1. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS August 11, 2005 RATINGS OF PENSION FUNDS A Presentation by Role of Credit Rating Agencies in the new Voluntary Pension System – Rating and investment performance measurement

2. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS The main and proper role of credit ratings is to enhance transparency by reducing the information asymmetry between investors and investees. As financial market complexity and borrower diversity increased over time, investors and regulators have placed greater reliance on the opinions of credit rating agencies. The strength of the rating agencies’ global franchise and the core of their expertise in assigning ratings, provides them a forte to stand on.

3. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Internationally, fluctuations in the capital markets upended fund managers’ forecasts regarding returns and the cost of providing benefits (to corporate pension plans) At the end of 2002, 90% of all defined benefit pension plans in the United States were under-funded In October 2003, the Pension Benefit Guaranty Corporation (PBGC) estimated that the total funding gap was roughly $350 billion

4. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Internationally, mutual funds are being assessed both on the basis of performance and stability of NAV. Some of the ratings methodologies in use include: Performance Rankings Principal Stability Fund Ratings Fund Credit quality ratings Fund Volatility Ratings The ability of fund manager is of paramount importance in any fund rating. This is assessed through Management Quality Rating

5. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS JCR-VIS introduced its methodology on mutual funds in 2000, followed by product updates in line with international practices. October 2003:JCR-VIS Mutual Funds Rating Methodology (Management Quality Ratings, Fund Stability) July 2004:Mutual Fund Performance Rankings (Star Rankings)

6. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Mutual Fund Performance Rankings Management Quality Ratings Fund Stability Ratings A significant weight of performance rankings is taken into the management quality ratings, which in turn is built into the fund stability ratings

7. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Based on quantitative factors Risk adjusted return of individual funds compared to the best in the peer group, which includes funds investing in largely the same asset class Haircuts applied for liquidity and concentration (sectoral and individual scrip) risks

8. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS MFR-5(s) (Five Star)(top 10%)Very good performance MFR-4(s) (Four Star)(next 22.5%)Good performance MFR-3(s) (Three Star)(next 35%)Average performance MFR-2(s) (Two Star)(next 22.5%)Below average performance MFR-1(s) (One Star)(last 10%)Weak performance JCR-VIS - Mutual Fund Performance Ranking Scale These rankings are reviewed on a half-yearly basis Rankings issued only after 2 years of track record

9. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS An opinion on the overall quality of the asset management company (AMC) incorporating governance related issues. Includes analysis of: Organizational structure Quality of human resources Investment and risk management policies Internal control and information systems The scale depicts a range of highest to weak standard of management quality

10. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Measures: Relative sensitivity of a fund’s NAV and total return to changing market conditions with an emphasis on downside risk Ability of a fund to maintain value and limit exposure to losses

11. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS

12. Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Highest degree of stability in NAV. Risk is negligible with very low sensitivity to changing economic conditions. AAA(f)B(f) Very low degree of stability in NAV. Risk factors are capable of fluctuating widely if changes occur in the economy.

13. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Performance Rankings – for all three types of sub-funds Management Quality Ratings – for all fund management companies Stability Ratings – for debt and money market sub-funds

14. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Management Quality RatingsFMQ-2 Equity sub- fund Money market sub- fund Debt sub- fund Fund Stability Ratings-AA-(f)A-(f) Rankings5-Star3-Star4-Star

15. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Ratings criteria not laid out for: Asset Management Companies (AMCs) Life Insurance companies Central Depository Company Banks in which deposits can be placed by sub- funds

16. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS AMCs fee should be linked to the fund’s performance Some form of guarantee may also be considered after annuity commences or a law could be enacted whereby the accountholder would have a specific charge on the bank account

17. JCR-VIS Credit Ratings Commercial Banks JCR-VIS Entity Ratings Bank Finance Ratings JCR-VIS Thank You JCR-VIS Credit Rating Company Limited