adopted by the European Union as of January 1, 2005 and has elected to use the exemption provided by IFRS 1 from the requirement to restate its 2004 comparative information accordingly. As a result, for comparative 2004 data, financial instruments and transactions covered by IAS 32 & IAS 39 are recognized and presented under the French accounting principles applied by the Group (cf. 2004 Annual Report ).. However, in the French GAAP financial statements, current taxes were classified under “Other liabilities” and “Other receivables” depending on the position of each taxable entity, while deferred tax assets and liabilities were broken down into a long-term and short-term portion. As required by IAS 12, current taxes are now presented on a specific line item under current assets or liabilities, while deferred taxes are shown on a specific line item under non-current assets or liabilities.. Consolidated financial statements 2005 - Page 13 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. First-time adoption of IFRS does not give rise to any major differences in balance sheet presentation compared with ABC arbitrage’s previous practice. The distinction between current and non-current items required under IAS 1 is broadly consistent with the split of assets (fixed/current) and liabilities (long-term/current) used in the French GAAP financial statements..

(14) 2.2.. Accounting principles applied with effect from January 1, 2005. 2.2.1. Consolidation principles All group subsidiaries are fully consolidated. Company ABC arbitrage BC Finanzberatung GmbH. Countries. Proportion of capital held directly or indirectly. France. Parent company. Germany. 100.00%. ABCA Global Fund. France. 100.00%. ABC arbitrage Asset Management. France. 99.99%. 2.2.2. Determining the 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. Until December 31, 2004, these instruments were recognised and measured in accordance with the principles described in note 2.1. to the 2004 financial statements. From January 1, 2005, 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 principle of netting financial assets and liabilities described in note 2.1. to the 2004 financial statements has been maintained. 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. All securities and currencies held for trading purposes, which were previously broken down into “Marketable securities” and “Other assets”, are now recognised under a new line item called “Financial assets and liabilities at fair value through profit or loss”. These financial assets and liabilities held for trading purposes are recognized 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”. The impact of first-time adoption of IAS 39 and IAS 32 as of January 1, 2005 is described in note 4.3. “Consolidated equity”.. Consolidated financial statements 2005 - Page 14 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 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..

(15) 2.2.3. Share-based payment ABC arbitrage has granted stock options to employees. Under French GAAP, no expense is recognized in connection with the granting of stock options. 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 recognized in the financial statements. By contrast, IFRS 2 “Share-Based Payment”, requires that an expense be recognized equal to the fair value of the services rendered by the employees in return for the equity instruments granted to them. 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. 2.2.4. Portfolio revenue Equity revenue is accounted when realized. Tax credits linked to equity revenue are included in ”Portfolio revenue”. 2.2.5. Provisions A provision is recognised when the Group has a legal or constructive obligation as a result of a past event, provided that (i) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and (ii) a reliable estimate can be made of the amount of the obligation. 2.2.6. 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. 2.2.7. Earnings per share. Consolidated financial statements 2005 - Page 15 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Diluted earnings per share is equal to net income for the year divided by the number of shares outstanding at December 31, 2005 plus the impact of all potentially dilutive instruments..

(16) 3. Effects of first-time adoption of IFRS. Dec. 31, 2004 Reclassifications French GAAP. In EUR thousands. Restatements. Dec. 31, 2004 2004 IFRS. Net gain/loss on financial instruments at fair value through profit or loss. (1). -. 15,576,104. -. 15,576,104. REVENUES. (2). 22,003. 15,554,101. -. 15,576,104. Provisions written back and expense transfers Other revenues. (2). 35,080 853,156. (35,080) 22,003. -. 875,159. 4,414,075 359,154 5,389,237 266,291 16,800. (1,922,556) (45,381) 10,823 (16,800). -. 2,491,518 313,774 5,400,060 266,291 -. (9,535,317). 17,514,938. -. 7,979,621. Administrative expenses Taxes and duties Payroll costs Allocations to depreciation and amortisation Other expenses. (2). OPERATING INCOME Other financial income Allowances & reserves written back & expense transfers Exchange gains Net gains on disposals of marketable securities. (2). 39,460,327. (39,460,327). -. -. (2). 920,024. (69,223). (517,909). 332,892. (2). 20,905,789. (21,099,796). 194,006. -. Allocations to provisions Interest and related expenses. (2) (2). 171,228 42,950,013. (69,223) (42,950,013). (102,006) -. -. Exchange losses. (2). 88,434. (88,434). -. -. NET FINANCIAL INCOME. (2). 18,076,464. (17,521,676). (221,897). 332,892. Provisions. (1). PRE TAX INCOME. (2). 8,541,147. (6,738). (221,897). 8,312,512. NET NON-OPERATING (EXPENSE)/INCOME. (2). (6,738). 6,738. -. -. (2). INCOME BEFORE TAX. 8,534,409. -. (221,897). 8,312,512. Current taxes Deferred taxes. 2,780,180 71,290. -. (71,290). 2,780,180 -. NET INCOME BEFORE MINORITY INTERESTS. 5,682,940. -. (150,607). 5,532,333. Net income. 5,683,081. -. (150,607). 5,532,474. (141). -. -. (141). Minority interests (1) (2). New line in the IFRS statement of income Line not included in the IFRS balance sheet. Main reclassifications made to comply with 2004 IFRS: * Reclassification of various items of financial income and expense as “Net gains or losses on financial instruments at fair value through profit or loss”: EUR 15,576 thousand. * Reclassification of settlement/delivery costs and external charges as “Net gains or losses on financial instruments at fair value through profit or loss”: EUR (1,823) thousand. * Reclassification of exceptional items as “Net gains or losses on financial instruments at fair value through profit or loss”: EUR (13) thousand. * Reclassification of provision reversals as a reduction in the corresponding expense or, in the case of a surplus provision no longer required, under the same line item as the original provision charge.. Consolidated financial statements 2005 - Page 16 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 3.1. Reconciliation of 2004 statement of income.

(17) Main restatements made to comply with 2004 IFRS: * Elimination in the consolidated income statement of gains or losses on treasury shares held by the Group (net impairment provision reversal of EUR 218 thousand and capital loss on disposal of EUR 195 thousand). * Elimination of provision charges/reversals made in the income statement during 2004 and the related deferred taxes in respect of provisions that do not qualify for recognition as liabilities under IAS 37 and which were reclassified in retained earnings at January 1, 2004 (EUR 65 thousand). 3.2. Reconciliation of the 2004 balance sheet Balance sheet - assets In EUR thousands Intangible assets Property and equipment. Dec. 31, 2004 Reclassifications French GAAP. Restatements. Dec. 31, 2004 2004 IFRS. 24. -. -. 24. 519. -. -. 519. Non-current financial assets. 442. -. -. 442. Total non current-assets. 985. -. -. 985. Financial assets at fair value through profit or loss. -. 211,607. -. 211,607. Trade accounts receivable. 274. (274). -. -. Other accounts receivable. 9,125. (1,968). (35). 7,122. 209,460. (209,365). (95). -. 2,160. -. -. 2,160. Total current assets. 221,019. -. (130). 220,888. TOTAL ASSETS. 222,004. -. (130). 221,873. Dec. 31, 2004 Reclassifications French GAAP. Restatements. Marketable securities Cash and cash equivalents. Balance sheet - liabilities In EUR thousands. Dec. 31, 2004 2004 IFRS. 448. -. Additional paid-in capital. 18,863. Retained earnings. 12,769. Interim dividend Net income Total equity attributable to equity holders. -. 448. -. -. 18,863. -. 121. 12,890. (12,640). -. -. (12,640). 5,683. -. (151). 5,532. 25,123. -. (30). 25,093. Minority interests. nm. -. -. nm. Provisions for contingencies and charges. 412. -. (100). 312. Non-current liabilities. 160. -. -. 160. Total non-current liabilities. 572. -. (100). 472. Financial liabilities at fair value through profit or loss. -. 192,769. -. 192,769. 172. (172). -. -. Other liabilities. 196,136. (194,523). -. 1,613. Taxes payable. -. 1,926. -. 1,926. nm. -. -. nm. Total current liabilities. 196,309. -. -. 196,309. TOTAL EQUITY AND LIABILITIES. 222,004. -. (130 ). 221,873. Trade accounts payable. Short term debt. nm: not material. Consolidated financial statements 2005 - Page 17 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Equity attributable to equity holders Paid-up share capital.

(18) 4. Notes to the balance sheet 4.1. Property and equipment In EUR thousand Fixtures and fittings. Gross value. Accumulated depreciation. Net value. 1,320. 1,167. 154. Vehicle. 158. 57. 101. Office equipment. 763. 543. 220. Furniture. 410. 409. 1. 2,651. 2,176. 476. Total. 4.2. Other non-current financial assets At December 31, 2005, this item included EUR 284 thousand in deposits (EUR 276 thousand in 2004) and EUR 134 thousand in employee advances (EUR 165 thousand in 2004). 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. 4.3. Consolidated equity Reduction of equity on transition to IAS 32 and IAS 39 at January 1, 2005 Until December 31, 2004, if the historical cost convention provided for in section L.123-14 of the Code de Commerce (Commercial Code) had been applied to the balance sheet items corresponding to market transactions conducted by the Group, the financial statements would not have given a true and fair view of the Group’s assets and liabilities, nor the financial position and results of operations. Consequently, the Group applied an alternative method as explained in note 2.1. in the 2004 Annual Report. Following the adoption of IAS 32 and IAS 39, and in line with the option available under IFRS 1, the Group measured its financial assets and liabilities at fair value as of January 1, 2005. This had the effect of reducing equity by EUR 1,152 thousand, broken down as follows: In EUR thousand Impact of the difference between the portfolio valuation price and a median price (closing price) Impact of the difference between the median price and the best bid price Deferred tax effect. (1,126) (601) 575. Capital increase arising on adjustment of option holders’ rights On March 10, 2005, the Board of Directors decided to adjust the rights of option holders. This resulted in the issuance of 8,317 new shares, including 2,866 shares on exercise of warrants to subscribe for founder shares and 3,876 shares on exercise of stock options, together with 1,575 shares issued upon reinvestment in shares of dividends due on the 6,742 shares issued on exercise of warrants and options. These share issues led to a capital increase of EUR 133.07, paid up by transferring to the capital account EUR 107.87 from “Additional paid-in capital” and EUR 25.20 from “Retained earnings”. At the same time, EUR 3,902.67 were transferred from “Retained earnings” to “Additional paid-in capital”.. Consolidated financial statements 2005 - Page 18 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. (1,152). Total.

(19) Increase in issued capital following the exercise of warrants to subscribe for founder shares During 2005, 8,840 new ordinary shares, ranking pari passu with existing shares, were issued to holders of rights to founders' shares. The total issue proceeds included EUR 141.44 credited to paid-up capital and EUR 12,420.20 credited to additional paid-in capital. Capital increase resulting from reinvestment of dividends The Annual Shareholders’ Meeting of May 31, 2005 decided to pay a final dividend for 2004 in a net amount of EUR 0.10 per share. At its meeting of October 6, 2005,, the Board of Directors decided to pay an interim dividend in respect of 2005 in a net amount of EUR 0.10 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, 1,106,274 and 967,616 new ordinary shares, ranking pari passu with the existing shares, were issued at a price of EUR 1.89 and EUR 1.85 respectively per share. The total issue proceeds included EUR 33,182.23 credited to paid-up capital and EUR 3,847,765.23 credited to additional paid-in capital. The new ordinary shares are fully paid. At December 31, 2005, the Parent Company’s share capital was represented by 30,075,924 ordinary shares with a par value of EUR 0.016 each, all fully paid. Share grants As part of its performance-related compensation policy, the Group granted 399,500 shares to 21 grantees on September 19, 2005. Rights to the shares will not vest for two years and are contingent upon the Group achieving certain profitability targets and the grantee’s continued presence with the Group during that period. Vested shares may not be sold for a period of two years, making a total lock-up period of four years. The key data and assumptions used to estimate the fair value of these equity instruments are the share price on the grant date (€2.15), estimated dividends in the next two years which will not be received by the grantees, a discount rate equal to the risk-free rate plus a credit risk premium, and the probability of the profitability and continued presence conditions being met.. The payroll expense and corresponding increase in equity for the period from the grant date to December 31, 2005 amounts to €43,000. Treasury stock During 2005, ABC arbitrage sold 202,268 of its own shares in compliance with COB regulation 90-04. At the same time, 198,124 shares were purchased under the market-making agreement with Fortis. At December 31, 2005, ABC arbitrage held 29,092 of its own shares, acquired at a total cost of EUR 61 thousand (at December 31, 2004, the company hold 33,236 of its own shares, acquired at a total cost of EUR 97 thousand). In accordance with IFRS, treasury stock is deducted from equity.. Consolidated financial statements 2005 - Page 19 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 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 fair value of the shares granted in 2005 is estimated at €0.88, making a total estimated cost of €352,000. 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..

(20) 4.4. Financial assets/liabilities at fair value through profit or loss The Group holds financial instruments for trading purposes only. Until December 31, 2004, securities were recognised and measured in accordance with the principles described in note 2.1. to the 2004 financial statements. In EUR thousand. Financial assets. Financial liabilities. 357,256. 25,434. 50,344. 8,395. Securities to be received Securities to be received (off-balance sheet) Securities to be delivered Securities to be delivered (off-balance sheet) Cash and cash equivalents. Total. -. (344,714). (52,143). (8,202). 2,358. (13,030). 357,815. (332,118). Total 441,429 (405,059) (10,672). Details of securities to be received and delivered are provided in note 6.1. 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. In EUR thousand (508). Impact of the difference between the portfolio valuation price and a median price (closing price) Impact of the difference between the median price and the best bid price. (1,225). Deferred tax effect. 578. Total. (1,155). The impact of first-time adoption of IAS 32 and IAS 39 recognized in opening equity at January 1, 2005 (i.e. €1,152,000) was written back to profit in 2005 (see note 4.3) and the net negative impact of adopting these standards on 2005 income was therefore only €3,000. 4.5. 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.. All receivables and payables are due within less than one year. In EUR thousand. Other receivables. Other payables. Trade receivables/payables. 285. (189). Accrued income/expenses. 312. (457). Accrued taxes and payroll costs. 6,695. (1,614). Total. 7,292. (2,261). Accrued taxes and payroll costs include a €4,246,000 tax credit reimbursable by the Italian government. An impairment loss of €825,000 was taken against this receivable in 2005, given its age (1996 through to 2001), the absence of any recoveries in 2005 and the Italian government’s decision to block reimbursements to all operators concerned. The balance comprises withholding tax and dividend tax credits.. Consolidated financial statements 2005 - Page 20 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 4.6. Other receivables and payables.

(21) 4.7. Provisions for contingencies and risks In EUR thousand Total provisions at December 31, 2004 under French GAAP Impact of adopting IFRS. 412 (100). Total provisions at December 31, 2004 under IFRS. 312. Provisions utilised in 2005. (186). Charge to provisions in 2005. 317. Total provisions at December 31, 2005. 442. Provisions for market risks (see note 3.8. of the 2004 financial statements for details of calculation and application) do not meet the criteria for recognition as a liability under IAS 37. They have therefore been written off to consolidated reserves as of January 1, 2004 and movements for 2004 have been eliminated. The charge to provisions in 2005 concerns a legal dispute involving the Group’s German subsidiary.. 5. Notes to the statement of income 5.1. Net gains on financial instruments at fair value through profit or loss “Net gains on financial instruments at fair value through profit or loss” amounted to EUR 20,843 thousand (EUR 15,576 thousand at December 31, 2004), as follows: - “Net gains on disposals of marketable securities” for EUR 221,362 thousand, representing net changes in long and short positions on marketable securities; - “Other financial income” for EUR 200,436 thousand, corresponding to dividend and interest income received on the portfolio of marketable securities, together with interest income on collateral placed with lenders of securities; - “Exchange losses” for EUR 3,758 thousand: this item includes income and expense from currency hedging through the use of financing or the investment of surplus cash, as well as the impact of currency fluctuations; - “Interest and related expenses” for EUR (402,547) thousand. This item includes the cost of securities borrowing transactions and net gains and losses on swaps and futures contracts; - “Settlement/delivery expenses” for EUR (2,147) thousand, comprising fees billed by financial intermediaries for trading in financial instruments. 5.2. Other revenue. 5.3. Administrative expenses Administrative expenses principally comprise data mining and processing costs, together with administrative and communications costs. This item totalled €2,674,000 in 2005 versus €2,492,000 in 2004.. Consolidated financial statements 2005 - Page 21 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Other revenue comprises revenue from sub-letting premises and amounted to €896,000 versus €875,000 in 2004..

(22) 5.4. Payroll costs The average number of employees was 51 in 2005 versus 54 in 2004. Payroll costs include €4,211,000 in fixed and performance-related compensation together with statutory and discretionary profit-sharing (€4,109,000 in 2004), payroll taxes of €1,643,000 (€1,291,000 in 2004) and share-based payments of €43,000. Payroll-based taxes amounted to €195,000 (€237,000 in 2004). The Group does not provide any post-employment benefits (supplementary pensions or health insurance). During 2005, the following amounts were paid by Group companies to the executive officers of the parent company: In euros Directors’ fees Salary and other benefits. 36,500 405,142. 5.5. Provision expense Provision expense amounted to €1,248,000 in 2005 versus €333,000 in 2004. The charge for the year principally concerned a €825,000 impairment loss against a receivable from the Italian government and a provision for a legal dispute involving the Group’s German subsidiary. 5.6. 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 33.41% - can be explained as follows:. Standard French tax rate. 34.93%. Impact of differences in foreign tax rates. 3.54%. Impact of tax adjustment concerning the German subsidiary. (0.04)%. Impact of tax credit. (0.31)%. Impact of the revenue recognition method. (0.16)%. Effective tax rate. 37.97%. 6.1. Risks Market risks. 3 Equities risks The following table summarizes the positions taken on markets at December 31, 2005: Type of arbitrage (in EUR thousand). Total long positions. Total short positions. 48,059. (48,059). Arbitrage without market risks. 286,029. (300,136). Arbitrage with market risks. 107,340. (56,864). Total for arbitrage transactions. 441,429. (405,059). Borrowed securities not yet sold or symmetrical exposure. -. 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; Consolidated financial statements 2005 - Page 22 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 6. Other information.

(23) -. The arbitrage transactions shown on the second line are defined in the “Arbitrage strategies without market risks” note (2.1.2). -. The arbitrage transactions shown on the third line are defined in the “Arbitrage strategies with market risks” note (2.1.2).. 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 unfavorable movement in market prices, for example a stock market crash, but can arise from an unfavorable 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.. 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.. 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.. Consolidated financial statements 2005 - Page 23 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Liquidity risk.

(24) 6.2. Segment information Revenues by business segment All revenues are derived from proprietary transactions. The Group had no external advisory activity during 2005. 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. Arbitrages without market risks Arbitrages with market risks Total. Average positions (value). 2005. 2004. 2005. 2004. 74%. 68%. 73%. 71%. 26%. 32%. 27%. 29%. 100%. 100%. 100%. 100%. Breakdown of arbitrage transactions by geographic area Average number of arbitrage transactions 2005. 2004. 19%. 22%. 7%. 9%. USA. 61%. 56%. Other markets. 13%. 13%. 100%. 100%. Euro zone (excluding France) France. Total. 1er half 2005 Euro zone (excluding France) France USA Other markets Total. 2nd half 2005 Euro zone (excluding France) France USA Other markets Total. Arbitrages without market risks. Arbitrages with market risks. Total. 22%. 7%. 29%. 7%. 2%. 9%. 43%. 10%. 53%. 3%. 6%. 9%. 74%. 26%. 100%. Arbitrages without market risks. Arbitrages with market risks. Total. 24%. 7%. 31%. 5%. 2%. 7%. 37%. 14%. 51%. 5%. 6%. 11%. 71%. 29%. 100%. Consolidated financial statements 2005 - Page 24 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. Breakdown of arbitrage transactions by geographic area and type of risk.

(25) 6.3. Related party transactions Balances with ABC participation et gestion at December 31, 2005 were as follows: In EUR thousand. Related party transactions/balances. Trade accounts receivable Other payable Interest expenses Interest incomes Nm : not material. 10 (17) nm -. 6.4. Note to the statement of cash flows. Consolidated financial statements 2005 - Page 25 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 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..

(26) ABC arbitrage. Statutory Auditors’ report. on the consolidated financial statements – Year ended December 31, 2005. 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, 2005. 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. These financial statements have been prepared for the first time in accordance with the International Accounting Standards and International Financial Reporting Standards adopted by the European Union. They include comparative financial information for 2004 prepared using the same standards with the exception of IAS 32 and IAS 39 which have been adopted prospectively as from January 1, 2005 as allowed under IFRS 1. 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.. 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. III. Specific procedures and information We also reviewed the information about the Group given in the report of the Management Board. We are satisfied that this information is fairly stated and agrees with the consolidated financial statements. Paris and Neuilly-sur-Seine, March 30, 2006. The Statutory Auditors CONSTANTIN ASSOCIES Brigitte Drême. BARBIER FRINAULT & AUTRES ERNST & YOUNG Olivier Durand. Consolidated financial statements 2005 - Page 26 of 26. WorldReginfo - c2deeb11-f9e1-404e-8b76-211dd8dc1991. 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 4.6, 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 4.6. - As explained in note 2.2.2, effective from January 1, 2005, 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..

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