Annual Report 2007 Raiffeisen Capital

Responsible growth

Annual Report

20 07

OVERVIEW RAIFFEISEN CAPITAL MANAGEMENT

03

RAIFFEISEN CAPITAL MANAGEMENT IN BRIEF

Highlights 2007 > > > > > >

Raiffeisen Capital Management remains clear market leader Foreign sales drive growth Continuous expansion of in-house Europe expertise in fund management 18 Raiffeisen funds rated by Standard & Poor’s Multiple awards for top fund company in Austria, Germany, Italy and France RCM’s CEO Mathias Bauer is new president of EFAMA

TREND IN RCM GROUP’S FUND ASSETS

FUND MARKET LEADER IN AUSTRIA

IN EUR BILLION SOURCE: OEKB, RCM

IN %

1999 16.6

RAIFFEISEN CAPITAL MANAGEMENT 23.2%

2000 18.3 PIONEER INVESTMENTS AUSTRIA 15.2% 2001 18.9 ERSTE SPARINVEST 18.5% 2002 19.5 OTHERS 43.1% 2003 21.5

2004 27.8*

2005 36.1*

2006 41.2*

2007 40.0*

* Data from the beginning of 2004 onward represents fund assets under management, based on the new calculation method of the VÖIG (the Association of Austrian Investment Companies). Data prior to 2004 represents sales to investors (retail funds, special and other institutional funds, and funds-offunds excluding their domestic constituent funds).

CONTENTS RAIFFEISEN CAPITAL MANAGEMENT

04

CONTENTS

05

Our Mission and Values

06

Letter from the CEO

09

Group Structure and Management

14

Raiffeisen Capital Management

18

Fund Management at RCM

21

The RCM Product Range

23

Trends in 2007/2008

24

The 2007 Investment Year

36

The RCM Group in 2007

46

RCM Group Financial Results

50

The RCM Group in 2007

51

Capital Market Outlook for 2008

53

Our Staff

54

Important Addresses

OUR MISSION AND VALUES RAIFFEISEN CAPITAL MANAGEMENT

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OUR MISSION AND VALUES

We are > the asset manager of the Raiffeisen Banking Group > the acknowledged Number One in the Austrian fund industry > one of the quality leaders among European asset managers

Our clients > profit from our valued know-how > earn higher long-term returns thanks to a clearly structured investment process > receive professional advice and outstanding service > benefit from the safety and ubiquity of the Raiffeisen Banking Group

Our expertise > is in providing asset management that respects risks, and products that are designed for investors’ needs > centres on fund and discretionary portfolio management, financial planning and service that puts clients first > is leveraged by working with the best national and international partners > sets standards for the industry

Our employees > are our most precious asset > deliver superior performance, personal initiative and responsible teamwork > experience and practice openness and fairness in a progressive social setting > identify strongly with our company

Our success > means sustained high benefits for our customers, staff, owners and distribution partners > is fuelled by the creativity and dedication of our people > is based on a forward-looking and highly efficient organisation using state-of-the-art technologies > is driven by the continuous development of our staff, strategies, products and systems

LETTER FROM THE CEO RAIFFEISEN CAPITAL MANAGEMENT

06

LETTER FROM THE CEO, MATHIAS BAUER

“RCM maintained its market leadership in 2007 despite the financial crisis.” Dr. Mathias Bauer, CEO

The turmoil in international financial markets in the second half of 2007 did not leave the fund industry unscathed. The average performance of many funds was lower than in the two previous years. For the first time in many years, funds saw – in some cases considerable – net redemptions. The Austrian market did not escape the international trend and thus – in another multi-year first – contracted, decreasing by 2.2 per cent in overall size to just under EUR 164 billion. Raiffeisen Capital Management (RCM) as the market leader naturally was not immune to this development. The decrease in fund assets, coming after two consecutive record years, was a relatively mild 3.4 per cent thanks to continuing brisk net sales in foreign markets. At the end of 2007, RCM managed fund assets of almost EUR 38 billion. Including advisory mandates, assets under management totalled approximately EUR 41 billion. Especially mutual funds were adversely affected by the liquidity crisis that ultimately led to a global crisis of confidence. Given the difficult circumstances, it is all the more gratifying that RCM was able unequivocally to maintain the top market position, with an effectively unchanged lead over the main competitors. As already mentioned, last year the international business remained the company’s leader in sales performance. Despite enormously challenging market conditions, fund assets abroad were boosted by about one-fifth.

After the strongly expansionary preceding years, 2007 was a year of consolidation for RCM. We consistently continued to enlarge our management expertise and broadened the range of Europe-centred funds managed in-house. At Raiffeisen Capital Management we now see ourselves as a European asset manager in the heart of Europe as our extended home market, building on a strong base in Austria. In addition to all bond funds, more than three-quarters of all RCM equity fund assets are now also managed in-house.

FUND INVESTORS CAN FEEL SECURE IN THEIR INVESTMENTS Quite a few investors, after reading numerous headlines in recent weeks and months, may well wonder whether their money is safe with financial services providers – quite apart from the risk of possible price losses in capital markets. Where investment funds are concerned, we are happy to be able to allay such fears: With a domestic Austrian fund company like Raiffeisen Capital Management, client money invested in fund units is absolutely secure – not least because it always remains the property of the investor and is thus not affected by the business risks of the fund provider.

LETTER FROM THE CEO RAIFFEISEN CAPITAL MANAGEMENT

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INVESTOR PROTECTION BEFORE ALL ELSE

A DEPENDABLE PARTNER EVEN IN TRYING TIMES

The safety of fund investments is underpinned by the Investment Fund Act. Ultimately, the entire Act has only a single purpose: To afford investors the maximum possible protection. The sweeping, strict provisions of the Act are aimed in part at the early detection and immediate correction of conceivable human misconduct. On the part of the fund company, the risk of such an event is minimised from the start by strict separation of internal fund auditing and risk control from fund management. As the fund business is very much a trustbased undertaking, the Austrian fund companies voluntarily committed themselves several years ago to a corporate governance code that enshrines quality standards above and beyond the legal requirements. This ensures greater transparency and comparability, and requires that providers act only in the interest of the fund investor. And while we are on the subject of transparency: No other investment vehicle is governed by standards of disclosure as exacting as those for investment funds. Thus, the quarterly and semiannual reports detail every expense item – a level of transparency not provided by other forms of investment.

The fund industry can look back on many boom years, but is currently, together with all asset classes, going through a market-driven correction stage. Particularly in such an unsettled environment, a well-designed risk management approach that has been exhaustively tested in real-life and simulated stress situations is crucially important. RCM fund clients benefit from comprehensive risk management systems and can feel safe in the knowledge that their money is welllooked-after by a highly trustworthy partner. Stringent risk management protocols, including the daily examination of every single transaction for compliance with legal and internal requirements, serve to make significant losses due to non-market factors a virtual impossibility. While conflicts of interest can occur on the distribution side between sales strategies and customer needs, fund producers have only one objective: the preservation and growth of the capital with which they are entrusted. Naturally, short-term performance losses cannot be avoided, particularly during extended market downturns. But in the long run, funds remain unbeatable as an asset class.

“Performance, service and quality make RCM a partner to count on.” Gerhard Aigner

LETTER FROM THE CEO RAIFFEISEN CAPITAL MANAGEMENT

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VIENNA THE INVESTMENT FUND HUB FOR EASTERN EUROPE

“For private long-term savings, funds are the ideal choice.” Andreas Zakostelsky

I have mentioned that RCM’s international business continues to grow rapidly. Much of this foreign business is in the countries of Central and Eastern Europe, and that is no coincidence: Vienna has the ability in the years ahead to assume the role for the East that Luxembourg and Dublin already play for Western Europe. Austrian fund companies, with RCM in the forefront, were much quicker than Anglo-Saxon and other providers to develop local expertise and now command high potential for international distribution thanks to the strong presence of Austrian banks abroad – in our case, Raiffeisen International Bank-Holding AG. Added to this is the superior economic growth in Eastern Europe and the increasingly well-serviced consumer demand, associated with the population’s growing desire to provide for the future. Currently about one-quarter of the funds produced for this region are from Austria – a share that will increase with the joining of the euro.

CONTINUOUS EVOLUTION In the years ahead, the professionalisation of asset management will accelerate even more than it already has. The investment opportunities available to clients will include more diverse choices (alternative investments), active asset allocation combined with risk management, and the inclusion of derivatives as an integral aspect of portfolio construction. Performance, service, quality and brand are becoming the key success factors. Raiffeisen Capital Management is already well prepared today to meet these coming challenges. On behalf of the whole management team, I would like to take this opportunity to thank all our staff for their extraordinary effort in the past year. This commitment is the foundation for further successful years ahead – even if the market setting were to remain sensitive for a prolonged period.

Mathias Bauer Chief Executive Officer

GROUP STRUCTURE, BOARDS AND OTHER LEADERSHIP RAIFFEISEN CAPITAL MANAGEMENT

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GROUP STRUCTURE AND MANAGEMENT OF RCM

8 RAIFFEISENLANDESBANKEN

RAIFFEISEN ZENTRALBANK ÖSTERREICH AG

(each with an ownership interest of 6.25%)

50%

50%

51%

49%

RAIFFEISEN RESEARCH G.M.B.H.

RAIFFEISEN KAPITALANLAGE G.M.B.H. Investment funds

100%

RAIFFEISEN VERMÖGENSVERWALTUNGSBANK AG Discretionary portfolio management

100%

RAIFFEISEN IMMOBILIEN KAPITALANLAGE G.M.B.H. Open-end property funds

100%

RAIFFEISEN INTERNATIONAL FUND ADVISORY G.M.B.H. Foreign sales

GROUP STRUCTURE, BOARDS AND OTHER LEADERSHIP RAIFFEISEN CAPITAL MANAGEMENT

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Group management of RCM

Mathias Bauer (48) Education:

Doctoral degree in economics

Prior experience:

Research assistant at Vienna Univ. of Economics and Business Administration; assistant to head of securities dept. of Genossenschaftliche Zentralbank

At RCM since:

1985

Responsibilities:

Chief Executive Officer of Raiffeisen KAG; responsible for international business, operations, human resources, public relations, legal, taxes, and management secretaries’ office; Managing Director of Raiffeisen International Fund Advisory

Other offices:

President of the European Fund and Asset Management Association (EFAMA); Vice President of the Association of Austrian Investment Companies (VÖIG)

Gerhard Aigner (42) Education:

Economics degree

Prior experience:

Chief Investment Officer at RCM; fixed income analyst at Raiffeisen Zentralbank and GiroCredit

At RCM since:

1994

Responsibilities:

General Manager of Raiffeisen KAG; responsible for portfolio management, product development, institutional clients, risk management and strategic controlling

Andreas Zakostelsky (46) Education:

Law degree

Prior experience:

Raiffeisenbank Graz; Director of group head office at Raiffeisen Zentralbank; member of senior management of the Raiffeisen regional bank in Styria province responsible for securities trading, international business, and support for Raiffeisen local banks

At RCM since:

2002

Responsibilities:

General Manager of Raiffeisen KAG; responsible for Raiffeisen regional banks as clients, high-net-worth individuals, the property funds subsidiary (Immobilien KAG), office management and internal auditing; Managing Director of Raiffeisen Vermögensverwaltungsbank

GROUP STRUCTURE, BOARDS AND OTHER LEADERSHIP RAIFFEISEN CAPITAL MANAGEMENT

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Management of the subsidiaries

Christa Maria Bernbacher (42) Education:

Business degree

Prior experience:

Head of CEE large corporates business at Pioneer Investments Austria; head of private banking at RBB Bank; private banking manager at HSBC in London

At RCM since:

2007

Responsibilities:

Managing Director of Raiffeisen International Fund Advisory

Georg-Viktor Dax (47) Education:

Economics degree

Prior experience:

Director of portfolio management at Raiffeisen Vermögensverwaltungsbank

At RCM since:

1991

Responsibilities:

Managing Director of Raiffeisen Vermögensverwaltungsbank

Werner Niepel (59) Education:

Business degree

Prior experience:

Director of foreign institutional clients at Raiffeisen Zentralbank; Bankhaus Kathrein & Co

At RCM since:

2001

Responsibilities:

Managing Director of Raiffeisen International Fund Advisory

GROUP STRUCTURE, BOARDS AND OTHER LEADERSHIP RAIFFEISEN CAPITAL MANAGEMENT

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Management of the subsidiaries - continued

Franz Pöltl (43), until March 2008 Education:

Economics degree

Prior experience:

Managing director of BACA Real Invest Immo KAG; head of investments at BACA Real Invest GmbH; head of business development at MAIL Finanzberatung GmbH; officer for structured finance at CA Leasing GmbH

At RCM since:

2007

Responsibilities:

Managing Director of Raiffeisen Immobilien KAG

Jan Schwarz (40) Education:

Business degree from Copenhagen Business School

Prior experience:

Head of transactions, Northern and Central Europe, at Deutsche Bank Real Estate; investment manager at Deka Immobilien Investment; head of Nordic office at Deutsche Hypothekenbank (Dresdner Bank)

At RCM since:

2006

Responsibilities:

Managing Director of Raiffeisen Immobilien KAG

Hubert Vögel (43), since March 2008 Education:

Doctoral degree in law, degree in German philology and history

Prior experience:

Legal department and real estate back office at ÖBB, portfolio manager at Europolis Real Estate Asset Management, managing director of Europolis Real Estate Asset Management

At RCM since:

2008

Responsibilities:

Managing Director of Raiffeisen Immobilien KAG

GROUP STRUCTURE, BOARDS AND OTHER LEADERSHIP RAIFFEISEN CAPITAL MANAGEMENT

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Supervisory Board and Strategic Advisory Board of Raiffeisen KAG and Raiffeisen Vermögensverwaltungsbank AG

Supervisory Board Gerhard Grund, Chairman (from Raiffeisen KAG) Manfred Url, Chairman (from Raiffeisen Vermögensverwaltungsbank) Leopold Buchmayer, Deputy Chairman (from Raiffeisen KAG) Wilfried Hopfner, Deputy Chairman Gerhard Rehor, Deputy Chairman (from Raiffeisen Vermögensverwaltungsbank) Georg Messner Regina Reitter (from Raiffeisen KAG) Johann Schinwald Georg Starzer Gobert Sternbach Anton Tackner Manfred Bayer (Staff Council) Stefan Grünwald (since 1 November 2007, succeeding Gabriel Panzenböck; Staff Council) Martin Hager (Staff Council) Sylvia Kubicek (since 1 November 2007, succeeding Thomas Krimmel; Staff Council) Friedrich Schiller (Staff Council)

Strategic Advisory Board Manfred Url, Chairman Harald Schoder, Deputy Chairman Anton Trojer, Deputy Chairman Peter Brezinschek Gerhard Grund Nikolaus Hagleitner (since 27 March 2007, succeeding Christian Säckl) Uwe Hanghofer Paul Kirchknopf Christian Kuschnig (deceased 23 October 2007) Petra Ruderer-Knollmayr Helmut Wimmer (since 1 November 2007, succeeding Gerhard Haid) Dietmar Wirth (until middle of 2007)

Raiffeisen Capital Management – Number One for Funds

Setting standards together

RCM RAIFFEISEN CAPITAL MANAGEMENT

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RAIFFEISEN CAPITAL MANAGEMENT – NUMBER ONE FOR FUNDS

THE INTERNATIONAL-AWARD-WINNING ASSET MANAGER OF THE RAIFFEISEN BANKING GROUP Raiffeisen Capital Management (RCM) – the umbrella brand of Raiffeisen Kapitalanlage-Gesellschaft and its three subsidiaries, Raiffeisen Vermögensverwaltungsbank, Raiffeisen International Fund Advisory and Raiffeisen Immobilien Kapitalanlage-Gesellschaft – is owned by Raiffeisen Zentralbank Österreich (RZB) and the Raiffeisen regional banks. RCM thus forms part of the Raiffeisen Banking Group – the country’s densest network of banking outlets (and largest private employer) with about 560 independent local Raiffeisen banks, a total of almost 1,700 branches, eight Raiffeisen regional banks and the lead institution, RZB. About 1.7 million Austrians are members, and thus co-owners, of Raiffeisen banks. Almost 40 per cent of the Austrian population are Raiffeisenbank customers. With its steadily growing network in Central and Eastern Europe, the RZB Group has become one of the leading banking concerns in the region, and the one with the greatest geographic coverage. Raiffeisen International Bank-Holding AG is the RZB Group’s lead unit for the banking subsidiaries in Central and Eastern Europe. Raiffeisen International is a fully consolidated subsidiary of RZB. Since what was at the time the largest initial public offering in Austrian history, in April 2005, seventy per cent of the company is owned by RZB. The other 30 per cent of shares represent free float, traded in the Prime Market segment of the Vienna Stock Exchange and forming part of the Austrian blue chip index, the ATX.

THE UNDISPUTED NUMBER ONE IN FUNDS With a market share of 23.2 per cent, Raiffeisen Capital Management is the undisputed leader in the Austrian fund market – and has been for many years. In more than 300 funds (excluding shell funds), RCM manages assets of EUR 38 billion (as of the end of 2007), including EUR 16.6 billion in retail mutual funds. If one includes the advisory mandates, RCM’s assets under management amount to over EUR 41 billion. The market shares are 26 per cent in institutional funds and slightly more than 20 per cent in retail funds. The business areas are clearly delineated on the basis of customer benefit: For retail customers, Raiffeisen KAG offers a structured range of investments that systematically covers all large asset classes. Sophisticated investment needs are additionally addressed through specialty products (such as discretionary portfolio management and funds-of-hedge-funds). For institutional clients, Raiffeisen KAG offers customtailored solutions. International clients are serviced by Raiffeisen International Fund Advisory. Raiffeisen Immobilien Kapitalanlage-Gesellschaft manages the open-end real estate funds. Raiffeisen Research, the subsidiary jointly held with RZB, provides highly qualified buy-side research for equity fund management.

RCM RAIFFEISEN CAPITAL MANAGEMENT

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EUROPEAN PLAYER – 22 YEARS OF RAIFFEISEN CAPITAL MANAGEMENT

HEADQUARTERS AT SCHWARZENBERGPLATZ DESIGNED TO THE HIGHEST CSR STANDARDS

RCM started in 1985 with a staff that could be numbered on the fingers of one hand; by the end of 2007, the Group had more than 300 employees. Having won market leadership just five years after the company's launch, this position has been successfully retained to this day. For some years now, the international business – which at the end of 2007 had EUR 6.5 billion under management – has become ever more of a sales leader in the company. To thrive in this intensely competitive market in the long run, RCM places strong emphasis on quality: The investment and organisational processes are continually fine-tuned and satisfy the highest standards. Modern risk management and complete transparency ensure safety. As a result, it is natural for RCM to lead the way on issues of significance to the entire fund industry. Clarity and transparency also characterise RCM’s approach to its fees. Data such as the total expense ratio, or TER, gives customers a clear and complete picture of funds’ expenses at all times.

One of Vienna’s most prestigious addresses, Schwarzenbergplatz, has since November 2006 been home to the new head office of Raiffeisen Capital Management. After extensive renovations that were completed in only about eight months, the staff of approximately 300 moved into the modern new premises.

QUALITY OF PERFORMANCE – INTERNATIONALLY RECOGNISED Since 2002, Raiffeisen KAG’s flagship funds are reviewed by a rigorous Standard & Poor’s rating process. In that first year, Raiffeisen securities funds garnered four top ratings of AAA, a distinction awarded only to truly outstanding funds. These top ratings were confirmed in the years that followed. Additionally, in 2004, an AAA was awarded to Raiffeisen-Euro-Rent, the first euro-denominated bond fund of an Austrian company to receive a tripleA rating. Currently RCM holds one AAA, 14 AA and three A ratings from Standard & Poor’s.

The design of the working environment for the highly qualified and effective RCM workforce is an expression of the company’s sustainable values and the responsible treatment of its most precious resource: RCM is very aware that asset management is a people business. As part of the day-to-day practice of corporate social responsibility (CSR), the offices are designed to offer both a motivation-enhancing workspace and special functionality. The morning-meeting room for the fund managers’ daily gathering is equipped with the very latest multimedia technology, facilitating internal and (in events such as videoconferences) external communication. The top storey holds a recreation zone featuring a floor exercise room for gymnastics or meditation, a room with cardiovascular fitness machines, a medical and massage room, lounge and resting room. To heighten the sense of wellbeing, the entire office complex is decorated with works by young modern Austrian artists and is conceived with careful regard to feng-shui principles.

RCM RAIFFEISEN CAPITAL MANAGEMENT

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FUND MANAGEMENT AT RCM

ATTRACTIVE RETURNS THROUGH CLEARLY DEFINED CORE COMPETENCIES

ALLIANCE WITH INTERNATIONAL TOP ASSET MANAGERS

As early as the middle of the 1990s, RCM clearly identified its core competencies: Those areas in which the in-house fund management has special expertise are managed from Vienna. In total, this represents almost 90 per cent of overall fund assets under management. The bond fund side of this offering includes both traditional products (funds holding euro-denominated and international bonds) and bond funds specialising in European highyield or corporate issues or in Eastern European fixed income securities. In equity funds, Raiffeisen KAG is an internationally recognised specialist for emerging Europe in whose expertise many investors at home and abroad place their trust. Further areas of emphasis in equity fund management are European small-caps and high-dividend shares. Other important core strengths are asset allocation, funds-of-funds and absolute return strategies.

RCM works with the most suitable partners in order to provide outstanding management quality not only in its own core areas, but in every asset class. As a result, RCM customers also benefit from a unique network of international fund specialists such as Capital International, Wellington Management Company LLP and American International Group (AIG) – elite global investment firms that contribute their particular area of expertise in managing international/regional equity funds, sector equity funds and fundsof-hedge-funds.The list of partners, the performance of outsourced products and RCM’s own strategic positioning in terms of core competencies are critically reviewed at regular intervals, taking into account any changes in circumstances.

Since 2003 RCM has further expanded its management capability regarding European equities and continually broadened the range of Europe-centred funds managed in-house. In keeping with its expansion of capabilities, Raiffeisen Capital Management today regards itself as a European asset manager – building on the strong base in Austria, its home market is now all of Europe. The expansion of in-house Europe expertise that has been underway for some years means that 74 per cent of RCM’s total equity fund volume is already managed internally.

RESEARCH AND TRANSPARENCY THE HIGHEST PRIORITIES Raiffeisen Capital Management invests on the basis of its own research and analysis. RCM is an active manager focused on fundamentals. Fund management follows a clearly defined, structured investment process and is marked by the disciplined execution of portfolio strategies. Research is regarded as critically important. The goal is to achieve a long-term outperformance compared to the market and competitors. Depending on the asset class, a top-down or bottom-up approach is used.

RCM RAIFFEISEN CAPITAL MANAGEMENT

19

TEN INVESTMENT PRINCIPLES, ONE GOAL: TO ACHIEVE MORE FOR OUR CUSTOMERS A rigorous, well-functioning investment process is the sine qua non of a successful asset management company. Raiffeisen Capital Management (RCM) has therefore anchored the key principles in its own “constitution”, which ensures complete continuity in the investment of clients' money. The goal behind these core principles is not only to do the right things, but also and especially to do things right. (1) We are active managers – capital markets are not efficient We are active managers because we are convinced that we can beat the markets. This is in contradiction to the efficient-market hypothesis in its so-called „strong form“: This hypothesis contends that all market participants (buyers and sellers) act completely rationally and on the basis of identical information, and that all of this information is already reflected at all times in market prices. This would mean that no participant would be able to outperform the market in the long run. We strongly believe that this assumption effectively does not hold true in the real world of finance, and we thus exploit attractive market opportunities as they arise. (2) Our aim: to add more long-term value than the market and competitors As active managers we need a performance benchmark which is defined by “the market” (either an index of the underlying capital market, or the average for comparable products in the peer group). This benchmark we strive to surpass.

(3) The twin cornerstones of our approach are successful, experienced fund managers with the demonstrated ability to beat the benchmark, and transparent investment processes. The ability to outperform the market and competitors (i.e., to generate alpha), coupled with a well-developed and thoroughly documented investment process that is actually adhered to in practice, is critical for ratings by objective third parties. A fund rating confirms the investment quality and gives clients the security of knowing they are investing in a good fund. (4) Alpha, or value added above the performance of the benchmark, is generated mainly on the basis of fundamental research The maximum potential for this excess performance arises from structured research that covers the largest possible universe of eligible investments. In the development of the active strategies, the analytical process relies especially on fundamental data (such as macroeconomic scenarios, valuation models, etc.). The resulting return forecasts, combined with the interactions between the asset classes involved, form the basis for the investment decisions that are implemented in the funds. (5) Decision support through quantitative models Quantitative models serve as important aids in decisionmaking. For example, in the corporate bond sector, RCM uses a credit spread model, which acts as an indicator of over and undervaluation. Additionally, quantitative models are also employed at RCM as stand-alone decision points. Such models are developed by selecting those decision parameters which show stable predictive power for the asset class in question. Within defined limits, the models’ results are then put into action in the portfolios. The areas of application at RCM include, among others, currencies, interest rate risk and global tactical asset allocation.

RCM RAIFFEISEN CAPITAL MANAGEMENT

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(6) We use a large number of independent strategies, thus ensuring diversification – no single strategy is dominant Risk diversification is one of our top principles. Holding different kinds of assets with as little correlation as possible (portfolio diversification) significantly reduces the overall risk of an investment portfolio. We also apply this principle in our various bets against the market, with no single strategy being allowed to become dominant (strategy diversification). (7) For each and every strategy there is a performance target and a risk budget, full documentation (through record-keeping), transparency (through measurement) and clear accountability (through performance-based compensation) Ultimately, every fund manager is accountable for his or her own contribution to relative performance. Our team approach does not mean the dilution of personal responsibility. (8) Risk is managed pre-emptively where it arises, and risk control is organisationally independent This means: > Portfolio construction based on defined rules and in awareness of the (usually relative) risk > The asset class strategy developed is implemented consistently in the funds by a team approach, producing high continuity of performance for the investor. > High process security thanks to clearly defined investment processes and binding decision paths. > Ex-post monitoring, control and documentation by an independent organisational unit

(9) Our team approach permits specialisation and continuity of performance When teams, as at RCM, invest by processes that they have developed themselves, this guarantees continuity and stability, even in the event that individual team members change. The benefits for the customer are evident. (10) Our model portfolios promote evenness of performance The implementation of current market forecasts via model portfolios ensures consistency of performance across RCM’s entire product range.

RCM RAIFFEISEN CAPITAL MANAGEMENT

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THE RCM PRODUCT RANGE

RETAIL FUNDS* Long-term savings funds > Raiffeisen-Pensionsfonds-Österreich 2008 > Raiffeisen-Euro-Rent > Raiffeisen-Dachfonds Sicherheit, known as Raiffeisenfonds-Sicherheit since 2008 Raiffeisen-Dachfonds Ertrag, known as Raiffeisenfonds-Ertrag since 2008 > Raiffeisen-Dachfonds Wachstum, known as Raiffeisenfonds-Wachstum since 2008 > Raiffeisen-Global-Aktien Property funds > Raiffeisen-Immobilienfonds Bond funds > Raiffeisen-Euro-Liquid > Raiffeisen-Dollar-Liquid > Raiffeisenfonds-Anleihen > Raiffeisen-Österreich-Rent > Raiffeisen-EuroPlus-Rent > Raiffeisen-Inflationsschutz-Fonds > Raiffeisen-Euro-Corporates > Raiffeisen-Global-Rent > Raiffeisen-Dollar-Rent > Raiffeisen-Osteuropa-Rent > Raiffeisen-Europa-HighYield > Raiffeisen-OsteuropaPlus-Rent > Raiffeisen-EmergingMarkets-Rent Balanced funds > Raiffeisen-Global-Mix

Equity funds > Raiffeisen-Österreich-Aktien > Raiffeisen-TopDividende-Aktien > Raiffeisen-Europa-Aktien > Raiffeisen-Pazifik-Aktien > Raiffeisen-US-Aktien > Raiffeisen-Osteuropa-Aktien > Raiffeisen-Eurasien-Aktien > Raiffeisen-Energie-Aktien > Raiffeisen-HealthCare-Aktien > Raiffeisen-Technologie-Aktien > Raiffeisen-Active-Aktien > Raiffeisen-EmergingMarkets-Aktien > Raiffeisen-Europa-SmallCap > Raiffeisen-Emerging-Europe-SmallCap > Raiffeisen-EmergingASEAN-Aktien Specialty products > Raiffeisen-Pensionsfonds-Österreich 2003/2004 > Raiffeisen-Pensionsfonds-Österreich 2005/2006 > Raiffeisen-Pensionsfonds-Österreich 2007 > Raiffeisen-Osteuropa-Garantiefonds > Raiffeisen-Eurasien-Garantiefonds > Raiffeisen-Energie-Garantiefonds > Raiffeisen-TopSelection-Garantiefonds > Raiffeisen-HealthCare-Garantiefonds > Raiffeisen-Wachstumsländer-Garantiefonds > Raiffeisen-Dynamic-Bonds > Raiffeisen-EU-Spezial-Rent > R-2012-Spezial > Raiffeisen-Stabilitätsfonds > Raiffeisen-Stabilitätsfonds-Wachstumsländer > Raiffeisen-Ethik-Aktien > Raiffeisen-Hedge-Dachfonds > Raiffeisen-OK-Rent > Raiffeisen-OK.Spezial-Rent > Raiffeisen-§14-Rent > Raiffeisen-§14-MixLight > Raiffeisen-§14-Mix

* Funds registered in Austria as of February 2008

RCM RAIFFEISEN CAPITAL MANAGEMENT

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R300 SERIES FOR SOPHISTICATED INSTITUTIONAL CLIENTS

THE SEVEN RCM INVESTMENT PRINCIPLES FOR INVESTMENT ADVISORS AND CLIENTS

> > > > > > > > > > > > > > > > > > > > > > > > > >

In addition to RCM’s essential service of profitable fund management, important contributions to successful investment are also made by sales staff and by the fundowning clients themselves. RCM has thus formulated the following investment principles for financial planners and customers: 1. Talk to us about finances; discussing money for an hour is easier than working for it for a month 2. Identify your life goals and when you want to achieve them; you need to know your destination to reach it 3. Find the balance between risks and returns that you are comfortable with; the more risk, the greater the potential returns, and vice versa 4. Diversify your holdings; don’t put all your nest eggs in one basket 5. Trust only in excellence; quality brings success 6. Invest now, and regularly – make time work for you: it really is money 7. Remain true to your decision; invest for the long term, don’t speculate for the short term

Raiffeisen 301 – Euro Gov. Bonds Raiffeisen 302 – Euro Gov. Bonds Plus Raiffeisen 303 – Non Euro Bonds Raiffeisen 304 – Euro Corporates Raiffeisen 305 – Non Euro Equities Raiffeisen 308 – Euro Equities Raiffeisen 310 – CEE Bonds Raiffeisen 311 – Euro MM Plus Raiffeisen 312 – Euro MM Raiffeisen 313 – Euro Trend Follower Raiffeisen 314 – Euro Inflation Linked Raiffeisen 315 – Euro Enhanced MM Raiffeisen 316 – Hedge FoF Balanced Raiffeisen 317 – Absolute Return 1 Raiffeisen 318 – Global Diversified Raiffeisen 319 – Absolute Return Balanced Raiffeisen 321 – Hedge FoF Dynamic Raiffeisen 322 – Euro Alpha Duration Raiffeisen 324 – USD MM Plus Raiffeisen 325 – Euro Enhanced MM Plus Raiffeisen 326 – Asset Allocation Alpha Raiffeisen 327 – Fixed Income Absolute Return Raiffeisen 328 – Hedge FoF Balanced II Raiffeisen 329 – Euro Macro L/S Raiffeisen 331 – Euro MM Plus 2 Raiffeisen 336 – GTAA Overlay

TRENDS 2007/2008 RAIFFEISEN CAPITAL MANAGEMENT

23

TRENDS IN 2007/2008 – RCM HEADQUARTERS IN VIENNA A EUROPEAN CENTRE OF EXCELLENCE FOR FUNDS

MATHIAS BAUER IS EFAMA PRESIDENT In June 2007 the Chief Executive of RCM and longstanding head of the Association of Austrian Investment Companies (VÖIG), Mathias Bauer, was elected President of the European Fund and Asset Management Association (EFAMA). EFAMA is the official trade association of the European fund and asset management industry. Its mission is to give the investment management industry a strong voice at the supraregional level. The top goals during Mathias Bauer’s tenure are a level playing field for the distribution of all financial products, harmonisation of the legal requirements for funds throughout Europe, and the solid entrenchment of fund products as retirement savings vehicles. Especially the need for a level playing field (equal conditions for all financial products at the point of sale) is a pressing concern. This has to do with the – otherwise positive – fact that fund distribution is subject to numerous rigid rules designed to ensure that fund investors' needs are met first. In terms of transparency and investor protection, funds should therefore serve as a model for other financial products, whose distribution requirements should be adjusted accordingly. Until this is done, funds will be at a disadvantage due to their cost transparency at the point of sale.

Also on the agenda is the consistent refinement and implementation of the legal environment for investment funds in Europe, most notably for UCITS. The EFAMA presidency offers the Austrian fund industry an added opportunity to position Vienna as a hub for fund and asset management services in Eastern Europe. This is very much in accord with RCM’s highly internationally oriented business strategy.

The 2007 investment year. Numbers – dates – facts

A quick review of developments in the fund industry

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

26

THE 2007 INVESTMENT YEAR

MARKETS IN 2007

EUROPE

In the world of investing, 2007 was as varied as it was challenging. Between the China bubble, the US subprime crisis and the threatening return of inflation and recessionary fears, investors needed strong nerves. Yet in the end, 2007 was not a bad year in equity markets, particularly for investments in Germany and Asia (except Japan). In Germany the DAX marked a historic high of 8,151 in intraday trading on 13 July 2007 and gained 22 per cent over the year. The performance of Hong Kong’s Hang Seng Index for the year was an advance of 33.9 per cent. However, these two performance figures were not representative of other stock markets.

In the balancing act between a threatening recession and rising inflation, the ECB employed a different tactic than the Federal Reserve in the USA. In order not to worsen the already accelerating pace of inflation, the main benchmark interest rate was raised twice in 2007, from 3.30 to 3.75 per cent in March and to 4 per cent in June. European key rates were thus at their highest since August 2001. The ECB’s targeted 2 per cent maximum inflation rate was nonetheless exceeded in 2007. On balance, inflation rose to 2.3 per cent for the EU27 and to 2.1 per cent in the euro area, from 1.5 per cent in 2006. Over the full year, gross domestic product grew by 2.7 per cent in the euro zone and 2.9 per cent in the EU27. In the fourth quarter of 2007, however, amid the macroeconomic slowdown, economic growth in the euro area was only half of that rate. The European single currency meanwhile soared to unprecedented heights. The US dollar, reaching levels of 1.45 to the euro, had never been worth less than in 2007. The performance of the European stock market was fairly subdued in the vortex of the spreading credit crisis. Thus, the EuroStoxx registered a rather low return of 4 per cent. One of Europe’s greatest gainers was the Slovenian equity market, which shot up by about 80 per cent. The rather poor sentiment on European stock markets also had an impact on the number of companies going public, although globally, 2007 was a record year for IPOs. The total proceeds of USD 255 billion beat the existing record set in 2006 (when 1,729 IPOs raised USD 246 billion in capital). A total of 1,739 companies worldwide took the plunge into the stock market last year, including 801 in Europe. In the UK the market for new issues slumped by 40 per cent, with only 88 firms going public in 2007 (prior year: 151). The issue proceeds on European stock markets fell by 9 per cent compared to the year before, with the drop most pronounced in the fourth quarter, both in the number and size of initial public offerings.

USA On Wall Street the world’s most widely watched index, the Dow Jones Industrial Average, rose by about 7 per cent last year. One day after the Dow crossed the 14,000 threshold for the first time, its flight was cut short by early reports of what would come to be known as the subprime crisis. Debt service problems in the US market for subprime mortgage loans (made to borrowers with poor credit ratings) culminated during the summer in a liquidity crisis among US banks, which had sought to fund these subprime loans in the capital market through structured investments such as asset backed securities. The fact that these instruments had been sold to investors worldwide was what caused this regional, sector-specific difficulty to escalate into a global financial crisis. After the abrupt plunge in risk tolerance of institutional as well as private investors and the ensuing liquidity crunch, central banks the world over tried to prevent a general credit crisis by short-term injections of liquidity (the European Central Bank provided EUR 200 billion in loans within the space of a few days, while the US Federal Reserve lent USD 40 billion). The subprime crisis also forced the US central bank to loosen its interest rate policy in order to counteract the financial markets’ fear of recession. From summer 2007 to the end of February 2008, the Fed lowered its key rate by 2.25 percentage points. US gross domestic product expanded by 2.2 per cent in the full year 2007, but only by 0.6 per cent in the final quarter, the lowest quarterly growth in five years.

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

27

ASIA

COMMODITIES

The Asia/Pacific region was largely unaffected by the US real estate crisis. This was expressed, among other ways, in the number of initial public offerings. A spirit of optimism pervaded the emerging markets, where most of the world’s IPOs occurred. China took the lead with 227 IPOs and conducted the year’s second largest going-public with the sale of shares of China CITIC Bank Corporation Limited, ranking behind only the IPO of Russia’s VTB bank. Asia/Pacific saw 46 per cent of all new IPOs worldwide in 2007 and thus further expanded its leading position in new issues. The stock markets in Asia's emerging economies likewise performed well. After the volatility in the spring, when indices fell by up to 9 per cent, prices rallied again all the way to the end of the year. At the end of February, at the height of the Chinese stock market boom that had seen millions of private investors catapult prices to dizzying altitudes, speculation that China’s Central Committee would take a more restrictive stance towards investors was enough to trigger a vast free-fall in share prices almost overnight. This landslide resulted in part from the nervousness of China's private investors that throng to the country's stock exchanges amid the rising prosperity in the new net exporting nation, whose powerful economic growth reached double-digit annual rates for the fifth year in succession. Over the year as a whole the Hang Seng, the leading stock index in Hong Kong, thus still delivered a gain of 33.9 per cent, and the “Nifty” large-cap index of India's National Stock Exchange increased by 45 per cent. In Vietnam as well, the 2006 bull market resumed, pushing up the Ho Chi Minh Stock Index by 31 per cent. The CSI 300, a combined index of the 300 most important “A-shares” on the Shanghai or Shenzen exchanges, even climbed 133 per cent. The significance of the emerging markets can be read from the list of the world’s largest publicly traded companies by market capitalisation – four of the ten biggest companies are based in the emerging markets. The Japanese stock market, as in 2006, stood out by having the poorest performance. At an average loss of 14.5 per cent, holdings in Japanese equities were highly unprofitable last year. The number of IPOs in Japan fell from 185 (in 2006) to 112.

The return of inflation was driven mainly by the higher energy costs resulting from the explosion of prices for commodities such as oil and gas. In 2007 the price per barrel of WTI crude oil skyrocketed by 60 per cent, almost touching the hundred-dollar mark at the end of the year. Besides petroleum, the prices for agricultural commodities such as wheat, corn and soybeans also rose tremendously. The fear of inflation, coupled with the subprime crisis, caused gold to appreciate as a safe haven, pushing up the gold price by 18 per cent in euros (or by 30 per cent in US dollars) compared to 2006. At the end of 2007 a troy ounce was worth USD 836.5 or EUR 568. That made gold more expensive than it had been in 27 years.

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

28 EUR 100,000 INVESTED FOR THE YEAR 2007 BECAME ...

CURRENCIES IN 2007

SOURCE: BLOOMBERG, F.A.Z.

SOURCE: BLOOMBERG, F.A.Z.

0

PERFORMANCE IN EUR

100 000

180 000

CHANGE IN VALUE AGAINST THE EURO 180 000

1. SLOVENIAN EQUITIES 2. BRAZILIAN EQUITIES

158 000

GAINERS

3. CHINESE EQUITIES

156 000

BRAZILIAN REAL

0.3

AUSTRALIAN DOLLAR

117 800

6. GOLD

5.7

CANADIAN DOLLAR

122 000

5. GERMAN EQUITIES

8.6 7.6

THAI BAHT

126 000

4. TURKISH EQUITIES

101 110

7. AUSTRIAN EQUITIES

DECLINERS

109 000

8. EUROPEAN EQUITIES

- 2.7

105 500

9. GERMAN REAL ESTATE FUNDS 10. CALL MONEY

103 250

11. MONEY MARKET FUNDS

102 500

12. GERMAN BONDS (REX INDEX)

102 500

13. SAVINGS ACCOUNT

101 000

14. BRITISH EQUITIES

97 600

15. US BONDS

96 500

16. SWISS BONDS

96 500

17. SWISS EQUITIES

96 200

18. BRITISH BONDS

95 800

19. US EQUITIES (S&P 500)

95 400

20. ARGENTINE EQUITIES

92 000

21. JAPANESE EQUITIES

86 000

SWISS FRANC

- 3.1

CHINESE RENMINBI

- 3.6

JAPANESE YEN

- 4.2

SWEDISH KRONA

- 7.5

SOUTH AFRICAN RAND

- 8.3

BRITISH POUND

- 9.5

AMERICAN DOLLAR

- 10.1

SOUTH KOREAN WON

ECB’S AND US FED’S KEY RATES TO FEBRUARY 2008

THE CHINA BOOM

SOURCE: ECB, FED

SHANGHAI COMPOSITE INDEX IN POINTS SOURCE: BLOOMBERG

7.00

7500

6.50

6.00

5.25 4.75

5.00

5000

4.00 4.00

3.00

2.00

2500

2.00

1.00 1.00

0.00

2000

2001

2002

2003

2004

ECB KEY RATE 4.00 (SINCE 6 JUNE 2007) US FED FUNDS RATE 2.25 (SINCE 18 MARCH 2008)

2005

2006

2007

2007

APR.

JUL.

OCT.

2008

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

29 WORLD’S TOP 25 COMPANIES BY MARKET VALUE

INVESTMENT FUND ASSETS PER CAPITA

SOURCE: BLOOMBERG, ERNST & YOUNG; AS OF 31 DECEMBER 2007

SOURCE: BVI; AS OF 31 DECEMBER 2007 NOTE: RETAIL FUNDS ONLY (SECURITIES, MONEY MARKET AND OPEN-END PROPERTY FUNDS), INCLUDING FUNDSOF-FUNDS

Rank/Company

Country

Industry

Market cap. In USD million

1 Petrochina

China

Energy

723 794

2 Exxon

USA

Energy

511 887

3 General Electric

USA

Conglomerates

374 637

4 China Mobile

China

Telecom

354 025

5 I&C of China

China

Banks

338 412

6 Microsoft

USA

Software

333 054

7 Gazprom

Russia

Energy

331 825

8 Shell

Netherlands

Energy

264 330

9 AT&T

USA

Telecom

252 051

10 China P&Ch

China

Energy

249 608

11 Petrobras

Brazil

Energy

241 666

12 BP

UK

Energy

230 731

13 Procter & Gamble

USA

Cosmetics

228 016

14 Berkshire H.

USA

Insurance

219 356

15 EdF

France

Energy

216 516

16 Google

USA

Internet

216 323

17 China Life Ins.

China

Insurance

203 656

18 China Constr.

China

Bank

202 557

19 Total

France

Energy

198 482

20 Vodafone

UK

Telecom

197 777

21 Bank of China

China

Bank

197 741

22 BHP Billiton

Australia

Mining

197 528

23 HSBC

UK

Bank

197 470

24 Chevron

USA

Energy

197 061

25 Toyota

Japan

Auto

193 310

INVESTMENT FUND ASSETS PER CAPITA AT END OF 2007 IN EUR

40 536

AUSTRALIA** 27 592

USA 22 194

FRANCE 16 182

SWITZERLAND

15 159

SWEDEN

14 941

CANADA

13 584

AUSTRIA

13 230

DENMARK

11 466

BELGIUM

11 033

NORWAY UNITED KINGDOM

10 812

FINLAND

10 640 8 862

GERMANY*

6 207

SPAIN

4 865

ITALY NETHERLANDS

4 748

GERMANY

4 245

JAPAN

3 784

PORTUGAL

2 067

GREECE

1 954

SOUTH AFRICA**

1 383

HUNGARY

971

POLAND

811

CZECH REPUBLIC

594

* Including foreign funds of German origin and foreign funds distributed in Germany ** As of end of 2007

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

30 OIL PRICE IN 2007 (US DOLLAR BASIS)

GOLD PRICE IN 2007 (US DOLLAR BASIS)

SOURCE: APA

SOURCE: APA

95.50 95.50* (26/11/07) (28/12/07) 100

841.75 828.50 (07/11/07) (28/12/07) 800

90 80

65.50 70

700

608.30 (08/01/07)

51.70 (17/01/07)

60 600 50 40 500 30

JAN. FEB.

MAR. APR. MAY JUN. JUL.

EUR

USD

AUG. SEP.

JAN. FEB.

OCT. NOV. DEC.

MAR.

APR. MAY JUN. JUL.

AUG. SEP.

OCT. NOV. DEC.

* Highest price in continuous trading

COMMODITY PRICE TRENDS SOURCE: ABN AMRO BANK

225%

200%

175%

150%

125%

100%

13/05/05

17/10/05 RICI® ENERGY TR RICI® AGRICULTURE TR RICI® METALS TR

23/03/06

31/08/06

08/02/07

20/07/07

28/12/07

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

31 J.P. MORGAN GOVERNMENT BOND INDEX

1)

SOURCE: F.A.Z.

Return in local currency Country

Return in Time to per cent 2) maturity 3)

4)

Return in EUR

5)

Beginning of 2007

Index at 4 Jan. 2008

Beginning of 2007

Index at 4 Jan. 2008

5.89

4.46

595.862

2.93

608.590

Australia

6.26

Belgium

4.29

8.23

2.43

408.842

2.43

416.561

Canada

3.95

11.03

4.90

526.072

9.00

575.575

Denmark

4.13

6.23

2.95

474.290

2.99

481.791

France

4.25

9.05

2.64

439.491

2.64

444.157

Germany

4.18

8.03

2.89

330.113

2.89

330.113

Italy

4.55

10.01

2.31

663.418

2.31

495.183

Japan

1.44

7.03

3.12

230.060

0.66

217.146

Netherlands

4.24

8.32

2.90

353.218

2.90

352.679

Spain

4.30

9.28

2.44

588.556

2.44

473.171

Sweden

4.14

6.94

2.35

540.324

-0.80

415.188

United Kingdom

4.33

15.00

5.95

519.997

-4.71

459.309

United States

3.78

7.37

9.87

419.941

-2.66

354.359

Total index

3.33

8.40

4.66

379.029

0.46

343.561

1) For each country, the index is based on a weighted average of bonds with a broad market. The index is calculated on the basis of an index value of 100 on 31 December 1987. 2) Average yield to maturity of the bonds 3) Average remaining time to maturity of the bonds 4) The rate of return in local currency takes interest income and price movements into account. 5) The rate of return in euros additionally reflects movements in foreign exchange rates.

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

32

INVESTMENT FUNDS IN 2007

WORLD MARKET

The liquidity crisis and the resulting uncertainty in financial markets took a toll on funds’ performance in 2007. Unlike 2005 and 2006, when investors still earned attractive or satisfactory returns (18.4 per cent and 6.1 per cent, respectively), funds returned only 1.4 per cent for investors on average in 2007. Of the total of 10,163 funds approved for sale in the German-speaking countries (Austria, Germany and Switzerland), little more than one-half (53 per cent) generated a positive performance over the year. The shares in the MSCI World Index lost 3.6 per cent. Equity funds focusing on the euro zone appreciated by 14.4 per cent in 2007 (2006: 18.6 per cent). The market setting for bond funds was consistently unfavourable due to rising interest rates and the high euro; the best returns came from funds’ investments in emerging markets bonds. The poorest performers were European real estate equity funds, which fell by between 9.8 per cent and 40.3 per cent.

At the end of 2007, assets under management in the world’s investment funds totalled EUR 17.8 trillion, an increase of 7.9 per cent from one year earlier (EUR 16.5 trillion). Compared with the third quarter of 2007, however, assets eased by 2.2 per cent from EUR 18.2 trillion. Over the three years to the end of 2007, global investment fund assets increased by 50.0 per cent (end of 2004: EUR 11.9 trillion). In the final quarter of 2007, net inflows were EUR 299 billion, falling below the EUR 300 billion mark for the first time since the third quarter of 2006. A particularly drastic contraction in inflows was experienced by “longterm” funds (any funds other than money market funds), where the net influx of capital fell by almost 85 per cent from the second to the third quarter of 2007, to EUR 53 billion, before rebounding again to EUR 131 billion in the fourth quarter. Looking at asset categories, balanced funds showed the highest growth compared to the fourth quarter of 2006, increasing by 16.3 per cent in the final quarter of 2007 to EUR 1.8 trillion. Assets in equity funds (EUR 8.5 trillion) and money market funds (EUR 3.4 trillion) were up by 6.2 per cent and 14.8 per cent, respectively, compared with the end of 2006. Bond fund assets meanwhile dipped slightly to EUR 2.90 trillion at the end of 2007 from EUR 2.94 trillion one year earlier.

Against the backdrop of the subprime-loans-induced turbulence, funds investing in emerging markets did best: Nine of the ten highest-performing funds of 2007 were invested there. Funds focusing on China or India were the most resistant to the capital markets crisis which gripped Europe and the USA, averaging a performance of 36.4 per cent and 51.3 per cent, respectively. The year’s top fund, which earned a return of 65.8 per cent, likewise invested in India. The MSCI China Index, after rising by more than 90 per cent from January to October 2007, fell amid a slump in November and finished the year on a 60.6 per cent gain, below its 2006 performance (63.6 per cent). Global bond funds advanced by 5.8 per cent on average. Other profitable investments in 2007 were equity funds that emphasise environmental technology firms (up 35.6 per cent) and commodity funds (up 23.1 per cent).

Although the USA remained the market leader with a market share of 46.0 per cent, this share was down further, continuing a declining trend (2005: 49 per cent, 2006: 47.5 per cent). Europe’s market share decreased as well, from 34 per cent in 2006 to 33.2 per cent, the same level as in 2005. At the end of September 2007 there were 66,350 investment funds worldwide, 41 per cent of them equity funds (26,950). Bond funds (13,446) and balanced funds (13,963) made up a respective 20 per cent and 21 per cent of the total, and money market funds accounted for 5 per cent (3,480).

EUROPE The fund assets of the European fund industry (UCITS and non-UCITS) grew by 4.7 per cent in 2007, from EUR 7.6 trillion to EUR 8 trillion. This represented a more measured pace than the powerful growth of the previous years (2005: 22.8 per cent, 2006: 14.9 per cent). The slowdown was attributable primarily to net outflows especially from UCITS in the third and fourth quarter of 2007 (of EUR 61 billion and EUR 40 billion, respectively) due to the elevated risk aversion of European investors amid the liquidity crisis.

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

33

UCITS (funds issued in accordance with UCITS rules) had assets of EUR 6.2 trillion versus EUR 6.0 trillion one year earlier, and thus made up 78 per cent of the total volume of European funds. European Non-UCITS held assets of EUR 1.7 trillion at the end of 2007. Owing to the high outflows in the last two quarters of the year, the net inflows of EUR 170 billion into UCITS in 2007 were markedly lower than in 2006, when they reached 452 billion. The reduction in 2007 compared to the prior year was 62.4 per cent. Luxembourg, with EUR 2.0 trillion under management at the end of December 2007 (compared to EUR 1.9 trillion at the end of September 2006) expanded its lead in the European market and now held a market share of 26 per cent. As in the year before, France was in second place at 19 per cent with fund assets of EUR 1.5 trillion, followed by Germany, which remained third in Europe with assets of EUR 1.0 trillion and a market share of 13.1 per cent.

AUSTRIA The reticence of investors prompted by the persistent volatility in capital markets and rising interest rates left its mark on the Austrian fund market as well. With total fund assets of EUR 163.8 billion, the 24 providers of securities funds for the first time recorded a small decrease (2.1 per cent) from the prior year. The decline relative to the 2006 asset volume of EUR 167.3 billion was EUR 3.5 billion. Of the total fund assets, EUR 3.2 billion (2006: EUR 3.8 billion) was distributed to unitholders and EUR 3.0 billion (2006: EUR 8.6 billion) represented redemptions. Compared to 2006 (EUR 6.9 billion) there was also a sharp decrease in performance gains, which in 2007 contributed EUR 3.2 billion to fund assets. Based on data of the Austrian central bank, the Austrian public's aggregate savings account balances remained at about EUR 140 billion, the same level as twelve months earlier. For “guarantee funds” – funds that invest partly in stock markets and provide a guarantee on the invested principal – the vigorous growth seen in 2006 continued last year. Their combined assets increased by 19 per cent in 2007 to EUR 5.3 billion as a result of investors' greater desire for safety amid the tumultuous movements on capital markets. Open-end property funds defied the mortgage crisis in 2007: Despite a negative performance of the listed real estate companies, real estate investment funds delivered

an average return of 4.8 per cent for the year. In 2007 the four Austrian property fund companies expanded their fund assets by almost 20 per cent to EUR 1.8 billion. The general trend in performance also showed the effects of the uncertainty in financial markets from the second half of 2007. The price gains of equity funds specialising in Austria only averaged 2.3 per cent for the year, in contrast to the record year 2006, when these funds returned 30 per cent. Euroland equity funds did somewhat better, gaining 3.9 per cent, but could not match the 18 per cent return of 2006. US equity funds lost approximately 4.4 per cent on a euro basis. Austria’s top performers in 2007 were funds with a focus on Eastern Europe, which performed admirably in the difficult environment and produced an average return of 25.8 per cent by the end of the year. In the fixed income sector, US dollar-denominated bond funds also gave up 4.8 per cent in euro terms, performing relatively better than in 2006 (-7.2 per cent). European bond funds managed a moderate turnaround from 2006 (when they fell by 0.09 per cent), eking out a small gain of 0.62 per cent. Money market funds had the same performance as in 2006, advancing by 2.1 per cent. At the end of 2007, Austrian fund investors held EUR 65.7 billion in bond funds and EUR 45.6 billion in balanced funds. Equity funds ranked third at EUR 28.9 billion. Of the total fund assets of EUR 163.8 billion, EUR 82.3 billion (50.3 per cent) was in retail mutual funds, EUR 49.7 billion (30.3 per cent) in “Spezialfonds” (institutional special funds designed for up to ten investors who must be legal entities; these are closed to individuals and are not mutual funds) and EUR 31.8 billion (19.4 per cent) in other institutional funds (institutional mutual funds which are open to individuals in principle and can have more than ten investors). A total of 289 new funds were launched in Austria last year, of which 153 were institutional ones (both mutual funds and special funds) and 136 were pure retail funds. As a result, the 24 Austrian fund companies managed 2,318 securities funds at the end of last year, including 1,131 pure retail funds, 478 institutional mutual funds and 709 institutional special funds.

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

34 EUROPEAN INVESTMENT FUND ASSETS (UCITS) BY FUND TYPE

EUROPEAN INVESTMENT FUND ASSETS (NON-UCITS) BY FUND TYPE

EUROPEAN MARKET FOR INVESTMENT FUNDS BY REGION

SOURCE: EFAMA (AT END OF 2007; UCITS ONLY)

SOURCE: EFAMA (AT END OF 2007; NON-UCITS ONLY)

SOURCE: EFAMA (AT END OF 2007; UCITS AND NON-UCITS)

FUNDS-OF-FUNDS

OTHER LUXEMBOURG FUNDS

AUSTRIA

7%

2.1%

2% OTHER 5% EQUITY FUNDS BALANCED FUNDS 15% MONEY MARKET FUNDS

40%

OTHER

INSTITUTIONAL FUNDS (SPECIAL AND MUTUAL)

EMPLOYEE SAVINGS FUNDS (FRANCE) 5%

58%

11.7%

SPAIN

LUXEMBOURG

3.5%

26.0%

ITALY

BRITISH INVESTMENT TRUSTS

4.3% UK

5%

10.1%

16% OTHER 10%

IRELAND 10.2% BOND FUNDS

PROPERTY FUNDS

22%

13%

GERMANY

FRANCE

13.1%

19.0%

GROWTH IN FUND ASSETS SINCE 1997 VERSUS GDP GROWTH

180.0

45.0

160.0

40.0

140.0

35.0

120.0

30.0

100.0

25.0

80.0

20.0

60.0

15.0

40.0

10.0

20.0

5.0

0.0

97

98

99

00

01

02

03

04

05

06

07

0.0

FUND GROWTH RATE GDP GROWTH RATE ANNUAL GROWTH RATES OF FUND ASSETS AND OF GDP (NOMINAL)

FUND ASSETS UNDER MANAGEMENT IN EUR BILLION

SOURCE: VÖIG, STATISTICS AUSTRIA, RCM

FUND ASSETS

THE 2007 INVESTMENT YEAR RAIFFEISEN CAPITAL MANAGEMENT

35 WORLD INVESTMENT FUND ASSETS BY ASSET CLASS

WORLD MARKET FOR INVESTMENT FUNDS BY REGION

ASSET MIX HELD BY AUSTRIAN FUNDS IN 2007

SOURCE: EFAMA (AT END OF 2007)

SOURCE: EFAMA (AT END OF 2007)

SOURCE: OENB (AT END OF 2007)

OTHER 3% BALANCED FUNDS

OTHER

CANADA

5.7%

2.5% EQUITY FUNDS

CHINA

USA

11%

1.6%

46.0%

MONEY MARKET FUNDS

BRAZIL

49%

3.5%

20%

BOND FUNDS

JAPAN

17%

3.2%

AUSTRALIA

EUROPE

4.3%

33.2%

AUSTRIA

FOREIGN

STRUCTURED PRODUCTS

PROPERTY, PLANT AND EQUIPMENT

17.2%

0.6%

BONDS OF DOMESTIC ISSUERS

OTHER INVESTMENTS

9.0%

0.4%

OTHER INVESTMENTS

STRUCTURED PRODUCTS

6.5%

9.1%

SHARES AND OTHER EQUITY SECURITIES

SHARES AND OTHER EQUITY SECURITIES 14.3%

2.3%

AUSTRIAN FUND ASSETS BY ASSET CLASS SOURCE: VÖIG; AT END OF 2007

ALTERNATIVE FUNDS

SHORT-TERM BOND FUNDS

6%

1%

MONEY MARKET FUNDS

OTHER BOND FUNDS

7%

40%

BALANCED FUNDS 28%

EQUITY FUNDS 18%

PROPERTY, PLANT AND EQUIPMENT 0.5%

BONDS OF FOREIGN ISSUERS 40.1%

The RCM Group in 2007

Growth through new core strengths and in new markets

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

38

THE RCM GROUP IN 2007

FUND MANAGEMENT In 2007, developments in the core business of fund management were dominated by the expansion of internal core competencies: Thus, the preparations for bringing European equities into the area of responsibility of RCM's in-house fund management entered the final stage. The management of Eastern European shares has been one of RCM’s absolute core strengths for more than ten years, and in recent years this expertise was broadened and deepened to take in equities from Europe as a whole. Excellent know-how is the basic requisite for covering any given asset classes and regions with internal fund management. This is why the actual insourcing of Europewide fund management at the beginning of 2008 came as the culmination of three years of intensive preparation; next to comprehensive Europe expertise in connection with equity mandates for key accounts, RCM also generated very specialised knowledge, such as through the launch of funds like Raiffeisen-Europa-SmallCap and Raiffeisen-Top-Dividende-Aktien. The insourcing of European equity management was the logical next step for RCM in a home market that for a long time now has been Europe rather than just Austria. For emerging markets as well, RCM reinforced its expertise. While a few years ago the management activities still centred on the European emerging markets, followed by India and China, the focus now is on the entire ASEAN region. This was also reflected, among other ways, in the launch of Raiffeisen-EmergingASEAN-Aktien at the beginning of 2008, a fund that focuses fully on the dynamic performance in the ASEAN countries of Malaysia, Indonesia, Vietnam, Philippines and Thailand and thus gives investors exposure to the promising growth potential of the South-East Asian region.

In recent years, absolute return has become the top investment trend, and this theme was further emphasised in 2007. For several years now, a dedicated department at Raiffeisen Capital Management has been focusing on absolute return funds to meet the ever greater demand especially from institutional, but also from private customers. The main attractions of these products for clients are principal protection, high flexibility and the objective to generate positive returns in all market phases. However, RCM does not interpret absolute return only in the traditional sense represented by hedge funds, whereby positive returns must be achieved regardless of market phase. Rather, next to short-term bond products, RCM also expands this approach by multi-asset-class portfolios. The goal is to maximise returns by flexibly exploiting opportunities within a risk budget defined by the client. This level of risk tolerance determined by the investor must always be complied with. Private investors too are increasingly able to participate in the absolute return trend, whether through Raiffeisen-Hedge-Dachfonds (a fund-of-hedgefunds) or Raiffeisen-Stabilitätsfonds (a hedge fund designed to generate steady returns). At RCM the absolute return segment now represents fund assets of more than EUR 4 billion.

TREND IN ASSETS UNDER MANAGEMENT Regarding assets under management, as the Austrian market leader, Raiffeisen Capital Management necessarily felt some of the effects of the general declining trend in the international and national fund market. Thanks to the successful diversification in terms of products and regions, RCM held its lead over domestic competitors almost completely steady. The market consolidation was used to further modernise and differentiate the product range and step up business development even more strongly.

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

39

At the end of 2007 RCM managed fund assets of almost EUR 38 billion, a small decrease of 3.4 per cent from 2006. Including advisory mandates, assets under management totalled about EUR 40 billion. While fund assets managed for institutional clients eased mildly from EUR 21.7 billion to EUR 21.4 billion, or by 1.7 per cent, the retail fund segment saw a more significant decrease of 5.5 per cent to EUR 16.6 billion. This development reflects both the cooling of the investment climate in Europe's financial markets and the fierce competition in financial products. The asset reduction on the retail side – in unison with the market – was also partly caused by the increase in money market rates, and hence savings account interest rates. As well, many customers who entered the market at the end of the 1990s and experienced the downturn in early 2000 had reached the profit zone and used attractive returns as an exit opportunity. In spite of the unfavourable business environment, RCM was able to maintain its position as the uncontested market leader with a share of almost one-quarter (23.2 per cent) of the market. This was made possible largely by the growing foreign business, which in 2007 accounted for more than 15 per cent of total assets. As recently as 2003 the foreign component was only 5 per cent.

ASSET BREAKDOWN FOR RAIFFEISEN CAPITAL MANAGEMENT *

BOND FUNDS 44% BALANCED FUNDS 39% EQUITY FUNDS 17%

THE LARGEST FUND CLASSES AT RCM * EQUITY FUNDS (GLOBAL) 2% FUNDS-OF-HEDGE-FUNDS 3% EUROPE BOND FUNDS 3%

INTERNATIONAL BUSINESS

EQUITY FUNDS (EASTERN EUROPE) 3% EQUITY FUNDS (EURO/EUROPE) 4%

In 2007 the Austrian market leader’s fund sales operations abroad continued to thrive. Even in the difficult conditions prevailing during the year, fund sales outside Austria were boosted by 18 per cent. By the end of 2007, the international portion of assets under management was approximately EUR 6.5 billion (2006: EUR 5.5 billion). Management capacity was expanded to reflect the vigorous growth in international business. Since September 2007, Christa Bernbacher (42) reinforces the top management of Raiffeisen International Fund Advisory (RIFA).

EQUITY FUNDS (EMERGING MARKETS) 4% BALANCED FUNDS (OVERALL) 7% EURO SHORT-TERM BOND FUNDS 10% OTHER 16% EURO BOND FUNDS 21% FUNDS-OF-FUNDS 27%

* Data as of 31 December 2007; based on assets under management, using double counting (OeKB method)

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

40

At present, RCM funds are approved for distribution in 16 European countries; additionally, approval for Malta, Switzerland and the Netherlands is in the works. The licensing of RCM funds is also planned for eight other countries – from Eastern Europe, to Asia, to South America. The three most important markets are Italy, Germany and Central and Eastern Europe (CEE). The goal of Raiffeisen Capital Management, together with Raiffeisen International, is to become the leading fund provider in CEE. Rising living standards, a growing euro orientation, declining local interest rates and increasing need for private retirement savings products all add up to enormous potential in this region. Additionally, new sales opportunities are opening up in 2008 through market entry in Switzerland and Spain. In total for 2008, RCM expects asset growth of about 25 per cent in business with foreign clients. Distribution activities in foreign markets differ more or less widely from marketing in Austria. In Western Europe, RCM’s strategy is to work together with many different financial institutions, as distribution organisations of the required quality are already available in this region. In Eastern Europe, distribution follows a similar model as in Austria, with RCM selling its investment funds through the branch network of Raiffeisen International’s subsidiaries. RCM’s first international market was Italy, where the company made its debut in 1998. Today, 48 RCM funds are registered in Italy, sold primarily through a network of northern Italian banking partners. At present, the RCM funds are available via banks, Raiffeisen banks and independent financial advisors in South Tyrol, Friuli-Venezia Giulia, Trentino, Veneto, Emilia-Romagna, Lombardy, Tuscany and San Marino. A little more than one-third of assets is held in retail funds, with institutional funds making up the rest. In 2007 the activities in Italy centred on the regional expansion of the business and the approval of new institutional funds. In 2008 RCM plans to expand the institutional business with banks. A very similar split between the company’s retail and institutional funds is found in Germany, a market which RCM entered in 1999. The current offering of 36 funds in Germany is sold through distributors in all segments of the financial industry: publicly traded commercial banks, cooperatives, savings banks, private banks, direct banks, financial advisors, etc. In 2007 the fund range was expanded by Raiffeisen-ShortTerm-Strategy, Raiffeisen-ShortTerm-Strategy Plus and Raiffeisen-Global-FundamentalAktien. The asset growth in 2007 was propelled largely by institutional mandates.

The asset volume in France is based on investments of institutionals (mainly banks, insurers and asset managers). RCM is highly regarded in France for its Eastern European expertise and increasingly for its strength in fixed income products. Preparations are underway for an expansion into retail funds and the private banking sector. Similarly, in Spain, Luxembourg and Switzerland, RCM is active above all with its Eastern Europe and fixed income products. In Spain in 2007, RCM registered the first equity and bond funds, stepped up the institutional business and established private banking activities. In the Benelux countries, institutional client contacts were broadened last year. The focus in the Swiss market remains on institutional business and private banking. Twenty-one funds are currently registered in Liechtenstein; here too, RCM concentrates largely on the private banking market. Relatively new markets for RCM in Europe are Denmark, Iceland, Malta and the United Kingdom. At the beginning of 2008, RCM registered seven of its funds in Jersey and the UK. A promising market for the medium to long term is Asia. Paralleling the expansion of Raiffeisen International, Raiffeisen Capital Management has been involved in Eastern Europe since as long ago as 1999. An important milestone was the EU’s enlargement in 2004, which paved the way for distribution approval of UCITS-III funds in the new member countries. Since then, RCM has been continually expanding its product portfolio and, from the base of the private banking clientele, has opened up new target groups in the retail area. At the end of 2007, there were 24 RCM funds registered in Poland, 28 in the Czech Republic, 18 in Slovakia, 26 in Hungary, 20 in Slovenia, 11 in Romania, 10 in Bulgaria and 20 in Latvia.

RETAIL FUNDS A highly successful 2006 was followed by a declining trend for retail funds in 2007. In step with the market, retail fund assets eased slightly by 5.5 per cent compared to one year earlier. As of end-2007, Raiffeisen Capital Management thus managed fund assets of EUR 16.6 billion (2006: EUR 17.6 billion) for retail customers. RCM’s market share in retail funds, at about 20 per cent, remained constant at the prior-year level. The company thus continues to be the second largest provider in this segment of the market.

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

41

Retail investors' rush to the security of principal protection was redoubled by the turmoil in securities markets: Guarantee funds – which offer principal protection and in many cases also protect investors’ gains – were the top sellers for the second year running. A high proportion of net inflows went to this fund category. Four new retail funds were launched in 2007, twice as many as in the year before. These four new funds – Raiffeisen-HealthCare-Garantiefonds in the spring, Raiffeisen-Emerging-Europe-SmallCap in the summer, and Raiffeisen-Wachstumsländer-Garantiefonds and Raiffeisenfonds-Anleihen in the fall – were well received by investors, with the guarantee funds alone attracting EUR 300 million in new assets. At the beginning of 2008 the retail fund range offering was also expanded by the already mentioned Raiffeisen-EmergingASEAN-Aktien and by an absolute return product, Stabilitätsfonds Wachstumsländer. Significant growth in 2007 was also achieved in Raiffeisen fund-based saving: Almost 49,000 new continuous savings plans (with investors making automated regular contributions) were added last year, an increase of 18 per cent that brought the new total to nearly 320,000 contracts.

SELECTED HONOURS AWARDED IN 2008 > The finance magazine, Capital, chose RCM as the best of 100 fund companies in Germany, ahead of German competitors Union Investment and DWS. The Austrian market leader also received, for the fifth consecutive time, Capital's highest rating of five stars. > In the Lipper Fund Awards, RCM was named best fund manager over three years in Austria, Germany, Italy and France and took numerous first places for individual funds over three and five years, notably for Raiffeisen-Eurasien-Aktien and Raiffeisen-EuropaHighYield. > At the €uro-Fund-Awards, three RCM funds had top-three finishes: Raiffeisen-Eurasien-Aktien placed first over five years and second over three years, Raiffeisen-Europa-HighYield came second over five years and third over three years, and RaiffeisenOsteuropa-Rent took second place over three years.

FOREIGN ASSETS UNDER MANAGEMENT BY REGION

PERFORMANCE IN 2007 Raiffeisen Capital Management’s time-tested active management style again proved itself in 2007. In many categories and regions, Raiffeisen securities funds beat both the market and their benchmark. These superior returns were recognised in numerous awards for the 2007 performance year and for multi-year periods ending in 2007.

OVERSEAS/UK 11%

WESTERN EUROPE EX ITALY AND GER 11% ITALY 34%

CEE 13%

GERMANY 31%

AN ABUNDANT HARVEST OF ACCOLADES The annual awards season for investment firms again yielded a rich harvest for RCM at home and abroad, including multiple recognition as top bond manager in a wide range of countries. This award is particularly meaningful in that bond fund management represents one of RCM’s principal core competencies and is delivered entirely by the in-house fund management out of Vienna.

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

42 GROWTH IN RCM GROUP’S ASSETS UNDER MANAGEMENT IN EUR BILLION

RCM ABROAD AS OF 31 DECEMBER 2007

SOURCE: OEKB, RCM WESTERN EUROPE * Data from the beginning of 2004 onward represents fund assets under management, based on the new calculation method of the VÖIG (the Association of Austrian Investment Companies). Data prior to 2004 represents sales to investors (retail funds, special and other institutional funds, and funds-of-funds excluding their domestic constituent funds)

COUNTRY

41.2*

40,0

21.5 18.9

REGISTERED FUNDS

COUNTRY

MARKET ENTRY

REGISTERED FUNDS

GERMANY

1998

36

HUNGARY

1998

26

FRANCE

1998

21

SLOVAKIA

1998

18

ITALY

1999

48

CZECH REPUBLIC

1999

28

SPAIN

2002

4

LITHUANIA

2000

*

SWITZERLAND

2003

*

CROATIA

2002

*

LUXEMBOURG

2003

21

RUSSIA

2004

*

LIECHTENSTEIN

2004

21

SLOVENIA

2004

21

UNITED KINGDOM

2004

8

POLAND

2005

24

ICELAND

2006

5

LATVIA

2006

20

MALTA

2007

*

BULGARIA

2006

10

NETHERLANDS

2007

*

ROMANIA

2007

11

JERSEY

2007

8

36.1*

27.8*

18.3

MARKET ENTRY

CEE

19.5

16.6

* FUND REGISTRATION IN PLANNING STAGE 99

00

01

02

03

04

05

06

07

BEST FUND COMPANY AWARDS IN 2008

LIPPER FUND AWARDS GERMANY

LIPPER FUND AWARDS AUSTRIA

BEST LARGE BOND MANAGER OVER 3 YEARS

BEST LARGE FUND COMPANY IN MIXED ASSETS AND BOND MANAGER ASSET CLASSES

CAPITAL MAGAZINE TOP RATING OF 5 STARS FOR FIFTH CONSECUTIVE TIME, AND FIRST PLACE OUT OF 100 INTERNATIONAL FUND COMPANIES IN GERMANY

INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-Europa-HighYield over 3 and 5 years Best fund: Raiffeisen-Eurasien-Aktien over 5 years

LIPPER FUND AWARDS ITALY

LIPPER FUND AWARDS FRANCE

BEST LARGE BOND MANAGER OVER 3 YEARS

BEST BOND MANAGER OVER 3 YEARS

INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-Dynamic-Bonds over 3 years Best fund: Raiffeisen-Europa-HighYield over 3 and 5 years Best fund: Raiffeisen-Eurasien-Aktien over 3 and 5 years Best fund: Raiffeisen-Osteuropa-Rent over 3 years Best fund: Raiffeisen-Euro-Rent over 5 years

MORNINGSTAR AWARDS AUSTRIA INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-OK-Special-Rent

INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-Europa-HighYield over 3 and 5 years Best fund: Raiffeisen-Eurasien-Aktien over 3 and 5 years

INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-Europa-HighYield over 3 and 5 years Best fund: Raiffeisen-Eurasien-Aktien over 3 and 5 years

LIPPER EUROPEAN FUND AWARDS

INDIVIDUAL-FUND AWARDS: Best fund: Raiffeisen-Dynamic-Bonds over 3 years Best fund: Raiffeisen-Euro-Rent over 5 years Best fund: Raiffeisen-Europa-HighYield over 3 and 5 years

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

43 MARKET SHARES IN 2007 – RETAIL AND INSTITUTIONAL FUNDS COMBINED

MARKET SHARES IN INSTITUTIONAL FUNDS AT END OF 2007

SOURCE: VÖIG

SOURCE: OEKB

OTHER 18.4%

RAIFFEISEN KAPITALANLAGE GES. M. B. H. 23.2%

RINGTURM KAPITALANLAGE GMBH 2.6%

DWS (AUSTRIA) INVESTMENT GES. M. B. H.

ERSTE-SPARINVEST KAPITALANLAGE GES. M. B. H. 18.5%

REST 36% SALZBURG MÜNCHEN

RAIFFEISEN CAPITAL MANAGEMENT

1%

26%

VOLKSBANK INVEST 1%

3.6%

3 BANKEN-GENERALI INVESTMENT GES. M. B. H. 3.4% CPB KAPITALANLAGE GES. M. B. H.

PIONEER INVESTMENTS AUSTRIA GES. M. B. H. 15.2% KEPLER FONDS

4.0%

KEPLER FONDS KAPITALANLAGE GES. M. B. H. 4.8%

ALLIANZ INVEST KAPITALANLAGE GES. M. B. H. 6.4%

ERSTE-SPARINVEST

PIONEER INVESTMENTS AUSTRIA

14%

16%

6%

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

44 ONE-YEAR PERFORMANCE COMPARISON SOURCE: LIPPER; DATA IN PER CENT; AT END OF DECEMBER 2007; “MARKET” REPRESENTS THE AVERAGE FOR THE FUNDS IN THE GIVEN CATEGORY

3.2 3.1

SHORT-TERM BOND FUNDS

RAIFFEISEN CAPITAL MANAGEMENT

0.5 0.5

EURO BOND FUNDS

MARKET HIGH-YIELD BOND FUNDS

-2.3 -2.3

EURO CORPORATE BOND FUNDS

-0.9 -1.4

GLOBAL BALANCED FUNDS

1.3 0.7

EUROPE EQUITY FUNDS

-2.9 0.5

GLOBAL EQUITY FUNDS

-7.7 0.4

AUSTRIA EQUITY FUNDS

1.6 2.4 23.0 19.9

EASTERN EUROPE EQUITY FUNDS

28.3 24.3

GLOBAL EMERGING MARKETS FUNDS

FIVE-YEAR PERFORMANCE COMPARISON SOURCE: LIPPER; DATA IN PER CENT; ANNUALISED PERFORMANCE SINCE JANUARY 2003; AT END OF DECEMBER 2007; “MARKET” REPRESENTS THE AVERAGE FOR THE FUNDS IN EACH CATEGORY

SHORT-TERM BOND FUNDS

2.5 2.2

EURO BOND FUNDS

3.4 2.7

RAIFFEISEN CAPITAL MANAGEMENT

MARKET 9.5 7.7

HIGH-YIELD BOND FUNDS

EURO CORPORATE BOND FUNDS

GLOBAL BALANCED FUNDS

3.4 2.8 8.8 6.2 12.7 13.8

EUROPE EQUITY FUNDS

GLOBAL EQUITY FUNDS

4.5 4.7

AUSTRIA EQUITY FUNDS

32.4 30.9

EASTERN EUROPE EQUITY FUNDS

33.7 33.5

GLOBAL EMERGING MARKETS FUNDS

24.8 26.5

THE RCM GROUP IN 2007 RAIFFEISEN CAPITAL MANAGEMENT

45 GROWTH IN FUND-BASED SAVINGS PLANS OVER THE LAST FIVE YEARS SOURCE: RCM

NUMBER OF CONTRACTS 350,000 +48,850 300,000 +56,993

+201,547 250,000 +45,585

319,259

200,000 +35,985 150,000

+14,134

50,000

0

117,712

100,000

1987 – 2002

INCREASE FROM 2002 TO 2007: 171%

2003

REGULAR-CONTRIBUTION FUND SAVINGS PLANS

2004

2005

2006

2007

Total

RCM Group Financial Results

The fruits of our labour

RCM GROUP FINANCIAL RESULTS RAIFFEISEN CAPITAL MANAGEMENT

Condensed consolidated balance sheet of RCM as of 31 December 48

ASSETS

1. Securities and other equity holdings 2. Bank deposits and cash in hand 3. Receivables and other current assets 4. Intangible assets and property. plant and equipment 5. Prepaid expenses and/or accrued income

31 Dec. 2007 EUR

31 Dec. 2006 EUR ‘000

77,141,691.46 51,503,990.88 9,596,907.74 7,267,500.47 1,037,631.44

87,182 36,009 9,288 6,676 665

146,547,721.99

139,820

31 Dec. 2007 EUR

31 Dec. 2006 EUR ‘000

90,477,395.10 23,623,160.78 15,000,000.00 10,569,287.95 6,875,363.12 2,515.04

83,990 24,258 15,000 10,452 6,118 2

146,547,721.99

139,820

LIABILITIES AND SHAREHOLDERS’ EQUITY

1. Trade and other payables 2. Provisions 3. Share capital 4. Reserves 5. Net profit for the year 6. Accrued expenses and/or deferred income

RCM GROUP FINANCIAL RESULTS RAIFFEISEN CAPITAL MANAGEMENT

Condensed consolidated income statement of RCM for the year ended 31 December 49

2007 EUR

2006 EUR ‘000

1,217,705.05 –804,521.17

1,077 –562

413,183.88

515

3,065,061.80 261,999,693.14 –187,730,434.68 –2,043,092.23 525,923.70

2,053 241,624 –176,444 –66 290

II. OPERATING INCOME

76,230,335.61

67,971

8. General administrative expenses a) Staff costs b) Other administrative expenses

29,611,309.75 34,630,183.21

25,198 30,698

64,241,492.96

55,896

1,851,454.20 233,184.09

1,116 1,660

–66,326,131.25

–58,671

9,904,204.36

9,300

–387,770.50

–393

240,356.90

–3

9,756,790.76

8,904

13. Taxes on income 14. Other taxes

–2,840,114.35 –41,313.29

–2,689 –97

VI. NET PROFIT FOR THE YEAR

6,875,363.12

6,118

1. Interest receivable and similar income 2. Interest payable and similar expenses I.

NET INTEREST INCOME

3. 4. 5. 6. 7.

Income from securities and equity interests Fee and commission income Fee and commission expenses Net finance expenses/income Other operating income

9. Impairment losses on non-current assets 10. Other operating expenses III. OPERATING EXPENSES

IV. OPERATING PROFIT 11. Net expense for liquidation and loss transfer from shares in affiliated companies and for impairment losses from securities valued as non-current assets 12. Expenses for disposal and/or value changes of available-for-sale securities V.

PROFIT BEFORE TAX

RCM GROUP FINANCIAL RESULTS RAIFFEISEN CAPITAL MANAGEMENT

50

THE RCM GROUP IN 2007

In line with the general market trend, fee and commission income of the Raiffeisen Capital Management Group showed slightly less vigorous growth than in the previous year. This item – the most important component of income – increased by 8 per cent to EUR 262.0 million. Expenses also rose at lower rates than in the prior years. The item “other administrative expenses” increased by 13 per cent to EUR 34.6 million and staff costs were up 18 per cent to EUR 29.6 million. In total, the Group’s operating expenses rose 13 per cent to EUR 66.3 million. Profit before tax grew by an attractive 10 per cent from EUR 8.9 million to EUR 9.8 million. Net profit for the year increased correspondingly from EUR 6.1 million to EUR 6.9 million.

DEEP CAPITAL RESOURCES PROVIDE AN EXTRA MARGIN OF SAFETY The name “Raiffeisen” is traditionally synonymous with safety and solidity. With an equity base of EUR 25.6 million at the end of 2007, Raiffeisen Capital Management fully measures up to this reputation. The constant investment in cutting-edge information technology, in capital markets research and in risk management, combined with extensive activities to expand staff qualifications (especially for fund and portfolio managers), also contribute to this security. Finally and importantly, Raiffeisen Capital Management is backed by Austria’s largest financial group, the Raiffeisen Banking Group.

RCM GROUP FINANCIAL RESULTS RAIFFEISEN CAPITAL MANAGEMENT

51

CAPITAL MARKET OUTLOOK FOR 2008

Providing a capital market outlook for the rest of the year is particularly difficult in 2008 in light of the persistent problems in the US mortgage and financial sector and their still undetermined effects on the world’s financial markets. In 2008 even more than in 2007, participants in capital markets will be confronted with the various consequences of globalisation. The financial market crisis triggered by subprime loans did not remain confined to the United States – to date, major US, European and Asian banks have had to write off assets of well more than USD 300 billion. They must now overcome a fundamental crisis of confidence. The hypothesis of global decoupling, according to which some of the world’s economic regions are now sufficiently independent of the US economy not to follow it into the recession that threatens in the USA, is being put to the test in 2008. One of the arguments in favour of such decoupling is that government funds from Dubai and Singapore as well as Middle Eastern investors are investing a combined total amount in the double-digit billion range in ailing banks such as Citigroup, UBS and investment bank Morgan Stanley. Experts believe that 2008 will be the year of foreign government investors acquiring holdings in Europe and the USA. As well, in 2007 the emerging markets’ upward trend was not very strongly affected by the US economy. A continuation of this disengagement, driven especially by the strongly increasing domestic demand in these countries and a resulting decrease in dependence on exports, would be a historic first. As the cooling of the US economy progresses, it will become apparent to what degree emerging markets actually are able to decouple economically from the USA. Whether, and to what extent, not only the emerging markets’ real economy but also their capital markets can achieve detachment from the established stock exchanges remains to be seen as well. Broadly speaking, after several years of strong gains, the forecast for global stock markets for 2008 is less robust. At this point it is still too soon to predict with any confidence what effects the mortgage crisis (which is far from over) and the very likely recession in the USA will have on the world economy. The regions with the best prospects probably continue to be the emerging markets, notably Latin America, China, India and Eastern Europe. The global capital markets are at any rate pricing in a US recession and, beyond it, a global ripple effect. Equity and credit markets in the USA, Europe, Asia and Latin America fell in the first quarter of 2008, in some cases sharply. In light of all this, it is thus far from certain that the – structurally strong – economic growth in emerging markets will remain as robust as it has been.

Oil prices opened the year 2008 on a series of record highs. The price per barrel of WTI crude broke the psychologically significant 100-dollar barrier on the second trading day of the year and later rose to over USD 125. Contributing to these highs were the weak American dollar, falling production by important suppliers like Russia and Mexico, and political tensions. During the balance of 2008 as well, the price of oil will remain high (due especially to the prodigious thirst for oil in emerging markets), but should stabilise. The growing demand for commodities of all kinds in the transition economies should ensure that the market for gold, silver, copper and agricultural products such as wheat, corn and cocoa continues to boom.

ASIA/PACIFIC In the Asian emerging markets at the beginning of the year, there was still little sign of a decoupling from US stock markets. Between the end of January and the middle of March, share prices slumped on the major exchanges in the Far East. Price dives such as on 21 January 2008, when the Nikkei lost 6 per cent in one day and the Hong Kong stock exchange fell by almost 9 per cent, pulled down the established stock markets as well. Nevertheless, the economic forecasts for 2008 are very positive regardless of a possible US recession: For the emerging markets, aggregate GDP growth of about 7 per cent is predicted for 2008 (with higher projections of 10.5 per cent for China and 8.5 per cent for India). According to current estimates, the emerging markets now contribute more than 50 per cent to global economic growth. This is due mostly to increasing domestic demand, growing economic ties between emerging markets themselves, and sustained high earnings growth of companies in these regions. In 2008 the emerging markets will probably account for the lion’s share of global economic growth. The one downside factor remains the rapidly rising inflation, which in China and India, for example, has reached roughly 7 per cent. Despite signs of overheating in China, the strong economic growth is apt to continue in 2008. The forecast for Japan, by contrast, remains lacklustre. The weak US economy hurts Japan as well, which sends about 21 per cent of its exports to the United States. As there is very little chance of a strong pickup in the domestic economy, Japanese economic growth for the year is likely to be 1.5 per cent at best.

CAPITAL MARKET OUTLOOK FOR 2008 RAIFFEISEN CAPITAL MANAGEMENT

52

UNITED STATES In 2008 the USA faces a drastic decline in growth. It is of secondary importance in this regard whether the technical criterion of a recession (two consecutive quarters of negative GDP growth) will be met or not: What matters is that GDP growth probably will not exceed 1.5 per cent at most. In a series of aggressive cuts, the US Federal Reserve has reduced the key lending rate to 2 per cent. In addition, the government is pouring about USD 150 billion into economic stimulus measures to counteract a looming recession. Consumer prices most recently rose at an annualised rate of approximately 4 per cent, reflecting rising energy prices. However, in the course of the year, inflation is expected to ease again, especially as core inflation is currently still significantly lower at about 2.4 per cent. The financial market crisis that has persisted since summer 2007 had dramatic consequences for the earnings performance of US companies. The financial sector in particular experienced an implosion of profits and in fact registered an aggregate net loss in the fourth quarter of 2007. The first quarter of 2008 too was defined by further

large write-offs. In the coming quarters, higher finance expenses and more restrictive lending will probably squeeze profit margins of companies in other sectors as well.

EUROPE Growth momentum in the euro area is visibly easing, due in part to the strong euro’s detrimental effect on exports. Taken country by country, the state of the euro zone economy varies considerably. Italy and especially Spain are recording very poor growth and rising unemployment, resulting in large measure from a weak property market that caused construction activity to nosedive. Germany and France, on the other hand, are looking surprisingly robust. Here too, however, the leading indicators have since recently been pointing down. For Euroland as a whole, the GDP growth forecast for 2008 is now only 1.4 per cent. The predicted Eastern European GDP expansion of about 4.5 per cent will be substantially higher. Inflation accelerated further in the first quarter, driven largely by the rising energy costs. To be sure, a further quickening is unlikely

WHAT ECONOMISTS ARE PREDICTING SOURCE: F.A.Z. POLL

10-year German fed. govt. bond yield

Bank Barclays BHF-Bank Commerzbank DekaBank Dresdner Bank DWS DZ Bank AG Helaba HSBC Trinkaus HSH Nordbank LBBW M.M. Warburg Postbank SEB Bank UBS UniCredit Weberbank WestLB Average

2-year German fed. govt. bond yield

10-year US fed. govt. bond yield

2-year US fed. govt. bond yield

Mid ´07

End ´07

Mid ´07

End ´07

Mid ´07

End ´07

Mid ´07

End ´07

n.a. 4.50 4.20 4.10 4.30 n.a. 4.40 4.20 4.20 4.35 4.50 3.50 4.50 3.90 3.90 4.20 3.85 4.40 4.19

n.a. 4.70 4.00 4.30 4.60 4.40 4.70 4.50 4.20 4.65 4.70 3.80 4.70 3.90 3.90 4.35 3.75 4.50 4.34

n.a. 4.10 3.85 4.15 4.00 n.a. 4.25 3.90 3.80 4.10 4.30 3.80 4.50 3.60 n.a. 3.90 4.25 4.20 4.05

n.a. 4.40 3.50 4.25 4.25 4.00 4.40 4.30 3.80 4.20 4.30 3.60 4.60 3.60 n.a. 4.25 4.00 4.40 4.11

4.60 4.70 4.50 4.30 4.30 n.a. 4.50 4.40 4.20 4.35 4.30 3.50 4.60 3.80 4.70 4.25 4.40 4.70 4.30

4.90 5.00 4.50 4.50 4.60 4.80 5.00 4.80 4.80 5.00 4.50 3.60 4.90 3.90 4.30 4.60 4.50 5.00 4.61

3.75 3.80 3.60 4.10 3.40 n.a. 4.35 n.a. 2.90 3.50 3.45 3.00 4.00 3.30 3.30 3.40 3.25 4.20 3.58

3.90 4.30 3.70 4.30 3.70 4.00 4.80 n.a. 3.20 4.00 3.80 3.20 4.70 3.60 3.70 4.25 3.75 4.70 3.98

OUR STAFF RAIFFEISEN CAPITAL MANAGEMENT

53

and inflation rates should fall again in the further course of the year. But at an estimated 2.7 per cent, the inflation rate at the end of 2008 will still be conspicuously above the ECB’s target level of 2 per cent. With a view to the need for inflation control, a reduction in benchmark lending rates is not likely until the second half of the year. The global crisis that has been gripping financial markets since summer 2007 will continue to leave its mark on Europe as 2008 wears on. Stricter lending rules and increased finance costs are reducing corporate profits. For Austrian companies, earnings growth in 2008 is forecast at 12 per cent, compared with 25 per cent growth achieved in 2007. The main sentiment indicators likewise augur slowing growth in the quarters to come. The ATX share index plummeted in the first quarter of 2008, then stabilised and rallied. An index level of 4,500 is predicted for the midpoint of the year. By year's end the ATX could rise to between 4,600 and 5,000 points. As the slower corporate earnings growth is already largely anticipated in share prices, there is nonetheless a good chance of a positive overall performance of the Austrian stock market for 2008, albeit accompanied by lasting high volatility.

OUR STAFF

INVESTMENT APPROACH Overall, the investment strategy is becoming more conservative in view of the persistent risks and greater imponderables. Based on these expectations, Raiffeisen Capital Management sees return prospects for equities as remaining positive, with the Pacific region (excluding Japan) and global emerging markets continuing to be the preferred places to invest. Government bonds should benefit from the economic slowdown, easing inflation and interest rate reductions. European investment grade corporate bonds remain attractively valued and should outperform euro government bonds. Equity funds concentrating on Eurasia (particularly China, India and Russia) and South America should continue to reap outperforming returns in the years ahead. For conservative investors, absolute return funds represent a very attractive investment alternative in the present capital market environment.

GROUP STAFF SIZE AT END OF YEAR

*

1999 109

Nothing distinguishes a successful fund company more cleary than the quality of its people. The employees of Raiffeisen Capital Management have superb qualifications and many possess extensive experience. RCM promotes the quality of its people by investing heavily in education, training and structured career paths. Binding leadership principles ensure a common approach to people management in the entire Group. All employees are supported by state-of-the-art IT systems in research, analysis and fund management.

2000 129

2001 151

2002 166

2003 174

2004 188*

2005 192

2006 232

2007 287

* Number of employees (average for year, in full-time equivalents)

IMPORTANT ADDRESSES RAIFFEISEN CAPITAL MANAGEMENT

54

IMPORTANT ADDRESSES

Our shareholders > Raiffeisenlandesbank Burgenland und Revisionsverband reg. Gen.m.b.H. Raiffeisenstraße 1 7000 Eisenstadt > Raiffeisenlandesbank Kärnten Rechenzentrum und Revisionsverband reg. Gen.m.b.H. Raiffeisenplatz 1 9020 Klagenfurt > RAIFFEISENLANDESBANK NIEDERÖSTERREICH-WIEN AG Friedrich-Wilhelm-Raiffeisen-Platz 1 1020 Wien > RLB OÖ Unternehmensbeteiligungs G.m.b.H. Europaplatz 1a 4020 Linz > Raiffeisenverband Salzburg reg. Gen.m.b.H. Schwarzstraße 13–15 5020 Salzburg > Raiffeisenlandesbank Steiermark AG Kaiserfeldgasse 5 8010 Graz > RLB (Tirol) Sektor Beteiligungsverwaltungs G.m.b.H. Adamgasse 1–7 6020 Innsbruck > Raiffeisenlandesbank Vorarlberg Waren- und Revisionsverband reg. Gen.m.b.H. Rheinstraße 11 6901 Bregenz > RZB Sektorbeteiligung G.m.b.H. Am Stadtpark 9 1030 Wien

The entities of the Raiffeisen Capital Management Group > Raiffeisen KapitalanlageGesellschaft m.b.H. Schwarzenbergplatz 3 1010 Wien Tel. +43 1 71170-0 Fax +43 1 71170-1092 [email protected] www.rcm.at > Raiffeisen Vermögensverwaltungsbank AG Schwarzenbergplatz 3 1010 Wien Tel. +43 1 71170-0 Fax +43 1 71170-4499 [email protected] www.rcm.at > Raiffeisen International Fund Advisory G.m.b.H. Schwarzenbergplatz 3 1010 Wien Tel. +43 1 71170-0 Fax +43 1 71170-3999 [email protected] www.rcm.at > Raiffeisen Immobilien KapitalanlageGesellschaft m.b.H. Schwarzenbergplatz 3 1010 Wien Tel. +43 1 71170-0 Fax +43 1 71170-2399 [email protected] www.rcm.at

Our official branch offices > In Germany: Raiffeisen International Fund Advisory G.m.b.H. Mainzer Landstraße 51 D-60549 Frankfurt > In Italy: Raiffeisen International Fund Advisory G.m.b.H. Corso Plebisciti n.9 I-20129 Milano

About this report Published by: Raiffeisen Kapitalanlage-Gesellschaft m.b.H. Schwarzenbergplatz 3 1010 Wien Tel. +43 1 71170-0 www.rcm.at Responsible for content: Monika Riedel Text and design: Hochegger Financial Relations GmbH Art direction: Barbara Lüdtke English translation: Martin Focken We have prepared this annual report with great care. However, no representation or warranty, expressed or implied, is made as to its accuracy or completeness. This translation has been prepared for readers’ convenience only. In the event of discrepancies between it and the German-language original, the German version shall be considered definitive. Press date: April 2008

Raiffeisen Capital Management consists of > > > >

Raiffeisen Kapitalanlage-Gesellschaft m.b.H. Raiffeisen Vermögensverwaltungsbank AG Raiffeisen International Fund Advisory G.m.b.H. Raiffeisen Immobilien Kapitalanlage G.m.b.H.