Circular Letter CVM/SIN No. 05/2013

CIRCULAR LETTER/CVM/SIN/No. 05/2013
Rio de Janeiro, March 07, 2013.
Subject: Clarifications on provisions of CVM Instruction No. 472/08 (“ICVM 472”).
Attachments: A: Monthly Report Model and filling guidelines.
B: “.xls” Spreadsheet - Summarized Monthly Report.
C: General filling guidelines for Annex A and B.

Dear Sirs,

This Circular Letter aims to guide administrators of Real Estate Investment Funds (FII) in the application of certain provisions of ICVM 472 and also in the composition of the FII Monthly Report, in accordance with art. 39, I, of the aforementioned Instruction.

The standardization of the Monthly Report of real estate funds aims to provide adequate information to investors of these funds regarding the composition of their portfolios. The unique presentation format will also allow the market greater comparability among the various types of FII and, consequently, decision-making on more considered bases.

We emphasize, finally, that this Circular Letter does not treat exhaustively all that is provided in ICVM 472, thus not dispensing with the reading and examination, by administrators, of the aforementioned Instruction.

Content

1. FII Monthly Report – art. 39, I, of ICVM 472

2. Adhesion Term to the FII Regulation

3. General Meeting of Unitholders
   3.1. Deliberation rules in assembly
   3.2. Forms of deliberation in assembly – Formal Consultation

4. Conflict of Interest

5. Co-obligation in FII

6. Allocation of Responsibilities between the Administrator and the Intermediary

7. FII Monthly Report – art. 39, I, of ICVM 472
   Art. 39, I, “a” and “b”, of ICVM 472, provides for the content of the FII Monthly Report, establishing that, in such information, the discrimination of assets and rights comprising the fund's patrimony must be included.

Based on a survey on the quality of monthly reports made available by administrators to unitholders of these funds, we concluded that the level of information does not satisfactorily meet what is established by the Instruction. In this sense, Annex “A” of this Circular Letter presents the model of Monthly Report that administrators must follow, in order to provide minimal information to unitholders so that they can make their investment decisions on more considered bases. Annex “B” presents a model of a summarized version of the Monthly Report in an electronic spreadsheet, in which the administrator will send to the CVM, in a single file, all real estate funds administered by him.

With the objective of guiding the filling of the Monthly Report (Annex “A” and “B”), we have made available Annex “C”, in which specific clarifications are found regarding each field of the Report.

The Monthly Report referred to in Annex “A” must be sent in “.pdf” file format through the Document Submission System available on the CVM page on the worldwide computer network. Administrators must also send the Monthly Report referred to in Annex “B” (Summarized Monthly Report), in “.xls” (Excel) file format via the email infomensalfii@cvm.gov.br, as provided in the sole paragraph of art. 40 and art. 61, both of ICVM 472.

We inform that the aforementioned email box is a communication channel created exclusively for the reception of the Summarized Monthly Report, that is, doubts regarding any other situations involving FIIs, such as norms, problems related to CVMWeb, among others, will not be resolved. For the handling of these demands, there are other more appropriate channels, such as the address gie@cvm.gov.br.

The sending of the spreadsheet from Annex “B” does not exempt the administrator from the obligation to send the Monthly Report via CVMWeb in “.pdf” format.

We alert that the deadline of 15 (fifteen) days after the end of the month for the delivery of the Report, as established in art. 39, I, remains preserved.

Finally, in accordance with the sole paragraph of art. 40, we alert that this information must also be sent to the administrator entity of the organized market in which the FII shares are admitted to trading.

The administrator must send the new model of the Report starting from the base date 05/2013, for all real estate investment funds, as well as the electronic spreadsheet (Annex B).

2. Adhesion Term to the FII Regulation
   In accordance with the decision of the Collegiate Body in Process CVM No. RJ-2008-7977, of 03/03/2009, it was reiterated that the Adhesion Term has a specific purpose, namely, to register the delivery of certain information to unitholders. Thus, it is not an adequate means for other purposes that are not its own, such as, for example, the granting of powers or the concession of rights by the signing unitholder to the fund administrator.

In the same sense, such Term is not suitable for pre-approving matters that are subject to deliberation in a unitholder assembly, as per art. 18, of ICVM 472 and, in particular, to the matters referred to in the sole paragraph of art. 20, regarding art. 34 of the Instruction, which deals with conflict of interest between the fund and the administrator.

3. General Meeting of Unitholders
   3.1. Deliberation rules in assembly
   In accordance with art. 20, of ICVM 472, two rules of deliberation in unitholder assembly are established: the first, a general rule, in which deliberations are taken by majority of votes of unitholders present, with each share having 1 (one) vote; the second, an exception to the general rule, provides for the approval of unitholders representing at least half of the issued shares, if a higher quorum is not fixed in the Fund's regulation, limited to the following matters: alteration of the regulation; merger, incorporation, spin-off and transformation of the fund; appreciation of the appraisal report of assets and rights used in the subscription of fund shares; and, acts that characterize conflict of interest between the fund and the administrator.

In this sense, excluding the provision contained in the sole paragraph of art. 20, all other matters subject to deliberation in unitholder assembly will follow the general rule (first case). By reserving the provision in the sole paragraph of art. 20, the norm listed which matters could be subject to more restrictive deliberation limits.

In summary, in the understanding of this technical area, any possibility of the administrator discretionarily choosing which matters will be subject to qualified quorum is excluded, restricting it only to those established in the sole paragraph of art. 20 of ICVM 472.

3.2. Forms of deliberation in assembly – Formal Consultation
In addition to the in-person form of deliberation in assembly, in accordance with §3º, of art. 48, of Instruction CVM No. 409/2004, applied by virtue of the provision in §2º, of art. 19, of ICVM 472, this Instruction also establishes the possibility of deliberation through a formal consultation process, in accordance with the provision in art. 21 of ICVM 472, without the need for

unitholders meeting, through which the unitholder may vote through written or electronic communication, provided that the provision in the regulation is observed.

Even in the case of deliberation through a formal consultation process, all obligations of the administrator regarding communication to unitholders, to the CVM and to the organized market in which the FII shares are admitted to trading remain preserved, in accordance with the provision in art. 41 of ICVM 472.

In this sense, the minutes of the unitholder assembly will continue to be prepared by the administrator and made available to unitholders within 8 (eight) days after its occurrence. In this specific case, the minutes must consider the final date of the count of the consultation carried out, as well as must be sent, simultaneously, to the organized market in which the FII shares are admitted to trading and to the CVM, through the Document Submission System, available on the CVM page on the worldwide computer network, in the field related to the minutes of general assemblies, in accordance with articles 41 and 42 of ICVM 472.

Regarding the call notice in the formal consultation process, it must contain all matters subject to deliberation, as provided in art. 48, §1º, of ICVM 409, applied to FIIs by virtue of art. 19, §2º, of ICVM 472.

Such notice must be made available to the CVM, to the organized market in which the FII shares are admitted to trading and on the administrator's page on the worldwide computer network on the same day of sending the communications regarding the formal consultation process, in accordance with articles 41 and 42 of ICVM 472.

4. Conflict of Interest
   Law 8.668/93, of 25/06/1993, regulated the constitution of Real Estate Investment Funds in Brazil. The aforementioned law, in its art. 12, among other provisions, prohibited the administering institution, in the exercise of its specific functions and using the resources of the FII, from carrying out fund operations when characterized by a situation of conflict of interest between the fund and the administering institution, or between the fund and the entrepreneur.

ICVM 472, in turn, in its art. 34, reaffirmed the legal provision, considering that, if the fund operations that constituted conflicts of interest were submitted to the approval of a Unitholder Assembly, the situation provided for in Law would be discharacterized. For this, it conditioned the operation to prior, specific and informed approval in assembly, whose quorum is established by the provision in art. 20, sole paragraph, of ICVM 472.

§1º of art. 34 also enumerates some examples of conflict of interest situations, such as: the acquisition, lease, rental or exploration of the surface right, by the fund, of a property owned by the administrator or persons linked to him; the alienation, lease or rental or exploration of the surface right of a property comprising the fund's patrimony having as counterparty the administrator or persons linked to him; as well as the hiring by the administrator of service providers referred to in art. 31

of the same instruction, namely: the distribution of shares, the specialized consultant, the specialized company and the market maker.

This technical area understands that, for the 1st distribution of fund shares, it would be possible to hire a distributor linked to the administrator, given that the provision of this service has a determined period for its closure, that is, it is not a service that will be provided continuously, ending before the registration of the FII's operation.

However, this SIN also understands that all other hirings of parties related to the administrator will in principle be subject to deliberation in a unitholder assembly, in accordance with the provision in the sole paragraph of art. 20 of ICVM 472.

We also alert that conflict of interest situations, as well as any others subject to the unitholder assembly, cannot, for these purposes, be subject to pre-approval, knowledge, or agreement under any other name, in the Adhesion Term to the fund, given the reasons exposed above.

5. Co-obligation in FII
   Recently, we have observed that some FIIs have begun to assign their real estate receivables for securitization purposes in the form of Real Estate Receivable Certificates (CRI). In this context, some alerts follow regarding the prohibitions imposed on administrators of real estate funds:

ICVM 472 imposes on the FII administrator some prohibitions related to the fund's operations, especially regarding the assumption of obligations by these funds. Art. 35 prohibits the administrator, in the exercise of the functions of manager of the fund's patrimony and using the fund's resources, from contracting or making loans, providing guarantee, aval, as well as accepting or co-obligating in any form in the operations practiced by the fund, as well as constituting real liens on the properties comprising the fund's patrimony.

It is common, in credit assignment operations for securitization purposes, for the assignor to provide some form of guarantee to the assignee. However, when the assignor is an FII, the administrator, in accordance with the aforementioned art. 35, is unable to co-obligate in any form using the fund's resources.

Finally, we emphasize that the non-compliance with this provision, given the provision in art. 59, of ICVM 472, may constitute a serious offense for the purposes of the provision in §3º, of art. 11 of Law 6.385, of December 7, 1976.

6. Allocation of Responsibilities between the Administrator and the Intermediary
   This SIN understands that, in the event that the investor enters the collective investment vehicle through the acquisition of shares in the secondary market, the required documents must be collected by the intermediary.

The administrator is always responsible for keeping the adhesion term available to the CVM, which is why it must take due care in this sense when establishing its relationship with distributors and make efforts to collect them from intermediaries.

Furthermore, the technical area highlights that, by virtue of the provision in art. 65, XV, of Instruction CVM No. 409/04, the administrator is already obliged to supervise the services provided by intermediaries that distribute shares of the administered funds.

Additionally, this SIN understands that the model of division of responsibilities described in the paragraph above also applies, with due adaptations, to other dimensions of this relationship, for example, the delivery of documents and information provided for in regulation, notably the Regulation and the Prospectus, as well as the preparation and maintenance of the client registry.

This understanding does not exempt the administrator from accessing all necessary information and documents from the intermediary to fulfill the responsibilities delegated to it by legislation, such as those related to the prevention and combating of money laundering, as well as the forwarding of information and communication with the unitholder.

Finally, it is worth noting that in a decision taken in the meeting of 29/1/2013, the CVM Collegiate Body unanimously deliberated on the inapplicability of the obligations imposed on intermediaries in art. 2º, sole paragraph, of Annex I of Instruction CVM No. 301/99, when acquiring shares of investment funds in the secondary market.

In this decision, it was recognized that this type of registry update (i) ends up being equivalent to the collection of a new adhesion term for each new investor; (ii) is not part of the dynamics adopted for products traded in organized markets; and (iii) that in such markets there are often assets with a risk degree significantly higher than investment funds in which such a requirement does not apply.

Sincerely,

(Signed Original)
Francisco José Bastos Santos
Superintendent of Institutional Investor Relations