Sweden Country Report. Table 1: Key Economic and Financial Indicators. Table 2: Net Assets by the Fund Industry in Sweden (EUR billion)

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1 Sweden Country Report 1. Economic and Financial Background Population (million) GDP Real GDP growth (%) Inflation rate (%) Unemployment rate (%) Stock market capitalisation Stock market capitalisation (% of GDP) market capitalisation market capitalisation (% of GDP) Household gross savings ratio (%) Household financial wealth Average per capita financial wealth (EUR) Table 1: Key Economic and Financial Indicators , , Key Trends in the Global Market Home-domiciled UCITS Table 2: Net Assets by the Fund Industry in Sweden Home-domiciled non-ucits Funds domiciled abroad and promoted in Sweden Total AuM Total assets under management amounted to EUR 166 billion at the end of 2009, which constitute an increase in value of EUR 50 billion (43 %) since end of The extreme stock market recovery had of course a substantial impact on the AUM during 2009, but also a large net inflow into investment funds contributed to the dramatic increase in value. Worth noting is that the AUM at the end of 2009, calculated in SEK, constitute the highest year-end AUM ever recorded for Sweden. This fact is, however, not apparent in the above table since the SEK has weakened against the Euro in recent years.

2 Equity Fund-of-funds* Total of which ETFs Table 2a: Total Assets by Fund Type in Sweden (domiciled home and abroad) *Included after investment orientation from Mainly as a result of the sharp stock market recovery equity funds AUM increased by 75 percent in As a matter of fact all fund types except money market funds recorded increased AUM during The decrease in money market funds AUM was due to a large net outflow of EUR 2.2 billion Home-domiciled UCITS Table 3: Net Sales of Investment Funds in Sweden 7,955 6,730 2,141 3,236 8,219 Home-domiciled non-ucits Funds domiciled abroad and promoted in Sweden * 2,022 n.a. n.a. n.a. n.a Total net sales 10,700 9,149 3, ,637 *Due to inconsistent treatment of reinvested dividends after 2005, net sales cannot be specified. Total net sales of investment funds amounted to EUR 11.6 billion in It represents the largest net inflow ever recorded for a single year. Equity Fund-of-funds* Table 3a: Total Net Sales by Fund Type in Sweden (domiciled home and abroad) 4,153 1, ,084 2, , ,220 3, , ,745 1,848 2,219-2,154 Total 10,700 9,149 3, ,637 *Included after investment orientation from Almost EUR 10 billion, over 80 percent of the total net inflow, were invested in equity funds during fund recorded at the same time a net outflow of EUR 2.2 billion. This reveals that fund savers in 2009, in contrast to 2008, largely increased their willingness to invest and especially towards investments in riskier assets. Equity funds as well as balanced funds recorded net inflows during all months in 2009.

3 3. Key Trends in the UCITS Market Equity Fund-of-funds Total of which ETFs Table 4: UCITS Assets by Fund Type (home domiciled) Assets of nationally domiciled UCITS amounted to EUR billion at the end of 2009, compared to EUR 85 billion in The AUM appreciation of over 45 percent is, as stated earlier, mainly a result of the increase in value of equity funds due to the stock market recovery. Nevertheless over 20 percent of the AUM rise was due to net inflows during Equity Fund-of-funds Table 5: Net Sales of UCITS by Fund Type (home domiciled) 2,685 1,024 1, , , ,144 1, , ,011 2,251 1,433 1, , ,116-1,935 1, Total 7,955 6,730 2,141 3,236 8,219 Total gross sales 29,095 39,628 42,428 55,999 36,020 Total net sales of nationally domiciled UCITS amounted to EUR 8.2 billion. Of which equity funds recorded a net inflow of EUR 7.5 billion. 4. Trends in the Number of Funds Home-domiciled UCITS (funds) Table 6: Number of Funds Home-domiciled non-ucits Foreign funds registered for sales 2,746 3,253 3,502 4,015 4,045 The number of home-domiciled funds has been at the same level over the last five years whereas the number of foreign funds have incresed dramatically. This increase is partly due to the fact that foreign fund companies promoting their investment funds in Sweden, but also because national providers register their new investment funds abroad, mainly due to tax purposes.

4 5. Household 1 Savings Allocation Currency & deposits Debt securities Quoted shares Life & pension funds Investment funds Direct ownership Via life ins. policies Table 7: Main Assets of Households Total financial assets Non financial assets n.a. n.a Total net wealth , ,079.4 n.a. n.a The positive stock market development in 2009 had a major impact of the households financial portfolio. The households total financial assets increased from EUR 469 billion to EUR 573 billion during Most favoured were investment funds and quoted shares. At the end of 2009 investment funds accounted for approximately 25 percent of the households total financial assets. Currency & deposits Debt securities Quoted shares Life & pension funds Investment funds Table 8: Net Asset Acquisition by Households 5,975 1, ,258 7,663 2,286 10,472 1,179-4,485 10,151 4,574 1,963 17,215 4,194-4,243 9,420 2,661 2,670 9, ,830 3,184 2,747 3, ,479 8,225 1,402 Total financial assets 25,196 23,853 31,917 24,420 21,819 The households net saving in currency and deposits decreased dramatically in 2009 compared to previous years. Instead the households invested in more risky assets, especially investment funds. 1 Including households and non-profit institutions serving households.

5 6. Ownership of Investment Funds Swedish households, direct inv. IPS (Individual pension saving) Unit-linked PPM (Premium pension) Non profit inst. serving households Swedish corporations s Table 9: Net Assets of funds by Owner Category Total Fund savings for pension has inceased during the period and constituted almost 50 percent of the Swedish investment fund market at the end of Swedish households, direct inv. IPS (Individual pension saving) Unit-linked PPM (Premium pension) Non profit inst. serving households Swedish corporations s Table 10: Net Sales of funds by Owner Category 1, ,082 2, , , ,725 5, , , ,296 3, , ,911 2, , , ,645 2, , Total 10,700 9,149 3, ,637 All owner categories recorded net inflows into funds in The largest part (EUR 3.5 billion) came from Swedish corporations. Worth noting is that Swedish households direct investment in funds were positive in 2009 for the first time since Regulatory and taxation issues 7.1 Regulatory developments: The third Anti Money Laundering Directive was implemented on the 15 of March 2009 and guidelines from the FSA came into force on May Pensions: The Premium Pension system was launched in 2000 and introduced compulsory investments of funds in one part of the 1 st pillar pension. During 2009 legislative proposals were presented regarding the system entering into force in the beginning of This was the result of the Swedish state committee from 2005 looking over the Swedish pension system. The existing authority administering the payments and fund selections (PPM) has been merged with the Swedish Social Insurance Authority into one new authority, the Swedish Pensions Agency (Pensionsmyndigheten).

6 Most of the changes relate, however, to the state default option and these changes enter into force in May The default alternative, Premiesparfonden, will be replaced by a new alternative AP7Såfa. Three additional state fund portfolios will also be created with differing risk profiles AP7Cautious, AP7 and AP7Offensive. The new investment alternatives will be based on different proportions of two new funds managed by the Seventh AP fund, namely a global equity fund and a Swedish fixed income fund. These funds will also be made available separately. The new AP7Såfa is an age-adapted mutual fund portfolio. The equity exposure and hence the risk level will initially be higher than in an average global equity fund. The risk level is adapted to the saver s age, such that the equity exposure will start to successively decline once the saver has reached the age of 55. The equity exposure and risk level decline annually until the saver reaches the age of 75. The open fund market with private managers funds will still be available after the changes have entered into force. As per there were about 750 private funds available for selection for the premium pension. 7.3 Tax rules, VAT rules and double tax treaties: A proposal for a change in the taxation of the funds was introduced in December According to the proposal the current tax on the funds should be abolished but the tax burden should be shifted to the unit holders, irrespectively if they are holding Sweden or foreign registered funds. The proposal was heavily criticized by the industry and the future of the proposal is not yet determined. 8. Investment management governance 8.1 Fund governance issues The Swedish Investment Fund Association has conducted surveys among our members regarding the extent to which they have introduced SRI considerations in their management. They were also asked to elaborate on any corporate governance policies and their adherence to the association s Code of Conduct, which is construed as a comply or explain -document. According to the survey approximately one third of the members of the Swedish Investment Fund Association are signatories of the UNPRI. The Swedish Investment Fund Association already has a workgroup on corporate governance and due to a mandate by the board the group has focused on SRI issues during The main topic has been the ongoing development towards mainstreaming responsible investments, where SRI issues are becoming increasingly important for all funds. 8.2 Governance of management company The Swedish Financial Supervisory Authority (Finansinspektionen) has issued Regulations and guidelines regarding remuneration policies in credit institutions,

7 investment firms and fund management companies (FFFS 2009:6), entering into force 1 January Firms shall have a remuneration policy that is consistent with good risk management and does not encourage short-term profits and excessive risktaking. For employees whose actions can have a material impact on the risk exposure of the firm, at least 60 per cent of the variable remuneration should be deferred for at least three years. The regulation is based on the EU Commission's recommendation governing remuneration policy within the financial services sector. In these efforts, Finansinspektionen has also implemented the global principles for sound remuneration systems which were adopted at the G20 meeting in September Fund Standards and Distribution 9.1 Standards 9.2 Distribution During 2009 it became clear that the FSA regarded distribution of funds as an outsourced core fund activity. Consequently distribution agreements are seen as outsourcing agreements and are covered by the rules on delegation. As Sweden has implemented MiFID-rules also to fund management the administrative burden on the fund managers has grown considerately. The industry is trying to obtain a change in this regards in connection with the implementation of UCITS IV. 10. activities of the association Among the most prioritized issues for The Swedish Investment Fund Association are fund taxation, the implementation of UCITS IV, the AIFM-Directive and pensions issues. Communication also plays an important role. The association has arranged seminars on taxation, marketing standards and rules. The association publishes regularly a member s newsletter and an EU-circular in collaboration with other trade associations.