IIFA Country Reports 2010

ARGENTINA COUNTRY REPORT January 2009 – June 2010 From January 1, 2009 to December 31, 2009

1. Economic and financial background

Introduction. A change was seen in Argentina’s macroeconomic conditions during 2009, as, added to the country’s own challenges, was the downturn in international financial conditions seen in the last months of 2008, which right away impacted on the global real economy. To the extent to which the global context stabilized and slowly recovered, however, the local economic scene also showed clear signs of recovery.

Economic Activity. Economic growth slowed down with respect to the increase seen in 2008, although official GDP figures still show a roughly 0.9% increase in 2009. In quarterly terms, and setting aside seasonal effects, activity trudged along weakly during the first two quarters of the year, with an average quarterly decline of -0.2%, to finally begin to pick up in the second half of 2009. The gradual improvement in international economic and financial conditions towards the end of the first quarter brought relief to a number of export sectors that had been hard hit in late 2008. The first semester’s fiscal boost also helped to maintain the local activity level, which stabilized in the second quarter of the year and began to show destationalized growth in the second semester. For their part, different private estimates note that local economic activity had seen a significant fall in GDP in 2009, although the dynamic was similar to that exhibited by government statistics.

The slowdown in economic activity was observed in all sectors, but goods producers were especially hard hit, having observed a joint decline of approximately 3.5%, according to official figures. Particularly important, not only because of its direct impact but also for the indirect effects on other sectors, was the setback in agricultural production secondary to an unusual drought that harmed production of Argentina’s main agricultural products. As a result, the poor harvest caused a 35% drop in supplies for the 2008-2009 harvest, whose effects were mainly felt in the first half of 2009. On the demand side, the slowdown was also generalized, with almost all components showing considerable setbacks. Most pronounced among these was the drop in exports, and secondly, in investment. On the other hand, however, the one component of demand to have shown an increase versus 2008 was consumer spending, spurred on by the government’s increased spending policy.

External Sector. The extraordinary crumbling of world trade did not pass by unnoticed in Argentina’s domestic economy: demand for the country’s exports bottomed out, in particular industrial ones, as did the evolution of prices on our country’s main export products. At the same time, an important drought crippled local agricultural supply, leading to a decline of about 35% in farm production, further affecting external sales. Import levels, nonetheless, dropped even more so, principally as a consequence of the economy’s slowdown. Thanks to imports having shrunk more in relation to sales abroad, Argentina’s economy was able to show a record trade surplus.

Exports in 2009 fell 21% with respect to 2008, as a result of a 12% drop in prices and a 9% decline in quantities. For their part, imports fell 32% as compared to 2008’s levels, as evidenced by a 12% drop in prices and a 23% decline in quantities. As a result, due to the larger fall in imports versus exports, a 35% jump was observed in the trade surplus, totaling US$ 16.98 billion (5.4% of GDP). This large trade surplus justified the Current Account’s having ended 2009 up US$11.3 billion (2.6% of GDP), higher than that recorded in 2008. The Capital and Financial Account, however, showed a US$9.2 billion deficit, explained by the prívate sector’s purchase of foreign assets, in particular during the first half of the year, this, too, as a result of the international crisis.

Fiscal Policy. Within a recessionary context, fiscal policy sought to expand primary spending as a strategy to sustain aggregate demand. Primary spending for the year showed a generalized and considerable 30.2% increase, boosted by increases in salaries (37%), retirement/pension payments (29%), transfers to provinces (73%) and real investment (46%).

The growth in public spending could not, however, be completely financed with current resources. National tax revenues rose 13% above figures for 2008, showing a sharp deceleration with respect to the

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two previous years, hand-in-hand with the economy’s slowdown. Social security revenues were shored up by the flow of resources obtained from the nationalization of pension funds in late 2008: this contributed approximately 1.2% of GDP, revenues which had before been destined to pension fund administrators (AFJPs). Adjusting tax revenues by this factor, the nominal increase in said revenues was only 9%.

The primary result at the national level added about 1.5% of GDP, but this was strongly influenced by revenues of an extraordinary nature, such as revenue inflow from the AFJP take-over, Central Bank earnings, the special allocation of IMF SDRs (Special Drawing Rights) and profits from the FGS (Fondo de Garantía de Sustentabilidad, or Sustainability Guarantee Fund) of the pension system arising from the State’s takeover of the AFJPs in late 2008. Without the above sources of revenue, there is, instead, a primary deficit totaling 1.6% of GDP.

Monetary Policy. The monetary scenario in the first half of 2009 reflected the international crisis’s impact and uncertainty regarding upcoming mid-term elections, slowly improving with the recovery witnessed on the international scene and decreasing local uncertainty.

Seen in the exchange market was a considerable outflow of private capital in the first months of the year, in part financed by the large trade surplus, despite international reserves’ having dropped off slightly. In this context, the dollar rose 10% versus the peso, sitting at 3.77$/US$ near the end of the first semester. The counterpart to this important outflow of capital in the first half of 2009 was the nominal stability seen in the financial system’s private deposits. Despite this relatively stable behavior, time deposits were quite volatile, with there being some months in which a contraction in time deposits was observed. Time deposits in dollars, however, served as a hedge against the reigning uncertainty and consequently rose 18% in the first half of the year.

As external conditions improved, capital flight began to slow down, with the last quarter of the year recording the first inflow of such capital since the first quarter of 2007. Also important in consolidating this decrease in capital outflow was the Government’s announcement that it would go ahead with a new debt swap proposal for public liabilities still in default. This improved the outlook for peso-denominated assets and increased appetite for local risk. Less capital outflow, added to a continuing improvement in the trade surplus, also allowed for a build up of international reserves, which totaled US$47.968 billion (15% of GDP), nearly US$1.5 billion above late 2008’s levels. In this new context, the reference nominal exchange rate showed greater stability, and after attaining its highest level, 3:85$/US$ in September, the peso appreciated nominally, closing the year at 3.79$/US$.

In the second half of the year, as international financial conditions improved and there were higher expectations at the local level, deposits in the financial system grew, with the increase in fixed term deposits particularly standing out. During this unusually turbulent period, the financial system managed to hold on to high liquidity levels, this being supported by Central Bank policies. As a result, interest rate continued on the downward slope throughout the year, despite the volatility seen on the exchange market.

Prices. A gradual deceleration in the rate of inflation was seen in the first months of 2009, mainly driven by a slowdown in economic activity and a fall in international prices, among other factors. The anual inflation rate as measured by the INDEC’s CPI showed a downwards trend, from 7.2% in December 2008 to 5.3% in June 2009. Nonetheless, during the second half of the year, and with improvements in activity and recovery of some international prices becoming more evident, inflation once again began on an upwards path. The year 2009 closed with a 7.7% increase in prices, slightly above that recorded in December 2008, as per official government statistics. In any event, there are still differences in price dynamics, according to prívate and official estimates. Furthermore, salary adjustments stayed above the inflation rate, expected to hover around 20%.

Capital Markets. The pattern seen in the capital markets was similar to that observed in other economic variables, with a setback noted in the first half of the year, followed by a recovery in the second half. In general terms, this dynamic was also reflected in the international financial market. Bonds showed a strong recovery towards the end of 2009, an improvement mainly seen from the month of May onwards. The MERVAL index, in particular, saw an increase on the order of 110%, recording the highest nominal value of the year (2320 points) on December 30th, although this figure was 1.3% below the record set in October 2007.

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Public bond prices also showed significant gains, with improvements in their yields as the international context slowly began to normalize. Likewise, the prices of these assets bounced back following the clearing up of certain doubts following June’s mid-term elections and in particular in October, once the Government announced the reopening of the debt swap for holdouts who did not participate in the 2005 swap. The possibility of returning to the voluntary debt market, meanwhile, shored up local public bond prices even more. Argentina’s country risk, therefore, as measured by JP Morgan’s EMBI+, closed out 2009 at 660 basis points (bps), having begun the year at 1681 bps.

2. Data on funds under management and portfolios

December 31st, 2008

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December 31st, 2009

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3. Key trends in flows and assets under management Drop in AUMs due to elimination of Pension Funds was equaled by increasing inflows in money market

and short term debt Funds 4. Regulatory and self regulatory developments No changes to be reported 5. Corporate governance - major developments

No changes to be reported 6. Fund governance No changes to be reported 7. Product developments None 8. Other major issues and developments None

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From January 1, 2010 to June 30, 2010

1. Economic and financial background

Introduction. The Argentine economy continued to recover from the recession that affected the country in 2009, at a rate even better than expected some months ago. It was helped along by improved industrial activity and, mainly, by increases in farm production, which favored recovery in the second half of 2009. Other factors decisive in explaining this recovery are the improved international context, even though today there is growing uncertainty as to future performance.

Economic Activity. Continuing with the improvement seen in the second half of 2009, Argentina’s

economy continued to expand in the first half of this year, with a 9.0% growth rate for this period. A large part of this growth, however, is due solely to the return to levels existing prior to the 2008-2009 crisis. Prroduction in the automotive industry, for example, for the first six months of 2010 was on the order of that seen in the same period of 2008, although significant growth rates are still seen, of around 60%, due to the important setback witnessed by this industry during the worst months of the international crisis. Something similar was observed in farm production, although the harvest this year can be compared to levels seen in 2007-2008, after the drought that greatly affected production in 2009.

On the demand side, exports showed the greatest activity, followed by private consumption, the latter of

these having demonstrated much vitality in the last few months. Investment, for its part, has also continued on the upswing.

External Sector. External accounts continue to be relatively solid. The growth in exports is led by certain

key products, among which stand out sales abroad of soy and automobile exports. Exports rose 18% in the first half of the year, boosted by a 14% improvement in quantities and a 4% one in prices. Imports, for their part, were even more active, rising 43% for the period under study.

The strength of the trade surplus, which totaled $8.3 billion (2.7% of GDP) for the first half of the year,

has allowed for the financing of the outflow of capital that the economy continues to battle. However, the dollarization of portfolios has been perceptibly lower as compared to a year ago, despite continuing capital outflow. This slowdown in flight of capital, together with a still-considerable trade surplus, has permitted the Central Bank to build up the level of international reserves, which at the end of June totaled US$49.240 billion, or US$1.273 billion above December 2009’s levels.

Fiscal Policy. The fiscal situation of the National Government and of the provinces has continued its

expansive bias as in the last few years. Primary spending at the national level continues to grow at rates on the order of 30% for the first half of the year, with overall increases in all areas of spending. Tax revenues, however, have greatly accelerated their nominal growth, hand-in-hand with the local economy’s recovery and the increases observed in prices and exports. Thus, between January and Jume of this year, there was a 31.5% jump in tax revenues compared to that for the same period in 2009.

In any event, the Treasury has not yet acceded to voluntary financing on the debt market. In this sense,

towards the end of 2009 and the beginning of this year, the Government decided that international reserves would be used for the payment of debt issued in foreign currency by means of several DNUs (Decretos de Necesidad y Urgencia – Decrees of Necessity and Urgency). The Treasury continues to satisfy its financiang needs by way of this instrument.

The National Treasury has thus been able to meet all its debt commitments, using the financing afforded

by different public sector agencies. Over the last year, the Central Bank has turned into one of the Treasury’s main financing tools via the aforementioned possibility of directly employing international reserves for the service on public debt, the use of Temporary Advances and transfers of earnings.

Monetary Policy. Growing public sector financing, together with the policy of accumulating international

reserves and the priority given to lowering local interest rates, has reined in the effectiveness of monetary policy as an inflation-lowering tool. This scenario, which is sustainable because of the large

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trade surplus, and which allows for the financing of the large amounts of capital leaving the economy without creating much disruption, is expected to continue in upcoming months, provided that the purchase of dollars not increase or the trade balance fall substantially. Thus, the nominal exchange rate was practically unchanged, with a nominal devaluation of just 3.1% in the first half of 2010. For their part, private financial system deposits rose 9.3% in nominal terms, while interest rates continued on the downward path seen since mid-2009.

Prices. Despite the stability in the nominal exchange rate - which in a highly-dollarized economy such as

Argentina’s helps to lessen inflationary pressures - these pressures have increased over the last year. Since mid-2009, and hand-in-hand with the recovery in economic activity, inflation has been steadily rising, from a 5.5% interannual rate in July 2009 to an 11.0% interannual rate in June of this year, according to the INDEC’s CPI. The rise in inflation has been particularly generalized, despite the fact that the prices of regulated goods and services have held steady. Price jumps are especially significant in food, with an interannual increase of 15.7% in June. The food sector was also affected by some relative price adjustments in one important component of Argentines’ food purchases: beef. The rise in this food staple’s price also explains part of the acceleration seen in inflation in the last few months. Private statistics, for their part, indicate a dynamic similar to that in official figures, however the price increases they note are higher

Capital Markets. Within the framework of recovering international finances and beyond growing

uncertainties as to its future perspectives, the Government completed a new stage in national public debt restructuring with holdout creditors. An acceptance rate of approximately 67% of eligible debt was attained with this swap, and in all 92% of public liabilities were swapped. The recovery seen in the international context and in local economic activity, together with positive effects of the debt swap, helped to shore up local bond asset prices, with the MERVAL index having climbed 1.6% from December 2009 to June of this year. Argentina’s country, however, as measured by means of national public securities’ yields on the EMBI+, shot up 11.6% during the same period, as doubts remained as to short- and medium-term fiscal dynamics.

Outlook. In synthesis, Argentina’s economy has shown a good recovery in 2010, exceeding its pre-crisis

level in the first half of this year and averaging an 8% growth rate in 2010. The economic expansion rate is expected to drop off some in 2011, as those exceptional factors that drove the recovery as of mid-2009 begin to fade; the international context, in addition, will be more uncertain than it was some months ago. Growth in economic activity in 2011 is projected at about 4%, although with it being an election year it is possible that tensions will arise.


December 31st, 2009

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June 30th, 2010

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3. Key trends in flows and assets under management Trend reported for previous report remains unchanged 4. Regulatory and self regulatory developments

Local capital market authority -CNV- issued (June 2010) a new regulation related to holding limits for Funds portfolios

5. Corporate governance - major developments No changes to be reported

6. Fund governance No changes to be reported 7. Product developments None 8. Other major issues and developments None

INTERNATIONAL INVESTMENT FUNDS ASSOCIATION

XXIV ANNUAL MEETING

VIÑA DEL MAR, CHILE

AUSTRALIAN MEMBER REPORT

OCTOBER, 2010

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1. Statistical Position 1.1. General Economic and Market Data Table 1: Key Economic Indicators*

Population (millions) 22.5

Annual GDP ($ trillion) 1.223 (2009 - 10)

1.214 (US$)

Annual GDP growth rate 3.3%

Inflation rate (%) 3.1%

Unemployment rate (%) 5.1% (Oct 2010)

Stock market capitalisation ($ trillion at 7 Oct 2010) 1.65

1.64 (US$)

Official Interest Rate (14 Oct 2010) 4.5%

*All figures as at 30 June 2010 unless otherwise stated

All figures in A$ unless otherwise stated

US$ exchanges calculated at rate of A$1 = US$0.9930 as at 14 October 2010

1.2. Data on funds under management and portfolios

Note: Exchange Rate taken at end of each financial year

Table 2: Net assets of the Australian Industry

Year (as at end June)

Total assets under management

(US$ billions)

Total assets under management

(A$ billions)

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

331 372 452 558 678 774

1,158 1,254 965

1,139

642 661 664 782 905

1,063 1,355 1,301 1,213 1,351

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Table 3: Australian Industry Size – 30 June 2010 Asset class A$ millions

Equity funds 495,370 Bond funds 87,477 Money market funds 278,064 Other 490,388

Total (excluding Fund of Funds) 1,351,249 Total in US$ 1,151,670 million

Note: Exchange Rate as used at time of reporting (30 June 2010) : A$1 = US$0.8523 2. Data relating to investors in Mutual Funds / Unit Trusts 2.1 Are any data available relating to the number of investors in the mutual fund

industry? No such official data is available; however it is estimated at over 10 million. Significant exposure is through superannuation (pension) investments. 2.2 If yes, please provide the data for the last two years and the source of this data. N/A 2.3 Are there data available separately for retail investors and institutional investors? No such data is available. 2.4 If yes, please provide data separately for retail and institutional investors for the

last two years. N/A 2.5 Does the Association play any role in promoting retail investment in the mutual

fund industry? If so, please give details.

• FSC represents the industry to government, regulatory and media stakeholders to ensure the industry is accurately portrayed and regulated in an appropriately balanced fashion;

• Members' compliance with FSC’s Standards and Guidance Notes ensures the promotion of industry best practice; and

• FSC is committed to helping all investors gain financial literacy and confidence. The Consumer Information and Fact Sheet section of the FSC website provides information on investment funds, fees, superannuation (pension), insurance and much more.

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3. International Investment 3.1 Are funds of other countries sold? Yes, Australians may invest directly into foreign funds. However, foreign funds cannot be sold directly to Australian residents without first complying with Australian requirements. Australia also has a network of Mutual Recognition Agreements, including with Hong Kong and New Zealand, which allow foreign funds to be offered under their domestic licence. 3.2 Are your funds allowed to invest abroad? Yes, there are no restrictions imposed. 4. Legal & Regulatory developments Review into the governance, efficiency, structure and operation of the superannuation system The independent review was finalised in June 2010 and released by Government in July. It contains over 170 recommendations covering a range of operational, regulatory and governance matters as well as proposing a new simpler superannuation product for disengaged members. The review does not alter the fundamentals of the superannuation system – the compulsory rate of contributions or the concessional tax settings. The final report can be viewed at: http://www.supersystemreview.gov.au/ Review of financial advice The Government announced a package of reforms to financial advice in April 2010. The reforms are designed to improve the quality of financial advice and encourage more Australians to seek financial advice by addressing conflicts of interest created by certain remuneration practices. Principally, the reforms seek to create a ‘product neutral’ adviser charging regime, by unbundling advice and product payments and removing volume based payments between advisers, licensees, platforms and product providers. Key elements

• Statutory fiduciary duty, requiring advisers to place their clients’ interests before their own, subject to a 'reasonable steps' qualification.

• Prospective ban on conflicted remuneration structures including commissions and volume based payments between advisers, licensees, platforms and product providers.

• All advice fees to be agreed between the adviser and client and subject to annual renewal.

• Percentage-based fees not permitted on geared products or investment amounts. • Expansion of intra-fund advice regime to cover personal advice on new topics including:

transition to retirement; intra-pension advice; nomination of Beneficiaries; superannuation and Centrelink payments; and retirement planning.

• Expert professional standards advisory panel to be established.

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Financial Services Working Group The Federal Government has established a combined government and industry Financial Services Working Group with the primary focus of “Improving Product Disclosure” and finding a way to shorten Product Disclosure Statements to improve consumer understanding and decision making.

The Working Group has now finalised the implementation of a Shorter Product Disclosure Statement (no longer than 8 pages) for margin lending, investment and superannuation products.

Product rationalisation

The FSC is continuing to work with Government on the development of a legislative proposal that will enable the termination of old financial products that are often uneconomic, or are supported on redundant technology platforms. The mechanism should enable investors in those old products to be transferred without penalty (including taxation) to a more modern financial product that offers similar benefits.

International Regulatory and Tax Developments • Progressive reduction of withholding tax on certain distributions from Australian managed

funds, from 30% to a “flat and final” 7.5% from 1 July 2010.

• Foreign Investment Fund regime – 2009 Budget announced that the foreign investment fund rules will be repealed, ensuring that Australian investors are no longer disadvantaged by investing in offshore managed funds.

• Capital Account Taxation for Managed Investment Schemes – 2009 Budget announced that managed funds will now be able to elect to be taxed on capital account, ensuring international investors that they will not be taxed on capital gains arising out of most passive investments made by Australian managed funds.

FSC self regulatory Industry Standards and Guidance Notes FSC continues to build on its Industry Standards and Guidance Notes. These are designed to assist members achieve industry best practice, and to enhance consumer confidence. By adhering to the Standards, FSC’s full member companies have undertaken to develop processes and products that provide investors with a quality assurance that goes beyond the base-line legislative and regulatory framework. In recognition of this, FSC is committed to the promotion of the Standards as a demonstration of integrity.

All FSC Standards and Guidance Notes can be found on the FSC website at: www.fsc.org.au.

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Trustmark From 2011, the FSC will introduce a Financial Services Trustmark to be used on member websites and offer documents.

To qualify for the Trustmark, FSC Members are required to meet a rigorous process:

• Provide a Compliance Statement by 30 September each year setting out their compliance with the Financial Services Council Standards;

• Adopt a resolution by their Board stating that they are satisfied that the company has complied with the Financial Services Council’s Standards;

• The compliance statement is then signed by a Director or a representative of that Board; and

• By using the Trustmark on a financial product or in relation to a financial service, the company and its directors are making representations to their clients of compliance with our standards. Directors are bound not to make false or misleading statements. Their certification of the compliance statement is therefore bound by law.

In addition to these requirements, the Financial Services Council, through the Standards Oversight and Disciplinary Committee, will have enhanced powers to monitor and enforce compliance by members to our Standards. New powers will be provided to the Standards Oversight and Disciplinary Committee to conduct risk and complaint based external audits of members.

The Board has adopted this new power to ensure that use of the Trustmark is backed by external audit where risk is identified or a complaint is made to the FSC about a member’s compliance.

Failure to comply with our Standards can and will result in members being disciplined, suspended or expelled and the Trustmark being removed from their products.

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5. Distribution of Mutual Funds 5.1 Statistic Position This data is not available. 6. Systems and Practices in Marketing of Funds 6.1 Do the Regulations specify any maximum rates for commission to

intermediaries/agents/brokers? If so, please indicate. Commissions will be banned from 1 July 2012 under FSC Standard 19 and also under reforms to be introduced by the Government. However, the level of fees paid to intermediaries, agents and/or brokers are not capped. 6.2 What is the maximum load allowed under Regulation and for what purpose is it

used? N/A 6.3 Are there any limits prescribed for sales and marketing expenses? If so, please

specify. There is no limit for managed funds. 6.4 Is there a general or specific Regulation or Rule governing intermediaries selling

mutual fund schemes? If so, which agency administers the Regulations? The selling of mutual fund schemes comes under the Corporations Act 2001, which is administered by the Australian Securities and Investments Commission (ASIC). Financial advisers are required to be licensed and are regulated under Part 7.6 of the Corporations Act 2001. 6.5 Is there a qualifying examination for intermediaries? If so, which agency conducts

the exam and what are the details such as passing marks, nature of conducting the exam, etc.

Financial advisers are required to be licensed under the Corporations Act 2001 or be an authorized representative of an Australian Financial Services Licensee. Section 912A of the Corporations Act 2001 list the general obligations of a licensee. Paragraph 912A(1)(e) requires a licensee to maintain competence to provide financial services for which it is licensed, and paragraph 912A(1)(f) requires a licensee to ensure that its representatives are adequately trained and are competent to provide those financial services.

The Australian Securities & Investments Commission (ASIC) in Policy Statement 146 (PS146), sets out basic educational requirements that it considers are necessary to satisfy the competency requirements of the law. ASIC PS 146 requires advisers in the financial services sector in Australia to demonstrate the minimum educational levels of knowledge, skills and integrity that are appropriate to the complexity of their activities and clients' needs. ASIC maintains a register of approved courses for PS146 compliance. The register can be accessed at http://www.asic.gov.au/etraining/etrain.nsf

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6.6 Are there any regulations or industry rules relating to marketing practices? Can

mutual funds give gifts/prizes to distributors to encourage distribution of their funds? Can such gifts/prizes be given directly to investors? Are these covered by any regulation?

Mutual funds are permitted to provide ‘professional development’ services to distributors. These might include attending a conference etc. FSC Standard 14, developed in concert with the Financial Planners Association of Australia, provides a self-regulatory regime for the industry in this regard to ensure standards of probity are maintained. The Standard sets an industry benchmark on how some alternate forms of remuneration, paid by third parties, are managed and disclosed by product providers and financial advisors. Any form of alternative remuneration that is A$300 in value is considered “material” and is thereby subject to the Standard. The Corporations Act 2001 requires licensed financial advisers to have in place adequate arrangements for the management of conflicts of interest that may arise in relation to activities undertaken in the provision of financial services (section 912A(1)(aa)). The Act also requires a financial adviser to disclose any remuneration (including commission) or other benefits that they may receive that could be reasonably expected to influence their advice (section 947B(1)(d) and (e)). Superannuation funds are prohibited from offering inducements to investors or employers. 7. Pricing Error 7.1 Are there specific rules for reporting pricing errors to the Regulator? Both at general law and under statute, a superannuation fund trustee or the responsible entity of a managed investment scheme is required to exercise their duties efficiently, honestly and fairly. A material pricing error would be a breach of these requirements and breach reporting obligations apply to both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulatory Authority (APRA). 7.2 Are there specific rules for compensating investors, in the event of pricing error? FSC produces Standards which deal with unit pricing requirements which all members must comply with. ASIC and APRA have also issued a ‘Unit Pricing: Guide to Good Practice’, section 6.3 of which addresses this issue, which can be viewed at: http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Unit_pricing_guide.pdf/$file/Unit_pricing_guide.pdf 7.3 Please describe how mutual fund management companies respond to pricing

errors, when they actually happen. FSC has produced Standard No.17 to be used by members when correcting pricing errors. This Standard applies to the treatment of errors in the pricing of interests in a Scheme. In forming a policy for managing such errors, a Scheme Operator (the trustee or responsible entity) may choose to use a level of materiality to assess whether an error requires compensation to be considered for individuals in a Scheme, or the Scheme itself. For the purposes of this Standard, the materiality used for such an assessment must be no more than 0.3% of the price of a unit. Where the Scheme Operator has financially benefited from an error, the Scheme Operator must pay compensation such that the Scheme Operator does not retain the financial benefit.

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A Scheme Operator’s processes for the assessment and compensation of errors in the pricing of scheme units must meet the following criteria:

• they must be documented and transparent; • they must individually rectify past and present Investors that have been affected by a

materially incorrect unit price; • they must consider the obligations of Scheme Operators under relevant legislation; • they must not result in any residual benefit to Scheme Operators; and • they must be regularly reviewed.

Errors must be reported to the appropriate level of management within the Scheme Operator. All errors must be recorded and action taken to minimize the risk of recurrence. When an error in unit pricing occurs and compensation is payable to past and/or present Investors, the Scheme Operator must make reasonable efforts to communicate to affected Investors and describe the nature of the error, how the error will be rectified, and how the affected Investor will be compensated for the error. Where a Compensatable Error has been identified, compensation to or from past and/or present Investors or the Scheme will be required where the Investors or the Scheme have been disadvantaged as a result of the Compensatable Error. Where a Non-Compensatable Event has occurred, consideration must be given to whether any further action is required to correct the pricing of the Scheme. 8. Risk Management Systems 8.1 Is there a risk management system prescribed by the Regulator? Yes/No Yes 8.2 If yes, please give a brief description. Managed investment schemes are required to have a Compliance Plan that sets out the processes, systems and structures by which a Responsible Entity will continuously review how it is complying with its obligations under the legislation and the scheme constitution (section 601EB and Part 5C.4 of the Corporations Act 2001). In certain circumstances, the Responsible Entity may also be required to establish a Compliance Committee. The following links has links to relevant regulatory documents/guidance: http://www.asic.gov.au/asic/asic.nsf/byheadline/Managed+investment+schemes?openDocument#2 8.3 If no, does the Industry Association formulate any systems? Yes/No N/A 8.4 If yes, please give a brief description. N/A

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8.5 If no, what is the system followed in the industry? Australia/New Zealand Standard 4360, a risk mitigation strategy produced by Standards Australia, is a generic guide for risk management so that it applies to all forms of organizations. While it is not compulsory, this would be the most common system followed by Australian firms as a whole. 8.6 Does the industry follow any system of disaster recovery /business continuity

plan? FSC’s Guidance Note 23 Major Disaster Plan establishes a mechanism to enable consistent messages to be conveyed to member companies and consumers in times of crisis. The FSC Major Disaster Plan complements, but does not replace, FSC members’ respective business continuity planning. 8.7 If yes, please give brief details. Main features and purpose of this Guidance Note are:

• to enhance industry preparedness and assist FSC members and industry to maintain the confidence of consumers during the crucial early stages of a major

• disaster or an expected major disaster; • to specify key actions for FSC, with the assistance of key decision makers in the FSC

community, in the event or the likelihood of a major disaster; and • to complement and NOT to replace FSC members’ respective individual business

continuity plans. 9. Performance Evaluation and Role of Performance Evaluation Agencies 9.1 Are there regulatory provisions relating to making and/or publishing performance

evaluation? If so, give details. There are no specific governmental guidelines, although any firm that produced data and / or made claims that might be considered spurious would be at risk of prosecution by ASIC (Australian Securities and Investments Commission). FSC Standard No. 6 pertains to calculation of returns. The main features of this Standard are: specification of the standards to be adopted by a member in the operation of its business; guidance in the interpretation and application of those Standards; and a note to members of the relevant regulation that is applicable in the operation of their businesses. FSC Standard No. 10 “Presentation of Past Performance Information and Visual Promotions” specifies standards to be adopted by FSC an member in the promotion of its Financial Products and Services; as well as provide guidance in the interpretation and application of those standards. FSC’s Guidance Note No. 1.00 ‘Global Investment Performance Standards’ provides guidance on how performance should be evaluated and reported. This Guidance Note is not compulsory within the industry. 9.2 Are there third research parties or other agencies doing performance evaluation?

If so, give details.

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A number of research houses conduct continual evaluation of the relative performance of firms in the sector, some of which is publicly available. 9.3 Are there Regulatory provisions relating to benchmark indices against which the

performance of mutual fund is to be assessed? No 9.4 Does the Industry Association undertake any performance evaluation activities? No 10. Role of the Association 10.1 Does the association consist only of mutual funds or any other entities? If so,

please specify. FSC represents the retail and wholesale funds management, superannuation (pension fund), life insurance and financial advisory network industries. 10.2 Are there different categories of members? If so, please specify and indicate

their voting rights and other obligations/responsibilities/fee structure. FSC has two categories of Members:

• ‘Full Members’, being organisations actively participating in the Industry (i.e. managing collective investments) with full voting rights; and

• ‘Supporting Members’, being any organisations that provide professional services to the Industry, or in other ways are related to these industries.

Supporting Members have the right to attend and be heard at any general meeting of the Company, but are not:

• Entitled to vote at general meetings; nor • Eligible for election to the Board.

The annual subscription payable by each class of members of the Company and the application fee (if any) payable by members shall be such sum as the Board may from time to time prescribe. 10.3 Briefly describe the role and functions of the Association. FSC is a national not-for-profit organisation which represents the retail and wholesale funds management, superannuation and life insurance industries. FSC has over 135 members who are responsible for investing over $A1 trillion on behalf of more than eleven million Australians. FSC’s mission statement states the following objectives: "To play a significant role in the development of the social, economic and regulatory framework in which our members operate, thereby assisting members to serve their customers better." 10.4 What is the funding pattern, system of contribution? FSC derives all of its revenue from membership fees. The formula for the calculation of each member’s fees includes factors for the size of their funds under management and the industry sector they are involved in. For further explanation, please see: http://www.FSC.org.au

12

10.5 Is there any financial support provided by the Regulator/Government? If yes, please specify.

No financial support is provided by the Government or regulators. 10.6 Is the Association officially recognized as a self-regulatory organization (SRO) by

the Regulator? If yes, please specify the responsibilities, role and activities. No. FSC Standards and Guidelines are not an approved code of conduct under section 1101A of the Corporations Act 2001. However, FSC members are required, as a condition of FSC membership, to comply with FSC Standards. The boards of FSC member companies must complete and sign an annual statement of compliance with the Standards. Members may seek exemption from the requirements of particular standards which are considered by the FSC Standards Oversight and Disciplinary Committee (SODC).

The mandate of the SODC is to oversee member adherence with the principles set out in FSC Standard No.1 – Code of Ethics. Its functions include to consider proposals for the development, revision or amendment of FSC Standards; approve new Standards or revisions to existing standards; hear and assess complaints against FSC member companies, expediting disciplinary action is required; hear and assess issues of non-compliance with FSC Standards; and, oversee the annual compliance process and provide a report for publication.

10.7 If not, what is your view on the association becoming an SRO? Is it necessary,

effective or not. Please give your observations/comments. FSC has considered the approval of its Standards under the Corporations Act 2001 but determined that such approval would not add to the effectiveness of FSC’s standards and may in fact diminish the ability of FSC to respond to changes in the regulatory landscape by subjecting any change to its Standards to ASIC approval as required under section 1101A(2) of the Act. 11. Taxation of Retail Investment Funds 11.1 How are retail investment funds taxed at fund level? Please describe how

dividend and interests received by funds are taxed? Please describe also how capital gains realized by sale of portfolio securities are taxed?

In Australia, managed investments are flow through vehicles, so that fund managers pass onto individual investors any dividends and tax credits accruing. Australia’s system of dividend imputation allows Australian resident shareholders to receive a tax credit for any tax already paid by the company. The shareholder’s income tax liability can then be reduced by the amount of the tax credit. This also applies to managed funds. If a managed investment vehicle holds Australian equities and receives franked dividends, the credit is passed onto the investor. Where assets within the managed investment are sold by the manager, a capital gain is distributed to investors following the sale of investments and investors must then pay capital gains tax on their share of these amounts. 11.2 How are individual investors taxed on the distributions received from funds? How

are they taxed on the capital gains on sales of funds?

Distributions from funds form part of individuals’ assessable income and are thus taxed at the investor’s normal marginal tax rates. Tax rates 2010–11:

13

Taxable income Tax on this income 0 – $6,000 Nil $6,001 – $37,000 15c for each $1 over $6,000 $37,001 – $80,000 $4,650 plus 30c for each $1 over $37,000 $80,001 – $180,000 $17,550 plus 37c for each $1 over $80,000 $180,001 and over $54,550 plus 45c for each $1 over $180,000

Source: Australian Tax Office http://www.ato.gov.au

However, Australia’s system of dividend imputation, introduced in 1987 to eliminate the double taxation of company profits, allows Australian resident shareholders to receive a tax credit for any tax already paid by the company. The shareholder’s tax liability can then be reduced by the amount of the tax credit. This also applies to managed funds. If a managed investment vehicle holds Australian equities and receives franked dividends, the credit is passed onto the investor. Similarly, with regards to capital gains tax, the net capital gain is taxed at the applicable marginal tax rate. Where an asset has been held for more than one year, the capital gain receives concessional treatment. For individuals and trusts this results in at least a 50% discount, for superannuation (pension) funds the discount is 33.3% of the earnings tax payable. 11.3 Are there any tax incentives applied for financial products including investment

funds? If yes, please describe the tax incentives. Contributions to pension (‘superannuation’) funds are taxed at a concessional rate of 15% (compared to the marginal rates quoted above for individuals). Once the retirement age of 60 has been reached, drawdown of the balance accumulated is tax free. Investment income is taxed at 15% while in the fund and capital gains earned by the fund are taxed at 10%. 11.4 Is there any tax incentive applied for investment funds only? If yes, please

describe the tax incentives. There are no tax incentives specifically for investment funds.

Austria Country Report

1. Economic and Financial Background

Table 1: Key economic and financial indicators

2008 2009 Population (million) GDP (EUR billion) Real GDP growth (%) Inflation rate (%) Unemployment rate (%) Stock market capitalization (EUR billion) Stock market capitalization (% of GDP) Bond market capitalization (EUR billion) Bond market capitalization (% of GDP) Household gross savings ratio (%) Household financial wealth (EUR billion) Average per capita financial wealth (EUR)

8.342 282.20

1.8 3.2 5.8

53.09 18.81 267.39 94.75 15.78 415.90 49,856

8.375 276.89

-3.6 0.4 7.2

77.98 28.16 315.15 113.82

n/a (Oct.2010) 439.94 52,530

2. Data on funds under management and portfolios 3. Key Trends in flows and assets under management As of June 30, 2010 the total volume of investment funds domiciled in Austria – representing all 25 Austrian Investment Fund Management Companies (KAGs) – increased by around 10.95% during the last 12 months to an amount of EUR 141.5 bn. Assets under Management

Assets 30.06.2009

Assets 31.12.2009

Assets 30.06.2010

in mn € in % in mn € in % in mn € in % Equity Funds 14,072.26 11.04 17,083.01 12.50 17,700.55 12.51 Bond Funds 60,138.39 47.16 63,124.93 46.19 65,871.91 46.56 Near Money Market Funds 5,981.15 4.69 5,940.78 4.35 5,421.84 3.83 Balanced Funds 44,990.57 35.28 48,292.76 35.34 50,415.98 35.64 Hedge Funds 1,246.17 0.98 1,150.07 0.83 1,066.94 0.75 Alternative Funds 1,082.46 0.85 1,068.67 0.78 991.27 0.70

Total 127,511.00 100.00 136,660.23 100.00 141,468.49 100.00 The figures above include so-called “Spezialfonds” (or special funds), which are investment funds mainly for institutional investors as well as Funds of Funds.

“Spezialfonds” Assets 30.06.2009

Assets 31.12.2009

Assets 30.06.2010

in mn € in mn € in mn € Total 48,740.68 53,019.45 55,379.88

When i ncluding t he assets of r eal es tate f unds ( EUR 2. 19 bn), t he Austrian I nvestment F und I ndustry reached a total volume of assets under management of EUR 143.66 bn. Net Flows

Net Flows 07/08-06/09

Net Flows 01/09-12/09

Net Flows 01/10-06/10

in mn € in mn € in mn € Equity Funds -496.62 1,508.85 4,28 Bond Funds -4,774.32 393.28 711,21 Near Money Market Funds -1,706.12 -1,881.66 -488.40 Balanced Funds -1,776.79 315.34 1,199.36 Hedge Funds -667.63 -522.57 -103.03 Alternative Funds -99.45 141.88 -38.40

Total -9,520.93 -44,87 1,285.02 4. Regulatory and self regulatory developments (including tax) Amendment of the Austrian Investment Fund Act: The l ast am endment of t he A ustrian I nvestment F und A ct ( InvFG) t ook pl ace i n 200 8. T his am endment (BGBl 6 9/2008), t hat m ost not ably opened s o-called “ Spezialfonds” t o r etail investors w ith a m inimum investment of Euro 250,000 is unfortunately the newest amendment of the InvFG because VÖIG efforts to get a “ technical am endment” of the InvFG dr iven by the experiences of the financial turmoil has no t been realized yet du e t o p olitical r easons. I t i s unlikely t hat another s mall am endment of t he I nvFG will b e implemented before the f orthcoming major due the n ational implementation of UCITS I V. In t erms of t he UCITS I V implementation, Austria will m eet t he t imeframe and i t is l ikely t hat a c omplete o verhaul of t he current InvFG will be made. Pensions: At the end of 2009, major changes in connection with s tate-subsidised pension savings products (pension savings schemes) came into effect. VÖIG was very actively involved in the legislative process. The changes essentially comprise of the following: A general reduction of the minimum share quota for existing contracts (concluded prior to 1 January 2010) from 40% to 30%. Since the introduction of state-subsidised pension savings schemes in 2003, the law had stipulated that the investment must include at least 40% in shares first listed on a regulated market of a stock exchange s ituated in a m ember s tate of t he E EA. Over a per iod of s everal years, t he proportion of t he market capitalisation of shares first admitted in that state must not exceed 40% of the GDP of the respective member state. A c lear l egislative pr ovision t hat t he s hare qu ota of a pe nsion s avings s cheme has t o b e c alculated by comparing the market price of the entire investment with the market price of the shares it contains. The share quota has to be calculated on the basis of a yearly average. The i ntroduction of a l ife c ycle m odel as of 1 J anuary 2 010 ( for c ontracts c oncluded af ter 3 1 D ecember 2009): The new life cycle model in the f ramework of state-subsidised pension savings schemes provides that the minimum s hare quot a m ay be r educed i n ac cordance with t he increasing a ge of t he b eneficiary. F or taxpayers who have not reached the age of f orty-five by 31 December of the previous year, the m inimum

share quota is 30%; for those who have not reached the age of fifty-six by 31 December of the previous year, the minimum share quota is 25%; and for those who have reached the age of fifty-five by 31 December of the previous year, the minimum share quota is 15%. The introduction of a guarantee-free version of the pension savings scheme, which was included in the draft legislation shortly before their adoption and which was strongly advocated by the Economic Chamber, the banking sector and VÖIG, was ultimately not implemented. Due t o t he legal r equirements of t he life c ycle m odel in c ombination with t he ex isting obligation of t he provider to guarantee the contributions paid in, including premiums, the new life cycle model pension savings contracts will, f or t he m ost par t, not be provided b y t he investment f und i ndustry, but r ather by insurance companies. Tax rules: No serious changes in the taxation of Austrian and foreign investment and real estate funds were made in 2009. H owever, on e s ignificant c hange oc curred in 2 009 as t he r esult of a decision b y t he C onstitutional Court of Austria o n 17 April 2 008 [OGH 2008/15/0064]. I t ha d to do with u nequal t ax t reatment of f oreign portfolio d ividends as c ompared with dom estic por tfolio di vidends. Whereas A ustrian por tfolio d ividends received by Austrian corporations have always been tax-exempt, foreign portfolio dividends were, until this decision, liable t o t axation. T he C onstitutional C ourt of A ustria dec lared t hat t his v iolates t he pr inciple of equality. Within t he f ramework of t he Budget A ccompanying Act, t he F ederal Ministry of F inance i nstituted eq ual treatment of domestic and foreign portfolios by providing that foreign dividends originating from corporations based in EU member states and the EEA are tax-exempt for the receiving Austrian corporations as long as the foreign corporation tax rate is not less than 15% (does not diverge from the Austrian corporation tax rate by more than 10%). The tax exemption of dividends from companies in EEA states is additionally subject to the r equirement that a c omprehensive a dministrative and enf orcement as sistance agr eement be i n p lace between Austria and the state where the foreign company is based. Portfolio d ividends dr awn from c ompanies bas ed i n third c ountries r emain liable t o t axation until further notice, although objections are still being brought forward that this, too, represents unequal treatment. For those cases in which, on the aforementioned grounds, no tax exemption can be assumed for dividends from corporations based in the EU or the EEA, the Federal Ministry of Finance introduced tax liability with a simultaneous s etoff o f foreign c orporate t ax as well as f oreign withholding t ax ( a s o-called “ saving clause”/“Besteuerungsvorbehalt”). T his s aving c lause w as der ived di rectly f rom t he Constitutional C ourt decision. As things currently stand, the corporation tax rate in the EU countries Bulgaria and Cyprus is less than 15%. There is currently no comprehensive administrative and enforcement assistance agreement in place with the EEA s tates I celand an d Li echtenstein. F or por tfolio d ividends f rom corporations bas ed i n t hese c ountries, therefore, the new saving clause applies. The implementation of the saving clause is proving to be difficult, especially for the recipients of such dividends, due to the obligations to prove the accuracy of the tax returns. Moreover, t he a dministration of t he c urrent c orporation t ax r ates r esults i n c onsiderable a dministrative expenses. The new provisions are also of significance for domestic and foreign investment funds, since a considerable number of foreign portfolio dividends are drawn by retail clients through investment funds. Foreign portfolio dividends drawn directly or through investment funds are, to a major extent, treated equally under Austrian tax law. 5. Corporate governance – major developments 6. Fund governance

The self-regulatory f ramework of the Austrian investment fund industry, the so-called Quality Standards of the Austrian Investment Fund Industry, last amended in 2008 had been unchanged in 2009 since they reflect the interplay between the UCITS and the MiFID framework in an appropriate manner.

Moreover, the issuing of t he Quality Standards for the Austrian Real Estate Fund Industry proved t o b e useful in particular during the financial turmoil and its aftermath.

Both, the amended Quality Standards of the Austrian Investment Fund Industry as well as the new Quality Standards for the Austrian Real Estate Fund Industry can be found in German and English on the website of VÖIG. 7. Product Development The latest major product developments have to be seen in the light of the 2008 amendment of the Investment Fund Act but of course the international product developments are also reflected in the Austrian market. 8. Other Major Issues and Developments Standards The Austrian fund classification substantially amended in April 2008 has been fine-tuned on a regular basis, e.g. in t he f ields of E TFs. T he c urrent d iscussions on m oney-market f unds i n E urope will l ikely lead t o another amendment of the fund classification in the near future.

Regarding the Fund Processing Passport, Austria quickly implemented a sustainable and efficient solution with OeKB (Oesterreichische Kontrollbank) which is linked to the recently introduced European EFAMA FPP Portal.

Moreover, work is carried out in terms of reflecting some UCITS IV requirements in the existing FundsXML scheme and to further increase the use of the Fondsdatenportal which so far increased the efficiency of the industry in terms of processing a lot. It is also encouraging that major data vendors are already connected to the Fondsdatenportal.

BRAZIL Member Report 1. Economic and Financial Figures

Key Indicator 2010 2009 2008 2007Population (Milion) 193 192 190 189GDP (US$ bilion) 2,012* 1,577 1,636 1,366Real GDP growth 7.6%* -0,19% 5.14% 6.09%Interest Rate 10.75% 8.75% 13.75% 11.25%Inflation Rate 5.2%* 4.31% 5.90% 4.46%Unemployment Rate 7.0%* 6.8% 6.8% 7.4%Stock market capitalization (US$ bilion) 1,715** 1,740 1,088 1,764Number of Companies 375** 385 392 404

353 319 270 235ago/10

577 563 550 298ago/10

Trade Balance (US$ bilion) 14.5* 23.5 24,8 40Total international reserves (US$ bilion) 273* 239.5 206.8 108.3Exchange Rate (R$/US$) 1.750* 1.771 2.337 1.741Net Public Sector Debt (as % of GDP) 40.3* 42.96 37.34 42.83Notes: (*) ANBIMA's Macroeconomics Comission forecasts; Source: Central Bank, IBGE.Source: (**) BMFBovespa - aug 2010

Saving deposit (US$ bilion)

Time deposit (US$ bilion)

2. Assets Under Management

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AUM (US$ Billion)

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Market Share of the Top 10 and Top 5 Portfolio Managers

% AUM - Top 10 % AUM - Top 5

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% Distribution per Type - Data on Annual AUM

Fixed Income Money Market "Multimercado" Equity FIDC Private Equity Retirement Funds Others

3. Key Trends in flows and assets under management The funds industry reports total assets of US$ 841 billion – The total AUM in June 2010 amounted US$ 841 billion - a robust recovery compared to YE 2008. It is important to stress that the reduction of total AUM during the second semester of 2008 also reflects the devaluation of the Brazilian Real, depreciating by almost 50% during the crisis.

Brazilian Mutual Fund Industry – Brazilian Mutual Fund Industry is the 6th largest industry around the world and in Brazilian currencies has almost recovered the upside level of 2010.

4. Brazilian Capital Market Background

4.1 Self- Regulation, Best Practices and Supervision

New guidelines for Regulation and Best Practices Codes Liquidity In J uly,2010 t he A nbima R egulation and Best P ractice C ode f or I nvestment es tablished guidelines regarding the minimum procedures to control and manage the investment Funds portfolio liquidity to be followed by funds managers. The Liquidity Management policies and procedures were registered at ANBIMA in order to attest the practices us ed by fund managers regarding the liquidity of the portfolios of the Funds Compliance The code participant institutions should demonstrate the independence of Compliance area, which i s r esponsible f or adopting preventive m easures ai med at complying with laws, regulations an d c orporate principles ap ply, g uaranteeing t he bes t m arket pr actices and t he care of principles established by the Code CGA Looking for technical capacity and compliance with standards of conduct in the performance of management activities, the Funds Code requires the professional that perform the activity of portfolio management having the power to make investment decision in name of the fund, must be certified by Anbima’s Manager Certification Advances • “On site “supervision funds methodology - ANBIMA is c ontinuously upgrading i ts regulation an d s upervision t o monitor t he m ovements of t he B razilian m arket. The w ork i s being ex panded with t he development of ons ite s upervision of i nvestment f unds ar ea f or participant i nstitutions, as al ready oc curs i n the c ustody and pr ivate s egment. U p t o December this year, the Fund Supervision area will conducts a pilot project to implement this new methodology. The goal is to achieve a set of principles and best practices for an effective and ef ficient s upervision, b ased on r isk management and t he us e of m ethods for planning, analysis, documentation and f ormalization of pr ocedures A t t his f irst m oment, t he ac tivities

will focus on issues related to marking to market and fund prospectuses, as well as aspects of organizational structure and control of institutions • Indirect Supervision - The market supervision area also conducts monitoring based on routine a nd thematic f ilters i n order t o verify the ad herence of t he p articipant i nstitutions to code rules. This supervision is undertaken by ANBIMA’s technical area. • Methodology of fund supervision routine filters revised and improved as well as the definition of new thematic filters. Following the improvement of the market, hence the emergence of ne w as sets, per iodically c onducts ANBIMA s upervision i n l isted s ecurities i n the por tfolios of i nvestment f unds. T he pur pose of t he r equest f or i nformation f or administrators is to assess the rating of the issuers o f these papers, the marking to market among other items, given the duty of the administrator arrange third-party resources that have been entrusted • Methodology of Application for Registration Fines Funds - The Investment Funds Code established penalties application by the technical area for a noncompliance with its standards, among them for the registration of new funds, sending and updating documents on the funds, sending daily reports, among others. In order to reduce these fines, ANBIMA in 2010 is presenting to the participant institutions a report with a summary of its main deficiencies that cause the penalty for taking corrective actions. • Self-regulation statistics – The following statistical chart tabulates the penalties imposed under i nvestment f unds s elf-regulation c riteria i n t he period – broken do wn b y t he pr inciple topics covered by the Funds Self-Regulation Code;

Investigations Perform (Set/2010) 2010 Additional Explanations 71 Procedure for Verification of Irregularities 5

Openning Processes 2

Penalties 2010

Orientation Letters 43 Fines 173 Recomendation Letter 2 Commitment Term 2

4.2 Private Banking

• Updating the Code - The Code of Private Banking, established in 2006, has been changed, trying to adapt to the development and the sophistication of t his m arket. The c hanges ar e t he i nclusion o f t he requirement t hat t he institutions must have 50% of their Private Bankers with CFP ® certification, the obl igation t o ha ve an ec onomist, a n i nvestment s trategist and a compliance area dedicated only to the Private Banking.

• Private Banking Statistics - The ANBIMA i s dev eloping t he Private Banking data that will be disseminated on a consolidated basis and aims to present a overview of the Private Banking Industry in Brazil.

4.3 Qualified Services

• Review of Instruction 89 which regulates the activity of custody in Brazil

During 2010 A NBIMA w orked on a proposal t o up date t he r egulation 89, which talks about the activity of custody and other matters in Brazil that was published i n 19 88. The pr oposal ai ms t o s plit t he r egulation into t hree activities: Cu stody, B ookkeeping and c entral depos itory. T he do cument i s under review by the CVM - Securities and Exchange Commission of Brazil.

• Update Methodology for Ranking of custody The methodology of the ranking of qualified services is being updated to reflect the current market practices. The amendments include changes in the methodology of the rankings of custody and assets controlling.

4.4 Licensing

• CPA 10 (retail) and CPA 20 (qualified investors) licensing – From June 2009 t o J une 2 010, 42,695 c andidates s at t he C PA 10 ex aminations a nd 12,294, the CPA 20. Out of this total, 22,587 professionals obtained their CPA

10 a nd 7, 029, t he C PA 2 0. To d ate, 17 9,448 pr ofessionals h ave be en awarded their certification in the CPA-10 and CPA-20 examinations, 29,616 of them in the past 12 months.

• Certification of portfolio managers – ANBIMA hel d t he first Certification for M anagers E xamination (CGA) di rected t o pr ofessionals that per form remunerated management o f third par ty resources with powers to t ake i nvestment d ecisions. To J une 2010, 8 0 pr ofessionals have bee n awarded their certification CGA.

• Certification for investment specialists’ examination: In the s econd half o f 2 009, t he first C ertification for I nvestment S pecialists Examination (CEA) was held focused on professionals providing investment advice at bank branches or through service platforms for customers, potential investors and managers. T o J une 2010 , 69 professionals hav e be en aw arded t heir certification CEA.

• ISO 9001: ANBIMA’s certification area begins implemented the ISO9001 certification w hich i s t he bas ic norm for c ontinual i mprovement a nd standardization of customer processes and focus. The objective is to obtain the ISO 9001 Certification Seal and to guarantee greater quality in se rvices rendered by the Association and consequently to increase the satisfaction of ANBIMA’s members.

• CFP Licensing – As a member of FPSB – Financial Planning Standards Board, ANBIMA has been r esponsible for t he C FP – Certified F inancial Planner certification in Brazil since 2006. It has organized examinations twice a year and more than 1000 professionals have sat the last five examinations. To June 2010, 427 certified professionals in Brazil.

5. Education

• ANBIMA Award: ANBIMA sponsors the annual ANBIMA Capital Markets and Fixed Income Award the focus of both is encouraging the production of studies and projects which contribute to the dissemination of information on the sector. The ANBIMA Capital Markets prize is now in its sixth edition, and ANBIMA Fixed Income prize in its fifth edition.

The best master’s and doctorate´s theses of ANBIMA Capital Markets prize will be awarded with scholarships of R$15,000.00 and R$30,000.00,

respectively. Also, ANBIMA is published books with some of the prize-winning theses from previous years and will continue to do it so.

The ANBIMA Fixed Income prize will award the winning papers with R$ 12,000.00, R$ 8,000.00 and R$ 5,000.00 for first, second and third place, respectively.

• The “How to Invest” website: The new version of the “How to Invest” website – www.comoinvestir.com.br – with more than 40.000 users offers new sections such as exclusive content for the female audience, challenges, surveys and will have the fixed income section soon.

• Choose your Fund – This is a tool to locate and compare funds that have today a total of 3,259 funds registered in the Brazilian market. This can be freely accessed through the “How to Invest” website.

6. Industry Events

• 3rd ANBIMA Private Banking International Seminar - On N ovember 18th, 20 10, ANBIMA w ill be hol ding t he 3r d A NBIMA P rivate B anking International Seminar in São Paulo, Brazil. This is a bi annual event and t he leading forum for discussing the transformation of the Private Banking market in B razil, as well as e xamining pr ospects for t he i ndustry and t he c ountry’s capital markets as a whole. The theme of the event will be t he opportunities and the challenges of the Private Banking Market.

http://www.comoinvestir.com.br/�

7. Statistical Summary

Table 1 – AUM

Source: ANBIMA

Period R$ Billion US$ Billion Number of Funds Exchange rate

2000 297 152 2,295 1.9552001 344 148 2,524 2.3202002 356 100 2,927 3.533

jun/03 419 146 2,773 2.8722003 516 178 2,925 2.889

jun/04 566 182 2,906 3.1082004 613 231 3,001 2.654

jun/05 660 281 2,823 2.3502005 739 316 2,885 2.341

jun/06 853 394 2,906 2.1642006 940 440 3,337 2.138

jun/07 1,072 557 3,348 1.9262007 1,160 655 3,77 1.771

jun/08 1,219 766 4,037 1.5922008 1,135 486 3,444 2.337

jun/09 1,244 638 3,424 1.9522009 1,419 815 3,954 1.741

jun/10 1,515 841 4,369 1.802

Table 2 – Data on Annual AUM - % Distribution per Type

Source: ANBIMA

Table 3 – Portfolio Composition as % of the AUM

Source: ANBIMA

Period RepoFederal Public

Bonds

State and Municipal Public

BondsCD´s Debentures

Other Fixed Income

Equity Other Equity

2000 - 76.14 0.08 4.52 5.13 2.79 11.11 0.232001 - 75.16 0.04 7.65 4.74 2.52 9.52 0.372002 - 73.43 0.03 5.93 5.08 4.37 10.88 0.272003 - 75.86 0.03 6.77 3.89 2.89 10.33 0.242004 13.23 58.99 0.05 8.44 3.08 4.65 11.17 0.382005 9.43 60.53 0.04 10.66 3.93 3.98 11.16 0.24

jun/06 10.86 57.05 0.04 11.84 4.05 3.17 12.65 0.252006 11.35 54.8 0.05 10.18 4.62 3.38 15.25 0.28

jun/07 15.05 50.2 0.00 9.24 4.23 3.63 17.32 0.222007 13.6 47.04 0.00 8.96 4.17 4.28 21.71 0.24

jun/08 15.47 42.82 0.00 11.53 3.74 4.95 21.21 0.272008 19.1 41.5 0.00 13.7 4.4 6.4 14.4 0.5

jun/09 19.5 40.7 0.00 12.8 4.2 7.1 15.3 0.42009 19.92 40.66 0.02 11.38 3.71 6.05 17.65 0.3

jun/10 22.27 40.45 0.02 10.53 4.46 6.49 15.49 0.2

Period Fixed Income Money Market "Multimercado" Equity FIDC Private Equity Retirement Funds Others

2000 41 34 15 8 0 0 1 12001 37 29 22 7 0 0 1 22002 33 25 26 9 0 0 3 52003 33 22 28 8 0 0 4 52004 30 22 29 8 1 0 6 52005 40 23 17 8 2 0 7 3

jun/06 39 22 18 8 2 0 7 32006 34 20 23 10 2 0 8 3

jun/07 34 18 23 12 2 0 8 32007 30 17 24 16 2 0 8 3

jun/08 29 18 22 14 4 1 8 32008 29 19 23 10 4 2 10 2

jun/09 28 19 22 11 5 2 10 22009 26 17 24 12 4 3 10 4

jun/10 28 17 23 11 4 3 11 4

Table 4 – Portfolio Managers and Market Share

PeriodNumber of Portfolio

ManagersGrowth Rate % AUM - Top 10 % AUM - Top 5

1993 175 - 58.1 39.81994 188 7.4 57.2 38.91995 172 (8.5) 66.1 46.11996 171 (0.6) 66.6 47.81997 158 (7.6) 64.3 45.31998 149 (5.7) 65.7 48.81999 133 (10.7) 67.0 47.22000 131 (1.5) 69,1 49,42001 120 (8.4) 72,9 51,42002 110 (8.3) 74,2 53,3

June 2003 110 0.0 76.3 55.62003 111 0.9 75,8 55,7

June 2004 110 (9.0) 78.2 56.72004 102 (8.1) 77,7 56,6

June 2005 97 (4.9) 79.3 85.42005 92 (9.8) 77,6 57,4

June 2006 88 (4.4) 76,3 56,72006 87 (1.1) 77,6 56,9

June 2007 87 0.0 76,6 54,72007 87 0.0 75,8 53.04

June 2008 87 0.0 76,2 56,72008 85 (2.3) 79,6 58,2

June 2009 81 (4.7) 83,2 63,02009 87 7,4 83,5 61,4

June 2010 82 -5,7 83,8 61,1

Source: ANBIMA

BRAZIL Member Report 1. Economic and Financial Figures

Key Indicator 2010 2009 2008 2007Population (Milion) 193 192 190 189GDP (US$ bilion) 3,563* 1,577 1,636 1,366Real GDP growth 7.6%* -0,19% 5.14% 6.09%Interest Rate 10.75% 8.75% 13.75% 11.25%Inflation Rate 5.2%* 4.31% 5.90% 4.46%Unemployment Rate 7.0%* 6.8% 6.8% 7.4%Stock market capitalization (US$ bilion) 1,715** 1,740 1,088 1,764Number of Companies 375** 385 392 404

353 319 270 235ago/10

577 563 550 298ago/10

Trade Balance (US$ bilion) 14.5* 23.5 24,8 40Total international reserves (US$ bilion) 273* 239.5 206.8 108.3Exchange Rate (R$/US$) 1.750* 1.771 2.337 1.741Net Public Sector Debt (as % of GDP) 40.3* 42.96 37.34 42.83Notes: (*) ANBIMA's Macroeconomics Comission forecasts; Source: Central Bank, IBGE.Source: (**) BMFBovespa - aug 2010

Saving deposit (US$ bilion)

Time deposit (US$ bilion)

2. Assets Under Management

0

100

200

300

400

500

600

700

800

900

2000

2001

2002

jun/03

2003

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2004

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2007

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2008

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2009

jun/10

AUM (US$ Billion)