NETHERLANDS - The 12.5 billion-euro Dutch pension fund of electronics company Philips is targeting an allocation of 38% equities in 2004 - down from 46% in 2002.

The company also said that it expects equities to return eight percent, compared to 4.6% for debt, 6.3% for real estate and 2.6% for other assets.

Philips’ 2003 annual report revealed that the fund's strategic targets for 2004 are 38% equities, 45% debt securities, 14% estate and three percent other.

In 2003, the plan was 40% invested in equities, 46% in debt and 12% in real estate. The allocation has shifted since 2002, when 46% was in equities and 38% in debt.

It said the expected long-term rate of return for the Dutch scheme - six percent - was "based on a scenario analysis of the development of the global economy and consequently the development of financial markets".

In other countries, its pension plan asset allocation as at December 31 2003 was 39% equities, up from 38% a year before. Debt was up to 53% from 50%. Real estate was stable at six percent while other assets fell to two percent from six percent. It did not provide asset allocation targets for its non-Dutch schemes.

The company added that the total fair value of all its pension assets was 17.7 billion euros, with total benefit obligation of 18.9 billion euros. In the Netherlands total assets were 12.5 billion euros, with an obligation of 12.3 billion euros.

The discount rate assumption for the Dutch scheme has been cut to 5.3% from 5.5%. Elsewhere, the rate has been reduced to 5.8% from 6.2%.

And the rate of compensation increase has been reduced to two percent from 2.5% in the Netherlands, although it remains 3.6% elsewhere.

Late last month the company made an agreement in principle with the trade unions over pension benefits which still needs to be ratified by union members. Today it said that it was not able to determine the impact of the agreement.

"In view of these remaining uncertainties the final impact of the agreement on the pension obligations and future pension costs on the company cannot yet be determined," Philips said.

The Eindhoven-based company said it expects "considerable cash outflows" of 465 million euros for employee benefits in 2004.

The company itself said it returned to the black in 2003, with a full-year net profit of 695 million euros.

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