CVM Instruction No. 579 of August 30, 2016

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP Code: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

CVM INSTRUCTION NO. 579, OF AUGUST 30, 2016

Provides for the preparation and disclosure of the accounting statements of Investment Funds in Participations.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL makes public that the Collegiate Body, in a meeting held on August 3, 2016, based on the provisions of Article 8, item I, of Law No. 6,385, of December 7, 1976, APPROVED the following Instruction:

CHAPTER I - SCOPE AND PURPOSE

Art. 1 This Instruction provides for the accounting criteria for recognition, classification, and measurement of assets and liabilities, as well as for the recognition of revenues, allocation of expenses, and disclosure of information in the accounting statements of Investment Funds in Participations.

CHAPTER II - ACCOUNTING CRITERIA

Art. 2 The funds referred to in the previous article must apply the accounting criteria for recognition, classification, and measurement of assets and liabilities, those for recognition of revenues and allocation of expenses, as well as the disclosure requirements provided for in the accounting standards issued by the CVM and applicable to publicly-held companies, except for the provisions contained in this Instruction.

§ 1 The assets and liabilities of the fund must be initially recognized at their fair value.

§ 2 Gains or losses arising from the valuation of the assets and liabilities of the fund qualified as an investment entity, even if not financially realized, must be recognized in the period's result.

§ 3 The amount of the fair value adjustment of the fund's investments shall only be included in the basis for distribution of earnings to unitholders upon their financial realization.

Art. 3 Investments in controlled entities, affiliates, and jointly controlled ventures, held by investment funds that are qualified as investment entities, must be measured at fair value, in accordance with accounting standards dealing with the recognition and measurement of financial instruments and fair value measurement.

§ 1 The fair value of investments must reflect market conditions at the time of their measurement, understood as the date of initial recognition, presentation of the accounting statements, or the date on which information about the fund's equity is disclosed to the market.

§ 2 The administrator must continuously evaluate the existence of events or changes in conditions that may materially influence the fair value of investments, in which case a new measurement of fair value must be carried out and its effects recognized accounting-wise in the period of occurrence.

§ 3 The measurement of the fair value of investments must be established on consistent and verifiable bases.

§ 4 In cases where the administrator concludes that the fair value of an entity is not reliably measurable, the cost value may be used until it is practicable to measure the fair value on reliable bases, and the administrator must disclose, in an explanatory note, the reasons that led to the conclusion that fair value is not reliably measurable, presenting together a summary of the condensed accounting statements of these investees.

§ 5 Investment funds qualified as investment entities must prepare exclusively individual accounting statements.

Art. 4 Funds are qualified as investment entities if they cumulatively:

I – obtain resources from one or more investors for the purpose of entrusting the development and management of an investment portfolio to a qualified manager who must have full discretion in representation and decision-making with respect to invested entities, not being obliged to consult unitholders for these decisions nor indicate unitholders or parties related to them as representatives in the invested entities;

II – commit to investors with the objective of investing resources solely for the purpose of return through appreciation of invested capital, income, or both;

III – substantially measure and evaluate the performance of their investments, for management model purposes, based on fair value; and

IV – define in their bylaws objective and clear strategies to be used for divestment, as well as the attribution of the manager to propose and carry out, within the period established in the strategy, the divestment, in order to maximize returns for unitholders.

Sole Paragraph. It does not constitute a breach of the provision of item I cases in which unitholders deliberate on proposals forwarded by the manager, through an investment committee, regarding decisions inherent to the composition of the fund's portfolio.

Art. 5 In evaluating the conditions set forth in the previous article, the administrator must additionally consider the existence of the following typical characteristics of an investment entity:

I – possess more than one investment, directly or indirectly;

II – have more than one unitholder, directly or indirectly;

III – have unitholders who do not influence or participate in the administration of the invested entities or are not related parties to the administrators of these entities;

IV – possess investment in entities in which unitholders had no corporate relationship, directly or indirectly, prior to the fund's investment.

Sole Paragraph. The absence of any of these typical characteristics does not necessarily disqualify an entity from being an investment entity.

Art. 6 For the purposes of this Instruction, a related party to a unitholder is considered a person with a family, affective, or any other type of relationship, who is exposed to their influence when making decisions.

Art. 7 The administrator must exercise judgment to determine whether the fund qualifies or not as an investment entity, in exceptional cases where the indicators and characteristics provided for in Articles 4 and 5 are insufficient for this qualification.

Sole Paragraph. The judgment referred to in the caput must consider the classification that most faithfully represents the economic effects of the underlying transactions, events, and conditions, with the fundamental premise being the principle of the prevalence of economic substance over legal form in the management of investments.

Art. 8 Investments in controlled entities, affiliates, and jointly controlled ventures, of investment funds that are not qualified as investment entities, must be evaluated in accordance with the accounting standard dealing with investment in affiliates, controlled entities, and jointly controlled ventures and joint operations.

§ 1 Investment funds that are not qualified as investment entities must present exclusively individual accounting statements.

§ 2 Goodwill based on future profitability or gain from a bargain purchase and capital gains originating from the acquisition of investments must be accounted for in accordance with the accounting standard specified in the caput of this article.

§ 3 The accounting statements of the invested entities, used for the application of the equity method, must be drawn up on the same date as the accounting statements of the investing fund.

§ 4 In the impossibility of complying with the provision of the previous paragraph, the use of accounting statements of the investees with a maximum lag period of up to two months prior to the date of the accounting statements of the investing fund is admitted.

§ 5 The accounting statements of the investees must be adjusted due to the effects of significant transactions and events that occurred during the lag period relative to the date of the accounting statements of the investing fund.

Art. 9 The administrator of an investment fund that invests in fund shares may use the value of the most recently disclosed share by the invested fund, provided that it represents the fair value of the investments on the reporting date of the investing fund.

Sole Paragraph. The value of the share of the invested fund must be adjusted due to the effects of changes in conditions and significant events that occur between the date to which the value of the share of the invested fund refers and the reporting date of the investing fund.

Art. 10. An investment fund that becomes disqualified as an investment entity or that becomes an investment entity must account for the change in its status prospectively from the date on which the change occurred.

Art. 11. For funds not qualified as investment entities, profit distributions declared and accrued by investees reduce the accounting value of the investment in the fund.

Art. 12. For funds qualified as investment entities, profit distributions declared and accrued by investees must be recognized as revenue.

Art. 13. The asset received by the fund, upon the full subscription of unitholders' investment, must be recognized at fair value.

CHAPTER III - ACCOUNTING STATEMENTS AND DISCLOSURE OF INFORMATION

Art. 14. The investment fund must have its own bookkeeping, and the records, accounts, and accounting statements must be segregated from those of the administrator and other service providers contracted by it.

Art. 15. The information contained in the accounting statements must be useful for investors in monitoring, analyzing, and making decisions related to investments.

Art. 16. The accounting statements of the fund are composed of the following documents:

I – statement of financial position;

II – statement of income and comprehensive income for the period;

III – statement of changes in equity; and

IV – statement of cash flows.

§ 1 The explanatory notes are an integral part of the accounting statements.

§ 2 The accounting statements must faithfully and clearly express the fund's equity situation and the changes that occurred during the period.

§ 3 The accounting statements must be comparative with the previous period.

§ 4 The base date of the accounting statements is the last day of the period to which they refer.

§ 5 The administrator must deliver the accounting statements to the CVM, accompanied by the independent auditor's report, within the period established in the norm that authorizes the constitution, operation, and administration of investment funds.

§ 6 The accounting statements relating to events of incorporation, merger, spin-off, or closure of activities must be delivered accompanied by the independent auditor's report, within 150 (one hundred and fifty) days from the date of the event.

§ 7 Except for the event of closure of activities, the accounting statements of the other events referred to in § 6 must be prepared taking as a basis the fund's equity position at the moment immediately prior to the occurrence of the event.

Art. 17. The explanatory notes must disclose information relevant for the adequate understanding of the accounting statements.

Art. 18. In addition to other information that is relevant for the adequate understanding of the accounting statements, the explanatory notes must contain, when applicable:

I – operational context:

a) date of commencement of activities;

b) the target audience;

c) object activity stated in the bylaws;

d) summary of the adopted strategy and the risks incurred by unitholders inherent to the investments;

e) judgments and premises that were used to conclude whether the fund qualifies or not as an investment entity;

f) disclose the reasons that underpinned the change in qualification of the fund from, or to, an investment entity.

II – basis of preparation of the accounting statements: indicate that the accounting statements were prepared in accordance with the accounting standards and practices adopted in Brazil for the investment funds that it specifies and that are defined by the criteria provided for in this Instruction and by the other norms emanated from the Securities and Exchange Commission of Brazil - CVM;

III – describe the main accounting practices adopted in the preparation of the accounting statements;

IV – if the fund becomes an investment entity, it must disclose the effect of the change in qualification on the accounting statements in the period of the change, presenting:

a) the total fair value, on the date of the change in qualification, of controlled entities, affiliates, and jointly controlled ventures;

b) the total value of gains and losses recognized as a result of the change in the measurement criteria of the fund's assets and liabilities;

c) the line, in the income statement, where the gains and losses were recognized, if not presented separately.

V – the fund qualified as an investment entity must disclose the fact that it has investments in controlled entities, affiliates, or jointly controlled ventures and that it prepares exclusively individual accounting statements;

VI – the fund qualified as an investment entity must disclose:

a) the information required in the accounting standards dealing with the disclosure of participations in other entities and separate statements, applicable to investment entities;

b) the methods, premises, and relevant estimates applied to determine the fair value of the invested entities, including whether the determination of fair value is supported by market evidence or based on other factors, due to lack of comparable data, in which case it must disclose them;

c) if the fair value assessment of the investees was carried out by the manager or by an independent appraiser, in which case it must disclose their identification, professional qualification, experience in the assessment of the asset in question, and the date of the appraisal report used.

VII – the fund not qualified as an investment entity must disclose the relevant information of its investments in controlled entities, affiliates, or jointly controlled ventures, in accordance with the accounting standards dealing with the disclosure of participations in other entities and separate statements;

VIII – risk management: indicate the main risk management practices effectively adopted by the fund, in accordance with the provisions in the accounting standards applicable to publicly-held companies dealing with the disclosure of financial instruments;

IX – derivative financial instruments: inform the policy and risks of their use, the values recognized in the period's result, the counterparty (if not a derivative traded on an exchange), and the margins of the operation;

X – embedded derivatives: disclose information about the characteristics of contracts with embedded derivatives and the eventual risks involved for the fund;

XI – charges: inform the charges debited to the fund, their value, and percentage relative to the average annual equity value of the fund;

XII - classes of fund shares: inform the classes of fund shares and the political and economic-financial rights related to them;

XIII - the book value of the share at the end of the period;

XIV - evolution of the share value and profitability: inform the evolution of the value of each class of fund shares and their respective profitability, for the periods presented, considering the variation of the theoretical share (disregarding amortizations);

XV - issuances and amortizations: present the conditions existing in the bylaws for such operations, informing the issuances and amortizations that occurred during the period;

XVI - trading of shares: inform the trading environments, if any, of the fund's shares, as well as the closing price of the share on the last trading day of each month of the period;

XVII - custody and treasury: describe whether the services are provided by third parties or by the administrator itself, indicating, in the first case, the name of each of these service providers;

XVIII – information on criteria adopted for the allocation and payment of the management fee;

XIX - bylaws amendments: inform the amendments that occurred in the fund's bylaws during the period;

XX - disclosure of information: inform the information disclosure policy, mentioning the communication media used;

XXI - tax legislation: inform the summary of the fiscal rule applicable to unitholders, considering the qualification of the fund, as well as the income tax rate and other taxes levied;

XXII - other services provided by the independent auditor: inform if the independent auditors provide another type of service, other than auditing, to the fund's administrator;

XXIII - contingencies: inform the active and passive contingencies, according to the criterion defined for disclosure in CPC 25;

XXIV - transactions with related parties: inform the transactions and balances existing with related parties that occurred during the period, in accordance with the specific regulation issued by the CVM that determines the additional disclosure of information on transactions with related parties in explanatory notes to the financial statements of investment funds;

XXV - other information: include other information not required by the standards, but deemed relevant for the complete understanding of the accounting statements, notably regarding cases that have led to the application of Art. 22 and its effects on the fund's equity;

XXVI - subsequent events: inform the relevant events that occurred after the closing date of the accounting statements and before the authorization of their issuance.

CHAPTER IV - GENERAL PROVISIONS

Art. 19. The administrator of investment funds must keep, in a clear and objective manner, for a minimum period of 5 (five) years counted from the year following the end of the fiscal year, or for a longer period due to specific legislation or express determination by the CVM in case of administrative proceedings, all reports, documents, and information that support the procedures and criteria provided for in this Instruction.

Art. 20. Upon verification of impropriety or inconsistency in the processes of recognition, classification, measurement, and disclosure of assets and liabilities, recognition of revenues, and allocation of expenses, the Superintendence of Institutional Investor Relations – SIN, after consulting the Superintendence of Accounting Standards and Auditing – SNC, may determine the change, reclassification, registration, or write-off, with the consequent recognition of the effects in the accounting statements, without prejudice to other applicable sanctions.

§1 The determination of change, reclassification, registration, or write-off referred to in the caput of this article may imply the obligation to redo and resubmit the fund's accounting statements to the CVM.

§2 The administrator may redo the accounting statements that contain, in its judgment, improprieties or inconsistencies, and must resubmit them to the CVM.

Art. 21. Any specific formal consultations regarding the interpretation of accounting norms and procedures provided for in this Instruction must be directed to the Superintendence of Institutional Investor Relations – SIN and must be signed by the administrator and the qualified professional responsible for the accounting.

§1 The consultation must expose the administrator's opinion on the best interpretation of the norm regarding the issue raised, indicating all the technical and legal foundation that supports the understanding.

§2 Consultations concerning the change or adoption of new accounting practices must be accompanied by the manifestation of the independent auditor.

Art. 22. With the objective of ensuring the prevalence of economic substance over legal form, in extremely rare cases, where the administrator concludes that the adoption of a certain

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br provision provided in this Instruction may result in distorted information, inadequate calculation of the quota's net asset value, or inequitable distribution of results among quota holders, to the point of conflicting with the objective of the accounting statements to faithfully and clearly represent the fund's actual economic-financial situation, the administrator may, through the procedure provided for in Article 21, refrain from applying the provision provided for in this Instruction.

Art. 23. Independent auditors and fund administrators must observe the norms issued by the CVM regarding, respectively, the exercise of independent audit activity within the securities market and the hiring, maintenance, and relationship with independent auditors.

Art. 24. If any relevant irregularity is found regarding what is established by legislation, this Instruction, the fund's regulations, or other applicable norms, the independent auditor must communicate the fact to the CVM, in writing, within a maximum period of 20 (twenty) days counted from the date of identification of the irregularity.

Art. 25. The change of auditor or administrator, or both, during the fiscal year does not imply the segmentation of periods for presenting accounting statements; the current administrator remains obligated to present accounting statements that fully encompass the fund's social fiscal year, as established in the regulations.

CHAPTER V - FINAL AND TRANSITIONAL PROVISIONS

Art. 26. This Instruction must be applied prospectively, prohibiting the presentation of a comparative period in the initial adoption of this Instruction.

§ 1st The provision in the caput applies exclusively to funds that adopt an evaluation criterion for invested companies different from that stipulated in this Instruction.

§ 2nd It is mandatory to present, in a specific explanatory note, the main changes that occurred in accounting practices and the adjustments made to the opening balances at the beginning of the initial adoption period of this Instruction, as well as the appropriate reconciliation between the previous and current equity.

SECURITIES COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors – Center – Rio de Janeiro - RJ – ZIP: 20050-901 – Brazil Tel.: (21) 3554-8686 - www.cvm.gov.br

Art. 27. The investment funds in companies specified in this instruction must register the adjustment in the opening balances of investments in invested companies, upon initial adoption, as a counterbalance to a specific equity item.

Sole paragraph. Funds that qualify as non-investment entities upon the initial adoption of this Instruction must quantify the adjustment described in the caput based on the comparison between the accounting balance and the percentage of participation held in the equity of invested companies on the date of initial adoption of this instruction.

Art. 28. This Instruction enters into force on the date of its publication, applying to accounting periods starting on or after January 1, 2017.

Original signed by
LEONARDO P. GOMES PEREIRA
President