1.

5% IOF Tax on Purchase of ADRs

On November 17th, the Government announced a tax on the purchase, by foreigners, of

shares (American Depository Receipts - ADRs) outside Brazil in order to be consistent
with their imposition of a 2% tax on investment capital entering Brazil for the purposes
of participating in the stock or fixed income markets. This new tax would be 1.5% of the
value of purchase, and the tax would be paid at the time that the shares were deposited
with a custodian bank in Brazil.

TheADRs were a window of opportunity to foreign investors, with a limited number of

shares, but including Petrobras, Vale, banks Unibanco & Bradesco among 71 shares
issued by 55 companies where investors could participate without paying the 2% IOF tax.
Also, investors whose money entered via the ADR market had the right to switch their
investment to shares of the same company they bought with ADR`s, but without paying
the 2% tax.

Figure 1 represents the performance of Petrobras, Vale and Bradesco ADR`s from
October 1st through November 20th. The general experience of all three stocks over the
period seems to have been similar in the sense that all stocks rose in US Dollar value, but
Bradesco by 5.7%, Petrobras by 12.7%, and Vale by 27.6%.

Figure 1

ADR Performance, Petrobras, Vale & Bradesco

60 October 1st 2009 to November 20th 2009

50
40
US$

30
20
10
0
10

10

10

10

10

11

11

11
/1

/8

/1

/2

/2

/5

/1

/1
/2

/2

5/

/2

2/
2/

9/

9/
00

00

20

20

20

00

20

20

Petrobras Vale Bradesco

9

09

09
09

09

09

Source: Yahoo Finance

Figure 2 compares the performance of Bovespa with the performance of these three
ADRs between November 17th and November 20th. The Dollar revalued against the Real
by 1.0% during this period giving net share losses of roughly double the Ibovespa loss.
Figure 2
Net Performance of Bovespa vs ADRs
Ibovespa Petrobras Vale Bradesco
(1.3%) (2.6%) (2.2%) (2.6%)

It is early to draw conclusions from volume figures, but the volume of transactions was
down for the average of the three days that followed the ADR tax announcement
compared to the average of the period between October 1st and November 17th by 20%
(Bradesco), 28.6% (Vale), and 15.4% Bradesco.

The conclusion we draw from these facts are:

The ADR tax has had an immediate impact over and above the general decline that was
experienced by the Ibovespa. The decline is reflected in lower volume figures also.
The lesson to be learned by investors with Vale, for instance, may be that with gains in
the last seven weeks of nearly 28.6%, maybe a tax of 1.5% would not even be noticed.
However, for Bradesco, the gain in the same period is only 5.7%, and a 1.5% tax would
weigh more heavily.

Figure 3 below compares the experience of Ibovespa, compared with five other stock
markets, the Dow Jones Industrial Average (“DJI”), and the Standard and Poors 500
(“S&P 500”) of the USA, the Financial Times and London Stock Exchange 100 Index
(“FTSE 100”) of the United Kingdom, The Cotation Assistée en Continu 40 (“CAC 40”)
of France, and China`s Hang Seng Index (“HSI”) between the time of the imposition of
the first IOF tax, and includes the second also. The experience shows the Dow Jones
performing better than the others, but notwithstanding the taxes, Ibovespa in second
position.

Figure 3

Stock Markets Performance

October 20th - November 20th
106.0%
104.0%
102.0%
100.0%
98.0%
96.0%
94.0%
92.0%
90.0%
10

10 / 20

10 / 20

10 / 20

10 / 20

10 / 20

11 00

11 / 20

11 / 20

11 / 20

11 / 20
11 / 20

11 00

11 00

11 00

11 00
/2

/2 09

/2 0 9

/2 0 9

/2 0 9

/3 0 9

/1 9

/1 09

/1 0 9

/1 09

/1 0 9
/9 9
/1 0 9

/3 9

/5 9

/7 9
0

9/
/2

/2

/2

/2

/2

20
09

Ibov S&P HSI CAC 40 FTSE DJI

Source: Bovespa