<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 16, 1995
1933 ACT FILE NO. 33-63381
1940 ACT FILE NO. 811-5269
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [_]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 8
----------------
THE BRAZIL FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
C/O SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES (NUMBER, STREET, CITY, STATE, ZIP
CODE))
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 326-6200
----------------
JURIS PADEGS, CHAIRMAN OF THE BOARD
NICHOLAS BRATT, PRESIDENT
C/O SCUDDER, STEVENS & CLARK, INC.
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(NAME AND ADDRESS (NUMBER, STREET, CITY, STATE, ZIP CODE) OF AGENTS FOR
SERVICE)
----------------
WITH COPIES TO:
MEREDITH M. BROWN EARL D. WEINER
DEBEVOISE & PLIMPTON SULLIVAN & CROMWELL
875 THIRD AVENUE 125 BROAD STREET
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10004
----------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of this registration statement.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
other than securities offered in connection with a dividend reinvestment plan,
check the following box. [X]
It is proposed that this filing will become effective pursuant to section
8(a).
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) FEE(2)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share............ 4,060,000 Shares $20.00 $81,200,000 $28,000
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933. Based on a
discount from the average of the high and low sales prices for the Fund's
Common Stock reported on the New York Stock Exchange Composite Tape on
October 11, 1995.
(2) $27,931.03 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE BRAZIL FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PART A: THE PROSPECTUS
<TABLE>
<CAPTION>
FORM N-2 ITEM NUMBER PROSPECTUS/SAI CAPTION
- -------------------- ----------------------
<S> <C>
1. Outside Front Cover............ Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Page..................... Cover Page of Prospectus
3. Fee Table and Synopsis......... Prospectus Summary; Fee Table
4. Financial Highlights........... Financial Highlights
5. Plan of Distribution........... Cover Page of Prospectus; Prospectus
Summary; The Offer
6. Selling Shareholders........... Not Applicable
7. Use of Proceeds................ Use of Proceeds
8. General Description of the
Registrant..................... Cover Page of Prospectus; Prospectus
Summary; Market and Net Asset Value
Information; The Fund; The Offer; Risk
Factors and Special Considerations;
Investment Objective and Policies; Common
Stock
9. Management..................... Investment Advisers and Administrator;
Portfolio Transactions and Brokerage;
Custodian; Dividend Paying Agent, Transfer
Agent and Registrar; Common Stock
10. Capital Stock, Long-Term Debt,
and Other Securities........... Common Stock; Dividends and Distributions;
Dividend Reinvestment and Cash Purchase
Plan; Taxation
11. Defaults and Arrears on Senior
Securities..................... Not Applicable
12. Legal Proceedings.............. Not Applicable
13. Table of Contents of the
Statement of Additional
Information.................... Table of Contents of Statement of
Additional Information
<CAPTION>
PART B: STATEMENT OF ADDITIONAL INFORMATION
14. Cover Page..................... Cover Page of SAI
15. Table of Contents.............. Cover Page of SAI
16. General Information and
History........................ Not Applicable
17. Investment Objective and
Policies....................... Investment Objective and Policies;
Investment Restrictions
18. Management..................... Directors and Officers
19. Control Persons and Principal
Holders of Securities.......... Common Stock
20. Investment Advisory and Other
Services....................... Investment Advisers and Administrator;
Custodian; Dividend Paying Agent, Transfer
Agent and Registrar; Experts
21. Brokerage Allocation and Other
Practices...................... Portfolio Transactions and Brokerage
22. Tax Status..................... Taxation
23. Financial Statements........... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
4,060,000 SHARES
[LOGO] THE BRAZIL FUND, INC.
COMMON STOCK
-----------
The Brazil Fund, Inc. (the "Fund") is issuing to its shareholders of record
(the "Record Date Shareholders") as of the close of business on November 20,
1995 (the "Record Date") transferable rights (the "Rights") entitling the
holders thereof to subscribe for an aggregate of 4,060,000 shares (the
"Shares") of the Fund's common stock (the "Common Stock") at the rate of one
share of Common Stock for each three Rights held and entitling such Record
Date Shareholders to subscribe, subject to certain limitations and subject to
allotment, for any Shares not acquired by exercise of primary subscription
Rights (the foregoing being referred to hereinafter as the "Offer"). Such
aggregate number of Shares and rate, whenever referred to in this Prospectus,
are subject to determination by the Executive Committee of the Fund's Board of
Directors. Each Record Date Shareholder is being issued one Right for each
full share of Common Stock owned on the Record Date. No fractional Rights or
Shares will be issued. The Rights are transferable and are expected to be
listed for trading on the New York Stock Exchange (the "NYSE"). The Shares are
expected to be listed on the NYSE and admitted to trading but not listed on
the Chicago Stock Exchange (the "CSE"). See "The Offer." THE SUBSCRIPTION
PRICE PER SHARE (the "Subscription Price") will be $ .
THE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON DECEMBER 15, 1995
UNLESS EXTENDED AS DESCRIBED HEREIN.
The Fund is a non-diversified, closed-end management investment company,
commenced operations in 1988 and, as of October 31, 1995, had net assets of
$284,438,197. The Fund's investment objective is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Brazilian issuers. It is the policy of the Fund normally to invest at least
70% of the Fund's net assets in common and preferred stocks of companies
registered with the Brazilian Securities Commission and listed on the
Brazilian stock exchanges or traded in over-the-counter markets. No assurance
can be given that the Fund's investment objective will be realized. Investment
in Brazil involves certain special considerations, such as restrictions on
foreign investment and repatriation of capital, fluctuations of currency
exchange rates, and political and economic risks, that are not normally
involved in investments in the United States and which may be deemed to
involve speculative risks. SEE "INVESTMENT OBJECTIVE AND POLICIES," "RISK
FACTORS AND SPECIAL CONSIDERATIONS" AND ANNEX A, "THE FEDERATIVE REPUBLIC OF
BRAZIL."
Scudder, Stevens & Clark, Inc. (the "Manager") manages the Fund. Banco Icatu
S.A. (the "Brazilian Adviser") acts as Brazilian adviser to the Manager. Banco
de Boston S.A. (the "Brazilian Administrator") acts as Brazilian
administrator. The address of the Fund is 345 Park Avenue, New York, New York
10154, and its telephone number is (212) 326-6200. All questions relating to
the Offer should be directed to the Information Agent, Georgeson & Company
Inc., toll free at (800) 223-2064 or collect at (212) 509-6240.
-----------
The Fund's currently outstanding shares of Common Stock are, and the Shares
offered hereby will be, listed on the NYSE under the symbol "BZF" and admitted
to trading but not listed on the CSE under the symbol "BZF." The Rights will
trade on the NYSE under the symbol "BZF-RT." The Fund announced the Offer
before the opening of trading on the NYSE on October 13, 1995. The net asset
value per share of Common Stock at the close of business on October 12, 1995
and November 10, 1995 was $25.93 and $22.90, respectively, and the last sale
price of the Common Stock on the NYSE Composite Tape on those dates was $25.25
and $23.375, respectively.
-----------
As a result of the terms of the Offer, Record Date Shareholders who do not
fully exercise their Rights should expect that they will, upon the completion
of the Offer, own a smaller proportional interest in the Fund than would
otherwise be the case. An immediate substantial dilution of the aggregate net
asset value of the shares of Common Stock owned by Record Date Shareholders
who do not fully exercise their Rights is likely to be experienced as a result
of the Offer. SEE "THE OFFER" AND "RISK FACTORS AND SPECIAL CONSIDERATIONS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SUBSCRIPTION PRICE SALES LOAD(1) PROCEEDS TO FUND (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................ $ $ $
- --------------------------------------------------------------------------------
Total.................... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) In connection with the Offer, the Fund has agreed to pay to Smith Barney
Inc. (the "Dealer Manager") and other broker-dealers included in the
selling group to be formed and managed by the Dealer Manager ("Selling
Group Members") a fee of 2.50% of the Subscription Price for each Share
either issued upon the exercise of Rights as a result of their soliciting
efforts or purchased from the Dealer Manager for sale to the public.
Certain other broker-dealers that have executed and delivered a Soliciting
Dealer Agreement and have solicited the exercise of Rights will receive
fees for their soliciting efforts of .50% of the Subscription Price,
subject generally to a maximum fee based upon the number of shares of
Common Stock held by each such broker-dealer through The Depository Trust
Company on the Record Date. The Fund will pay to the Dealer Manager a fee
for financial advisory and marketing services in connection with the Offer
equal to 1.00% of the aggregate Subscription Price. The Fund has agreed to
indemnify the Dealer Manager against certain liabilities under the
Securities Act of 1933, as amended. See "The Offer--Distribution
Arrangements." The total sales load shown in the table assumes that the
exercise of all Rights was solicited by a Selling Group Member.
(2) Before deduction of expenses incurred by the Fund, estimated at $660,000,
including up to an aggregate of $100,000 to be paid to the Dealer Manager
in reimbursement of its expenses.
-----------
Prior to the Expiration Date, the Dealer Manager may offer Shares of Common
Stock, including Shares acquired through the purchase and exercise of Rights,
at prices it sets from time to time. Each price when set will not exceed the
greater of the last sale or current asked price of the Common Stock on the
NYSE plus commission, and an offering price set in any calendar day will not
be increased more than once during that day. Because the Dealer Manager will
determine the price, it may realize profits or losses independent of any fees
referred to under "The Offer--Distribution Arrangements."
-----------
This Prospectus sets forth concisely information about the Fund that a
prospective investor ought to know before investing. Investors are advised to
read this Prospectus and to retain it for future reference. A Statement of
Additional Information, dated , 1995 (the "SAI"), containing additional
information about the Fund, has been filed with the Securities and Exchange
Commission (the "Commission"), and is incorporated by reference in its
entirety into this Prospectus. A copy of the SAI may be obtained without
charge by calling the Fund's Information Agent, Georgeson & Company Inc., toll
free at (800) 223-2064 or collect at (212) 509-6240. The table of contents of
the SAI is on page 51 of this Prospectus.
-----------
SMITH BARNEY INC.
The date of this Prospectus is , 1995.
<PAGE>
In this Prospectus, unless otherwise specified, all references to "billion"
are to one thousand million, to "Dollars," "US$" or "$" are to United States
Dollars and to "Real" (plural "Reais") or "R$" are to Brazilian Reais. On
October 31, 1995, the Real-Dollar exchange rate (sell side) in the commercial
exchange market, as published by the Central Bank of Brazil, was R$ 0.962 =
$1.00. No representation can be made as to whether the Real or Dollar amounts
in this Prospectus could have been or could be converted into Reais or
Dollars, as the case may be, at such rates, at any other rates or at all. See
Annex A, "The Federative Republic of Brazil--Balance of Payments and Foreign
Trade" and "--Foreign Exchange" for information regarding the rates of
exchange between the Real and the Dollar for the five years prior to the date
of this Prospectus. Reference should be made to "Risk Factors and Special
Considerations--Currency Fluctuations" for a better understanding of the
effect on the Fund of the fluctuation of the exchange rate between the Real
and the Dollar and the significance, in Dollar terms, of amounts set forth in
this Prospectus in Reais and of amounts in comparison based on, or computed by
reference to, such currency.
On July 1, 1994, the Real replaced the Cruzeiro Real as the lawful currency
of Brazil, with each Real exchangeable for 2,750.00 Cruzeiros Reais. The
Cruzeiro Real had replaced the Cruzeiro as the lawful currency of Brazil on
August 1, 1993, with each Cruzeiro Real exchangeable for 1,000 Cruzeiros. The
Cruzeiro had replaced the Cruzado Novo as the lawful currency of Brazil under
the Collor Plan of March 15, 1990, with each Cruzeiro exchangeable for one
Cruzado Novo. The Cruzado Novo had replaced the Cruzado as the lawful currency
of Brazil under the Summer Plan of January 16, 1989, with each Cruzado Novo
exchangeable for 1,000 Cruzados. The Cruzado had replaced the Cruzeiro as the
lawful currency of Brazil under the Cruzado Plan of February 28, 1986, with
each Cruzado exchangeable for 1,000 pre-Cruzado Plan Cruzeiros.
Brazil has in the past experienced high rates of inflation. As measured by
the General Price Index--Domestic Supply (a national price index based on a
weighting of three other indexes), annualized inflation for the nine months
ended September 30, 1995 was 17.3%. Annual inflation was 1,094% for 1994,
2,709% for 1993 and 1,158% for 1992. Such high levels of inflation, together
with the devaluation of the Brazilian currency in relation to the U.S. Dollar,
render comparisons of year-to-year financial performance and U.S. Dollar
translations less meaningful. Accordingly, the effects of inflationary
distortions should be considered by the readers of all financial information
contained herein. Except as indicated herein, the exchange rates used herein
to convert pre-Cruzado Plan Cruzeiro, Cruzado, Cruzado Novo, post-Cruzado Plan
Cruzeiro, Cruzeiro Real or Real amounts into U.S. Dollars for a particular
period were the commercial rates of exchange recorded by the Central Bank in
effect at the end of such period. These conversions are provided solely for
the convenience of readers of this Prospectus and should not be construed as
implying that the Brazilian currency amounts represent or have been or could
be converted into U.S. Dollars at such rates.
Certain numbers in this Prospectus have been rounded for ease of
presentation. Since most calculations have been made on unrounded figures, the
sum of the component figures in many of the tables presented may not precisely
equal the totals shown.
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the United States
Securities and Exchange Commission (the "Commission"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's regional offices at 7 World Trade Center, New York, New
York 10048 and 14th Floor, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Fund's shares of Common Stock are listed and/or admitted to trading
on the stock exchanges referred to on the cover page of this Prospectus, and
reports and other information concerning the Fund can be inspected at such
exchanges.
2
<PAGE>
A Registration Statement on Form N-2 (the "Registration Statement") relating
to the Shares has been filed by the Fund with the Commission. This Prospectus
does not contain all of the information set forth in the Registration
Statement, including any exhibits and schedules thereto. For further
information with respect to the Fund and the Shares offered hereby, reference
is made to the Registration Statement, of which this Prospectus and the
Statement of Additional Information ("SAI") incorporated herein by reference
constitute a part. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement may be inspected without charge at the Commission's
principal office in Washington, D.C., and copies of all or any part thereof
may be obtained from the Commission upon the payment of certain fees
prescribed by the Commission.
----------------
IN CONNECTION WITH THIS OFFERING, THE DEALER MANAGER MAY EFFECT TRANSACTIONS
WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE RIGHTS AND THE COMMON
STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, ANY OTHER
EXCHANGES ON WHICH THE COMMON STOCK AND/OR THE RIGHTS HAVE BEEN ADMITTED TO
TRADING PRIVILEGES, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
3
<PAGE>
EXPENSE INFORMATION
The following table sets forth certain fees and expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES:
<TABLE>
<S> <C>
Sales Load (as a percentage of offering price)(1)(2).................... 3.50%
Dividend Reinvestment and Cash Purchase Plan Fees....................... (3)
</TABLE>
ANNUAL FUND OPERATING EXPENSES: Expenses paid by the Fund before it
distributes its net investment income, expressed as a percentage of the Fund's
net assets (based on estimated expenses for the fiscal year ending December
31, 1995).
<TABLE>
<S> <C>
Management Fees......................................................... 1.15%
Other expenses.......................................................... .44%
----
Total Annual Fund Operating Expenses...................................... 1.59%
====
</TABLE>
EXAMPLE:(4)
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Based on the level of total Fund operating
expenses listed above, the total expenses
relating to a $1,000 investment in the Fund
at the end of each period, assuming a 5%
annual return, are listed below............. $16 $50 $87 $189
=== === === ====
</TABLE>
- --------
(1) The Fund has agreed to pay to the Dealer Manager and each Selling Group
Member fees equal to 2.50% of the Subscription Price for each Share either
issued upon the exercise of Rights as a result of their soliciting efforts
or purchased from the Dealer Manager for sale to the public. Certain other
broker-dealers that have executed and delivered a Soliciting Dealer
Agreement and have solicited the exercise of Rights will receive fees for
their soliciting efforts of up to .50% of the Subscription Price, subject
generally to a maximum fee based upon the number of shares of Common Stock
held by each such broker-dealer through The Depository Trust Company on
the Record Date. The Fund will pay to the Dealer Manager a fee for
financial advisory and marketing services in connection with the Offer
equal to 1.00% of the aggregate Subscription Price. These fees will be
borne by all of the Fund's shareholders, including those who do not
exercise their Rights. The total sales load shown in the table assumes
that the exercise of all Rights was solicited by Selling Group Members.
See "The Offer--Distribution Arrangements."
(2) Does not include expenses of the Fund incurred in connection with the
Offer, estimated at $660,000.
(3) There is no charge to participants for reinvesting dividends and capital
gains distributions (the Plan Agent's fees are paid by the Fund).
Participants are charged a $1.00 service fee for each voluntary cash
investment and a pro rata share of brokerage commissions on all open
market purchases.
(4) The Example assumes reinvestment of all dividends and distributions at net
asset value, reflects all recurring and non-recurring fees including the
Sales Load and other expenses of the Fund incurred in connection with the
Offer, assumes that the percentage amounts listed under "Annual Fund
Operating Expenses" remain the same each year, and assumes that all of the
Rights are exercised.
The purpose of the foregoing table and example is to assist Rights holders
in understanding the various costs and expenses that an investor in the Fund
bears, directly or indirectly. THE EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR RETURN. ACTUAL FUND EXPENSES AND
RETURN VARY FROM YEAR TO YEAR AND MAY BE HIGHER OR LOWER THAN THOSE SHOWN. In
addition, while the example assumes reinvestment of all dividends and
distributions at net asset value, participants in the Fund's Dividend
Reinvestment and Cash Purchase Plan may receive shares issued at a price or
value different from net asset value. See "Dividends and Distributions;
Dividend Reinvestment and Cash Purchase Plan."
The figures provided under "Other Expenses" are based upon estimated amounts
for the current fiscal year. The Manager has agreed not to charge a portion of
its fee such that the effective investment management fee with respect to net
assets in excess of $300,000,000 is 1.075%. For more complete descriptions of
certain of the Fund's costs and expenses, see "Investment Advisers and
Administrator."
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information included elsewhere in this Prospectus and in the Statement
of Additional Information ("SAI") that is incorporated herein by reference.
Investors should carefully consider information set forth under the heading
"Risk Factors and Special Considerations."
THE OFFER
The Brazil Fund, Inc. (the "Fund") is issuing to its shareholders of record
(the "Record Date Shareholders") as of the close of business on November 20,
1995 (the "Record Date") transferable rights (the "Rights") to subscribe for an
aggregate of 4,060,000 shares (the "Shares") of the Fund's common stock (the
"Common Stock"). Each Record Date Shareholder is being issued one Right for
each full share of Common Stock owned on the Record Date. For purposes of
determining the number of Shares a Record Date Shareholder may acquire pursuant
to the Offer (as defined below), broker-dealers whose Shares are held of record
by Cede & Co. ("Cede"), as nominee for The Depository Trust Company ("DTC"), or
by any other depository or nominee will be deemed to be the holders of the
Rights that are issued to Cede or such other depository or nominee on their
behalf. The Rights entitle the Record Date Shareholder to acquire at the
Subscription Price (as hereinafter defined) one Share for each three Rights
held. No fractional Rights or Shares will be issued. Any Record Date
Shareholder who is issued fewer than three Rights may subscribe, at the
Subscription Price, for one full Share during the Subscription Period, which
commences on the date of this Prospectus and ends at 5:00 p.m., New York City
time, on December 15, 1995 unless extended by the Fund (the "Expiration Date").
The Rights are evidenced by subscription certificates ("Subscription
Certificates") which will be mailed to Record Date Shareholders (except as
discussed below under "Foreign Restrictions"). A Record Date Shareholder's
right to acquire during the Subscription Period at the Subscription Price one
Share for each three Rights held is hereinafter referred to as the "Primary
Subscription." Holders of Rights acquired during the Subscription Period
("Rights Holders") may also purchase Shares in the Primary Subscription. All
Rights may be exercised immediately upon receipt and until 5:00 p.m., New York
City time, on the Expiration Date. (Record Date Shareholders and Rights Holders
purchasing Shares in the Primary Subscription are hereinafter referred to as
"Exercising Rights Holders.")
As a result of the terms of the Offer, Record Date Shareholders who do not
fully exercise their Rights should expect that they will, upon the completion
of the Offer, own a smaller proportional interest in the Fund than would
otherwise be the case. An immediate substantial dilution of the aggregate net
asset value of the shares of Common Stock owned by Record Date Shareholders who
do not fully exercise their Rights is likely to be experienced as a result of
the Offer. See "Risk Factors and Special Considerations--Special
Considerations."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to him
(other than those Rights which cannot be exercised because they represent the
right to acquire less than one Share) is entitled to subscribe for Shares which
were not otherwise subscribed for by others on Primary Subscription (the "Over-
Subscription Privilege" and, together with the Primary Subscription, the
"Offer"). Shares acquired pursuant to the Over-Subscription Privilege are
subject to allotment, which is more fully discussed under "The Offer--Over-
Subscription Privilege."
SUBSCRIPTION PRICE
The Subscription Price per Share (the "Subscription Price") is $ .
5
<PAGE>
SOLICITING FEES
The Fund has agreed to pay to Smith Barney Inc. (the "Dealer Manager") and
other broker-dealers included in the selling group to be formed and managed by
the Dealer Manager ("Selling Group Members") fees equal to 2.50% of the
Subscription Price for Shares either issued upon the exercise of Rights as a
result of their soliciting efforts or purchased from the Dealer Manager for
sale to the public. Certain other broker-dealers that have executed and
delivered a Soliciting Dealer Agreement and have solicited the exercise of
Rights will receive fees for their soliciting efforts of up to .50% of the
Subscription Price, subject generally to a maximum fee based upon the number of
shares of Common Stock held by each such broker-dealer through DTC on the
Record Date.
INFORMATION AGENT
The Information Agent for the Offer is:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
or
Call Collect: (212) 509-6240
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
----- ----
<S> <C>
Record Date............................... November 20, 1995
Subscription Period....................... November 20, 1995--December 15, 1995
Expiration Date........................... December 15, 1995 (unless extended)
Subscription Certificates and Payment for
Shares Due............................... December 15, 1995
Notices of Guaranteed Delivery Due........ December 15, 1995
Subscription Certificates and Payment Due
Pursuant to Notice of Guaranteed Deliv-
ery...................................... December 20, 1995
Confirmation Date......................... December 27, 1995
</TABLE>
EXERCISING RIGHTS
Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to State Street Bank and Trust Company, Boston, Massachusetts (the
"Subscription Agent"). Exercising Rights Holders will have no right to rescind
a purchase after the Subscription Agent has received payment, either by means
of a notice of guaranteed delivery or a check. See "The Offer--Exercise of
Rights" and "The Offer--Payment for Shares."
SALE OF RIGHTS
The Rights are transferable until the Expiration Date. The Rights are
expected to be listed for trading on the New York Stock Exchange (the "NYSE"),
and the Shares are expected to be listed for trading on the NYSE and admitted
for trading but not listed on the Chicago Stock Exchange (the "CSE"). The Fund
has used its best efforts to ensure that an adequate trading market for the
Rights will exist, although no assurance can be given
6
<PAGE>
that a market for the Rights will develop. Trading in the Rights on the NYSE
may be conducted until the close of trading on the NYSE on the last Business
Day (as defined below) prior to the Expiration Date. The Fund expects that a
market for the Rights will develop and that the value of the Rights, if any,
will be reflected by the market price. Rights may be sold by individual holders
or may be submitted to the Subscription Agent for sale by or to the Dealer
Manager. Any Rights to be submitted by the Subscription Agent to the Dealer
Manager for purchase or sale must be received by the Subscription Agent at or
prior to 5:00 p.m., New York City time, on December 13, 1995, two Business Days
prior to the Expiration Date, due to normal settlement procedures. Trading of
the Rights on the NYSE will be conducted on a when-issued basis commencing on
November 20, 1995 and thereafter on a regular way basis from November 22, 1995
until and including the last Business Day prior to the Expiration Date. If the
Subscription Agent receives Rights for sale in a timely manner, it will either
sell the Rights to the Dealer Manager or the Dealer Manager will use its best
efforts to sell the Rights on the NYSE. The Dealer Manager will also either
purchase or attempt to sell any Rights submitted to it by the Subscription
Agent that a Record Date Shareholder is unable to exercise because such Rights
represent the right to subscribe for less than one Share. Any commissions will
be paid by the selling Record Date Shareholder. Neither the Fund nor the
Subscription Agent nor the Dealer Manager will be responsible if Rights cannot
be sold and none of them has guaranteed any minimum sale price for the Rights.
For purposes of this Prospectus, a "Business Day" shall mean any day on which
trading is conducted on the NYSE. Record Date Shareholders are urged to obtain
a recent trading price for the Rights on the NYSE from their broker, bank,
financial adviser or the financial press. Inquiries by Exercising Rights
Holders should be directed to the Information Agent.
FOREIGN RESTRICTIONS
Subscription Certificates will not be mailed to Record Date Shareholders
whose record addresses are outside the United States (for these purposes the
United States includes its territories and possessions and the District of
Columbia) (such shareholders being referred to hereinafter as "Foreign Record
Date Shareholders"). The Rights to which such Subscription Certificates relate
will be held by the Subscription Agent for such Foreign Record Date
Shareholders' accounts until instructions are received to exercise, sell or
transfer the Rights. If no instructions have been received by 12:00 noon, New
York City time, on December 13, 1995, two Business Days prior to the Expiration
Date, the Rights of those Foreign Record Date Shareholders will be transferred
by the Subscription Agent to the Dealer Manager who will either purchase the
Rights or will use its best efforts to sell the Rights on the NYSE. The net
proceeds from the purchase or sale of those Rights by the Dealer Manager will
be remitted to the Foreign Record Date Shareholders.
USE OF PROCEEDS
The net proceeds of the Offer will be invested in accordance with the
policies set forth under "Investment Objective and Policies." The Board of
Directors of the Fund has determined that it would be in the best interests of
the Fund and its shareholders to increase the assets of the Fund available for
investment so that the Fund will be in a better position to take advantage of
investment opportunities that the Fund anticipates in Brazil. In addition, the
Offer affords existing shareholders the opportunity to purchase additional
shares of the Fund's Common Stock at a price that may be below market value
and/or net asset value without incurring the transaction costs associated with
open-market purchases. See "The Offer--Purpose of the Offer."
INFORMATION REGARDING THE FUND
The Fund is a non-diversified, closed-end management investment company
designed to facilitate international diversification for U.S. and other
investors who desire to participate in the Brazilian securities markets. The
investment objective of the Fund is to seek long-term capital appreciation
through investment in securities, primarily equity securities, of Brazilian
issuers. It is the policy of the Fund normally to invest at least 70% of its
net assets in common and preferred stocks of companies registered with the
Brazilian Securities Commission and listed on the Brazilian stock exchanges or
traded in over-the-counter markets. The Fund's
7
<PAGE>
investment objective is subject to certain investment policies and restrictions
described under "Investment Objective and Policies" in this Prospectus and
"Investment Restrictions" in the SAI.
INFORMATION REGARDING THE MANAGER, THE BRAZILIAN ADVISER AND THE BRAZILIAN
ADMINISTRATOR
Scudder, Stevens & Clark, Inc. (the "Manager"), a leading global investment
manager, acts as investment adviser to and manager of the Fund. As of December
31, 1994, the Manager and its affiliates had over $90 billion of assets under
their supervision, of which more than $22 billion was invested in non-U.S.
securities. Banco Icatu S.A. (the "Brazilian Adviser") acts as Brazilian
adviser to the Manager. Banco de Boston S.A. (the "Brazilian Administrator")
acts as Brazilian administrator for the Fund. See "Investment Advisers and
Administrator."
Under the Investment Advisory, Management and Administration Agreement
between the Manager and the Fund, the Manager receives a monthly fee at an
annual rate equal to 1.175% of the Fund's average weekly net assets. The
Manager has agreed not to charge a portion of its fee such that the effective
rate with respect to net assets in excess of $300,000,000 is 1.075%. A portion
of the Manager's fee is paid by the Manager to the Brazilian Adviser. See
"Investment Advisers and Administrator."
INFORMATION REGARDING THE CUSTODIAN
Brown Brothers Harriman & Co. acts as custodian for the Fund. See
"Custodian."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Dilution. An immediate substantial dilution of the aggregate net asset value
of the shares of Common Stock owned by Record Date Shareholders who do not
fully exercise their Rights is likely to be experienced as a result of the
Offer because the Subscription Price is likely to be less than the Fund's then-
net asset value per share, and the number of shares outstanding after the Offer
is likely to increase in a greater percentage than the percentage increase in
the Fund's assets. In addition, as a result of the terms of the Offer, Record
Date Shareholders who do not fully exercise their Rights should expect that
they will, at the completion of the Offer, own a smaller proportional interest
in the Fund than would otherwise be the case. Although it is not possible to
state precisely the amount of such a decrease in value, because it is not known
at this time what the net asset value per share will be at the Expiration Date,
such dilution could be substantial. For example, assuming that all Rights are
exercised and that the Subscription Price of $ is % below the Fund's net
asset value of $ per share on , 1995, the Fund's net asset value per share
would be reduced by approximately $ per share.
Unrealized Appreciation. As of October 31, 1995, there was approximately $160
million of net unrealized appreciation in the Fund's net assets of
approximately $284 million; if realized and distributed, or deemed distributed,
such gains would, in general, be taxable to shareholders, including holders at
that time of Shares acquired upon the exercise of the Rights. See "Taxation" in
this Prospectus and "Taxation--United States Federal Income Taxes--General,"
"--Distributions" and "--Non-U.S. Shareholders" in the SAI.
Investments in Brazil. Investing in securities of Brazilian companies and of
the government (the "Government") of the Federative Republic of Brazil
("Brazil") involves certain considerations not typically associated with
investing in securities of United States companies or the United States
government, including (1) investment and repatriation controls, which could
affect the Fund's ability to operate, and to qualify for the favorable tax
treatment afforded to regulated investment companies for U.S. Federal income
tax purposes, (2) fluctuations in the rate of exchange between the Real and the
Dollar, (3) the greater price volatility and lesser liquidity that characterize
Brazilian securities markets, as compared with U.S. markets, (4) Brazil's
difficulties since the 1980s in complying with its debt and debt service
obligations, (5) the effect that a trade deficit could have on economic
stability and the Government's economic policy, (6) high rates of inflation,
(7) governmental
8
<PAGE>
involvement in and influence on the private sector, (8) the sustainability of
the Plano Real and the failure of previous stabilization plans, (9) Brazilian
accounting, auditing and financial standards and requirements, which differ
from those in the United States, and (10) political and other considerations,
including changes in applicable Brazilian tax laws. See generally "Risk Factors
and Special Considerations."
Non-Diversified Status. The Fund is classified as a "non-diversified"
investment company under the U.S. Investment Company Act of 1940, as amended
(the "1940 Act"), which means that the Fund is not limited by the 1940 Act as
to the percentage of its assets that may be invested in the securities of a
single issuer. As a non-diversified investment company, the Fund may invest in
a smaller number of issuers, and, as a result, may be subject to greater risk
with respect to portfolio securities.
Discount from Net Asset Value. Shares of closed-end investment companies
frequently trade at a discount from net asset value. Since the Fund's
commencement of operations in 1988, the Fund's shares have traded at different
times at a discount and at a premium in relation to net asset value. The Fund
cannot predict whether the Common Stock will in the future trade at a premium
or discount to net asset value. The risk of the Common Stock trading at a
discount is a risk separate from the risk of a decline in the Fund's net asset
value. See "Market and Net Asset Value Information" in this Prospectus and "Net
Asset Value" in the SAI.
Charter Provisions. Certain anti-takeover provisions will make a change in
the Fund's business or management more difficult without the approval of the
Fund's Board of Directors and may have the effect of depriving stockholders of
an opportunity to sell their shares at a premium above the prevailing market
price. See "Common Stock--Special Voting Provisions."
9
<PAGE>
FINANCIAL HIGHLIGHTS
This table presents selected data for a share of the Fund's Common Stock
outstanding throughout each period and other performance information derived
from the Fund's financial statements, which have been audited by Price
Waterhouse LLP, independent accountants, and from market price data. This
information should be read in conjunction with the Financial Statements and
Notes thereto as of June 30, 1995 and the related Report of Independent
Accountants which appear in the SAI.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
FOR THE PERIOD
APRIL 8, 1988
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
JUNE 30, DECEMBER 31,
PER SHARE OPERATING PERFORMANCES 1995 1994 1993 1992 1991 1990 1989 1988
- -------------------------------- ---------- ------ ------ ------ ------ ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Begin-
ning of Period.......... $31.10 $20.98 $14.12 $13.80 $ 5.97 $18.85 $12.90 $11.54(d)
Net Investment Income
(Loss)(a).............. .26 (.17) .10 .19 .95 1.32 .88 .42
Net Realized and
Unrealized Gain (Loss)
on Investment
Transactions(a)........ (6.65) 12.75 7.58 .79 6.88 (14.08) 8.25 1.63
Total From Investment Op-
erations................ (6.39) 12.58 7.68 .98 7.83 (12.76) 9.13 2.05
Less Distributions From:
Net Investment Income... -- -- (.08) -- -- (.12) (.89) (.41)
Net Realized Gains on
Investments............ (.24) (2.46) (.74) (.66) -- -- (1.36) (.28)
Paid-in Capital......... -- -- -- -- -- -- (.93) --
Total Distributions...... (.24) (2.46) (.82) (.66) -- (.12) (3.18) (.69)
Net Asset Value, End of
Period.................. $24.47 $31.10 $20.98 $14.12 $13.80 $ 5.97 $18.85 $12.90
Market Value, End of Pe-
riod.................... $25.13 $33.00 $21.13 $13.63 $14.75 $ 6.63 $12.88 $ 7.88
TOTAL INVESTMENT RETURN
Per Share Market Value
(%)..................... (23.10)** 69.81 60.89 (3.91) 122.64 (47.98) 105.82 (31.25)
Per Share Net Asset Value
(%)(b).................. (20.50)** 61.09 54.19 6.43 131.16 (67.98) 83.96 21.99
RATIOS AND SUPPLEMENTAL
DATA
Net Assets, End of Period
($ millions)............ 297 377 254 171 167 72 227 155
Ratio of Operating Ex-
penses to Average Net
Assets (%)(c)........... 1.67* 1.71 1.84 2.22 2.15 2.25 2.01 1.90*
Ratio of Net Investment
Income (Loss) to Average
Net Assets (%).......... 2.02* (.58) .56 1.13 8.13 11.27 4.76 4.70*
Portfolio Turnover Rate
(%)..................... 9.91* 5.76 4.67 7.94 12.69 4.31 14.02 .74*
</TABLE>
- --------
(a) Realized and unrealized currency losses on the Fund's interest-bearing
accounts amounted to $.31, $.86 and $2.96 per share in 1992, 1991 and 1990
respectively, of which $1.27 per share was included in net investment
income in 1990.
(b) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund
during each period, and assumes dividends and capital gains distributions,
if any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value of the Fund during each period.
(c) For the years ended December 31, 1993, 1992, 1990 and 1989 the ratio of
expenses, including the Brazilian repatriation tax, to average net assets
was 2.22%, 2.39%, 2.56% and 3.00%, respectively.
(d) Beginning per share amount reflects $12.50 initial public offering price
net of underwriting discount and offering expenses ($.96 per share).
*Annualized.
**Not annualized.
10
<PAGE>
MARKET AND NET ASSET VALUE INFORMATION
The Fund's outstanding Common Stock is, and the Shares will be, listed on
the NYSE and admitted to trading but not listed on the CSE. The Fund's shares
commenced trading on the NYSE on March 31, 1988 and on the CSE on May 28,
1988. The following table shows for the periods indicated (1) the high and low
sales prices for transactions in the Fund's shares on the NYSE Composite Tape,
(2) the net asset value as determined on the date closest to each quotation
and (3) the discount or premium to net asset value (expressed as a percentage)
represented by the quotation.
<TABLE>
<CAPTION>
HIGH SALES NET ASSET PREMIUM LOW SALES NET ASSET PREMIUM
PERIOD PRICE VALUE (DISCOUNT) PRICE VALUE (DISCOUNT)
------ ---------- --------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jan. 1--March 31, 1993.. $16.50 $16.82 (1.9)% $13.38 $14.70 (9.0)%
April 1--June 30, 1993.. 18.88 19.35 (2.4) 14.25 16.02 (11.0)
July 1--Sep. 30, 1993... 20.88 27.66 (24.5) 15.88 17.94 (11.5)
Oct. 1--Dec. 31, 1993... 22.00 20.83 5.6 17.63 20.70 (14.8)
Jan. 1--March 31, 1994.. 31.75 29.78 6.6 19.75 20.98 (5.9)
April 1--June 30, 1994.. 25.63 27.05 (5.2) 18.75 19.07 (1.7)
July 1--Sep. 30, 1994... 36.13 37.44 (3.5) 23.25 22.38 3.9
Oct. 1--Dec. 31, 1994... 36.88 35.83 2.9 30.38 30.59 (0.7)
Jan. 1--March 31, 1995.. 32.88 31.09 5.8 19.00 22.42 (15.3)
April 1--June 30, 1995.. 29.13 26.26 10.9 22.75 22.36 1.7
July 1--September 30,
1995................... 28.75 26.13 10.0 24.88 24.43 1.8
</TABLE>
Since commencement of the Fund's operations in 1988, the Fund's shares have
traded in the market above, at and below net asset value. Since 1993, the
Fund's shares have generally traded at a slight discount to net asset value.
Shares of closed-end investment companies frequently trade at a discount to
net asset value. The Fund cannot predict whether the Fund's shares will in the
future trade at a premium or discount to net asset value, or the level of such
premium or discount. On November 10, 1995, the last price of the Fund's shares
on the NYSE Composite Tape was $23.375, which represented a premium of 2.1%
above the net asset value per share of $22.90.
THE FUND
The Fund, incorporated in Maryland on September 25, 1987, is a non-
diversified, closed-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund was the first
vehicle for investing in Brazilian securities to be registered for public
offering in the United States.
The Fund's investment objective is long-term capital appreciation through
investment in securities, primarily equity securities, of Brazilian issuers.
The Fund's policy is normally to invest at least 70% of its total assets in
common and preferred stocks of companies registered with the Brazilian
Securities Commission and listed on the Brazilian stock exchanges (the "Stock
Exchanges") or traded in Brazilian over-the-counter markets. The Fund is
designed to be a vehicle for international investment by United States and
other investors who desire to participate in the Brazilian securities market.
The Fund's Manager is Scudder, Stevens & Clark, Inc., a United States
investment counsel firm. Banco Icatu S.A. acts as Brazilian Adviser to the
Manager, and Banco de Boston S.A. acts as Brazilian Administrator. See
"Investment Advisers and Administrator."
As of October 31, 1995, the Fund's net asset value was $284,438,197. As of
October 31, 1995, 94.2% of the Fund's investments consisted of Brazilian
common and preferred stocks, with the balance invested in short-term
investments.
11
<PAGE>
THE OFFER
TERMS OF THE OFFER
The Fund is issuing Rights to subscribe for the Shares to Record Date
Shareholders. Each Record Date Shareholder is being issued one transferable
Right for each share of Common Stock owned on the Record Date. For purposes of
determining the maximum number of Shares an Exercising Rights Holder may
acquire pursuant to the Offer, broker-dealers whose Shares are held of record
by Cede or by any other depository or nominee will be deemed to be the holders
of the Rights that are issued to Cede or such other depository or nominee on
their behalf. No fractional Rights or Shares will be issued. The Rights
entitle the holders thereof to acquire at the Subscription Price one Share for
each three Rights held (the "Primary Subscription"). Any Record Date
Shareholder who is issued fewer than three Rights may subscribe, at the
Subscription Price, for one full Share. The Rights are evidenced by
Subscription Certificates which will be mailed to Record Date Shareholders,
except that Subscription Certificates will not be mailed to Foreign Record
Date Shareholders. The Rights to which such Subscription Certificates relate
will be held by the Subscription Agent for such Foreign Record Date
Shareholders' accounts until instructions are received to exercise, sell or
transfer the Rights. If no instructions have been received by 12:00 noon, New
York City time, on December 13, 1995, two Business Days prior to the
Expiration Date, the Rights of those Foreign Record Date Shareholders will be
transferred by the Subscription Agent to the Dealer Manager, who will either
purchase the Rights or use its best efforts to sell the Rights on the NYSE.
The net proceeds from the purchase or sale of those Rights by the Dealer
Manager will be remitted to the Foreign Record Date Shareholders. See "Sale of
Rights--Sales through Subscription Agent and Dealer Manager."
Completed Subscription Certificates may be delivered to State Street Bank
and Trust Company (the "Subscription Agent") at any time during the
Subscription Period, which commences on the date of this Prospectus and ends
at 5:00 p.m., New York City time, on December 15, 1995, the Expiration Date
(unless extended by the Fund). Parties that purchase Rights prior to the
Expiration Date ("Rights Holders") may also purchase Shares in the Primary
Subscription. All Rights may be exercised immediately upon receipt and until
5:00 p.m. on the Expiration Date.
Any Record Date Shareholder who fully exercises all Rights initially issued
to him (other than those Rights which cannot be exercised because they
represent the right to acquire less than one Share) is entitled to subscribe
for Shares which were not otherwise subscribed for by Exercising Rights
Holders in the Primary Subscription. Record Date Shareholders such as broker-
dealers, banks, and other professional intermediaries, who hold shares on
behalf of clients, may participate in the Over-Subscription Privilege for a
client if the client fully exercises all Rights attributable to him. Shares
acquired pursuant to the Over-Subscription Privilege may be subject to
allotment, which is more fully discussed below under "Over-Subscription
Privilege."
Rights will be evidenced by Subscription Certificates (see Appendix B) and
may be exercised by completing a Subscription Certificate and delivering it,
together with payment, either by means of a notice of guaranteed delivery or a
check, to the Subscription Agent. The method by which Rights may be exercised
and Shares paid for is set forth below in "Exercise of Rights" and "Payment
for Shares." An Exercising Rights Holder will have no right to rescind a
purchase after the Subscription Agent has received payment, either by means of
a notice of guaranteed delivery or a check. See "Payment for Shares" below.
Shares issued pursuant to an exercise of Rights will be listed on the NYSE and
admitted to trading but not listed on the CSE.
The Rights are transferable until the Expiration Date and will be admitted
for trading on the NYSE. Assuming a market exists for the Rights, the Rights
may be purchased and sold through usual brokerage channels, or delivered at or
before 5:00 p.m., New York City time, on December 13, 1995, to the
Subscription Agent for sale through or to the Dealer Manager. The Fund has
used its best efforts to ensure that an adequate trading market for the Rights
will exist, although no assurance can be given that a market for the Rights
will develop. Trading in the Rights on the NYSE may be conducted until and
including the close of trading on the last NYSE trading day prior to the
Expiration Date. The method by which Rights may be transferred is set forth
12
<PAGE>
below in "Sale of Rights." The underlying Shares will also be admitted for
trading on the NYSE. Since fractional Shares will not be issued, Record Date
Shareholders who receive fewer than three Rights will be entitled to purchase
one Share. Record Date Shareholders who, after exercising their Rights, are
left with fewer than three Rights, will be unable to exercise such Rights and
will not be entitled to receive any cash, from the Fund, in lieu of such
remaining Rights. However, the Subscription Agent will automatically request
the Dealer Manager either to purchase or to attempt to sell the number of
Rights which a Record Date Shareholder is unable to exercise for such reason
after return of a completed and fully exercised Subscription Certificate to
the Subscription Agent at or before 5:00 p.m., New York City time, on December
13, 1995, and the Subscription Agent will remit the proceeds of any such
purchase or sale, net of commissions, to the Record Date Shareholder.
The distribution to Record Date Shareholders of transferable Rights which
themselves may have intrinsic value will also afford non-participating Record
Date Shareholders the potential of receiving a cash payment upon sale of such
Rights, which may be viewed as compensation for the possible dilution of their
interest in the Fund.
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in the
best interests of the Fund and its shareholders to increase the assets of the
Fund available for investment so that the Fund will be in a better position to
take advantage of investment opportunities in Brazil. The Fund believes that
the proceeds of the Offer will permit it to take advantage of the new
investment opportunities that the Fund anticipates in Brazil without having to
sell existing portfolio holdings, which would, in general, cause gains
recognized by the Fund on appreciated positions to become taxable to
shareholders. In addition, the Offer affords existing shareholders the
opportunity to purchase additional shares of the Fund's Common Stock at a
price that may be below market value and/or net asset value without incurring
the transaction costs associated with open-market purchases.
The Manager and the Brazilian Adviser will benefit from the Offer because
their fees are based on the average daily net assets of the Fund. It is not
possible to state precisely the amount of additional compensation the Manager
and the Brazilian Adviser will receive as a result of the Offer because it is
not known how many Shares will be subscribed for and because the proceeds of
the Offer will be invested in additional portfolio securities which will
fluctuate in value. However, in the event that all the Rights are exercised in
full and net proceeds of the Offer are $ , the Manager and the Brazilian
Adviser would receive additional annual advisory fees (net, in the case of the
Manager, of the Brazilian Adviser's fee, which is paid by the Manager) of
and , respectively, based on the amount of such proceeds. Three of the
Fund's seven Directors who voted to authorize the Offer are "interested
persons" of the Fund as that term is defined in the 1940 Act. These three
Directors could benefit indirectly from the Offer because of their
affiliations with the Manager. See "Investment Advisers and Administrator" in
this Prospectus and "Directors and Officers" in the SAI.
The Fund may, in the future and at its discretion, choose to make additional
rights offerings from time to time for a number of shares and on terms which
may or may not be similar to the Offer. Any such future rights offering will
be made in accordance with the 1940 Act.
OVER-SUBSCRIPTION PRIVILEGE
Shares not subscribed for by Exercising Rights Holders will be offered, by
means of the Over-Subscription Privilege, to the Record Date Shareholders who
have exercised all exercisable Rights issued to them and who wish to acquire
more than the number of Shares for which the Rights issued to them are
exercisable. Record Date Shareholders such as broker-dealers, banks, and other
professional intermediaries, who hold shares on behalf of clients, may
participate in the Over-Subscription Privilege for a client if the client
fully exercises all Rights attributable to him. Record Date Shareholders
should indicate on their Subscription Certificates how many Shares they are
willing to acquire pursuant to the Over-Subscription Privilege. If sufficient
Shares remain, all over-subscriptions will be honored in full.
If subscriptions for Shares pursuant to the Over-Subscription Privilege
exceed the Shares available, the available Shares will be allocated among
those who over-subscribe based on the number of Rights originally
13
<PAGE>
issued to them by the Fund. The percentage of remaining Shares each over-
subscribing Record Date Shareholder may acquire may be rounded up or down to
result in delivery of whole Shares. The allocation process may involve a
series of allocations in order to ensure that the total number of Shares
available for over-subscription is distributed on a pro rata basis (except to
the extent that individual Record Date Shareholders request fewer shares
pursuant to the Over-Subscription Privilege than would otherwise be their pro
rata allocation).
The Fund will not offer or sell any Shares which are not subscribed for
pursuant to the Primary Subscription or the Over-Subscription Privilege.
THE SUBSCRIPTION PRICE
The Subscription Price for the Shares to be issued pursuant to the Rights
will be $ . The Fund does not have the right to withdraw the Offer after the
Rights have been distributed.
The Fund announced the Offer before the opening of trading on the NYSE on
October 13, 1995. The net asset value per share of Common Stock at the close
of business on October 12, 1995 and on November 10, 1995 was $25.93 and $22.90
respectively, and the last reported sale price of a share of the Fund's Common
Stock on the NYSE Composite Tape on those dates was $25.25 and $23.375,
respectively. The Subscription Price of $ is approximately a % discount
to the Fund's net asset value per share on , 1995. Information about the
Fund's net asset value may be obtained by calling the Information Agent at
(800) 223-2064 (toll free) or (212) 509-6240 (collect).
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on December 15,
1995, the Expiration Date (unless extended by the Fund). Rights will expire on
the Expiration Date and thereafter may not be exercised.
SUBSCRIPTION AGENT
The Subscription Agent, State Street Bank and Trust Company, will receive
for its administrative, processing, invoicing and other services as
Subscription Agent a fee estimated to be $58,150, including reimbursement for
all out-of-pocket expenses related to the Offer. Questions regarding the
Subscription Certificates should be directed to State Street Bank and Trust
Company, Corporate Reorganization Department, P.O. Box 9061, Boston,
Massachusetts 02205-8606 (telephone (800) 426-5523). Shareholders may also
consult their brokers or nominees. Signed Subscription Certificates (see
Appendix B) should be sent to State Street Bank and Trust Company, by one of
the methods described below:
(1) BY MAIL:
Corporate Reorganization Department
P.O. Box 9061
Boston, MA 02205-8686
(2) BY HAND:
225 Franklin St.
Concourse Level
Boston, MA 02110
or
61 Broadway
Concourse Level
New York, NY 10006
(3) BY OVERNIGHT COURIER:
500 Victory Road
MB 2
Marina Bay North
Quincy, MA 02171
14
<PAGE>
(4) BY FACSIMILE (TELECOPIER):
(617) 774-4519, with the original
Subscription Certificate to be sent by
mail, hand or overnight courier. Confirm
facsimile by telephone to (617) 774-4511.
DELIVERY BY METHODS OTHER THAN THOSE STATED ABOVE WILL NOT CONSTITUTE GOOD
DELIVERY.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:
Georgeson & Company Inc.
Wall Street Plaza
New York, New York 10005
Toll Free: (800) 223-2064
or
Call Collect: (212) 509-6240
The Information Agent will receive a fee estimated to be $45,000, and
reimbursement for all out-of-pocket expenses related to the Offer.
SALES OF RIGHTS
Sales through Subscription Agent and Dealer Manager. Record Date
Shareholders who do not wish to exercise any or all of their Rights may
instruct the Subscription Agent to sell any unexercised rights through or to
the Dealer Manager. Subscription Certificates representing the Rights to be
sold by or to the Dealer Manager must be received by the Subscription Agent
prior to 5:00 p.m., New York City time, on December 13, 1995. Upon the timely
receipt by the Subscription Agent of appropriate instructions to sell Rights,
the Subscription Agent will either sell the Rights to the Dealer Manager or
the Dealer Manager will use its best efforts to sell the Rights and the
Subscription Agent will remit the proceeds of the purchase or sale, net of
commissions, to the Record Date Shareholders. Rights may be sold through or to
the Dealer Manager on the NYSE or otherwise. If the Rights can be sold, sales
of such Rights will be deemed to have been effected at the weighted-average
price received by the Dealer Manager on the day such Rights are sold. The sale
price of any Rights sold to the Dealer Manager will be based on the then
current market price for the Rights, less amounts comparable to the usual and
customary brokerage fees. The selling Record Date Shareholder will pay all
brokerage commissions incurred by the Dealer Manager. The Dealer Manager will
also either purchase or attempt to sell all Rights which remain unclaimed as a
result of Subscription Certificates being returned by the postal authorities
to the Subscription Agent as undeliverable as of the fourth Business Day prior
to the Expiration Date. Such sales will be made net of commissions on behalf
of the non-claiming Record Date Shareholders. The Subscription Agent will hold
the proceeds from those purchases or sales for the benefit of non-claiming
Record Date Shareholders until such proceeds are either claimed or escheat.
There can be no assurance that the Dealer Manager will purchase or will be
able to complete the sale of any such Rights and neither the Fund nor the
Subscription Agent nor the Dealer Manager has guaranteed any minimum sales
price for the Rights.
Other Transfers. The Rights evidenced by a Subscription Certificate may be
transferred in whole by endorsing the Subscription Certificate for transfer in
accordance with the instructions accompanying the Subscription Certificate. A
portion of the Rights evidenced by a single Subscription Certificate (but not
fractional Rights) may be transferred by delivering to the Subscription Agent
a Subscription Certificate properly endorsed for transfer, with instructions
to register such portion of the Rights evidenced thereby in the name of the
transferee and to issue a new Subscription Certificate to the transferee
evidencing such transferred Rights. In such event, a new Subscription
Certificate evidencing the balance of the Rights will be issued to the Record
Date Shareholder or, if the Record Date Shareholder so instructs, to an
additional transferee.
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Record Date Shareholders wishing to transfer all or a portion of their
Rights should allow at least five Business Days prior to the Expiration Date
for (i) the transfer instructions to be received and processed by the
Subscription Agent; (ii) a new Subscription Certificate to be issued and
transmitted to the transferee or transferees with respect to transferred
Rights, and to the transferor with respect to retained Rights, if any; and
(iii) the Rights evidenced by such new Subscription Certificate to be
exercised or sold by the recipients thereof. Neither the Fund nor the
Subscription Agent nor the Dealer Manager shall have any liability to a
transferee or transferor of Rights if Subscription Certificates are not
received in time for exercise or sale prior to the Expiration Date.
Except for the fees charged by the Subscription Agent and Dealer Manager
(which will be paid by the Fund), all commissions, fees and other expenses
(including brokerage commissions and transfer taxes) incurred in connection
with the purchase, sale or exercise of Rights will be for the account of the
transferor of the Rights, and none of such commissions, fees or expenses will
be paid by the Fund, the Subscription Agent or the Dealer Manager.
The Fund anticipates that the Rights will be eligible for transfer through,
and that the exercise of the Primary Subscription (but not the Over-
Subscription Privilege) may be effected through, the facilities of DTC (Rights
exercised through DTC are referred to as "DTC Exercised Rights"). The holder
of a DTC Exercised Right who was a Record Date Shareholder may exercise the
Over-Subscription Privilege in respect of such DTC Exercised Right by properly
executing and delivering to the Subscription Agent, at or prior to 5:00 p.m.,
New York City time, on the Expiration Date, a Nominee Holder Over-Subscription
Exercise Form (see Appendix D), together with payment of the Subscription
Price for the number of Shares for which the Over-Subscription Privilege is to
be exercised. Copies of the Nominee Holder Over-Subscription Exercise Form may
be obtained from the Subscription Agent.
EXERCISE OF RIGHTS
Rights may be exercised by filling in and signing the reverse side of the
Subscription Certificate which accompanies this Prospectus and mailing it in
the envelope provided, or otherwise delivering the completed and signed
Subscription Certificate to the Subscription Agent, together with payment for
the Shares as described below under "Payment of Shares." Completed
Subscription Certificates must be received by the Subscription Agent prior to
5:00 p.m., New York City time, on the Expiration Date (unless payment is
effected by means of a notice of guaranteed delivery as described below under
"Payment of Shares") at the offices of the Subscription Agent at the address
set forth above. Rights may also be exercised through an Exercising Rights
Holder's broker, who may charge a fee in connection with such exercise.
Nominees who hold shares of Common Stock for the account of others, such as
brokers, trustees or depositories for securities, should notify the respective
beneficial owners of such shares of Common Stock as soon as possible to
ascertain such beneficial owners' intentions and to obtain instructions with
respect to the Rights. If the beneficial owner so instructs, the nominee
should complete the Subscription Certificate and submit it to the Subscription
Agent with the proper payment. In addition, beneficial owners of Common Stock
or Rights held through such a nominee should contact the nominee and request
the nominee to effect transactions in accordance with the beneficial owner's
instructions.
A Record Date Shareholder who is issued fewer than three Rights may
subscribe, at the Subscription Price, for one full Share. Fractional Shares
will not be issued, and Record Date Shareholders who, upon exercising their
Rights, are left with fewer than three Rights will not be able to exercise
such remaining Rights. However, the Dealer Manager will automatically either
purchase or attempt to sell the number of Rights which a Record Date
Shareholder is unable to exercise for this reason after the return of a
completed and signed Subscription certificate received by the Subscription
Agent on or before 5:00 p.m., New York City time, on December 13, 1995, and
the Subscription Agent will remit the proceeds of such purchase or sale net of
commissions to such Record Date Shareholder.
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<PAGE>
EXERCISE OF THE OVER-SUBSCRIPTION PRIVILEGE
Record Date Shareholders who fully exercise all Rights held by them on the
Expiration Date may participate in the Over-Subscription Privilege by
indicating on their Subscription Certificate the number of Shares they are
willing to acquire pursuant thereto. There is no limit on the number of Shares
for which Record Date Shareholders may seek to subscribe pursuant to the Over-
Subscription Privilege. If sufficient Shares remain after the Primary
Subscription, all over-subscriptions will be honored in full; otherwise, the
number of Shares issued to each Record Date Shareholder participating in the
Over-Subscription Privilege will be allocated as described above under "Over-
Subscription Privilege."
Banks, brokers and other nominee holders of Rights will be required to
certify to the Fund, before any Over-Subscription Privilege may be exercised
as to any particular beneficial owner, as to (i) the aggregate number of
Rights exercised pursuant to the Primary Subscription, (ii) the number of
Shares subscribed for pursuant to the Over-Subscription Privilege by such
beneficial owner, and (iii) that such beneficial owner's Primary Subscription
was exercised in full.
PAYMENT FOR SHARES
Exercising Rights Holders who acquire Shares in the Primary Subscription and
Record Date Shareholders who acquire Shares pursuant to the Over-Subscription
Privilege may choose between the following methods of payment:
(1) An Exercising Rights Holder may send the Subscription Certificate
together with payment for the Shares acquired in the Primary Subscription
and any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders) to the Subscription Agent.
Subscriptions will be accepted when payment, together with the executed
Subscription Certificate, is received by the Subscription Agent; such
payment and Subscription Certificates are to be received by the
Subscription Agent no later than 5:00 p.m., New York City time, on the
Expiration Date. The Subscription Agent will deposit all checks received by
it for the purchase of Shares into a segregated interest-bearing account of
the Fund (the interest from which will belong to the Fund) pending
proration and distribution of Shares. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN U.S. DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK LOCATED IN
THE UNITED STATES, MUST BE PAYABLE TO THE BRAZIL FUND, INC. AND MUST
ACCOMPANY AN EXECUTED SUBSCRIPTION CERTIFICATE FOR SUCH SUBSCRIPTION
CERTIFICATE TO BE ACCEPTED.
(2) Alternatively, a subscription will be accepted by the Subscription
Agent if, prior to 5:00 p.m., New York City time, on the Expiration Date,
the Subscription Agent has received a notice of guaranteed delivery (see
Appendix C) by facsimile (telecopy) or otherwise from a bank, a trust
company, or a NYSE member guaranteeing delivery of (i) payment of the full
Subscription Price for the Shares subscribed for on Primary Subscription
and any additional Shares subscribed for pursuant to the Over-Subscription
Privilege (for Record Date Shareholders), and (ii) a properly completed and
executed Subscription Certificate. The Subscription Agent will not honor a
notice of guaranteed delivery unless a properly completed and executed
Subscription Certificate and full payment for the Shares is received by the
Subscription Agent by the close of business on the third Business Day after
the Expiration Date (the "Protect Period").
Within five Business Days following the Protect Period (the "Confirmation
Date"), the Subscription Agent will send to each Exercising Rights Holder for
whom a notice of guaranteed delivery has been received (or, if the shares are
held by Cede or any other depository or nominee, to Cede or such other
depository or nominee), the share certificates representing the Shares
purchased pursuant to the Primary Subscription (and, if applicable, the Over-
Subscription Privilege), along with a letter explaining the allocation of
Shares pursuant to the Over-Subscription Privilege. Any excess payment to be
refunded by the Fund to a Record Date Shareholder who is not allocated the
full amount of Shares subscribed for pursuant to the Over-Subscription
Privilege will be mailed
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<PAGE>
by the Subscription Agent. An Exercising Rights Holder will have no right to
rescind a purchase after the Subscription Agent has received payment, either
by means of a notice of guaranteed delivery or a check.
DELIVERY OF SHARE CERTIFICATES
Certificates representing Shares purchased pursuant to the Primary
Subscription will be delivered to Exercising Rights Holders as soon as
practicable after the corresponding Rights have been validly exercised and
full payment for such Shares has been received and cleared. Certificates
representing Shares purchased pursuant to the Over-Subscription Privilege will
be delivered to Record Date Shareholders as soon as practicable after the
Expiration Date and all allocations have been effected. Shares purchased by
participants in the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan") will be held by the Plan Agent in uncertificated form. See "Dividends
and Distributions; Dividend Reimbursement and Cash Purchase Plan."
DISTRIBUTION ARRANGEMENTS
The Dealer Manager is Smith Barney Inc., 388 Greenwich Street, New York, New
York 10013. Under the terms and subject to the conditions contained in a
Dealer Manager Agreement dated the date of this Prospectus, the Dealer Manager
provides marketing assistance and financial advisory services in connection
with the Offer and will solicit the exercise of Rights by Record Date
Shareholders. In addition, the Dealer Manager has agreed with the Fund to form
and manage the Selling Group Members to (a) solicit the exercise of Rights and
(b) sell to the public Shares purchased by the Dealer Manager from the Fund as
a result of the purchase and exercise of Rights by the Dealer Manager. The
Fund has agreed to pay the Dealer Manager a fee equal to 1.00% of the
aggregate Subscription Price for the Shares (which, if all Shares are
subscribed for, will result in a fee of $ ) for its marketing and financial
advisory services, including advice with respect to the advisability, timing,
size and Subscription Price of the Offer and the coordination of soliciting
efforts among soliciting dealers, the Subscription Agent and the Information
Agent. The Fund has also agreed to reimburse the Dealer Manager for its out-
of-pocket expenses in connection with the offer up to an aggregate of
$100,000.
Pursuant to the Dealer Manager Agreement, the Fund has agreed to pay fees
equal to 2.50% of the Subscription Price to the Dealer Manager and each
Selling Group Member for each Share issued upon the exercise of Rights as a
result of the Dealer Manager's or Selling Group Member's soliciting efforts or
purchased by the Dealer Manager for sale to the public by the Dealer Manager
or such Selling Group Member, and to the Dealer Manager for each Share either
issued upon the exercise of Rights but for which no dealer designation was
made on the related Subscription Certificate or for which no other securities
dealer is receiving soliciting fees due to the maximum fee which is payable to
a securities dealer who is not a Selling Group Member.
The Fund has also agreed that, with respect to Rights exercised not as a
result of the selling or soliciting efforts of the Selling Group Members, the
Fund will pay a Soliciting Dealer Fee equal to .50% of the Subscription Price
to each securities dealer who is not a Selling Group Member but who is a
member of the National Association of Securities Dealers, Inc. and who has
executed and delivered a Soliciting Dealer Agreement and solicited the
exercise of such Rights, subject generally to a maximum fee based upon the
number of shares of Common Stock held by such dealer through DTC on the Record
Date.
In addition, the Fund will indemnify the Dealer Manager with respect to
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. The Dealer Manager Agreement also provides that, in rendering the
services contemplated by the Dealer Manager Agreement, the Dealer Manager will
not be subject to any liability to the Fund except in instances involving the
Dealer Manager's gross negligence or willful misconduct, or for any act or
omission on the part of any broker-dealer (other than the Dealer Manager or
any of its affiliates) or any other person.
Under applicable law, during the Subscription Period, the Dealer Manager may
bid for and purchase Rights for certain purposes. Those purchases would be
subject to certain price and volume limitations when the Common Stock is being
stabilized by the Dealer Manager or when the Dealer Manager acquires the
Rights
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<PAGE>
without an offsetting short position in the Common Stock. Those limitations
provide, among other things, that, subject to certain exceptions, not more
than one bid to purchase Rights may be maintained in any one market at the
same price at the same time and that the initial bid for or purchase of Rights
may not be made at a price higher than the highest current independent bid
price on the NYSE. Any bid price may not be increased, subject to certain
exceptions, unless the Dealer Manager has not purchased any Rights for a full
Business Day or the independent bid price for those Rights on the NYSE has
exceeded the bid price for a full Business Day.
From the date of this Prospectus, the Dealer Manager and Selling Group
Members may offer and sell shares of Common Stock at prices the Dealer Manager
sets from time to time, which prices may be higher than the Subscription
Price. Prior to the Expiration Date, each of those prices when set will not
exceed the higher of the last sale price or current asked price of the Common
Stock on the NYSE, plus, in each case, an amount equal to an exchange
commission, and any offering price set on any calendar day will not be
increased more than once during that day. Any offering by the Dealer Manager
or any Selling Group Members may include Shares acquired or to be acquired
through the exercise of the Rights. As a result of those offerings, the Dealer
Manager and Selling Group Members may realize profits or losses independent of
the Dealer Manager's financial advisory fee and any Soliciting Fees they
receive.
U.S. FEDERAL INCOME TAX CONSEQUENCES; BRAZILIAN TAX CONSEQUENCES
The U.S. Federal income tax consequences to Record Date Shareholders and
Rights Holders with respect to the Offer will be as follows:
1. The distribution of Rights to Record Date Shareholders will not
result in taxable income nor will Record Date Shareholders or Rights
Holders realize taxable income as a result of the exercise of the
Rights.
2. The basis of a Right received by a Record Date Shareholder who
exercises or sells the Right will be zero if the fair market value of
the Right immediately after issuance is less than 15% of the fair
market value of the Common Stock with regard to which the Right is
issued (unless the Record Date Shareholder elects to allocate the basis
of the Common Stock between the Right and the Common Stock based upon
their respective fair market values immediately after the Right is
issued). If the fair market value immediately after issuance of a Right
received by a Record Date Shareholder who exercises or sells the Right
is 15% or more of the fair market value of the Common Stock with regard
to which it is issued, the basis of the Right will be a portion of the
basis of the Common Stock, based upon the respective fair market values
of the Right and the Common Stock immediately after the Right is
issued. In the case of a Record Date Shareholder who receives a Right
and who allows the Right to expire, the basis of the Right will be
zero. In the case of a Rights Holder who purchases a Right in the
market, the basis of the Right will be the purchase price for the
Right.
3. The holding period of a Right received by a Record Date
Shareholder includes the holding period of the Common Stock.
4. Any gain or loss on the sale of a Right will be treated as a
capital gain or loss if the Right is a capital asset in the hands of
the seller. Such a capital gain or loss will be long- or short-term,
depending on how long the Right has been held, in accordance with
paragraph 3 above. If a Right is allowed to expire, there will be no
loss realized unless the Right was acquired by purchase, in which case
there will be a loss equal to the basis of the Right.
5. If a Right is exercised by the Record Date Shareholder or Rights
Holder, the basis of the Common Stock received will include the basis
of the Right (see paragraph 2 above) and the amount paid upon exercise
of the Right.
6. If a Right is exercised, the holding period of the Common Stock
acquired begins on the date the Right is exercised.
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<PAGE>
7. Gain recognized by a non-U.S. shareholder on the sale of a Right
will be taxed in the same manner as gain recognized on the sale of
Common Stock. See "Taxation--United States Federal Income Taxes--Non-
U.S. Shareholders" in the SAI.
Proceeds from the sale of a Right may be subject to withholding of U.S.
taxes at the rate of 31% unless the seller's certified U.S. taxpayer
identification number (or certificate regarding foreign status) is on file
with the Subscription Agent and the seller is not otherwise subject to U.S.
backup withholding. The 31% withholding tax is not an additional tax. Any
amount withheld may be credited against the seller's U.S. Federal income tax
liability.
The foregoing is only a summary of the applicable U.S. Federal income tax
law and does not include any state, local or non-U.S. tax consequences with
respect to the Offer. Investors should consult their tax advisers regarding
specific questions as to U.S. Federal, state, local and non-U.S. taxes.
Under Brazilian law:
1. The issuance of the Rights by the Fund is not a taxable event and
will not result in the imposition of any Brazilian tax on either the
Fund or its shareholders.
2. The exercise of the Rights by the Record Date Shareholders or
Rights Holders and the purchase of additional shares of the Fund's
Common Stock as a result thereof are not taxable events and will not
result in the imposition of any Brazilian tax on either the Fund or its
shareholders.
3. Any gain on the sale of a Right will not result in the imposition
of any Brazilian tax on a shareholder not domiciled in Brazil.
* * *
See "Taxation" in this Prospectus and in the SAI for a discussion of the tax
treatment of the Fund and its shareholders.
NOTICE OF NET ASSET VALUE DECLINE
The Fund has, as required by the Commission's registration form, undertaken
to suspend the Offer until it amends this Prospectus if, subsequent to the
effective date of the Fund's Registration Statement, the Fund's net asset
value declines more than 10% from its net asset value as of that date.
USE OF PROCEEDS
The net proceeds of the Offer, assuming that all of the Rights are
exercised, are estimated at approximately $ after deducting expenses
payable by the Fund of approximately $660,000. There can be no assurance that
all of the Rights will be exercised. The net proceeds of the Offer will be
used by the Fund for investment in accordance with its investment objective
and policies. See "Investment Objective and Policies." The Fund expects that
it will invest the proceeds in a manner designed to avoid disruption of
trading on the Stock Exchanges by investing in Brazilian securities over such
period of time and in such amounts as are intended to minimize market impact.
The Manager currently expects that investment of the proceeds should be
substantially completed within six months of the closing of the Offer. Pending
investment, the proceeds will be temporarily invested in short-term debt
securities of the type described under "Investment Objective and Policies."
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital
appreciation through investment in securities, primarily equity securities, of
Brazilian issuers. This objective may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting securities. As used
in this Prospectus, "a
20
<PAGE>
majority of the Fund's outstanding voting securities" means the lesser of (i)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented, or (ii) more than 50% of the outstanding
shares.
In pursuing its investment objective, the Fund is subject to restrictions
with respect to its portfolio of investments held in Brazil (the "Portfolio"),
which restrictions at present are imposed by regulations (the "Regulations")
promulgated by the Brazilian National Monetary Council (the "Monetary
Council"). See "Investment Restrictions" for a summary of all restrictions in
the Regulations relating to the composition of the Portfolio. In addition, the
Fund is subject to restrictions imposed by the U.S. Internal Revenue Code of
1986, as amended (the "Code"), for qualification as a regulated investment
company. See "Taxation--United States Income Taxes" in the SAI.
It is the policy of the Fund normally to invest at least 70% of its total
assets in common and preferred stocks of companies registered with the
Brazilian Securities Commission and listed on the Stock Exchanges or traded in
over-the-counter markets. The Fund may only invest in the over-the-counter
market organized by entities accredited by the Brazilian Securities
Commission. As no entities have yet been so accredited, the Fund is not
currently permitted to invest in Brazil's over-the-counter market. It is
expected that the balance of the Fund's assets normally will be invested in
short-term investments. Pending investment in Brazilian securities, the Fund
will invest the net proceeds of the Offer in Dollar-denominated money market
instruments of United States issuers, such as: short-term (less than 12 months
to maturity) obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; finance company and corporate commercial paper,
in each case rated Prime 1 by Moody's Investors Service, Inc. or A or better
by Standard & Poor's or, if unrated, of comparable quality as determined by
the Manager; short-term obligations (including certificates of deposit and
banker's acceptances) of U.S. banks, including foreign branches of such banks,
that are members of the Federal Reserve System and savings associations that
are members of the Federal Home Loan Bank System; and related repurchase
agreements. As current income is not an investment objective of the Fund, the
income earned on such debt securities will be incidental to achieving the
Fund's investment objective of long-term capital appreciation. The Manager may
invest in short-term debt securities for reserves for anticipated expenditures
and for temporary defensive purposes. Under the Regulations currently in
effect, however, in general, the Fund is not permitted to invest in most debt
securities. See "Certain Investment Practices."
The Commission has stated that a fund that includes the name of a country in
its name should have an investment policy requiring it to invest under normal
market conditions at least 65% of its total assets in issuers either organized
under the laws of that country, for which the principal trading market is in
that country, or which derive at least 50% of their revenues or profits from
goods produced or sold, investments made, or services performed in that
country, or which have at least 50% of their assets situated in that country.
The Fund intends to comply with these guidelines, which are consistent with
the Fund's investment policy.
The Fund invests its assets in a broad spectrum of Brazilian industries. See
"The Brazilian Securities Market--The Secondary Market." In selecting
industries and companies for investment, the Manager considers overall growth
prospects, competitive position in domestic and export markets, technology,
research and development, productivity, labor costs, raw material costs and
sources, profit margins, return on investment, capital resources, government
regulation, management, price of the securities and other factors. See
"Foreign Investment and Exchange Controls in Brazil" for a description of
restrictions on foreign investments in some sectors of Brazilian economic
activity. The Fund invests principally in securities of established companies,
although investments may be made in securities of new or little-known
companies.
For temporary defensive purposes, the Fund may depart from its investment
policy. During periods in which changes in Brazilian market, economic or
political conditions warrant, the Fund may reduce its position in equity
securities and increase its position in debt securities or in short-term
indebtedness, or hold cash. The Regulations require, however, that investments
in Brazilian common and preferred stocks, as a percentage of the total value
of the investments in the Portfolio, be at least 35% on any day and should be
at least 70% on average, as tested over a 720-day period. These requirements
may limit the Fund's ability to make defensive investments during a
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<PAGE>
period in which the Fund's Manager believes that such investments are
warranted. The Fund has received confirmation from the Brazilian Securities
Commission that the Fund will have one year from the date the Offer was
approved by the Brazilian Securities Commission to adapt its portfolio to meet
these requirements. See "Foreign Investment and Exchange Controls" in this
Prospectus and "Investment Restrictions" in the SAI. The Regulations also
currently prevent the Fund from investing in most debt securities. See
"Certain Investment Practices."
Since the Fund is a non-diversified company, there is no investment
restriction on the percentage of the Fund's total assets that may be invested
at any time in the securities of any issuer other than the diversification
requirements under the Fund's investment restrictions, which prevent the Fund
from purchasing a security that would result in more than 25% of the Fund's
assets being invested in a single industry or more than 10% in a single
issuer, the diversification requirements applicable to the Portfolio under the
Regulations, and the diversification requirements applicable to regulated
investment companies under the Code. See "Investment Restrictions" below, and
"Taxation--United States Federal Income Taxes--General" in the SAI. While the
relatively greater concentration in securities of fewer issuers permitted to
the Fund reduces diversification of risk and could result in greater
fluctuation in the prices of the Fund's portfolio securities, it also reflects
the Brazilian securities market in that securities of relatively few companies
account for a greater share of the capitalization of the market than is the
case in the United States. See "The Brazilian Securities Market--The Secondary
Markets."
The Fund intends to purchase and hold securities for long-term capital
appreciation and does not expect to trade in securities for short-term gain.
The annual portfolio turnover rate for the years ended December 31, 1993 and
1994 was 4.67% and 5.76%, respectively, and the annualized portfolio turnover
rate for the nine-month period ended September 30, 1995 was 9.13%. The
portfolio turnover rate is calculated by dividing the lesser of sales or
purchases of portfolio securities by the average monthly value of the Fund's
portfolio securities. For purposes of this calculation, portfolio securities
exclude all securities having a maturity when purchased of one year or less.
CERTAIN INVESTMENT PRACTICES
The Fund's investment policies permit it to enter into futures and forward
contracts for foreign currency, futures contracts on stock indices, options on
stock indices, futures contracts on gold and other precious metals and certain
repurchase agreements and to write call options on stocks. Under current U.S.
law, the Fund may not enter into futures contracts on Brazilian stock indexes.
Due to recent changes to the Regulations introduced by the Monetary Council,
the Fund is currently prevented from trading in derivatives on the options,
futures and forward markets, even for the purpose of hedging positions taken
by the Fund in the cash market, and from acquiring fixed-income securities
(with the exception of (i) Agrarian Debt Notes (notes issued by the National
Treasury in order to finance the Government's expropriation of areas subject
to land reform), (ii) Brazilian Development Fund ("BDF") obligations (bonds
issued by the BDF to finance investments in Brazil to foster domestic
development) ("BDF Bonds"), and (iii) debentures of Siderurgia Brasileira
S.A., a joint-stock company in which the Government is the majority
shareholder and which engaged in activities related to the steel production
sector).
Under Resolution No. 1289 of March 20, 1987 ("Resolution 1289"), which
governs investment companies, funds and portfolios (such as the Fund), the
Fund was authorized to carry out transactions on the futures markets on
foreign exchange rates, share indices and options thereof. Moreover, the
Regulations also authorized the Fund to enter into repurchase agreements with
respect to Government securities. However, on June 30, 1992, the Monetary
Council issued Resolution No. 1935 ("Resolution 1935"), restricting
transactions in derivatives carried out by investment companies, funds and
portfolios under Resolution 1289 to the exclusive purpose of performing
hedging transactions for the cash positions taken by these investment
companies, funds and portfolios up to the limit of such positions.
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<PAGE>
On December 17, 1993, the Monetary Council issued Resolution No. 2034
("Resolution 2034") which prevented investment companies, funds and portfolios
under Resolution 1289 from investing their funds in: (i) fixed-income
securities, (ii) transactions on derivative markets other than for the hedging
of spot positions, up to the amount thereof, and (iii) derivative transactions
providing for fixed income streams.
On August 10, 1995, the Monetary Council, by means of Resolution No. 2188,
revoked Resolution 1935, and amended Resolution 2034 so that investment
companies, funds and portfolios (such as the Fund) regulated by Resolution
1289 cannot enter into transactions in the derivatives market, purchase fixed
income securities (except for those referred to in clauses (i), (ii), (iii)
and (iv) of the next paragraph), or enter into transactions providing for
fixed income streams.
Accordingly, the Fund's assets may be invested in securities issued by
publicly-held corporations (with the exception of fixed-income securities) and
(i) Agrarian Debt Notes, (ii) BDF Bonds, (iii) debentures issued by Siderurgia
Brasileira S.A., and (iv) other forms of investment expressly and jointly
authorized by both the Brazilian Securities Commission and the Central Bank.
Certain provisions of the Code applicable to investment companies may limit
the extent to which the Fund may enter into, and derive income from, forward
and futures contracts (including futures contracts on gold and other
commodities) and may also affect the character and timing of income, gain or
loss recognized by the Fund from such transactions. See "Taxation--United
States Federal Income Taxes" in the SAI.
For information about certain transactions involving futures contracts,
forward contracts and repurchase agreements that the Fund has typically
entered into until very recently but that are not currently permitted under
the changes to the Regulations mentioned above, see "Certain Investment
Practices" in the SAI. For information regarding certain investment
restrictions applicable to the Fund, see "Investment Restrictions" in the SAI.
FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL
FOREIGN INVESTMENT CONTROL
While current Brazilian law provides that foreign capital invested in Brazil
will receive the same legal treatment as domestic capital, there are
nonetheless certain limitations and controls that generally affect foreign
investors in Brazil. All foreign investments must be registered with the
Central Bank, which issues a Certificate of Registration of the foreign
currency value of such investment. Without such registration, no remittances
of dividends or profits may be made abroad, nor may any part of the original
investment be repatriated.
Upon the granting of the Fund's authorization by the Brazilian Securities
Commission and the initial entry into Brazil of the Fund's capital, the
Central Bank issued a Certificate of Registration. The Central Bank will be
required to amend such Certificate upon each additional entry (including the
entry of the proceeds of this offering) or any repatriation of the Fund's
capital.
The Brazilian Securities Commission has authorized the issuance of up to
five million Shares by the Fund, and has provided that the Fund has until
October 31, 1996 to remit into Brazil the net proceeds of the Offer, to adapt
its portfolio (as increased by the proceeds of the Offer) to the limits and
requirements of the applicable Regulations requiring that at least 70% of the
investments in the Fund's portfolio be represented by shares issued by
publicly held companies acquired on the Stock Exchanges or an over-the-counter
market organized by an entity authorized by the Brazilian Securities
Commission, or in an underwriting, and that the remaining funds be held
available or else invested in (i) Agrarian Debt Notes, (ii) BDF Bonds, (iii)
debentures issued by Siderurgia Brasileira S.A., and (iv) other forms of
investment expressly authorized by both the Brazilian Securities Commission
and the Central Bank.
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Under current Brazilian law, the Fund is permitted to repatriate income
received from dividends and interest earned on, and net capital gains from,
the Portfolio. Under the Fund's authorization from the Brazilian Securities
Commission, the Fund may also repatriate capital, but only: to enable the Fund
to distribute all of its income and capital gains (as computed for U.S.
Federal income tax purposes); to pay expenses incurred outside of Brazil; to
repay borrowings made for temporary or emergency purposes; and to enable the
Fund to distribute its assets in connection with the termination of the Fund,
provided that the Fund's dissolution has been approved by holders of at least
two-thirds of the Fund's shares.
In certain sectors of Brazilian economic activity, foreign (and, in some
cases, private domestic) capital participation is prohibited or restricted.
There are currently very few publicly held companies in such sectors and, in
most cases, only foreign investment in preferred shares of such companies is
permitted. Accordingly, under current law and given the current universe of
listed companies, these restrictions result in the Fund's being prohibited
from buying voting common (but not preferred) shares of Petrobras (the
Government oil monopoly) and the Banco do Brasil. The ownership by non-
Brazilians of voting shares, or securities convertible into voting shares, of
certain companies may be restricted by such companies' by-laws.
Under current Brazilian law, whenever there occurs a serious imbalance in
Brazil's balance of payments or serious reasons to foresee the imminence of
such an imbalance, the Monetary Council may, for a limited period, (i)
determine that all or a portion of foreign currency exchange transactions be
made only through the Central Bank, (ii) prohibit capital repatriation
remittances, and (iii) limit profit remittances abroad to 10% per annum of
capital and reinvested capital. This power has been exercised in a limited
manner only twice--for approximately eight months beginning in mid-1983 and
for approximately eleven months from June 1989 to May 1990. During those
periods, remittances of capital and profits could only be made subject to the
authorization of the Central Bank and delays not exceeding eight months were
experienced by foreign investors, although interest was paid for the periods
of the delays. Such restrictions, however, have not affected the Fund, which
was expressly exempted by Comunicado DECAM n. 1,169, issued by the Central
Bank on July 11, 1989. Such relief was expressly limited to the restrictions
imposed in 1989. If similar restrictions are imposed in the future, there can
be no assurance that the Fund would be able to obtain similar relief from the
Central Bank. There can be no assurance that restrictions could not be imposed
in the future, nor as to the duration of such restrictions if imposed. The
Fund's Brazilian counsel has advised that, while the Brazilian statute does
not define the term "limited period," the term denotes a period of time not in
excess of the period during which conditions exist that warrant restrictions
on remittances, namely, a serious imbalance in Brazil's balance of payments or
serious reasons to foresee the imminence of such an imbalance. Under present
economic and political conditions in Brazil, the Manager does not believe that
the restrictions referred to above will have a significant impact on the
Fund's ability to operate, although there can be no assurance that
restrictions could not be imposed in the future, nor as to the duration of
such restrictions if imposed.
If for any reason the Fund were unable to distribute substantially all of
its net investment income (including net short-term capital gains) and net
long-term capital gains (as defined for U.S. tax purposes) within applicable
time periods, the Fund could be subject to U.S. Federal income and excise
taxes which would not otherwise be incurred and might cease to qualify for the
favorable tax treatment afforded to regulated investment companies under the
Code, in which case it would become subject to U.S. Federal income tax on all
of its income and gains. See "Taxation--United States Income Taxes" in the
SAI.
BRAZILIAN EXCHANGE MARKETS
For some time Brazil had only the official market, where exchange rates were
administered by the Central Bank. Initially, rates were set at a fixed level
for rather long periods, often followed by large devaluations, which would
cause substantial distortions in the economy.
This system was followed by mini-devaluations, where the exchange rate set
by the Central Bank varied on a daily basis, somewhat pegged to inflation.
This system did not fully prevent distortions, as often the
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accumulated daily devaluations were lower than real inflation for a given
period, and periodic maxi-devaluations were subsequently effected.
In 1988, the floating rate market, also known as the tourism exchange
market, was created, where rates are freely negotiated. Use of this market was
initially restricted to a fairly small number of transactions.
In 1990, the former official market was allowed to trade at freely floating
rates as well, thus becoming today's free rate exchange market. This market is
usually referred to as the commercial exchange market.
Consequently, Brazil currently has two officially approved and supervised
foreign exchange markets, both of them trading at freely floating rates:
(a) the commercial exchange market, valid for transactions previously
approved by the Central Bank, primarily involving foreign trade, foreign
currency financing and foreign investment (such as the Fund's investments);
and
(b) the tourism exchange market, valid for tourism and for a variety of
other transactions that can be conducted on a general basis, without prior
Central Bank approval for specific transactions, such as purchases of
software, payment of tuition and payment of medical expenses, among others,
on a continually expanding list. See Annex A, "The Federative Republic of
Brazil--Foreign Exchange."
RISK FACTORS AND SPECIAL CONSIDERATIONS
INVESTMENT AND REPATRIATION CONTROLS
Direct portfolio investment by foreign investment companies in the Brazilian
securities market requires authorization by, and is subject to the control of,
the Brazilian Securities Commission. In addition, conversion of Reais into
foreign exchange, transfer of funds from Brazil to foreign countries and
repatriation of foreign capital invested in Brazil are controlled by and
subject to reporting and prior approval of the Central Bank pursuant to
foreign exchange control laws and regulations and may be subject to
substantial delays which could affect the ability of the Fund to operate. In
January 1990, it was necessary for the Fund to borrow funds to make certain
dividend payments because of such delays. The Fund is unable to predict
whether such delays will occur in the future, and the effect of such delays,
if any, on the Fund.
The Fund has obtained authorization from the Brazilian Securities Commission
to invest in Brazilian securities, subject to certain restrictions summarized
in this Prospectus. Under current Brazilian law, the Fund is permitted to
repatriate income received from dividends and interest earned on, and net
realized capital gains from, its investments in Brazilian securities. Under
its authorization, the Fund may also repatriate capital, but only to the
extent necessary to distribute income and capital gains (as computed for U.S.
Federal income tax purposes), to pay expenses incurred outside of Brazil, to
repay borrowings made for temporary or emergency purposes, and in connection
with the termination of the Fund. Under current Brazilian law, whenever there
occurs a serious imbalance in Brazil's balance of payments or serious reasons
to foresee the imminence of such an imbalance, the Monetary Council may, for a
limited period, impose restrictions on foreign capital remittances abroad.
While the limited period for which such restrictions may be imposed is not
defined in the Brazilian statute, the Fund's Brazilian counsel has advised
that the limited period refers to a period of time not in excess of the period
during which conditions exist that warrant restrictions on remittances,
namely, a serious imbalance in Brazil's balance of payments or serious reasons
to foresee the imminence of such an imbalance. See "Foreign Investment and
Exchange Controls in Brazil."
Under present economic and political conditions in Brazil, the Manager does
not believe that the delays, controls and restrictions referred to above will
have a significant impact on the Fund's ability to operate. As a result of the
imposition of restrictions in 1983, delays not exceeding eight months were
experienced by foreign investors in remitting capital and profits. Similar
restrictions were again imposed on June 30, 1989, and lasted for a period of
eleven months. Such restrictions, however, did not affect the Fund, which was
expressly exempted
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<PAGE>
by Comunicado DECAM n. 1,169, issued by the Central Bank on July 11, 1989.
Such relief was expressly limited to the restrictions imposed in 1989. If
similar restrictions were to be imposed in the future, there can be no
assurance that the Fund would be able to obtain similar relief from the
Central Bank. If the Fund were unable to distribute substantially all of its
net investment income (including short-term capital gains) within applicable
time periods, the Fund could be subject to U.S. Federal income and excise
taxes which would not otherwise be incurred and might cease to qualify for the
favorable tax treatment afforded to regulated investment companies for U.S.
Federal income tax purposes, in which case it would become subject to U.S.
Federal income tax on all of its income and gains. See "Foreign Investment and
Exchange Controls in Brazil--Foreign Investment Control" in this Prospectus
and "Taxation--United States Income Taxes" in the SAI.
CURRENCY FLUCTUATIONS
The Fund invests in securities denominated in Reais and most of the Fund's
income is received or realized in Reais, although the Fund is required to
compute and distribute its income in Dollars. Accordingly, changes in the
value of the Real against the Dollar will result in corresponding changes in
the Dollar value of the Fund's assets denominated in Reais and will change the
Dollar value of income and gains derived in Reais. Historically, over long
periods of time the rate of devaluation of Brazilian currencies relative to
the Dollar has resulted in a rate of appreciation of the Dollar relative to
such currencies that has correlated roughly with the rate of inflation, as
calculated by the General Price Index ("GPI"), in Brazil. Over the five years
ended December 31, 1994, the Dollar appreciated at an average annual rate of
1,054% relative to the Real, while annual inflation averaged 1,210%. See "--
Inflation" below and Annex A, "The Federative Republic of Brazil--The
Economy--Prices," "--Balance of Payments and Foreign Trade" and "--Foreign
Exchange." Under the Plano Real, the Real has experienced greater stability
against foreign currencies than have previous Brazilian currencies. In the
twelve months following its introduction, the Real appreciated against the
Dollar 8.5% point-to-point, while prices increased 52%. However, appreciation
of the Real can have negative consequences for Brazil's trade balance and can
create pressures to devalue the Real, which would tend to increase exports,
but also to increase inflation. In March 1995, the Central Bank formalized a
floating band exchange rate in the commercial exchange rate market. The band
that was established and subsequent changes of the band have had the effect of
devaluing the Real. See Annex A, "The Federative Republic of Brazil--Foreign
Exchange."
In view of these factors, it is difficult to predict what effect currency
fluctuations may have on the results of operations of the Fund in the future.
Furthermore, there can be no assurance that the Brazilian monetary authorities
will not change their policies with respect to the exchange rate of the Real
or that the Government will not take action to replace the Real as Brazil's
currency.
In addition to changes in value due to currency fluctuations, the Fund has
in the past incurred currency conversion costs in connection with investments
in Brazil and distributions of income from such investments.
MARKET ILLIQUIDITY AND VOLATILITY
The Brazilian securities market is one of the largest (on the basis of
market capitalization and annual trading volume) of the emerging securities
markets; however, it is substantially smaller and less liquid than the United
States securities market. The aggregate market value as of August 31, 1995 of
the equity securities listed on the Sao Paulo Stock Exchange (the "BOVESPA"),
on which over 90% of the listed companies are listed, was approximately R$ 149
billion (US$ 157 billion). The public float of such securities was
substantially less, because in many companies a substantial percentage of the
shares is owned by the Government or by private controlling stockholders. The
average daily trading volume of transactions on all Stock Exchanges for the 12
months ended July 31, 1995 was approximately US$ 430 million, approximately
86% of which occurred on the BOVESPA. As of October 20, in 1995, approximately
65% of the cash market trading value on the BOVESPA reflected trading in the
securities of 25 of the most actively traded companies. These are among the
factors that have caused the Brazilian securities market to have substantially
greater price volatility and lesser liquidity than is usual in the United
States. Because of this lesser liquidity, it may be more difficult for the
Fund to purchase and sell portfolio positions than would be the case in the
United States.
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Historically, the Government's attempts to deal with inflation since 1986 by
implementing various plans have failed to provide a long-term solution for
controlling Brazil's high rate of inflation. The plans and subsequent measures
to counteract each plan's failure have contributed to greater than normal
price and volume volatility of the Brazilian securities markets over the past
five years. In addition, the Brazilian securities markets have in the past
been affected by the trading of significant blocks of securities by large
investors, by shifts in investor preferences from equity securities to
alternative investments in response to Brazilian government policy changes,
and by large dispositions of securities resulting from the failure of
investors to meet margin calls when due. In 1989, the Stock Exchanges closed
briefly following a large settlement failure. See "The Brazilian Securities
Market--The Brazilian Stock Exchanges."
Movements of stock prices in a highly inflationary country are best
interpreted in inflation-adjusted terms. On an inflation-adjusted basis,
quarterly changes in the Sao Paulo Stock Exchange Index of stock prices (the
"IBOVESPA") ranged between +48% and -35% in 1992, +35% and +1% in 1993 and
+35% and -26% in 1994. See "The Brazilian Securities Market--Background and
Development."
The Fund's net assets after the Offer will represent approximately [ %] of
the aggregate market value of equity securities listed on the BOVESPA at
August 31, 1995. The Fund's initial investment of the net proceeds of the
Offer, and the anticipation of such investment, could have an adverse impact
on prices paid by the Fund for its portfolio securities, and the relatively
small trading volume may affect the rate at which the Fund can invest in
Brazilian securities. In addition to investments by the Fund, it is possible
that there will be additional substantial foreign investment in Brazil from
other sources. The Fund expects to invest the proceeds in Brazilian securities
over such period of time and in such amounts as are intended to minimize
market impact. The length of time over which the Brazilian Securities
Commission has allowed the Fund to invest the proceeds of this offering (one
year from the date of the Brazilian Securities Commission's approval of the
Offer) is also designed to avoid such adverse impact. See "The Brazilian
Securities Market--Foreign Investment and the Fund."
Brazilian disclosure and regulatory standards are in many respects less
stringent than U.S. standards, and there is a lower level of monitoring and
regulation of the market and of investors therein. In addition, commissions
and other transaction costs on Brazilian Stock Exchanges are generally higher
than in the United States.
EXTERNAL DEBT RECORD
During the 1980's and into the 1990's, Brazil defaulted on and rescheduled
loans from commercial banks and official creditors. From time to time, Brazil
has been in arrears with respect to Paris Club obligations, primarily
guarantees of import financings for state companies in the electricity sector.
During the period from 1982 until the implementation of a Brady Plan-style
external debt restructuring in April 1994, Brazil failed to make payments on
certain of its external indebtedness from commercial banks as originally
scheduled, and, in February 1987, declared a moratorium on principal and
interest payments on external indebtedness to commercial banks. In April 1994,
Brazil concluded Brady Plan-type debt restructuring agreements with its
private sector creditors that should facilitate Brazil's ability to comply
with such obligations in the future. However, no assurances can be made in
this respect. See Annex A, "The Federative Republic of Brazil--Public Debt."
BALANCE OF PAYMENTS
Although Brazil has traditionally experienced a trade surplus, the current
account has generally been in deficit as interest and service payments have
offset the trade surplus. Between November 1994 and June 1995, however, Brazil
recorded a trade deficit. The appreciation of the Real from July through
December 1994, the liberalization of imports and the recovery of domestic
demand all contributed to the trade deficit. Meanwhile, following the
liquidity crisis experienced by Mexico beginning in December 1994, Brazil
experienced a decrease in the level of inflows of foreign capital to finance
the deficit. The declines in foreign investment and the continued monthly
trade deficits led to a decrease in international reserves from $38.8 billion
at December 31,
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1994 to $31.9 billion on April 30, 1995. Since then, the trade deficit has
narrowed and turned into a surplus in August and September. Meanwhile, net
foreign capital inflows have increased; consequently, reserves have increased
sharply. According to the Central Bank, international reserves were $48.7
billion as of September 30, 1995. There can be no assurance that Brazil's
balance of payments will not significantly change in the future. See Annex A,
"The Federative Republic of Brazil--Balance of Payments and Foreign Trade" and
"--Foreign Exchange."
INFLATION
Throughout the 1980's and into the early 1990's, Brazil experienced very
high rates of inflation. Annual inflation for 1994 was 1,094%; for 1993,
2,709%; and for 1992, 1,158%. In response to past inflationary pressures, the
Government has imposed wage and price controls and implemented freezes on
certain bank, money market and savings accounts. Inflation and rapid
fluctuation in inflation rates have had very negative effects on the Brazilian
economy and securities market.
Although inflation has decreased significantly since the introduction of the
Plano Real, inflationary pressures persist, generated in part by changes in
the Real-Dollar exchange rate, strong GDP growth, high levels of consumption
and price increases in non-tradeable goods. Monthly inflation rates in 1995
(through September) have fluctuated between -1.08% and 2.62%. Brazil
experienced 2.62% inflation for the month of June 1995 (equivalent to 36.39%
per annum), the highest level since August 1994. Although the Government has
responded to the surge in consumer demand and the increasing trade deficit
with a variety of measures to restrict credit, to provide export incentives
and to increase temporarily import tariffs on selected goods, average monthly
inflation for the period from January through September 1995 was 1.34%
(equivalent to 17.3% per annum), which is above the inflation level in most
European countries. Since the introduction of the Plano Real, the inflation
rate has been held down in part by the Government's freeze of certain prices,
such as telephone tariffs, electricity rates and the price of certain
petroleum products. See Annex A, "The Federative Republic of Brazil--The
Economy--The Plano Real" and "--Prices." The Government recently raised
tariffs on electricity. Other prices are also expected to rise, which may lead
to demands for higher wages. Moreover, the credit constraint needed to assist
in controlling inflation may depress economic growth. There can be no
assurance that the rate of inflation in Brazil will not significantly change
in the future.
In addition, Brazilian banks have come under pressure from declining
earnings related to reduced inflation, and from high levels of non-performing
loans. See Annex A, "The Federative Republic of Brazil--The Financial System."
GOVERNMENTAL PARTICIPATION IN THE ECONOMY
The Government exercises substantial influence over many aspects of the
private sector by legislation and regulation, including regulation of prices
and wages. See Annex A, "The Federative Republic of Brazil--The Economy--The
Plano Real" and "--Prices." In addition, the Government owns or controls many
Brazilian companies, and owns a majority of the voting stock of seven of the
ten largest publicly held Brazilian companies (in terms of market
capitalization as of October 20, 1995).
Brazil's 1988 constitution mandates a Government monopoly of certain key
sectors, including the petroleum, telecommunications and gas-distribution.
Since 1991, the Brazilian Government has undertaken a privatization program in
which over 30 state enterprises have been sold for an aggregate amount of
approximately $8.6 billion. Since August 1995, the Congress has approved
constitutional amendments permitting private competition in the State's gas-
distribution and telecommunications sectors, as well as an amendment to loosen
the Government's monopoly in the petroleum sector. There can be no assurance
that additional privatization will occur at a similar rate or at all. See
Annex A, "The Federative Republic of Brazil--The Brazilian Economy--State-
Controlled Enterprises."
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SUSTAINABILITY OF PLANO REAL
Prior to the introduction of the Real as Brazil's official currency in July
1994 pursuant to the Plano Real, Brazil's economic performance had been
characterized by macroeconomic instability, including extremely high rates of
inflation and significant and sudden currency devaluations. Pre-Plano Real
stabilization efforts, which included wage and price controls and unilateral
modifications of the terms of financial contracts, failed to contain inflation
for any extended period. While the current Plano Real does not use such
measures, there can be no assurance that such measures will not be imposed in
the future or of the effect of any such measures on the performance of
securities in the Fund's portfolio.
The Plano Real has succeeded to date in sharply reducing inflation, which
declined from a monthly rate of 46.58% (equivalent to 9,738% per annum) in
June 1994 to -1.08% in September 1995. The continued success of the Plano
Real, however, depends in part on the ability of the Government to maintain
fiscal restraint and a tight monetary policy in the face of both domestic and
international economic pressures, as well as on the ability of the Government
to implement longer-term structural reforms, such as reform of the tax and
social security systems, transfer of certain federal spending responsibilities
to State governments and privatization of major enterprises. Some of these
reforms require constitutional amendments to be implemented. Amendments to the
Constitution require a three-fifths vote of each House of Congress in two
separate rounds. President Fernando Henrique Cardoso's party does not alone
have sufficient votes to ensure passage of such amendments. Although the
Chamber of Deputies and the Senate have voted in favor of several important
amendments, the ability of the Cardoso Government to continue to obtain
favorable votes required to effect constitutional reforms depends upon a
coalition among a variety of political parties with varying degrees of stated
commitment to these measures. See Annex A, "The Federative Republic of
Brazil--The Economy--The Plano Real."
REPORTING STANDARDS
Brazilian accounting, auditing and financial standards and requirements
differ, in some cases significantly, from comparable U.S. standards and
requirements. In particular, the assets and profits appearing on the financial
statements of a Brazilian company may not reflect its financial position or
results of operations in the way they would be reflected had such financial
statements been prepared in accordance with U.S. generally accepted accounting
principles. In addition, inflation accounting rules in Brazil require that
certain assets and liabilities be restated on the company's balance sheet in
order to express items in terms of currency of constant purchasing power. For
information regarding possible changes to inflation accounting rules, see
Annex A, "The Federative Republic of Brazil--Brazilian Corporate Taxes."
Inflation accounting may indirectly generate losses or profits. Consequently,
data concerning Brazilian securities shown elsewhere in this Prospectus may be
materially affected by restatements for inflation and may not accurately
reflect the true conditions of such companies and the Brazilian securities
market. There is substantially less publicly available information about
Brazilian companies than there is about U.S. companies.
POLITICAL AND OTHER CONSIDERATIONS
Brazilian politics have been marked by high levels of uncertainty since the
country returned to democratic rule in 1985 after 20 years of military
government. Corruption scandals, the death of a president-elect and the
impeachment of a sitting president, as well as a political party system marked
by the fragmentation of political power among many parties, have limited the
ability of Government institutions to develop coherent and consistent policies
to confront the problems facing the Brazilian economy. Furthermore, the
Government's ability to control its budget is limited by constitutionally
required reallocations of public resources from the federal Government to the
Brazilian States. Although the Cardoso administration and its economic
policies have enjoyed broad political support, there can be no assurance that
it or subsequent administrations will continue to implement current policies
in their present form. See Annex A, "The Federative Republic of Brazil--
General Information--Politics and Governmental Organization."
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Brazilian companies are currently subject to numerous corporate taxes. While
tax reform by means of a constitutional amendment has been proposed, there can
be no assurance that such reform will occur. See Annex A, "The Federative
Republic of Brazil--Brazilian Corporate Taxes." Also, the Brazilian taxation
regime applicable to the Fund is subject to change. See "Taxation--Brazilian
Taxation" in this Prospectus and "Taxation--Brazilian Taxes" in the SAI.
SPECIAL CONSIDERATIONS RELATING TO THE OFFER
Dilution. An immediate substantial dilution of the aggregate net asset value
of the shares owned by Record Date Shareholders who do not fully exercise
their Rights is likely to be experienced as a result of the Offer because the
Subscription Price is likely to be less than the Fund's then-net asset value
per share, and the number of shares outstanding after the Offer is likely to
increase in a greater percentage than the increase in the size of the Fund's
assets. In addition, as a result of the terms of the Offer, Record Date
Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in
the Fund than would otherwise be the case. Although it is not possible to
state precisely the amount of such a decrease in value, because it is not
known at this time what the net asset value per share will be at the
Expiration Date, such dilution could be substantial. For example, assuming
that all Rights are exercised and that the Subscription Price of $ is %
below the Fund's net asset value of $ per share on , 1995, the Fund's
net asset value per share would be reduced by approximately $ per share.
The distribution to Record Date Shareholders of transferable Rights which
themselves may have intrinsic value will afford non-participating Record Date
Shareholders the potential of receiving a cash payment upon sale of such
Rights, which may be viewed as compensation for the possible dilution of their
interest in the Fund. No assurance can be given, however, that a market for
the Rights will develop or as to the value, if any, that such Rights will
have.
Unrealized Appreciation. As of October 31, 1995, there was approximately
$160 million of net unrealized appreciation in the Fund's net assets of
approximately $284 million; if realized and distributed, or deemed
distributed, such gains would, in general, be taxable to shareholders,
including holders at that time of Shares acquired upon exercise of the Rights.
See "Taxation--United States Federal Income Taxes--General," "--Distributions"
and "--Non-U.S. Shareholders" in the SAI.
POSSIBLE CHANGE OF CONTROL OF FUND AS A RESULT OF THE OFFER
The Offer could result in a change of control of the Fund, if existing
shareholders do not exercise their Rights. The 1940 Act provides that a person
that beneficially owns 25% of the voting securities of an investment company
is presumed to control such company. Currently, to the Fund's knowledge, no
person beneficially owns 25% of the Fund's Common Stock, its only class of
voting securities. Because the Rights are transferable, and because there is
an Over-Subscription Privilege, it is possible that either an existing
shareholder of the Fund or a person not currently a shareholder could own 25%
or more of the Fund's Common Stock upon completion of the Offer and thus have
presumptive control of the Fund. Control of the Fund could enable a person to
exercise substantial influence over the management of the Fund and its
investment decisions.
NON-DIVERSIFIED STATUS
The Fund is classified as a "non-diversified" investment company under the
1940 Act, which means that the Fund is not limited by the 1940 Act as to the
percentage of its assets that may be invested in the securities of a single
issuer. As a non-diversified investment company, the Fund may invest in a
smaller number of issuers, and, as a result, may be subject to greater risk
with respect to its portfolio securities. However, the Fund has complied and
intends to continue to comply with the diversification requirements imposed by
the Code for regulated investment companies. See "Taxation--United States
Federal Income Taxes" in the SAI.
TRANSACTION COSTS
The Fund's transaction costs are higher than the transaction costs for the
typical investment company investing in U.S. securities. In addition to
incurring transaction costs associated with converting currency to and
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from Reais and Dollars, the Fund incurs brokerage costs on its portfolio
transactions at commission rates that are generally uniform and higher than in
the United States. See "Portfolio Transactions and Brokerage" in the SAI.
DISCOUNT FROM NET ASSET VALUE
The shares of the Fund may trade at a discount from net asset value. This is
characteristic of shares of a closed-end fund and is a risk separate and
distinct from the risk of a decline in the net asset value as a result of a
fund's investment activities. In some cases, however, shares of closed-end
funds may trade at a premium. The Fund's shares have traded in the market
above, at and below net asset value since the commencement of the Fund's
operations. Since 1993, the Fund's shares have generally traded at a slight
discount to net asset value. See "Market and Net Asset Value Information."
THE BRAZILIAN SECURITIES MARKET
BACKGROUND AND DEVELOPMENT
The Brazilian stock market, which dates from the mid-nineteenth century, is
one of the largest equity securities markets in the developing world, as
measured by market capitalization. As of December 31, 1994, the market
capitalization of the approximately 540 companies listed on the BOVESPA was
approximately US$ 190 billion. Participation by foreign investors in the
Brazilian securities market has been relatively low, partly as a result of
complex registration and fiscal regulations. This regulatory structure has
recently been changed to facilitate access to this market by foreign
investors. See "Foreign Investment and the Fund."
In 1964, Brazil introduced a system of monetary correction and indexation
for companies to adjust their financial statements to account for the effects
of inflation, and, in 1964 and 1965, laws were passed to regulate the capital
markets and thereby increase investor confidence. In the 1960's, the
Government also introduced various tax incentives to encourage the development
of pools of capital investing in the securities market. As a result, by the
late 1960's, institutional participation in the Brazilian stock market had
substantially increased. The period of the 1960's and 1970's, which was a
period of significant growth in the economy and in corporate profits, also saw
a significant increase in the number of new issues of securities and in
trading.
As growth in demand for shares outpaced growth in supply, there was a
speculative boom in 1971, which was followed by a sharp decline, as a
consequence of which the stock market experienced a difficult time between
1972 and 1975.
In 1976, the Government began new efforts to stimulate interest and
confidence in the market. The Government adopted a new corporation law that is
generally similar to those in the United States. Among other things, the law
imposes reporting and accounting requirements (including adjustments for
inflation and monetary correction) and specifies the duties of care of
management and the responsibility of controlling shareholders. Also in 1976,
legislation was passed creating the Brazilian Securities Commission with the
dual objective of regulating the securities market and encouraging the
development of that market. Other measures, beginning in 1974, included an
attempt to attract foreign investors through special investment companies.
Total equity capital raised in Brazil reached US$ 1,187 million in 1987 and
has fluctuated widely since then. In 1992, 1993 and 1994, respectively, the
amount of equity capital raised was US$ 943 million, US$ 841 million and US$
2,541 million. As of July 31, 1995, US$ 1,088 million in equity capital had
been raised during the year.
Institutional participation in the Brazilian securities market is
significant. From January 1994 through August 1995, for example, a monthly
average of approximately 18% of the value of all trades of equity securities
on the BOVESPA represented trades for public and private companies, pension
funds, mutual funds, insurance companies and investment companies.
THE BRAZILIAN STOCK EXCHANGES
The Fund's policy is normally to invest at least 70% of its total assets in
common and preferred stocks listed on the Stock Exchanges or traded in over-
the-counter markets organized by entities accredited by the
31
<PAGE>
Brazilian Securities Commission. Currently no entities have been so
accredited. In 1994, approximately 580 companies were listed on Brazil's nine
stock exchanges. The vast majority of such companies are listed on both the
BOVESPA and the Rio de Janeiro Stock Exchange (the "Rio Exchange"), which are
by far Brazil's most important stock exchanges. For the twelve months ended
July 31, 1995, the BOVESPA accounted for approximately 86% of the daily
trading volume on the Stock Exchanges. The Rio Exchange was organized in 1845
and currently has 75 member brokerage firms, with an additional 8 non-member
(but authorized) brokerage firms. The BOVESPA was founded in 1890 and today
has 96 member and non-member (but authorized) brokerage firms. Substantially
all of the Fund's transactions in common and preferred stocks have been
conducted on the BOVESPA and Rio Exchange. Both Stock Exchanges are owned by
their member firms, not by the Government.
On both the Rio Exchange and the BOVESPA, trades are effected through both
the floor bidding and electronic systems. On the Rio Exchange, electronic
trades are effected through the National Electronic Trading System ("SENN"), a
computerized system inaugurated in 1991, which links the Rio Exchange
electronically with seven small regional exchanges. On the BOVESPA, trades are
effected through the Electronic Trading System introduced in 1990, linking
brokerage firms in any part of the country with the BOVESPA.
The shares of a company listed on any of the Stock Exchanges may be traded
on any other exchange. Typically, the shares of certain companies are much
more actively traded on one of the two major stock exchanges than on the
other. For example, the stocks of Government-controlled companies (with the
exception of Petrobras) tend to be more actively traded on the Rio Exchange,
while those of the private sector companies are more typically traded on the
BOVESPA. Although any of the outstanding shares of an exchange-listed company
may trade on any Brazilian stock exchange, in most cases, less than half of
the listed shares are actually available for trading by the public, the
remainder being held by small groups of controlling persons who rarely trade
their shares. For this reason, data showing the total market capitalization of
the Stock Exchanges may give an exaggerated view of the size of the Brazilian
equity securities market.
Stocks, options thereon and stock forward and futures contracts are traded
on both the BOVESPA and the Rio Exchange. Sellers of stock options must
deposit initial margin with the Stock Exchanges in an amount equal to two
times the amount of the premium of the option (or such greater amount as the
Stock Exchanges establish from time to time), and are required to make
payments of variation margin.
For the year ended December 31, 1994 and for 1995 (through August), forward
transactions in stocks accounted for a monthly average of approximately .15%
and .44%, respectively, of the combined value of trading on the BOVESPA. A
forward contract for a stock involves an agreement by the seller to make
delivery of an agreed-upon quantity of shares of a particular stock at an
agreed-upon price on a date that is 30, 60, 90, 120, 150 or 180 days following
the date of the contract. Unlike the case of stock futures contracts, the size
of a stock forward contract is not standardized, and there is virtually no
secondary market for stock forward contracts. Participants in both the stock
forward contract and stock futures contract markets must deposit margin in an
amount that, under current Brazilian Securities Commission regulations, is
fixed by the Stock Exchanges but may not be less than 20% of the value of the
contract. Variation margin is also collected pursuant to Stock Exchange rules.
At present, both the Regulations and the U.S. Commodity Exchange Act do not
permit the Fund to enter into stock futures contracts.
Most of the market capitalization and most of the trading volume of the
Stock Exchanges consist of preferred stock, rather than common stock.
Preferred stock in Brazil typically is non-voting. Dividends on preferred
stock are generally paid in an amount at least equal to a stated minimum rate,
expressed as a percentage of net profits of the issuing company. If a company
distributes additional profits after paying the holders of its common shares
an amount equal to the per share minimum amount previously paid to holders of
its preferred stock, the holders of its common and preferred stocks typically
share equally on a per share basis in such additional profits.
32
<PAGE>
The value of all cash transactions effected on the BOVESPA and the Rio
Exchange during the years 1993 and 1994, and the daily trading averages of
each exchange, are shown in the following table, together with the total
number of companies listed on each exchange and the market values of such
companies at the end of each year.
VALUE OF ALL CASH TRANSACTIONS EFFECTED
AND DAILY TRADING AVERAGES ON THE BOVESPA
(MILLIONS OF US$)
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Value of Total Shares Traded
Annual Total................................................ $ 91,827 $52,111
Daily Average............................................... 360 157
Value of Cash Trades
Annual Total................................................ 62,865 32,871
Daily Average............................................... 245 113
Market Value End of Year...................................... 189,058 99,430
Companies Listed End of Year.................................. 544 550
</TABLE>
Both exchanges publish stock price indexes. The IBOVESPA currently consists
of 54 stocks that represent an aggregate value of approximately 66% of the
cash volume traded on that exchange in the previous twelve months. The index
is reevaluated every four months based on the previous twelve months' trading.
The Rio Index currently includes 44 stocks weighted to reflect market values.
The Fund is unable to predict whether further economic reforms or
modifications to the existing policies of the Brazilian Government may
adversely affect the liquidity of the Brazilian stock market in the future.
THE PRIMARY MARKETS
Equity Market. Over the past decade, Brazil has had one of the most active
primary equity markets in the developing world. The volume of new issues has
fluctuated widely from year to year, depending on market conditions. There has
been increasing participation of institutional investors, particularly pension
funds, in the new issues market. The following table indicates the growth of
the primary equity market over the past several years.
GROWTH OF THE PRIMARY EQUITY MARKET IN BRAZIL
<TABLE>
<CAPTION>
TOTAL EQUITY TOTAL EQUITY
NUMBER OF CAPITAL RAISED IN CAPITAL RAISED IN
YEAR NEW ISSUES MILLIONS OF R$(1) MILLIONS OF US$
- ---- ---------- ----------------- -----------------
<S> <C> <C> <C>
1992............................. 28 R$ 1.03 $ 942.72
1993............................. 24 48.68 841.13
1994............................. 48 1,768.53 2,590.65
1995(2).......................... 15 960.37 1,087.62
</TABLE>
- --------
(1) Figures not adjusted for inflation; prior currencies converted into Reais.
On July 1, 1994 the Real replaced the Cruzeiro Real at the rate of R$ 1.00
= CR$ 2,750, and on August 1, 1993 the Cruzeiro Real replaced the Cruzeiro
at a rate of CR$ 1.00 = C$ 1,000.
(2) Through July 31.
Source: Brazilian Securities Commission
33
<PAGE>
New issues may be underwritten only by investment banks, brokerage firms
("corretoras") and securities dealers ("distribuidoras") and are required to
be previously registered with the Brazilian Securities Commission, which
reviews the issuer's compliance with regulatory and disclosure procedures.
Shares can be issued with or without a par value, and the offering price may
be of any value (except below par) as long as it is satisfactorily justified
by the company, taking into account market quotations and the net worth and
profit expectations of the company, and would not result in any unjustified
dilution of the interests of existing shareholders.
Brazilian legislation provides for preemptive rights to existing
shareholders to subscribe for an offering of shares in proportion to their
holdings within not less than 30 days after the announcement of approval of a
capital increase by shareholders.
Since April 1992, no bearer securities are permitted to be traded on the
Stock Exchanges.
Debt Securities Market. Corporate bonds are sold through public offerings,
as well as by private placements, and the same regulations and procedures for
new issues of stocks are applicable to corporate bonds. Corporate bonds
typically have maturities of three to five years, subject to periodic
renegotiation of terms.
The Government typically sells its debt instruments in primary offerings
through auctions in which certain financial institutions having the requisite
minimum capital are eligible to bid.
Under the Regulations as currently in effect, the Fund is generally not
permitted to invest in either Government or corporate debt securities. See
"Certain Investment Practices." For a further description of Government debt
securities, see "The Secondary Markets--Debt Securities Market."
THE SECONDARY MARKETS
Equity Market. Equity securities may be traded on the Stock Exchanges or on
the over-the-counter market. Trades on the Stock Exchanges are effected
through brokerage firms (member firms) acting as brokers or as principals.
Information regarding listed securities (quotations, trading volume, financial
data, stock price indexes, etc.) is available through a network of computer
terminals located in offices of brokerage firms, investment banks, securities
dealers, institutional investors and others.
The over-the-counter market is much smaller than the stock exchange market
for listed securities. While listed securities may be traded only on Stock
Exchanges, there is a growing over-the-counter market for unlisted stocks that
is maintained by securities dealers that are not members of any of the Stock
Exchanges, investment banks and brokerage firms. Regulations were enacted by
the Brazilian Securities Commission in the beginning of 1985 with respect to
the over-the-counter market that require the disclosure of all transactions
executed in that market. Brazilian companies with securities traded on the
over-the-counter market must be registered with the Brazilian Securities
Commission and are subject to the same disclosure and periodic reporting
requirements as listed companies.
Under the Regulations, the Fund is not permitted to buy shares on the over-
the-counter market (except that the Fund may subscribe for shares offered in a
primary or secondary public offering), but would be permitted to do so if the
Brazilian Securities Commission authorizes one or more entities to organize
that market. The Brazilian Securities Commission has under consideration
regulations with respect to the procedures for such authorization.
34
<PAGE>
The trading volume on the Stock Exchanges is presented in the following
table:
TRADING VOLUME ON THE STOCK EXCHANGES
(MILLIONS OF US$)(1)
<TABLE>
<CAPTION>
CASH FORWARD FUTURES OPTIONS
YEAR MARKET MARKET MARKET(2) MARKET(3) TOTAL(4)
- ---- ---------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1986....................... $18,718.40 $3,500.50 $87.90 $ 7,411.20 $29,901.10
1987....................... 6,393.70 412.40 48.10 3,094.40 10,044.80
1988....................... 12,655.70 301.20 0.00 4,706.80 17,878.40
1989....................... 14,030.40 273.30 0.00 2,092.30 17,193.10
1990....................... 4,988.90 81.70 0.00 450.80 5,617.60
1991(5).................... 3,031.00 21.30 0.00 563.00 3,615.30
1992....................... 18,122.45 NA NA 2,697.99 23,754.34
1993....................... 27,701.55 NA NA 6,265.59 39,590.75
1994....................... 65,192.27 NA NA 19,264.76 98,409.23
1995(6).................... 27,933.83 NA NA 8,180.54 40,526.30
</TABLE>
- --------
(1) Conversion based on average annual exchange rates.
(2) Based on aggregate contract values.
(3) Based on aggregate value of premiums and the purchase price of securities
delivered upon exercise of contracts.
(4) Total includes transactions in regional development shares, not shown
separately.
(5) Through June 30. Data for the second half of the year are not available.
(6) Through June 30.
Source: Brazilian Securities Commission; BOVESPA; Rio Exchange
For an original listing on a Stock Exchange, a company must be previously
registered with the Brazilian Securities Commission. The Stock Exchanges
currently impose no requirements with respect to the company's size, capital,
number of shares outstanding or earnings for listing.
Brokerage fees are charged directly by member firms according to marginal
rates which apply to transactions effected on any Stock Exchange. Such rates
descend on a sliding scale and currently range from 2% to 0.5% of the value of
the securities traded. Transactions of a value below a specified amount are
charged a flat fee. Brokerage fees may be increased or reduced by 100% of the
rate set out in the sliding scale, upon agreement between the parties. The
Fund, as an investment company, is eligible for a 50% discount from posted
commission rates and currently receives such a discount on commissions.
35
<PAGE>
The following table shows changes in the IBOVESPA, as (1) measured in
Brazilian currency terms, (2) adjusted for inflation, and (3) measured in U.S.
Dollars.
PERCENTAGE CHANGES IN THE IBOVESPA(1)
<TABLE>
<CAPTION>
ADJUSTED FOR IN U.S.
PERIOD UNADJUSTED (%) INFLATION (%)(2) DOLLARS (%)(3)
------ -------------- ---------------- --------------
<S> <C> <C> <C>
Dec. 85-Dec. 86................. 40% -15% -1%
Dec. 86-Dec. 87................. 36% -74% -72%
Dec. 87-Dec. 88................. 2577% 135% 154%
Dec. 88-Dec. 89................. 1778% 0% 25%
Dec. 89-Dec. 90................. 308% -74% -73%
Dec. 90-Dec. 91................. 2278% 310% 282%
Dec. 91-Dec. 92................. 1029% -10% -3%
Dec. 92-Dec. 93................. 5413% 96% 110%
Dec. 93-Dec. 94................. 1052% 14% 59%
</TABLE>
- --------
(1) Changes are computed from end-of-month to end-of-month.
(2) Adjusted by GPI-DS.
(3) Adjusted by using changes in the exchange rate at end-of-month.
Source: BOVESPA and Central Bank
The following tables show certain financial and other information for the
year ended December 31, 1994 (unless otherwise indicated) for the 25 companies
that were most actively traded on the BOVESPA in 1994. Trading in the equity
securities of these companies accounted for approximately 61% and 65% of the
market capitalization on the BOVESPA for 1994 and 1995 (through October 20),
respectively.
MOST ACTIVELY TRADED COMPANIES ON THE BOVESPA
(MILLIONS OF US$)
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDER'S TOTAL
ISSUER SALES AFTER TAX EQUITY ASSETS
------ ------ ---------- ------------- --------
<S> <C> <C> <C> <C>
ACESITA............................... $ 713 $ 79 $ 847 $ 1,249
ARACRUZ............................... 638 314 2,024 3,255
BANCO DO BRASIL....................... NA 128 6,800 86,108
BR DISTRIBUIDORA...................... 6,821 151 892 1,343
BRADESCO.............................. NA 527 4,335 21,640
BRAHMA................................ 981 139 1,108 1,691
BRASMOTOR(1).......................... 2,001 71 479 1,553
CEMIG................................. 1,706 697 7,097 10,010
CESP.................................. 3,081 396 11,743 21,714
COPENE................................ 1,233 137 2,718 3,867
COPESUL............................... 663 21 987 1,167
CPFL.................................. 1,209 22 2,257 2,989
CSN................................... 2,209 154 5,500 6,886
CST................................... 889 241 2,883 3,704
CVRD.................................. 2,871 645 9,707 12,454
ELETROBRAS(1)......................... 5,889 1,856 64,806 100,187
ITAU ................................. NA 378 3,043 16,484
LIGHT................................. 1,520 144 6,528 7,851
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
NET INCOME SHAREHOLDER'S TOTAL
ISSUER SALES AFTER TAX EQUITY ASSETS
------ ------- ---------- ------------- ------
<S> <C> <C> <C> <C>
PARANAPANEMA(1)........................ 216 (13) 564 607
PETROBRAS.............................. 16,315 1,413 18,906 28,107
PETROLEO IPIRANGA(1)................... 3,697 134 537 860
SADIA CONCORDIA........................ 2,446 50 503 1,287
TELEBRAS(1)............................ 7,780 562 21,562 32,539
TELESP................................. 2,183 283 7,299 10,360
USIMINAS............................... 1,832 345 2,444 3,949
</TABLE>
- --------
(1) Figures reported on a consolidated basis
Source: BOVESPA
<TABLE>
<CAPTION>
AMOUNT TRADED AMOUNT TRADED MARKET VALUE
IN 1994 IN 1995(2) AT END OF YEAR
(MILLIONS OF US$) (MILLIONS OF US$) (MILLIONS OF US$)
---------------------- --------------------- -----------------
PERCENTAGE
PERCENTAGE OF
ISSUER VALUE OF TOTAL(1) VALUE TOTAL(1) 1994 1995(3)
------ ---------- ----------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ACESITA................. $ 419.24 0.48% $ 185.86 0.31% $ 1,163 $ 974
ARACRUZ................. 362.82 0.41% 620.91 1.05% 2,192 2,107
BANCO DO BRASIL......... 822.81 0.94% 353.58 0.60% 2,035 1,698
BR DISTRIBUIDORA........ 425.09 0.49% 125.90 0.21% 1,545 943
BRADESCO................ 761.68 0.87% 549.70 0.93% 5,190 5,842
BRAHMA.................. 387.37 0.44% 349.71 0.59% 2,232 2,725
BRASMOTOR............... 311.44 0.36% 183.72 0.31% 1,075 672
CEMIG................... 1,531.22 1.75% 831.35 1.40% 3,080 2,987
CESP.................... 526.82 0.60% 271.76 0.46% 4,254 3,118
COPENE.................. 331.12 0.38% 240.79 0.41% 1,563 998
COPESUL................. 179.79 0.21% 95.79 0.16% 886 648
CPFL.................... 237.25 0.27% 111.35 0.19% 1,688 992
CSN..................... 914.27 1.05% 403.42 0.61% 2,681 1,700
CST..................... 449.70 0.51% 291.49 0.49% 1,102 9,279
CVRD.................... 3,232.31 3.70% 1,085.70 3.34% 9,279 8,081
ELETROBRAS.............. 8,856.63 10.13% 5,172.11 8.71% 18,635 16,085
ITAU.................... 291.09 0.33% 261.46 0.44% 3,373 3,488
LIGHT................... 438.02 0.50% 208.72 0.35% 3,750 3,295
PARANAPANEMA............ 225.94 0.20% 60.59 0.10% 326 248
PETROBRAS............... 5,418.84 6.20% 2,771.87 4.67% 13,703 9,995
PETROLEO IPIRANGA....... 187.21 0.21% 153.04 0.20% 925 510
SADIA CONCORDIA......... 275.05 0.31% 128.37 0.22% 916 676
TELEBRAS................ 24,480.40 28.00% 21,156.77 35.63% 14,275 13,932
TELESP.................. 1,146.21 1.31% 728.65 1.23% 7,280 7,632
USIMINAS................ 1,193.21 1.36% 1,202.22 2.16% 3,026 2,204
Total of 25 companies... 53,405.52 61.00% 38,605.85 65.00% 106,174 92,424
Total volume of BOVESPA. 87,441.94 100.00% 59,374.34 100.00% 126,662 105,457
</TABLE>
- --------
(1) Percentages represent percentage of all stocks traded on the BOVESPA.
(2) As of October 20.
(3) As of October 25.
Source: BOVESPA
37
<PAGE>
DEBT SECURITIES MARKET
As noted above, bonds--whether public or corporate--are not generally listed
on the Stock Exchanges. Secondary transactions in bonds are generally made on
the over-the-counter market directly between market intermediaries and
investors, most of whom are institutional. In addition to corporate debentures
and commercial paper, the secondary market for debt investments includes
forward export contracts and export notes.
State and municipal bonds, as well as corporate debentures and certificates
of deposit, are also traded over-the-counter.
The secondary market for public sector bonds has been active and liquid.
Such bonds are also used in repurchase agreements.
In addition, some Brazilian companies have successfully accessed the debt
securities markets outside of Brazil. The issuance and distribution of such
debt securities is generally subject to prior authorization by the Central
Bank. The Government has sought to regulate the use of such debt securities as
flexibly as possible, subject to the limitations set forth by current
legislation.
FUTURES MARKET
There is only one major commodity futures exchange in Brazil, the Bolsa de
Mercadorias & Futuros ("BM&F") in Sao Paulo. The BM&F resulted from the merger
in May 1991 of the Bolsa Mercantil & Futuros and the Bolsa de Mercadorias de
Sao Paulo. Its contracts include gold, cattle, coffee, cotton, the U.S.
Dollar, inter-financial certificates of deposits ("CDI") and the IBOVESPA.
The authority to regulate the futures market in Brazil has been given to the
Brazilian Securities Commission in the case of futures contracts on stocks and
stock indexes, and, in the case of all futures contracts, to the Monetary
Council, which regulates through the Central Bank. Stock options and forwards
are traded on the Stock Exchanges, while all other futures contracts are
traded on the Brazilian commodity futures exchanges. The Stock Exchanges could
in the future develop markets for stock index futures contracts.
The Brazilian Securities Commission and the Monetary Council have adopted
regulations governing futures and the Stock Exchanges and the commodity
futures exchanges relating to stock index futures and other types of futures
trading. The Stock Exchanges have rules requiring the collection of initial
margin and variation margin on futures contracts, and adjust the amount of
margin required depending on market conditions.
MARKET REGULATION
The Brazilian securities markets are subject to regulation by the Monetary
Council and the Brazilian Securities Commission. The Brazilian Securities
Commission is managed by a board of four Commissioners and one Chairman, all
of whom are appointed by the President of Brazil. It has disciplinary powers
over individuals and institutions, including investors, intermediaries and the
Stock Exchanges. The Stock Exchanges, as self-regulatory organizations, are
considered auxiliary organizations of the Brazilian Securities Commission,
although the Stock Exchanges are owned by member firms and not by the
Brazilian Securities Commission or any other Government agency. In addition,
the Brazilian Securities Commission also has the function of promoting and
supporting the development of the corporate securities market in Brazil.
The activities of the Brazilian Securities Commission are guided by certain
basic principles: the protection of investors; the strengthening of self-
regulation; full disclosure of all material information; the development of
Brazil's securities markets; and the setting of technical and ethical
standards to be observed by all participants in the market.
The licensing and the implementation of the requirements for financial
institutions to operate in the markets are functions of the Central Bank,
which also maintains permanent supervision over such institutions. Exercise
38
<PAGE>
of all professional financial services activities in the corporate securities
markets requires the prior authorization of the Brazilian Securities
Commission.
All companies must register with the Brazilian Securities Commission before
issuing and selling securities to the public. Such registration requires the
disclosure of information about the company, including financial reports,
compliance with statutory norms, corporate activities and controlling
shareholders. The companies must update the information on an annual basis,
and, in addition, file interim and quarterly reports. Moreover, any fact or
event that may materially affect a registered company is required to be
immediately reported by its management to the Brazilian Securities Commission.
Such information is normally also immediately released to the Stock Exchanges
and the public. However, in certain cases, the Brazilian Securities Commission
may authorize the management of a company to postpone its disclosure of such
information until such later time as is deemed to be in the best interests of
the company. Noncompliance with these registration and disclosure rules may
subject the company and its management to penalties provided by law.
The issuance of any type of security to be placed in the public markets must
first be registered with and authorized by the Brazilian Securities
Commission. Responsibility for the reported information rests with both the
issuing company and the lead underwriter.
The over-the-counter market is also regulated by the Brazilian Securities
Commission. In general, if a company's securities are traded over-the-counter,
it is subject to regulations similar to those imposed on listed companies. In
addition, all transactions effected over-the-counter must be reported to the
Brazilian Securities Commission, which, in turn, makes such reports available
to the public.
Directors and officers of a company are required to report their share
ownership in the company's securities at the time they take office, and, as a
general matter, must subsequently report any transactions in the company's
securities to its shareholders.
In addition, "insider trading" is expressly prohibited by the Brazilian
corporation law. This prohibition may be enforced by means of lawsuits brought
by shareholders and by administrative procedures of the Brazilian Securities
Commission. Sanctions for insider trading, however, have been few.
Settlement procedures for trades effected on the Stock Exchanges are
prescribed by the Stock Exchanges. The Fund has not experienced material
delays in effecting settlement, and, based on such experience, the Manager
does not anticipate any material delays in the future.
FOREIGN INVESTMENT AND THE FUND
Foreign investment in Brazilian securities is regulated by exchange control
laws and regulations of the Monetary Council, as well as by laws that restrict
investment by foreigners in particular sectors of the Brazilian economy. See
"Foreign Investment and Exchange Controls in Brazil." Foreign portfolio
investment in the Brazilian securities market is regulated by the Monetary
Council and the Brazilian Securities Commission.
Participation by foreign investors in the Brazilian securities market had
been small in the years prior to the Fund's organization, partly as a result
of applicable restrictions. The Fund was the first publicly offered United
States investment company organized to invest in Brazilian securities.
In an effort to increase foreign investment in Brazil, the Central Bank
implemented Resolution 1289 on March 20, 1987. In the first three Annexes
under Resolution 1289, the following mechanisms for foreign investment in
Brazilian securities were authorized: (i) Foreign Capital Investment
Companies-Annex I (an incorporated legal entity organized in Brazil where the
foreign investor invests through the purchase of shares which are redeemable
at the investor's request after a period of not less than 90 days), (ii)
Foreign Capital Investment Funds-Annex II (an investment fund organized in
Brazil in the form of an "open condominium," where the foreign investor
invests through the purchase of "quotas" in the fund, redeemable upon the
investor's request after a specified period of not less than 90 days), and
(iii) Managed Portfolios of Bonds and Securities-
39
<PAGE>
Annex III (a foreign investment company which may invest directly in Brazilian
securities, subject to certain diversification requirements and other
investment restrictions, including repatriation restrictions). The Fund
invests in the Brazilian securities market under Annex III and was the first
entity to be authorized to do so. According to the Brazilian Securities
Commission, as of June 30, 1995, there were no other entities authorized under
Annex III.
In 1991, the Monetary Council added Annex IV and Annex V to Resolution 1289,
in an effort to promote further foreign capital investment in Brazil.
Annex IV, introduced by the Monetary Council on May 31, 1991 and implemented
on June 3, 1991, extends the favorable treatment regarding organization,
administration and taxation granted to Annex III foreign investment funds to
foreign institutional investors, such as pension funds, financial
institutions, insurance companies and mutual funds. In some respects, the
regulations applicable to Annex IV are more favorable than those applicable to
Annex III. For example, Annex IV is not subject to the portfolio
diversification requirements or repatriation restrictions applicable to Annex
III. As of June 30, 1995, there were approximately 500 entities authorized to
operate under Annex IV.
Annex V, introduced on July 31, 1991, provides still greater flexibility to
foreign investors by permitting foreign investments in Brazilian securities
through the mechanism of American Depository Receipts ("ADRs") and
International Depository Receipts ("IDRs"). The issuance of ADRs and IDRs must
be approved by the Brazilian Securities Commission. The foreign capital is
registered in the name of the foreign issuer of the ADR or IDR and is
permitted to enter and exit Brazil without restriction. The holders of ADRs
and IDRs may request and obtain redemption (i.e., exchange the ADR or IDR for
the underlying security) at any time. In addition, holders of ADRs and IDRs
enjoy the same favorable tax treatment as that applicable to the Fund and to
foreign investors who utilize other permitted mechanisms of access to the
Brazilian securities market. For a discussion of Brazilian withholding taxes
and potential capital gains taxes, see "Taxation--Brazilian Taxation" in this
Prospectus and "Taxation--Brazilian Taxes" in the SAI. Currently, no
withholding tax will be levied on capital gains realized by the Fund and
withholding tax will be levied on dividends received by the holders of ADRs or
IDRs at the rate of 15%.
The development of alternatives to the Fund as a vehicle through which
United States and other foreign investors may invest in Brazilian securities
is one of the factors that may affect whether shares of the Fund trade at a
premium or discount in relation to net asset value. See "Net Asset Value" in
the SAI. This development should also result in broadened investor interest
in, and greater liquidity of, the Brazilian securities market.
INVESTMENT ADVISERS AND ADMINISTRATOR
GENERAL
The Fund's advisory structure reflects a bi-national United States-Brazilian
arrangement for providing investment advice and management to pursue the
Fund's investment objective of long-term capital appreciation through
investing in Brazilian securities. The Fund's Manager is Scudder, Stevens &
Clark, Inc., a United States investment counsel firm. The Brazilian Adviser is
Banco Icatu S.A. The Fund may retain the services of advisers or consultants
with respect to Brazilian securities markets in addition to the Brazilian
Adviser when the Board of Directors determines it to be appropriate. The
Fund's Brazilian Administrator is Banco de Boston S.A.
THE INVESTMENT MANAGER
Scudder, Stevens & Clark, Inc., an investment counsel firm whose address is
345 Park Avenue, New York, New York 10154, acts as investment adviser to and
manager and administrator for the Fund. The Manager is a leading global
investment manager with offices throughout the United States and subsidiaries
in London and Tokyo. The Manager was established in 1919 as a partnership and
was restructured as a Delaware corporation in 1985. The principal source of
the Manager's income is professional fees received from providing continuing
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investment advice. The Manager provides investment counsel for many
individuals and institutions, including insurance companies, colleges,
industrial corporations, and financial and banking organizations.
The Manager has been active in international investment for over 40 years
and in emerging markets investment for over 20 years. As of December 31, 1994,
the Manager and its affiliates had in excess of $90 billion in assets under
their supervision, more than $22 billion of which was invested in non-U.S.
securities. As of that date, the Manager's clients included nine closed-end
United States investment companies with assets aggregating over $1.5 billion,
and more than 50 open-end United States investment company portfolios with
assets aggregating over $36 billion. The Manager's investment company clients,
in addition to the Fund, include:
. The Argentina Fund, Inc., which commenced operations in 1991 and invests
primarily in equity securities of Argentine companies.
. The First Iberian Fund, Inc., which commenced operations in 1988 and
invests primarily in equity securities of Spanish and Portuguese
companies.
. The Japan Fund, Inc., which commenced operations in 1962 and invests
primarily in securities of Japanese companies.
. The Korea Fund, Inc., which commenced operations in 1984 and invests
primarily in equity securities of Korean companies.
. The Latin America Dollar Income Fund, Inc., which commenced operations in
1992 and invests primarily in Dollar-denominated debt securities of Latin
American issuers.
. Scudder Greater Europe Growth Fund, which commenced operations in 1994
and invests primarily in equity securities of European companies.
. Scudder International Fund, which was initially incorporated in Canada in
1953 and invests primarily in foreign equity securities.
. Scudder Latin America Fund, which commenced operations in 1992 and
invests in securities of Latin American issuers.
. Scudder New Asia Fund, Inc., which commenced operations in 1987 and
invests primarily in equity securities of Asian companies.
. Scudder New Europe Fund, Inc., which commenced operations in 1990 and
invests primarily in securities of European companies.
. Scudder Pacific Opportunities Fund, which commenced operations in 1992
and invests in equity securities of Pacific Basin companies, excluding
Japan.
. Scudder World Income Opportunities Fund, Inc., which commenced operations
in 1994 and invests primarily in income securities issued by corporate
and sovereign entities throughout the world.
The Manager also provides investment advisory services to the mutual funds
with assets aggregating over $11 billion that comprise the AARP Investment
Program from Scudder. With respect to this Program, the Manager manages a
total of eight investment company portfolios pursuing a variety of investment
objectives, including money market returns, growth, income, growth and income
and tax-free income. The Manager also manages accounts for several large
pension plans.
The Fund is managed by a team of investment professionals who each play an
important part in the Fund's management process. Team members work together to
develop investment strategies and select securities for the Fund's portfolio.
They are supported by the Manager's large staff of economists, research
analysts, traders and other investment specialists who work in the Manager's
offices across the United States and abroad. The Manager believes its team
approach will benefit Fund investors by bringing together many disciplines and
leveraging the Manager's extensive resources.
Lead Portfolio Manager Edmund B. Games, Jr. has set Fund investment strategy
and overseen its daily operation since 1988. Mr. Games joined Scudder's equity
research area in 1960. William F. Truscott, Portfolio
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Manager, helps set the portfolio's general investment strategies. Mr.
Truscott, a member of the portfolio's team since 1993, has over 10 years of
experience in the financial industry. Nicholas Bratt, Portfolio Manager, has
been a member of the portfolio team since 1988 and has over 20 years of
experience in worldwide investing. Mr. Bratt, who has been at Scudder since
1976, is the head of Scudder's Global Equity Department.
The Manager maintains a large research department, which conducts continuous
studies of the factors that affect the position of various industries,
companies and individual securities. In managing the Fund, the Manager
utilizes reports, statistics and other investment information from a wide
variety of sources, including the Brazilian Adviser and other brokers and
dealers who may execute portfolio transactions for the Fund and for clients of
the Manager or the Brazilian Adviser. Investment decisions, however, are based
primarily on investigations and critical analyses by its own research
specialists and portfolio managers, as well as investigations that may include
visiting companies, touring facilities, and interviewing suppliers and
customers.
Certain investments may be appropriate for the Fund and also for other
clients advised by the Manager. Investment decisions for the Fund and the
Manager's other clients are made with a view to achieving their respective
investment objectives and after consideration of such factors as their current
holdings, availability of cash for investment and the size of their
investments generally. Frequently a particular security may be bought or sold
for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling the
security. In addition, purchases or sales of the same security may be made for
two or more clients on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by the Manager to be
equitable to each. In some cases, this procedure could have an adverse effect
on the price or amount of the securities purchased or sold by the Fund.
Purchase and sale orders for the Fund may be combined with those of other
clients of the Manager in the interest of the most favorable net results to
the Fund.
INVESTMENT ADVISORY, MANAGEMENT AND ADMINISTRATION AGREEMENT
On July 25, 1995, the Fund's shareholders approved a new Investment
Advisory, Management and Administration Agreement (the "Agreement") with the
Manager. Under the Agreement, the Manager makes investment decisions, prepares
and makes available research and statistical data and supervises the
acquisition and disposition of securities by the Fund, all in accordance with
the Fund's investment objective and policies and in accordance with guidelines
and directions from the Fund's Board of Directors. The Manager assists the
Fund as it may reasonably request in the conduct of the Fund's business,
subject to the direction and control of the Fund's Board of Directors. The
Manager maintains or causes to be maintained for the Fund all books and
records required to be maintained under the 1940 Act to the extent such books
and records are not maintained or furnished by the Fund's custodian or other
agents, and furnishes or causes to be furnished all required reports or other
information under Brazilian securities laws, supplies the Fund with office
space in New York and furnishes clerical services in the United States related
to research, statistical and investment work. The Manager renders to the Fund
administrative services such as preparing reports to, and meeting materials
for, the Fund's Board of Directors and reports and notices to shareholders,
preparing and making filings with the Commission and other regulatory and
self-regulatory organizations including preliminary and definitive proxy
materials and post-effective amendments to the Fund's registration statement,
providing assistance in certain accounting and tax matters and investor public
relations, monitoring the valuation of portfolio securities, calculation of
net asset value and calculation and payment of distributions to shareholders,
and overseeing arrangements with the Fund's Custodian, including the
maintenance of books and records of the Fund. The Manager also pays the
reasonable salaries, fees and expenses of the Fund's officers and employees
and any fees and expenses of the Fund's directors who are directors, officers
or employees of the Manager, except that the Fund bears travel expenses (or an
appropriate portion of those expenses) of directors and officers of the Fund
who are directors, officers or employees of the Manager to the extent that
such expenses relate to attendance at meetings of the Board of Directors or
any committees of or advisers to the Board. Under the Agreement, the Manager
may render similar services to others.
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Under the Agreement, the Fund pays or causes to be paid all of its other
expenses, including, among other things, the following: organization and
certain offering expenses (including out-of-pocket expenses but not overhead
or employee costs of the Manager or of any one or more organizations retained
by the Fund or by the Manager as a Brazilian administrator or adviser of the
Fund); legal expenses; auditing and accounting expenses; telephone, telex,
facsimile, postage and other communications expenses; taxes and governmental
fees; stock exchange listing fees; fees, dues and expenses incurred in
connection with membership in investment company trade organizations; fees and
expenses of the Fund's custodian, subcustodians, transfer agents and
registrars; payment for portfolio pricing or valuation services to pricing
agents, accountants, bankers and other specialists, if any; expenses of
preparing share certificates and other expenses in connection with the
issuance, offering, distribution, sale or underwriting of securities issued by
the Fund; expenses relating to investor and public relations; expenses of
registering or qualifying securities of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the Fund's portfolio
securities; brokerage commissions or other costs of acquiring or disposing of
any portfolio securities of the Fund; expenses of preparing and distributing
reports, notices and dividends to shareholders; expenses of the Dividend
Reinvestment and Cash Purchase Plan (except for brokerage expenses paid by
participants in such Plan); costs of stationery; any litigation expenses; and
costs of shareholders' and other meetings.
For its services, the Manager receives a monthly fee at an annual rate of
1.175% of the Fund's average weekly net assets. The Manager has agreed not to
charge a portion of its fee such that the effective rate with respect to net
assets in excess of $300,000,000 is 1.075%. The Fund's investment advisory
fees are higher than those paid by most U.S. investment companies, primarily
because of the Fund's objective of investing in Brazilian securities, the
additional time and expense required of the Manager in pursuing such objective
and the need to enable the Manager to compensate the Brazilian Adviser for its
services. The Manager pays the Brazilian Adviser a monthly fee at an annual
rate of 0.125% of the Fund's average weekly net assets up to and including
$150,000,000, 0.075% on the next $150,000,000, and 0.025% of such net assets
in excess of $300,000,000. See "The Brazilian Adviser." The Manager may retain
the services of others, in addition to the Brazilian Adviser, but at no
additional cost to the Fund in connection with its services to the Fund.
Under the Investment Advisory, Management and Administration Agreement
between the Fund and the Manager that was in effect prior to July 26, 1995,
the Fund agreed to pay the Manager a monthly fee equal to an annual rate of
1.30% of the first $150,000,000 of average weekly net assets of the Fund,
1.25% of such net assets on the next $150,000,000, and 1.20% of such net
assets in excess of $300,000,000. Under the Investment Advisory and Management
Agreement between the Fund and the Manager that was in effect prior to October
20, 1993, the Fund agreed to pay the Manager a monthly fee equal to an annual
rate of 1.25% of the average weekly net assets of the Fund.
During the fiscal years ended December 31, 1992, 1993 and 1994, the fees
paid to the Manager under the prior Agreements amounted to $2,512,544,
$2,761,128 and $4,371,086, respectively. The amount paid in 1994 reflects a
reduction of $55,048, which the Manager agreed to pass through to the Fund as
a result of the Brazilian Adviser waiving approximately half of its fees under
its prior contract as of November 1, 1994.
Under the Agreement, the Manager is permitted to provide investment advisory
services to other clients, including clients which may invest in Brazilian
securities, and, in providing such services, may use information furnished by
the Brazilian Adviser and others. Conversely, information furnished by others
to the Manager in providing services to other clients may be useful to the
Manager in providing services to the Fund.
The Agreement by its terms will remain in effect for a period of two years
from July 26, 1995, and will continue in effect from year to year thereafter
if such continuance is specifically approved, at least annually, by a vote of
a majority of the members of the Board of Directors who are not interested
persons of the Manager, the Brazilian Adviser or the Fund, cast in person at a
meeting called for the purpose of voting on such approval, and by the
affirmative vote of either a majority of the Board of Directors or holders of
a majority of the Fund's outstanding voting securities. The Agreement may be
terminated at any time without payment of penalty by the Board of Directors,
by vote of holders of a majority of the outstanding voting securities of the
Fund, or by the
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Manager on 60 days' written notice (or such longer period as may be required
under the Regulations). The Agreement automatically terminates in the event of
its assignment (as defined under the 1940 Act), but does not terminate upon
assignment to a corporate successor to all or substantially all of the
Manager's business, or a wholly-owned subsidiary of such corporate successor,
provided that such assignment does not result in a change of actual control or
management of the Manager's business.
The Agreement provides that the Manager is not liable for any act or
omission, error of judgment or mistake of law or for any loss suffered by the
Fund in connection with matters to which the Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part
of the Manager in the performance of its duties or from reckless disregard by
the Manager of its obligations and duties under the Agreement.
THE BRAZILIAN ADVISER
Banco Icatu S.A., whose address is Av. Presidente Wilson, 231 2(degrees)
andar, Rio de Janeiro, Brazil, an investment adviser registered under the
Investment Advisers Act of 1940, acts as Brazilian Adviser to the Manager
pursuant to a Research and Advisory Agreement, dated July 26, 1995, between
the Fund and the Brazilian Adviser (the "Research Agreement"). The Brazilian
Adviser has been in the business of providing investment advisory services
since it was organized in December 1986 under the laws of the Federative
Republic of Brazil. The Brazilian Adviser is a wholly-owned subsidiary of
Icatu Empreendimentos e Participacoes Ltda., Av. Presidente Wilson, 231
2(degrees) andar, Rio de Janeiro, Brazil, whose parent company is Itaborai
Participacoes S.A.
Under the terms of the Research Agreement, the Brazilian Adviser provides
such information, investment recommendations, advice and assistance as the
Manager may, from time to time, reasonably request. The Brazilian Adviser may,
under the terms of the Research Agreement, render similar services to others,
including other investment companies. However, the Brazilian Adviser is
required by the Research Agreement to maintain a separate staff which prepares
and makes specific investment recommendations to the Manager. This information
will be evaluated by the Manager's research department and portfolio managers
in light of their own expertise and information from other sources, in
determining investment decisions for the Fund.
For its services, the Brazilian Adviser receives from the Manager a monthly
fee at the annual rate of 0.125% of the Fund's average weekly net assets up to
and including $150,000,000, 0.075% of such net assets on the next
$150,000,000, and 0.025% of such net assets in excess of $300,000,000. The
Brazilian Adviser has agreed to pay fees and expenses of any officer or
director of the Fund affiliated with it, except that the Fund bears travel
expenses of one director, officer or employee of the Brazilian Adviser or any
of its affiliates who is not a resident in the United States to the extent
that such expenses relate to attendance as a Fund director at meetings of the
Board of Directors in the United States and also bears the travel expenses of
any other director, officer or employee of the Brazilian Adviser or of any of
its affiliates who is a resident in the United States to the extent such
expenses relate to his attendance as a Fund director at meetings of the Board
of Directors held outside of the United States. Under the Research and
Advisory Agreement that was in effect prior to July 26, 1995, the Fund agreed
to pay the Brazilian Adviser a monthly fee equal to an annual rate of 0.25% of
the Fund's average weekly net assets up to and including $150 million, 0.15%
of such net assets on the next $150 million, and 0.05% of such net assets in
excess of $300 million. For the fiscal years ended December 31, 1992, 1993 and
1994, the aggregate fees incurred by the Manager for the services of the
Brazilian Adviser under the Research Agreement amounted to $476,503, $502,028
and $562,796, respectively. The fees incurred in 1994 reflect a reduction of
$55,048 as a result of the Brazilian Adviser waiving approximately half its
fees under its prior contract as of November 1, 1994.
The Research Agreement provides that the Brazilian Adviser will not be
liable for any act or omission in the course of, connected with or arising out
of any services rendered under the Research Agreement except by reason of
willful misfeasance, bad faith or gross negligence on the part of the
Brazilian Adviser in the performance of its duties or from reckless disregard
by the Brazilian Adviser of its obligations and duties under the Research
Agreement.
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Because the Brazilian Adviser is a Brazilian corporation having
substantially all of its assets outside of the United States, it may be
difficult for United States investors to effect service of process upon the
Brazilian Adviser within the United States or to realize judgments of courts
of the United States based upon civil liabilities of the Brazilian Adviser
under the federal securities laws and other laws of the United States. There
is substantial doubt as to the enforceability in Brazil of such civil remedies
and criminal penalties as are afforded by the federal securities laws in the
United States.
The Research Agreement by its terms will remain in effect for a period of
two years from July 26, 1995, and will continue in effect from year to year
thereafter if such continuance is specifically approved at least annually by
the affirmative vote of a majority of the members of the Board of Directors
who are not interested persons of the Fund, the Manager or the Brazilian
Adviser, cast in person at a meeting called for the purpose of voting on such
approval, and by the affirmative vote of either a majority of the Board of
Directors or the holders of a majority of the outstanding voting securities.
The Research Agreement may be terminated at any time without payment of
penalty by the Fund or the Brazilian Adviser on 60 days' written notice (or
such longer period as may be required under the Regulations). The Research
Agreement automatically terminates in the event of the termination of the
Fund's Agreement with the Manager or in the event the Research Agreement is
assigned (as defined under the 1940 Act).
THE BRAZILIAN ADMINISTRATOR
Under the Administration Agreement, dated April 30, 1992, between the
Brazilian Administrator, the Fund and the Manager, the Brazilian Administrator
has agreed to furnish to the Fund and to the Manager such administrative
services and assistance as are required to be furnished by a Brazilian
administrator pursuant to the Regulations and as the Manager, on the Fund's
behalf, may reasonably request, including effecting the registration of the
Fund's foreign capital with the Central Bank, processing remittances of
earnings, capital gains and the return of invested capital, paying the
applicable withholding tax on remittances abroad by the Fund, filing
statements as to the Fund's Portfolio and remittances, and handling the
bookkeeping for the Fund's Portfolio in Brazil.
As compensation for its services under the Administration Agreement, the
Brazilian Administrator is paid by the Fund a quarterly fee in Brazilian
currency equal to approximately $50,000 per year, plus out-of-pocket expenses.
Under the Administration Agreement, the Brazilian Administrator will not be
liable for any act or omission in the course of, connected with or arising out
of any services rendered by it under the agreement, except by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or reckless disregard of its obligations and duties under the
Administration Agreement.
The Administration Agreement by its terms continues in effect, if such
continuance is specifically approved at least annually by the affirmative vote
of the Fund's Board of Directors. The Administration Agreement may be
terminated at any time, without penalty, by the Manager, by the Fund's Board
of Directors or by vote of the holders of a majority of the outstanding voting
securities of the Fund, upon 60 days' written notice, or by the Brazilian
Administrator, but only after written notice to the Fund, the Manager and the
Brazilian Securities Commission of not less than 60 days (or such longer
period as may be required under the Regulations). The Regulations currently
require six months' notice. The Administration Agreement automatically
terminates in the event of its assignment (as defined under the 1940 Act) or
the termination of the Agreement between the Fund and the Manager.
The Regulations reserve to the Brazilian Securities Commission the right to
cancel the authorization of, and approve any successor to, the Brazilian
Administrator. They also provide that, should the authorization to render
services to the Fund be so cancelled, the Manager must apply to the Brazilian
Securities Commission within 15 business days after communication of the
decision to cancel, for authorization to replace the Brazilian Administrator.
Under the Regulations, in such a case, the Brazilian Administrator is obliged
to continue to perform its functions until it is actually replaced.
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DIVIDENDS AND DISTRIBUTIONS; DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Fund intends to distribute to shareholders, at least annually,
substantially all of its net investment income and expects to distribute at
least annually any net long-term capital gains in excess of net short-term
capital losses (including any capital loss carryover). Net investment income
includes dividends, interest and any net short-term capital gains in excess of
net long-term capital losses (including any capital loss carryover), net of
expenses. See "Taxation--United States Federal Income Taxes" in the SAI. The
Fund has declared a dividend payable on November 1, 1995, to shareholders of
record as of October 23, 1995, of $.16 per share from undistributed net
investment income and $.81 per share from undistributed net long-term capital
gains. This distribution represents, as of October 31, 1995, substantially all
of the Fund's (i) undistributed net investment income, less expenses
anticipated through the end of the Fund's fiscal year on December 31, 1995,
and (ii) undistributed net realized long-term capital gains. The distribution
will, in general, be taxable to shareholders. The Fund has also declared a
dividend payable on January 16, 1996 to shareholders of record as of December
29, 1995 of all of its then undistributed net investment income as of December
31, 1995; the dividend will, in general, be taxable to shareholders, including
holders as of the record date of Shares acquired upon exercise of Rights. The
Fund estimates that this dividend will be in the range of $.10 to $.15 per
share (assuming that all of the Rights are exercised). See "Taxation--U.S.
Taxation" in this Prospectus and "Taxation--United States Federal Income
Taxes--General,"--"Distributions" and--"Non-U.S. Shareholders" in the SAI. As
of October 31, 1995, there was approximately $160 million of net unrealized
appreciation in the Fund's net assets of approximately $284 million; if
realized and distributed, or deemed distributed, such gains would, in general,
be taxable to shareholders, including holders at that time of Shares acquired
upon the exercise of the Rights. See "Taxation" in this Prospectus and
"Taxation--United States Federal Income Taxes--General," "--Distributions" and
"--Non-U.S. Shareholders" in the SAI.
Pursuant to the Plan, each shareholder will be deemed to have elected,
unless The First National Bank of Boston, the Plan Agent, is otherwise
instructed in writing, to have all distributions, net of any applicable U.S.
withholding tax, automatically reinvested by the Plan Agent in Fund shares
pursuant to the Plan. Shareholders who elect not to participate in the Plan
will receive all distributions, net of any applicable U.S. withholding tax, in
cash paid by check in Dollars mailed directly to the shareholder by The First
National Bank of Boston, as dividend paying agent. Participants in the Plan
may terminate their accounts under the Plan by written notice to the Plan
Agent. If such notice is received by the Plan Agent not less than ten days
prior to any dividend or distribution record date, the termination will be
effective immediately; otherwise, such termination will be effective on the
first trading day after the payment date of such dividend or distribution. In
the case of shareholders such as banks, brokers or nominees, which hold shares
for others who are the beneficial owners, the Plan Agent will administer the
Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the shareholder's
name and held for the account of beneficial owners who are to participate in
the Plan. A beneficial owner of shares registered in the name of a bank,
broker or other nominee should consult with such nominee as to participation
in the Plan through such nominee.
The Plan Agent serves as agent for the shareholders in administering the
Plan. If the directors of the Fund declare an income dividend or a capital
gains distribution payable either in the Fund's Common Stock or in cash, as
shareholders may have elected, non-participants in the Plan will receive cash
and participants in the Plan will receive Common Stock to be issued by the
Fund. If the market price per share on the valuation date equals or exceeds
net asset value per share on that date, the Fund will issue new shares to
participants at net asset value; provided, however, if the net asset value is
less than 95% of the market price on the valuation date, then the Fund will
issue new shares to participants at 95% of the market price. The valuation
date will be the dividend or distribution payment date or, if that date is not
a NYSE trading day, the next preceding trading day. If net asset value exceeds
the market price of Fund shares at such time, participants in the Plan will be
deemed to have elected to receive shares of stock from the Fund, valued at
market price on the valuation date. Participants reinvesting distributions in
additional shares should be treated for U.S. Federal income tax purposes as
receiving a distribution in an amount equal to the fair market value,
determined as of the payment date, of the shares received (regardless of the
net asset value of the shares on the payment date), and should have a cost
basis in
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such shares equal to such fair market value. If the Fund should declare an
income dividend or capital gains distribution payable only in cash, the Plan
Agent will, as agent for the participants, buy Fund shares in the open market,
on the NYSE or elsewhere, for the participants' account on, or shortly after,
the payment date.
Participants in the Plan have the option of making additional cash payments
to the Plan Agent, semi-annually, in any amount from $100 to $3,000, for
investment in the Fund's Common Stock. The Plan Agent will use all such funds
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15. Any voluntary cash payments received more
than thirty days prior to these dates will be returned by the Plan Agent, and
interest will not be paid on any uninvested cash payments. To avoid
unnecessary cash accumulations, and also to allow ample time for receipt and
processing by the Plan Agent, it is suggested that participants send in
voluntary cash payments to be received by the Plan Agent approximately ten
days before February 15 or August 15, as the case may be. A participant may
withdraw a voluntary cash payment by written notice, if the notice is received
by the Plan Agent not less than 48 hours before such payment is to be
invested.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmation of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in non-certificated form
in the name of the participant, and each shareholder's proxy will include
those shares purchased pursuant to the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions. The Plan Agent's fees for the handling of the
reinvestment of dividends and capital gains distributions will be paid by the
Fund. There will be no brokerage charges with respect to shares issued
directly by the Fund as a result of dividends or capital gains distributions
payable either in stock or in cash. However, each participant will pay a pro
rata share of brokerage commissions incurred with respect to the Plan Agent's
open market purchases in connection with voluntary cash payments made by the
participant or reinvestment of any dividends or capital gains distributions
payable only in cash.
With respect to purchases from voluntary cash payments, the Plan Agent will
charge $1.00 for each such purchase for a participant, plus a pro rata share
of the brokerage commissions. Brokerage charges for purchasing small amounts
of stock for individual accounts through the Plan are expected to be less than
the usual brokerage charges for such transactions, because the Plan Agent will
be purchasing stock for all participants in blocks and prorating the lower
commission thus attainable.
The receipt of dividends and distributions under the Plan will not relieve
participants of any income tax (including withholding tax) which may be
payable on such dividends or distributions. See "Taxation--United States
Federal Income Taxes" in the SAI.
Experience under the Plan may indicate that changes are desirable.
Accordingly, the Fund and the Plan Agent reserve the right to terminate the
Plan as applied to any voluntary cash payments made and any dividend or
distribution paid subsequent to notice of the termination sent to the members
of the Plan, in the case of a dividend or distribution, at least 30 days
before the record date for such dividend or distribution. The Plan also may be
amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable laws, rules or policies of a regulatory
authority) only by at least 30 days' written notice to participants in the
Plan. Additional information about the Plan may be obtained from the Plan
Agent, The First National Bank of Boston, Mail Stop 45-02-09, P.O. Box 644,
Boston, MA 02102-0644, telephone number (617) 575-2900.
TAXATION
For a discussion of U.S. Federal income tax consequences and Brazilian tax
consequences to Record Date Shareholders and Rights Holders with respect to
the Offer, see "The Offer--U.S. Federal Income Tax Consequences; Brazilian Tax
Consequences" above. For a discussion of certain other U.S. and Brazilian tax
matters applicable to the Fund and its shareholders, see "Taxation" in the
SAI. Shareholders should consult their tax advisers concerning their own
particular situations, including the potential application of state, local and
non-U.S. taxes to their ownership and disposition of shares of the Fund.
47
<PAGE>
U.S. TAXATION
The Fund has qualified and intends to continue to qualify to be treated as a
regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the test for such status. The Fund
intends to distribute to its shareholders each year all of its net investment
income as computed for U.S. Federal income tax purposes. Such distributions
will, in general, be taxable to shareholders. Shareholders not subject to tax
on their income will not be required to pay tax on amounts distributed to
them. The Fund will inform shareholders of the amount and nature of
distributions made by the Fund.
The Board of Directors will determine each year whether to distribute any
net long-term capital gains in excess of any net short-term capital losses
(including in such losses any capital loss carryovers from prior years) as
computed for U.S. Federal income tax purposes. The Fund presently expects to
distribute such excess to its shareholders each year.
Dividend distributions paid out of the Fund's net investment income
(including short-term capital gains) will be taxable to a U.S. shareholder as
ordinary income, whether received in cash or reinvested in shares. Dividends
paid by the Fund will not qualify for the deduction (currently 70%) for
dividends received by corporations because the Fund's income is not expected
to consist of dividends paid by U.S. corporations. Distributions of net long-
term capital gains (i.e., capital gains from securities held for more than one
year), if any, are taxable as long-term capital gains, whether received in
cash or reinvested in shares, regardless of how long the shareholder has held
the Fund's shares and are not eligible for the dividends-received deduction.
As of October 31, 1995, there was approximately $160 million of net unrealized
appreciation in the Fund's net assets of approximately $284 million; if
realized and distributed, or deemed distributed, such gains would, in general,
be taxable to shareholders, including holders at that time of Shares acquired
upon the exercise of the Rights. See "Taxation--United States Federal Income
Taxes--General," "--Distributions" and "--Non-U.S. Shareholders" in the SAI.
Dividends of net investment income and distributions of net long-term capital
gains paid by the Fund that (i) are declared in October, November or December,
(ii) are payable to holders of record as of a date in such a month, and (iii)
are paid during the following January, will be treated by shareholders as if
received on December 31 of the calendar year in which declared. See "Dividends
and Distributions; Dividend Reinvestment and Cash Purchase Plan" for a
description of dividends declared by the Fund for payment on November 1, 1995
and January 16, 1996.
The Fund has adopted a Dividend Reinvestment and Cash Purchase Plan.
Shareholders are deemed to have elected to participate in the Plan unless the
Plan Agent is otherwise instructed in writing. Participants in the Plan will
receive dividend and capital gain distributions in shares of the Fund, rather
than in cash, if the Fund's Board of Directors declares that payment may be
made in shares of the Fund or in cash. The Fund contemplates that
distributions will ordinarily be payable in shares or cash. See "Dividends and
Distributions; Dividend Reinvestment and Cash Purchase Plan."
Shareholders reinvesting distributions in additional shares through
participation in the Plan should be treated for U.S. Federal income tax
purposes as receiving a distribution in an amount equal to the fair market
value, determined as of the distribution date, of the shares received (whether
the fair market value is less than or greater than the net asset value of the
shares on the distribution date), and should have a cost basis in such shares
equal to such fair market value.
The Fund expects to be eligible to elect, and will notify shareholders if it
so elects, to "pass-through" to the Fund's shareholders the amount of
Brazilian withholding taxes imposed on dividends and interest. If the Fund
makes such an election, shareholders will be required to include in income
their proportionate shares of such amount. U.S. shareholders may be entitled
to claim a credit or deduction for all or a portion of such amount. However,
non-U.S. shareholders may not be able to claim a credit or deduction with
respect to such amount.
The Fund may be required to withhold for U.S. Federal income tax purposes
31% of all distributions payable to shareholders (not otherwise exempt for
such withholding) who fail to provide the Fund with their correct taxpayer
identification number or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding.
48
<PAGE>
BRAZILIAN TAXATION
The Fund will be subject to Brazilian withholding taxes on interest (at a
rate of 10%) and dividends (at a rate of 15%). See "Taxation--Brazilian Taxes"
in the SAI. Capital gains earned by the Fund from its activities in Brazil are
currently exempt from income tax. However, the Brazilian Government has
introduced a bill in the Brazilian Congress which included a proposal whereby
the capital gains realized by Managed Portfolios (such as the Fund) would be
subject to income tax at the following rates: (i) 5%, when earned in the 1996
calendar year; (ii) 10%, when earned in the 1997 calendar year; and (iii) 15%,
when earned from the 1998 calendar year onward. A more recent proposal would
provide an exemption from such taxes for investments with a term of 180 days
or more. Following discussions, the Government agreed to withdraw its original
proposal. No guarantee can be given that capital gains earned by the Fund will
remain exempt from income tax in the future.
COMMON STOCK
The authorized capital stock of the Fund is 50,000,000 shares of Common
Stock ($.01 par value), of which 12,146,285 shares were issued and outstanding
as of October 31, 1995. Shares of the Fund, when issued, are fully paid and
nonassessable. All shares are equal as to earnings, assets and voting
privileges. There are no conversion, preemptive or other subscription rights.
In the event of liquidation, each share of Common Stock is entitled to its
proportion of the Fund's assets after debts and expenses. There are no
cumulative voting rights for the election of directors.
The Fund has no present intention of offering additional shares beyond the
Offer contemplated by this Prospectus, except that additional shares may be
issued under the Dividend Reinvestment and Cash Purchase Plan. See "Dividends
and Distributions; Dividend Reinvestment and Cash Purchase Plan." Other
offerings of its shares, if made, will require approval of the Fund's Board of
Directors and of the Brazilian Securities Commission. Any additional offering
will be subject to the requirements of the 1940 Act that shares may not be
sold at a price below the then current net asset value (exclusive of
underwriting discounts and commissions) except in connection with an offering
to existing shareholders or with the consent of a majority of the Fund's
outstanding shares.
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and By-Laws that
could have the effect of limiting the ability of other entities or persons to
acquire control of the Fund, to cause it to engage in certain transactions or
to modify its structure. The Board of Directors is divided into three classes.
At the annual meeting of stockholders in each year, the term of one class
expires and directors will be elected to serve in that class for terms of
three years. This provision could delay for up to two years the replacement of
a majority of the Board of Directors. A director may be removed from office
only by a vote of the holders of at least 75% of the shares of the Fund
entitled to be voted on the matter.
As noted above under "Net Asset Value," the conversion of the Fund from a
closed-end to an open-end investment company is currently not permitted under
Brazilian law. If it were permitted, such conversion would require the
affirmative vote of 75% of the directors to authorize such conversion. The
conversion also requires the affirmative vote or consent of the holders of 75%
of the shares of the Fund unless it is approved by a vote of 75% of the
Continuing Directors, in which event such conversion requires the approval of
the holders of a majority of the outstanding shares of the Fund. Even if the
Fund were to be converted into an open-end investment company, it could be
restricted in its ability to redeem its shares (otherwise than in kind)
because of Brazilian restrictions on repatriation of the Fund's capital. See
"Foreign Investment and Exchange Controls in Brazil."
The affirmative votes of 75% of the directors and the holders of 75% of the
shares of the Fund are required to authorize any of the following
transactions:
(i) merger or consolidation of the Fund with or into any other
corporation;
(ii) issuance or transfer of any securities of the Fund to any person or
entity for cash, securities or other property (or combination thereof)
having an aggregate fair market value of $1,000,000 or more
49
<PAGE>
excluding sales of securities in connection with a public offering and
securities issued pursuant to a dividend reinvestment plan adopted by the
Fund or upon the exercise of any stock subscription rights distributed by
the Fund;
(iii) sale, lease, exchange or other disposition to or with any entity or
person of any assets of the Fund having an aggregate fair market value of
$1,000,000 or more except for portfolio transactions effected by the Fund
in the ordinary course of its business.
However, this shareholder vote or consent will not be required with respect
to the foregoing transactions if they are approved by a vote of 75% of the
Continuing Directors or if certain conditions regarding the consideration paid
by such corporation, person or entity are satisfied.
Reference is made to the Articles of Incorporation and By-Laws of the Fund,
on file with the Commission, for the full text of these provisions. See
"Further Information." These provisions could have the effect of depriving
shareholders of an opportunity to sell their shares at a premium over
prevailing market prices by discouraging a third party from seeking to obtain
control of the Fund in a tender offer or similar transaction. The Board of
Directors has determined that the foregoing voting requirements, which are
generally greater than the minimum requirements under Maryland law and the
1940 Act, are in the best interests of shareholders generally.
DIVIDEND PAYING AGENT, TRANSFER AGENT AND REGISTRAR
The First National Bank of Boston, 100 Federal Street, Boston, Massachusetts
02110, is the Fund's dividend paying agent and is the transfer agent and
registrar for the Fund's Common Stock.
CUSTODIAN
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109,
is Custodian for the Fund. The Fund's portfolio securities, when invested in
Real-denominated securities, and cash and cash equivalents, when held in
Brazil, are held at the Rio de Janeiro and Sao Paulo branches of The First
National Bank of Boston, acting as Subcustodian.
OFFICIAL DOCUMENTS
All of the documents, except Brazilian company annual reports, referred to
herein as the source of statistical information are public official documents
of the Federative Republic of Brazil, its Ministries, the Central Bank of
Brazil, the Brazilian Securities Commission or the Stock Exchanges.
EXPERTS
The financial statements of the Fund included in the SAI have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm, as experts in auditing and
accounting.
VALIDITY OF THE SHARES
The validity of the shares offered hereby will be passed on for the Fund by
Debevoise & Plimpton, New York, New York, and for the Dealer Manager by
Sullivan & Cromwell, New York, New York. Matters of Brazilian law will be
passed on for the Fund and for the Dealer Manager by Pinheiro Neto-Advogados,
Sao Paulo, Brazil.
FURTHER INFORMATION
Further information concerning the Fund and the Fund's Common Stock may be
found in the Registration Statement of which this Prospectus constitutes a
part on file with the Securities and Exchange Commission.
50
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions.................................................... 2
Certain Investment Practices............................................... 4
Directors and Officers..................................................... 6
Net Asset Value............................................................ 9
Taxation................................................................... 10
Portfolio Transactions and Brokerage....................................... 16
Financial Statements....................................................... F-1
Report of Independent Accountants.......................................... F-2
Report of Independent Accountants.......................................... F-13
</TABLE>
51
<PAGE>
ANNEX A
THE FEDERATIVE REPUBLIC OF BRAZIL
The information in this Annex, except for certain updated information (the
sources for which are indicated) and information concerning Brazilian
corporate taxation, has been extracted from the Offering Circular of the
Federative Republic of Brazil ("Brazil"), dated July 20, 1995, distributed in
connection with the offering of Brazil's DM1,000,000,000 9% Notes due 1997.
Information presenting historical data has not been updated, except where
otherwise noted. This Annex is general and summary in nature and is provided
for illustrative purposes only. It does not purport to be an authoritative
political or economic analysis. Furthermore, Brazil's macroeconomic indicators
are not reviewed by the International Monetary Fund. The Government of Brazil
and the Central Bank of Brazil are the sole providers of authoritative
macroeconomic indicators. Brazil's macroeconomic indicators are not released
with the same timeliness and completeness as those of many other countries.
None of the Manager, the Brazilian Adviser, the Brazilian Administrator or the
Dealer Manager has verified the information nor makes any representation as to
its accuracy.
GENERAL INFORMATION
General. Brazil, the fifth largest country in the world, occupies nearly
half the land area of South America and shares a border with every country in
South America except Chile and Ecuador. The official language is Portuguese.
Brazil's population, estimated at December 31, 1994 to be 153.7 million, is
the sixth largest in the world, and, growing at a rate of 1.4% per year, is
expected to reach 163 million by the end of the century. The largest cities in
Brazil are Sao Paulo and Rio de Janeiro, with populations of 9.8 million and
5.5 million, respectively.
Politics and Governmental Organization. From 1964 to 1985, Brazil was
governed by military governments. Brazil's current Constitution was adopted in
October 1988. In December 1989, the country elected a President in the first
direct presidential election since 1960. The Constitution also provided for a
plebiscite in April 1993 in which voters were permitted to consider
alternative systems of government, including a return to monarchy; in that
plebiscite, the Brazilian electorate voted overwhelmingly to maintain the
presidential system of government.
Brazil is a federative republic with broad powers granted to the federal
Government, which is made up of three independent branches: an executive
branch headed by the President; a legislative branch consisting of the
bicameral National Congress; and a judicial branch consisting of the Federal
Supreme Court and lower federal and State courts. The President is elected by
direct vote to serve a four-year term. The President cannot be re-elected. The
President's powers include the right to appoint ministers and key executives
in selected administrative and political posts. The President may issue
provisional measures (medidas provisorias) that can be enforced for a maximum
of 30 days; they remain in force thereafter only if approved by the
legislature within such 30-day period. The prevailing legal view is that the
President may re-issue provisional measures not previously rejected by
Congress. Under the Constitution, certain legislation submitted by the
President must be voted upon by the Congress within 90 days.
The National Congress is composed of the Senate and the Chamber of Deputies,
both of which must approve any statute before it is enacted. The Senate is
composed of 81 senators, each elected for staggered eight-year terms, and the
Chamber of Deputies has 513 deputies, each elected for concurrent four-year
terms. The number of Deputies is based on a proportional representation system
weighted in favor of the less populated States which, as the population
increases in the larger States, assures the smaller States an important role
in the Congress. Currently, twenty different political parties are represented
in the Senate and Chamber of Deputies. As of April 26, 1995, the most
represented party in the Congress, the Partido de Movimento Democratico
Brasileiro (the "PMDB"), held 22 seats in the Senate and 105 seats in the
Chamber of Deputies.
Brazil's current President, Fernando Henrique Cardoso, assumed office on
January 1, 1995 after winning the presidential election with 54.3% of the
total valid votes. President Cardoso's stated program is to provide continuity
to the stabilization program known as the Plano Real by attempting to
implement the structural
A-1
<PAGE>
reforms required to provide long-term fiscal stability and sustainable
economic growth. See "The Economy--The Plano Real." As of April 26, 1995,
President Cardoso's party, the Partido de Social Democracia Brasileira (the
"PSDB"), held 10 seats in the Senate and 64 in the Chamber of Deputies, and
was the third most represented party in the Congress. President Cardoso has
had the cooperation of a coalition of the PSDB and two other parties, neither
of which is the PMDB.
Foreign Relations. Brazil maintains diplomatic and trade relations with
almost every nation in the world and is a member of the International Monetary
Fund (the "IMF"), the World Bank, the General Agreement on Tariffs and Trade
("GATT") and the World Trade Organization.
Regionally, Brazil participates in the Organization of American States (the
"OAS") and in several sub-regional organizations under the OAS. In March 1991,
Brazil, Argentina, Paraguay and Uruguay formally established the Mercado Comum
do Sul ("Mercosul"), a common market organization. See "Balance of Payments
and Foreign Trade--Foreign Trade."
THE ECONOMY
Selected Economic Data. The following table sets forth selected economic
data relating to Brazil for the indicated periods:
SELECTED BRAZILIAN ECONOMIC INDICATORS
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C>
THE ECONOMY
Gross Domestic Product :
(in bil. of 1994 Reais)........... 329.9 330.7 328.2 341.7 361.1
(in bil. of Dollars)(1)........... 417.1 436.8 449.9 484.9 531.0
Real GDP Growth (decline)(2)........ (4.4)% 0.2% (0.8)% 4.1% 5.7%
Population (mil.)................... 144.7 147.1 149.4 151.6 153.7
GDP Per Capita (in U.S.$)(3)........ 2,882 2,970 3,012 3,199 3,452
Unemployment Rate(4)................ 4.28% 4.83% 5.76% 5.31% 5.06%
General Price Index--Domestic Supply
(% change)(5)...................... 1,476.6% 480.2% 1,158.0% 2,708.6% 1,094.0%
Exchange Rate Adjustment(6)......... 1,397.3% 528.5% 1,059.0% 2,532.5% 613.4%
Exports (in bil. of Dollars)(7)..... 31.4 31.6 35.8 38.6 43.5
Imports (in bil. of Dollars)(7)..... 20.7 21.0 20.6 25.5 33.1
Trade Balance (in bil. of Dollars).. 10.8 10.6 15.2 13.1 10.4
Current Account..................... (3.8) (1.4) 6.1 (0.6) (1.5)
</TABLE>
- --------
(1) Converted to Dollars based on the weighted average exchange rate for each
year.
(2) Calculated based upon constant average 1994 Reais.
(3) Not adjusted for purchasing power parity.
(4) Average annual unemployment rate of the metropolitan regions of Belo
Horizonte, Porto Alegre, Recife, Rio de Janeiro, Salvador and Sao Paulo.
(5) The General Price Index--Domestic Supply ("GPI-DS") is one indicator of
inflation. While many inflation indicators are used in Brazil, the GPI-DS,
calculated by the Getulio Vargas Foundation, an independent research
organization, is one of the most widely utilized indexes.
(6) Year on year percentage appreciation of the Dollar against the Real.
(7) The preliminary export and import figures for 1993 available at December
31, 1994 that appear in this table are the figures that Brazil continues
to use for the purposes of its balance of payments calculations. However,
the revised figures for 1993 show U.S.$ 38.6 billion and U.S.$ 25.5
billion, respectively.
Sources: Fundacao Instituto Brasileiro de Geografia e Estatistica ("IBGE");
Getulio Vargas Foundation; Central Bank
A-2
<PAGE>
Historical Background. From the late 1960's through 1982, Brazil pursued an
import-substitution, high-growth development strategy financed, in large part,
by heavy recourse to foreign borrowings. Foreign debt grew at an accelerated
pace partly in response to the oil shocks of the 1970's, international
interest rates rose sharply in 1979-80 and the resulting accumulated external
debt became one of Brazil's most pressing problems in the decade that
followed. See "Public Debt." The debt crisis of the 1980's and high inflation
substantially depressed real growth in Brazil's gross domestic product
("GDP"), which, according to data reported by the Central Bank, averaged 1.6%
per year from 1980 to 1990. During this period, the public sector's role in
the economy also expanded markedly, with many key economic sectors subject to
Government monopoly or subsidized participation, and significant structural
distortions were introduced through high tariffs and the creation of subsidies
and tax credit incentives. Significant increases in the money supply to
finance a large and growing fiscal deficit further fueled inflationary
pressures, and Brazil experienced high and chronic inflation. See "The
Economy--Prices." Also during this period, indexation of prices became
widespread. Various price indexes were used, each with its own methodology,
based on different baskets of goods or services, such as salaries, rents,
taxes and financial instruments. The practice of widespread indexation in
Brazil diminished the distorting impact of inflation on relative prices, but
also served to sustain and fuel inflationary expectations.
Efforts to address these problems during the late 1980's and early 1990's
were largely unsuccessful. High inflation and the recurrent threat of
hyperinflation during this period prompted the Government to pursue a series
of stabilization plans, but these plans were undermined by a variety of
factors, including political difficulty in implementing planned fiscal
adjustments and the slowness of institutional reforms. The practice of
indexation in the economy also helped to undermine the stabilization measures.
Moreover, these attempts at stabilization relied on mechanisms, such as price
and wage freezes and/or unilateral modifications of the terms of financial
contracts, that were not supported by fiscal and monetary reform. A central
problem during this period was the public sector, which ran operational
deficits averaging more than 5% of GDP during the five-year period from 1985
to 1989, while monetary policy was compromised by the short-term refinancing
of public sector debt. In addition, the 1988 Constitution reallocated public
resources, in particular tax revenues, from the federal Government to the
States and municipalities without a proportional shift of responsibilities to
them, thereby further constraining the effectiveness of the federal
Government's fiscal policy. The ability of the federal Government to dismiss
public sector employees was also limited.
The Plano Real. In December 1993, the Government announced the Plano Real,
aimed at curtailing inflation and building a foundation for sustained economic
growth. President Cardoso, who was Finance Minister at the time, is
acknowledged as the architect of the Plano Real. The Plano Real has utilized
traditional monetary and fiscal means to decrease the money supply and dampen
domestic demand, as well as other initiatives designed to address persistent
deficits in the Government's accounts and backward-looking indexation.
In a fiscal adjustment proposal for 1994, the Government proposed spending
cuts and an increase in tax rates and collections intended to eliminate a
budget deficit originally projected at $22.0 billion. Key elements of the
proposal included (i) cuts in current expenditures and investment through the
transfer of some activities from the federal Government to the States and
municipalities, (ii) a prohibition on sales of public bonds by the Government,
except to refinance existing debt and for certain expenditures and investment,
(iii) new taxes, including a new levy on financial transactions, (iv) recovery
of mandatory Social Security Financing Contributions ("COFINS"), due to
judicial acknowledgement that such contributions were permissible under the
Constitution, and (v) establishment of the Emergency Social Fund ("ESF"),
financed by reductions in constitutionally mandated transfers of federal
Government revenues to the States and municipalities, to provide financing of
social welfare spending by the federal Government. Pursuant to the
constitutional amendment that created the ESF, 20% of Government revenues
otherwise earmarked for specific purposes were released and deposited into the
ESF to ensure financing of social welfare spending by the federal Government
for 1994 and 1995. In adopting this constitutional amendment, however,
Congress did not modify the existing constitutional provisions requiring the
federal Government to share a significant portion of its revenues with States
and municipalities.
A-3
<PAGE>
The Government addressed the problem of indexation in March 1, 1994 by
establishing the Unidade Real de Valor (the Unit of Real Value, or "URV") as a
unit of account. Whereas other financial indexes used at the time were
generally adjusted for inflation on a monthly basis, the URV was adjusted
daily. The introduction of the URV was premised on the theory that a reference
unit with a nominal value corrected frequently and based on the best available
estimate of current inflation would express values more realistically than
traditional indexing methods.
On July 1, 1994, the Government introduced the Real as Brazil's currency. At
that time, the Cruzeiro Real, then worth one URV, was replaced with the Real
at an exchange rate of CR$ 2,750 to R$ 1.00. All contracts denominated in URVs
were automatically converted into Reais at a conversion rate of one to one,
and the URV, together with the Cruzeiro Real, ceased to exist. At the same
time the Government and the Central Bank took a number of steps to control
monetary aggregates through the regulation of credit and the flow of capital
into Brazil. The maturity of consumer credit extended by financial
institutions was restricted to 90 days, reserve requirements were imposed or
increased on different transactions, and other credit restructuring measures
were adopted. Subsequently, in support of the Plano Real, the Government has
also implemented certain other fiscal measures, undertaken efforts to reduce
the public sector's involvement in the economy and implemented a new exchange
rate policy that permits market participants (including the Central Bank) to
set exchange rates for the Real. See "Foreign Exchange" and "The Economy--
State-Controlled Enterprises."
The Plano Real has succeeded in lowering inflation from a monthly rate of
46.6% in June 1994 to -1.08% in September 1995. During the first nine months
of 1995, average monthly inflation was 1.34% and inflation on an annualized
basis was 17.3%. See "The Economy--Prices." The Real has experienced greater
stability against foreign currencies than have previous Brazilian currencies.
Whereas prior Brazilian currencies tended to be devalued in relation to the
Dollar, the Real appreciated from parity with the Dollar on its introduction
to R$ 0.846/US$ 1.00 on December 1, 1994, due largely to the fact that in
Brazil real interest rates were significantly higher than those outside
Brazil. Following a series of adjustments intended to control the flow of
capital into Brazil, at September 30, 1995, the Real-Dollar exchange rate was
R$ 0.954/US$ 1.00. See "Foreign Investment" and "Foreign Exchange."
The continued success of the Plano Real depends on the ability of the
Government to maintain fiscal restraint and a tight monetary policy in the
face of both domestic and international economic pressures as well as on the
ability of the Government to implement longer-term structural reforms, such as
reform of the tax and social security systems, transfer of certain federal
spending responsibilities to State governments and privatization of major
enterprises, some of which reforms require constitutional amendments to be
implemented. See "The Economy--State-Controlled Enterprises."
Gross Domestic Product. Brazil experienced significant rates of growth
during the period from 1968 to 1973; growth in real GDP during that period
averaged over 11% per year and is often referred to as Brazil's "economic
miracle." From 1974 to 1980, the real GDP growth rate declined, but still
averaged over 7% per year. The 1980's, by contrast, were a period of generally
high inflation, low growth and continuing large budget deficits, as the
external debt crisis gave rise to a set of significant economic problems from
which the country has yet to emerge fully. See "The Economy--Historical
Background."
Brazil's economic growth has fluctuated greatly in recent years. The average
real growth rate of GDP during the five-year period from 1990 to 1994 was
1.0%, but real GDP was negative in both 1990, when it declined 4.4%, and 1992,
when it declined 0.8%. During 1993 and 1994, the Brazilian economy recovered
and real GDP grew by 4.1% and 5.7%, respectively. GDP grew by 10.4% during the
first quarter of 1995 and 8.0% in the first half of 1995, as compared with the
same periods in the prior year, and has continued to slow further as
restrictive Government policies have begun to take hold.
A-4
<PAGE>
Prices. The following table sets forth inflation in Brazil for the periods
indicated.
GENERAL PRICE INDEX DOMESTIC SUPPLY (GPI-DS)(1)
<TABLE>
<CAPTION>
GPI-DS
-------------------
TRAILING 12
PERIOD MONTHLY MONTHS
------ ------- -----------
<C> <S> <C> <C>
1980 December............................................. 110%
1981 December............................................. 95
1982 December............................................. 100
1983 December............................................. 211
1984 December............................................. 224
1985 December............................................. 235
1986 December............................................. 65
1987 December............................................. 416
1988 December............................................. 1,038
1989 December............................................. 1,783
1990 December............................................. 1,477
1991 December............................................. 480
1992 December............................................. 1,158
1993 December............................................. 2,709
1994 January.............................................. 42.19% 3,002(2)
February............................................. 42.41 3,392
March................................................ 44.83 3,857
April................................................ 42.46 4,297
May.................................................. 40.95 4,585
June................................................. 46.58 5,154
July(3)................................................ 24.71 4,865
August............................................... 3.34 3,742
September............................................ 1.55 2,748
October.............................................. 2.55 2,061
November............................................. 2.47 1,517
December............................................. 0.57 1,094
1995 January.............................................. 1.36 751
February............................................. 1.15 504
March................................................ 1.81 325
April................................................ 2.30 205
May.................................................. 0.40 117
June................................................. 2.62 52
July................................................. 2.24 25
August............................................... 1.29 22
September............................................ -1.08 19
</TABLE>
- --------
(1) GPI-DS is an index based on a weighting of three other indices: WPI-DS
(60%), the Consumer Price Index ("CPI") (30%), and the National Civil
Construction Index ("NCCI") (10%).
(2) Annual figures for each month from January 1994 represent trailing 12-
month inflation rates.
(3) Inflation calculated by comparing prices in Reais in July with prices in
Cruzeiros Reais in June, converted at a rate of R$ 1.00=CR$ 2,750. An
alternative methodology also commonly used in official and unofficial
sources compares July prices in Reais with prices in URVs, in which case
inflation for July is estimated at 5.47%. Use of this estimate of
inflation results in lower estimates of inflation than are presented in
this table under the heading "Trailing 12 Months" for the period July
1994-June 1995.
Source: Getulio Vargas Foundation and Central Bank
A-5
<PAGE>
Principal Sectors of the Economy.
The following tables show the composition of GDP by major sector and growth
of each sector for the years 1990-1994.
COMPOSITION OF GDP BY SECTOR
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Agriculture.................................. 11.6% 11.5% 12.1% 12.5% 14.3%
Industry..................................... 42.2 38.9 38.1 38.2 37.3
Mining, Oil and Gas........................ 1.8 1.8 1.8 1.8 1.2
Manufacturing.............................. 29.1 26.4 25.4 24.9 22.9
Construction............................... 8.1 7.0 7.1 7.4 7.7
Public Utilities........................... 3.2 3.7 3.9 4.2 5.5
Services..................................... 60.4 58.1 59.5 59.4 57.3
Retail Services............................ 8.1 7.5 7.5 7.6 7.1
Transportation............................. 4.1 3.9 4.1 4.4 4.3
Communications............................. 1.5 1.2 1.6 1.7 1.4
Financial Services......................... 13.9 8.6 9.8 9.8 9.1
Government................................. 13.1 10.4 11.2 11.0 10.4
Other Services............................. 19.7 26.4 25.3 25.0 25.0
Subtotal..................................... 114.1 108.5 109.8 110.1 108.8
Less Financial Intermediation(1)............. 14.1 8.5 9.8 10.1 8.8
Real GDP at Factor Cost...................... 100.0 100.0 100.0 100.0 100.0
</TABLE>
- --------
(1) Interest received less interest paid. Financial intermediation therefore
represents the proportion of GDP attributable to gains from interest rate
differentials such as those that the Brazilian financial sector has
experienced in recent years.
Source: IBGE and Central Bank
REAL GROWTH (DECLINE) AT FACTOR COST BY SECTOR
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real GDP........................................ (4.4)% 0.2% (0.8)% 4.1% 5.7%
Agriculture..................................... (3.7) 2.8 5.4 (1.2) 7.5
Industry........................................ (8.2) (1.8) (3.7) 6.8 7.0
Mining, Oil and Gas........................... 2.7 0.9 0.8 0.6 4.7
Manufacturing................................. (9.5) (2.4) (4.1) 7.9 7.9
Construction.................................. (9.8) (3.5) (6.6) 4.9 3.8
Public Utilities.............................. 1.8 4.3 1.6 3.7 2.3
Services........................................ (0.9) 1.4 0.0 3.5 4.0
Retail Services............................... (7.0) (0.8) (2.4) 7.0 3.9
Transportation................................ (3.1) 2.5 2.4 3.4 3.7
Communications................................ 9.0 19.6 5.7 10.7 13.1
Financial Services............................ (3.1) (8.0) (4.6) (2.2) 2.8
Government.................................... 1.7 1.6 1.5 1.5 1.4
</TABLE>
Source: IBGE and Central Bank
Agriculture's share of GDP was 14.3% in 1994, up from 11.6% in 1990. Brazil
has a well-diversified agricultural sector. It is the world's second largest
producer of sugar and soya, and supplies about 85.0% of the orange juice
concentrate in world markets. Approximately 70% of Brazil's sugar crop is
processed into alcohol for automotive fuel. Brazil's largest single export
crop is soya (beans, bran and oil), with 1994 exports totaling
A-6
<PAGE>
approximately $4.1 billion. In addition, Brazil has been the world's largest
producer of coffee for more than a century. Although the breakdown of the
International Coffee Agreement in July 1989 led to diminished revenues from
coffee exports, coffee exports totaled $2.6 billion during 1994. Although
Brazil is one of the largest exporters of agricultural products, capital
investment in agriculture has been modest. Large-scale mechanization has,
until relatively recently, been confined to the southern States of Sao Paulo,
Parana and Rio Grande do Sul.
The mining, oil and gas industry grew 1.9% annually from 1990 to 1994.
Brazil's proven mineral resources are extensive and have generally remained
steady or expanded in recent years as a result of continuing exploration
activity. Large iron ore and manganese reserves provide important sources of
industrial raw materials and export earnings. Deposits of nickel, tin,
chromite, bauxite, beryllium, copper, lead, tungsten, zinc and gold, as well
as lesser known minerals, continue to be mined.
The service sector's share of GDP decreased from 60.4% in 1990 to 57.3% in
1994. During that period, the sectors that experienced the greatest growth
were communications, which grew by 73%, and transportation, which grew by
9.0%. During 1994, overall growth in the service sector was 4.0%, as a result
of increases in communications (13.1%), retail services (3.9%) and
transportation (3.7%).
Activity in the construction sector increased 4.9% and 3.8% in 1993 and
1994, respectively, following declines of 6.6%, 3.5% and 9.8% in 1992, 1991
and 1990, respectively.
A-7
<PAGE>
The share of the manufacturing sector declined between 1990 and 1992, but
grew by 7.9% in both 1993 and 1994. Additional detail for the manufacturing
sector is shown in the following table which shows the annual changes in
industrial production for the years 1990-1994.
ANNUAL CHANGES IN INDUSTRIAL PRODUCTION (%)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994
----- ----- ----- ---- -----
<S> <C> <C> <C> <C> <C>
Mining...................... 2.7% 0.9% 0.8% 0.6% 4.7%
Manufacturing Industry...... (9.5) (2.4) (4.1) 7.9 7.9
By Segment
Nonmetallic Minerals...... (11.0) 0.6 (7.7) 4.8 3.0
Metallurgy................ (12.6) (5.7) (0.6) 7.7 10.8
Machinery................. (16.9) (10.3) (9.5) 17.4 21.3
Electronic and
Communications Equipment. (5.5) (6.6) (12.6) 14.9 18.9
Transportation Equipment.. (15.9) (0.2) (2.2) 19.6 13.5
Wood...................... -- -- (1.2) 6.7 (2.6)
Furniture................. -- -- (11.6) 20.7 1.3
Paper and Cardboard....... (6.3) 6.7 (2.0) 4.8 2.7
Rubber.................... (4.4) (1.2) (0.1) 8.5 3.9
Leather and Hides......... -- -- (3.1) 12.9 (4.6)
Chemicals................. (8.1) (7.7) (0.5) 4.4 7.0
Pharmaceutical Products... (9.7) (2.4) (11.2) 12.2 (2.9)
Perfumes, Soaps and
Candles.................. (5.7) 7.0 (0.6) 4.4 2.4
Plastics.................. (15.6) (0.2) (11.3) 7.6 4.1
Textiles.................. (10.1) 2.8 (4.5) (0.5) 3.6
Clothing, Footwear and
Cloth Goods.............. (14.0) (13.2) (7.7) 8.8 (2.7)
Food Products............. 1.8 3.6 (7.4) 8.2 1.6
Beverages................. 2.3 18.0 (16.7) 9.5 10.4
Tobacco................... (1.4) 7.3 17.7 4.4 (14.7)
Total Annual Change in
Industrial Production...... (8.9) (2.6) (3.7) 7.4 7.6
By Category of Use
Capital Goods............. (15.5) (1.3) (6.9) 10.2 18.6
Intermediate Goods........ (8.7) (2.2) (2.4) 5.5 6.5
Consumer Goods............ (5.3) 2.1 (5.4) 10.0 4.4
Durable................. (5.8) 4.7 (13.0) 27.7 15.5
Nondurable.............. (5.2) 1.8 (3.8) 6.7 1.9
</TABLE>
Source: IBGE and Central Bank
State-Controlled Enterprises. The public sector grew very rapidly during the
1970's and continues to play a significant role in Brazil's economy. The
Government, directly or through various state-owned enterprises, owns many
companies and controls a major portion of activities in many of the economy's
major sectors. Furthermore, the 1988 Constitution mandated a Government
monopoly in telecommunications, the pipeline distribution of gas, and the
research and exploration, refining, importation, exportation and
transportation of petroleum. The 1988 Constitution also restricted coastal and
inland shipping to Brazilian vessels on which the captain and two-thirds of
the crew are Brazilian.
A-8
<PAGE>
The following table sets forth selected information for the year ended
December 31, 1994 concerning the state-controlled companies that dominate four
key sectors in Brazil: Petrobras (the production, importation and refining,
but not the distribution of, petroleum), Eletrobras (electricity), Telebras
(telecommunications) and CVRD (mining).
SELECTED STATE OWNED ENTERPRISES(1)
<TABLE>
<CAPTION>
DIRECT AND
INDIRECT
OWNERSHIP OF
GOVERNMENT
------------- TOTAL NET FOREIGN GROSS NET
VOTING TOTAL ASSETS WORTH DEBT SALES INCOME(2)
------ ----- -------- ------- ------- ------- ---------
(MILLIONS OF US$, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Petrobras............. 81.70% 65.98% $ 28,113 $18,855 $3,907 $25,478 $1,433
Eletrobras............ 86.00 79.97 100,187 64,806 9,080 6,201 1,856
Telebras.............. 52.30 23.00 32,539 21,561 866 10,038 661
CVRD.................. 53.39 53.39 13,037 9,707 532 3,858 648
</TABLE>
- --------
(1) Consolidated financial statements, including holdings and subsidiaries,
according to the methodology set forth in "Price and Accounting System"
(Instruction C.V.M. No. 191, dated July 15, 1992).
(2) Converted to U.S. Dollars using the annual average commercial exchange
rate (sell side). Shareholders as a group are entitled to a compulsory
dividend equal to at least 25.0% of adjusted net income for the year.
Source: Secretariat of Planning, Budget and Coordination ("Seplan")
Since 1991, the Government has privatized approximately 30 state-owned
enterprises for an aggregate purchase price of approximately $8.6 billion. The
Cardoso administration has continued this policy and in addition has advocated
constitutional amendments to permit increased private sector participation in
the economy. Constitutional amendments require a three-fifths vote of each
house of the Brazilian Congress in two separate rounds. Since August 1995, the
Congress has approved amendments opening the distribution of gas to the
private sector, allowing foreign-owned shipping in Brazilian rivers and
coastal waters and eliminating the Government monopoly over the
telecommunications sector, opening it to participation by private companies.
On November 8, 1995, the Congress also approved an amendment loosening the
Government monopoly in the petroleum sector. Amendments approving tax,
administrative, political and social security systems reforms are currently
before the Congress.
The Congress has also recently amended the Constitution to remove the
distinction between foreign and Brazilian-owned companies operating in Brazil,
which had restricted the foreign private sector's involvement in Brazil.
Under Brazilian law, private parties can only participate in activities
considered to be "public services" if they are so authorized by the federal
Government. In July 1995, Congress approved a new law permitting private
participation in concessions in the following areas: (i) production,
transmission and distribution of electric power; (ii) transportation; (iii)
sea, river and lake ports; (iv) federal highways, whether or not involving
public works; (v) commercial use of federal barriers, containment, dams, dike
and irrigation works or services, whether or not involving public works; and
(vi) customs and other terminal stations for public use, when not part of a
port or airport, and whether or not involving public works.
In addition to opening up ownership and concessions in public services to
private industry, the Government has sought to reduce the regulation of
economic activity generally. Important developments in this regard include the
establishment of a free foreign exchange market, trade liberalization and the
termination of most price controls. See "Balance of Payments and Foreign
Trade--Foreign Trade" and "Foreign Exchange." The Government has also acted to
deregulate certain segments of the economy, including fuel and oil
derivatives, airlines, shipping and steel, and is considering introducing
measures designed to increase competition in areas such as steel and highway
maintenance and transportation, areas which were previously controlled, in
most cases, by Government enterprises.
A-9
<PAGE>
BALANCE OF PAYMENTS AND FOREIGN TRADE
Background. Since 1990, the Government's economic policies have increased
the importance of the external sector of the economy. Recent reforms directly
affecting the external sector include a reduction in import tariffs and the
elimination of import quotas, the negotiation of the Mercosul free trade
agreement, the liberalization of certain foreign exchange transactions and the
liberalization of foreign investment regulations. See "Foreign Exchange."
From 1989 through 1994, Brazil maintained a surplus in its balance of
payments. During the same period, the foreign reserves maintained by the
Central Bank increased approximately 301%, totalling $38.8 billion at December
31, 1994, which covered approximately 14 months of imports of goods, or 11
months of imports of goods and nonfactor services.
Since January 1994, the Government has implemented a series of measures
designed to control the amount of foreign reserves and inflow of private
capital. Initially, these measures included the introduction of an interest
rate equalization tax and other measures designed to limit the inflow of
private capital that was being attracted by high real interest rates in
Brazil. In October 1994, the Government took additional measures to control
the inflow of capital, including an increase in various investment taxes, the
imposition of a 15.0% reserve requirement on internal credits relating to
advances on foreign exchange contract operations and a reduction of the
maximum term for foreign exchange contracting prior to the shipment of goods.
Following the liquidity crisis in Mexico, which began at the end of December
1994, Brazil's current account deteriorated, leading the Government to reverse
certain measures it had previously taken to limit capital inflows. In January
1995, the Government reestablished the prior maximum term for foreign exchange
contracting prior to the shipment of most goods. The Government also
eliminated the 15.0% reserve requirement on internal credits relating to
advances on foreign exchange contract operations and reestablished the inflow
of foreign resources in the form of long-run advance export payments.
Furthermore, the minimum term for amortization of these transactions was
reduced.
Further steps to encourage capital inflows were taken in March 1995, when
the Government eased certain other restrictions on foreign lending and
investment, including the reduction of certain taxes and other measures. At
that time, the Government also devalued the Real. See "Foreign Exchange."
Early in 1995, declines in foreign investment coupled with a current account
deficit contributed to a decrease in international reserves from $38.8 billion
at December 31, 1994 to $31.9 billion as of April 30, 1995. Subsequently, an
improved trade balance and increasing foreign investments have led to a marked
increase in international reserves, which totalled $48.7 billion as of
September 30, 1995.
A-10
<PAGE>
Balance of Payments. The following table sets forth information regarding
Brazil's balance of payments for each of the years indicated.
BALANCE OF PAYMENTS(1)
<TABLE>
<CAPTION>
1990 1991 1992 1993(2) 1994(2)
-------- -------- -------- -------- --------
(MILLIONS OF US$)
<S> <C> <C> <C> <C> <C>
Current Account.............. $ (3,782) $ (1,407) $ 6,143 $ (637) $ (1,451)
Trade Balance.............. 10,753 10,579 15,239 13,072 10,390
Exports(3)............... 31,414 31,620 35,793 38,783 43,558
Imports(3)............... 20,661 21,041 20,554 25,711 33,168
Services (net)............. (15,369) (13,542) (11,339) (15,362) (14,437)
Interest................. (9,748) (8,621) (7,253) (8,453) (6,397)
Other.................... (5,621) (4,921) (4,086) (6,909) (8,040)
Unilateral Transfers(4).... 834 1,556 2,243 1,653 2,596
Capital Account, Net......... 5,325 752 10,319 10,703 9,241
Direct Investments......... 236 (42) 1,443 (372) 931
Portfolio Investments(5)... 512 3,808 14,466 12,952 54,187
Of which: IDU Bonds...... -- -- 7,100 -- --
Of which: 1994 Restruc-
turing.................. -- -- -- -- 42,612
Other Medium- and Long-Term
Capital................... (5,107) (5,109) 6,637 (2,469) (41,913)
Of which: Refinancing.... 812 -- 11,583 1,190 (39,546)
Other Short-Term Capital... 9,684 2,095 (12,227) 592 (3,964)
Of which: Arrears(6)..... 9,959 5,621 (14,253) 1,133 (5,653)
Errors and Omissions....... (328) 876 (1,386) (862) (446)
Overall Balance.............. $ 1,215 $ 221 $ 15,076 $ 9,204 $ 7,344
Reserves and Related
Items(7).................... (1,215) (221) (15,076) (9,204) (7,344)
Gold....................... (639) 966 (74) (233) (297)
SDRs....................... (10) (2) 12 (1) 2
IMF Position............... -- -- -- -- --
Foreign Exchange........... 168 (595) (14,608) (8,475) (6,920)
Other Holdings............. 7 -- -- -- --
Use of IMF credits......... (741) (590) (406) (495) (129)
Total Official Reserves(8)... 9,973 9,406 23,754 32,211 38,806
</TABLE>
- --------
(1) These figures were calculated in accordance with the methodology set forth
in the IMF Balance of Payments Manual, Fourth Edition.
(2) Preliminary.
(3) The preliminary export and import figures for 1993 available at December
31, 1994 that appear in this table are the figures that the Government
continues to use for the purposes of its balance of payments calculations.
However, the revised figures for 1993 show $38,597 and $25,480,
respectively.
(4) Unilateral transfers consist of transactions without a quid pro quo, many
of which are gifts, and migrant transfers.
(5) Includes bonds, commercial paper and notes.
(6) Represents mainly arrears on interest payments due but not paid on certain
medium- and long-term bank indebtedness.
(7) Negative amounts in these accounts signify increases, and vice versa.
(8) As of December 31.
Source: Central Bank
Foreign Trade. In 1994, Brazil's overall trade flows totalled a record $76.7
billion, representing an increase of 19.7% over 1993. The country's balance of
trade registered a surplus of $10.4 billion in 1994, 20.8%
A-11
<PAGE>
lower than the surplus of the previous year, as imports grew by 30% while
exports grew by only 13%. The growth in imports during 1994 was influenced by
the partial recovery of the domestic economy, as well as the reduction of
tariffs and the elimination of non-tariff restrictions and other factors.
For the nine months ending September 30, in 1995 Brazil had a trade deficit
of $3.4 billion, with imports of $37.6 billion and exports of $34.2 billion.
However, after recording trade deficits for the first six months of the year,
Brazil had a balance in its trade accounts in July and surpluses in August and
September.
Brazil has been lifting import restrictions gradually since 1990, when
quantitative restrictions on imports were abolished. Following a tariff
reduction program, the average duty and maximum tariff in 1989, 35.5% and
85.0%, respectively, were reduced to 14.2% and 40.0%, respectively, as of July
1, 1993. Average tariffs are also being reduced as a result of Brazil's
implementation of a schedule of preferences from its current tariffs
applicable to imports from Mercosul countries. In addition, Brazil is a
signatory of the Final Act of the GATT Uruguay Round, pursuant to which it has
committed to staged reductions in tariffs beginning in 1995 over five years
with respect to industrial products and over ten years with respect to
agricultural products. Nonetheless, tariffs on some goods remain high. In
early 1995 for example, the Government increased tariffs on passenger cars and
utility vehicles to 70.0% until January 1, 1996, when such tariffs are
scheduled to be reduced to 62% to conform with GATT tariff levels.
The following table sets forth certain details regarding Brazil's foreign
trade for the years indicated:
BRAZIL'S FOREIGN TRADE
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995(1)
------ ------ ------ ------ ------ -------
(MILLIONS OF US$)
<S> <C> <C> <C> <C> <C> <C>
Exports............................. 31,414 31,620 35,793 38,597 43,545 34,178
Imports............................. 20,661 21,041 20,554 25,480 33,105 37,634
Trade Balance....................... 10,753 10,579 15,239 13,117 10,440 (3,456)
</TABLE>
- --------
(1) Through September 30.
Source: Central Bank
FOREIGN INVESTMENT
Foreign investment in Brazil has traditionally focused on direct investment
in the manufacturing sector. Beginning in 1991, foreign investment increased
substantially, surpassing the levels reached during the period from 1973 to
1982, before the debt crisis. Since January of 1994, the Government has
continued its policy of regularly taking a variety of measures, including
taxes and regulatory requirements, to facilitate the conduct of monetary
policy and to control the inflow of private capital into Brazil. These
measures and the Government's policy with respect to foreign investment have
shifted according to different economic circumstances. See "Balance of
Payments and Foreign Trade--General."
The following table sets forth information regarding foreign investment in
Brazil for each of the years indicated.
FOREIGN INVESTMENT IN BRAZIL
<TABLE>
<CAPTION>
INFLOWS OUTFLOWS NET INFLOWS
----------------------- ----------------------- ----------------------
PORTFOLIO DIRECT TOTAL PORTFOLIO DIRECT TOTAL PORTFOLIO DIRECT TOTAL
--------- ------ ------ --------- ------ ------ --------- ------ -----
(MILLIONS OF US$)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990.... 171 510 681 67 230 297 104 280 384
1991.... 778 628 1,406 200 123 323 578 505 1,083
1992.... 3,863 1,325 5,188 2,169 169 2,338 1,694 1,176 2,850
1993.... 15,271 1,045 16,316 8,701 580 9,281 2,570 465 7,035
1994.... 25,142 2,356 27,498 17,862 618 18,480 7,280 1,738 9,018
</TABLE>
- --------
Source: Central Bank
A-12
<PAGE>
FOREIGN EXCHANGE
The Brazilian foreign exchange system has been structured to enable the
Government, through the Central Bank, to regulate and control foreign exchange
transactions carried out in Brazil. There are currently two foreign exchange
markets in Brazil: the commercial exchange market, on which most trade and
financial transactions are carried out, and the floating rate market (known as
the "tourism" exchange market). The exchange rate in each market is
established independently, resulting in different rates during some periods,
and all transactions carried out in either of these markets must be conducted
through banks (and other agents, in the case of the tourism exchange market)
authorized and monitored by the Central Bank. See "Foreign Investment and
Exchange Controls in Brazil--Brazilian Exchange Markets."
The commercial exchange rate fluctuates as a function of supply and demand
of market participants, including the Central Bank. The Central Bank may
intervene to stabilize the rate through purchases and sales of Reals. Under
Resolution 2110 of the National Monetary Council, the Central Bank has an
obligation to sell Dollars in foreign exchange markets whenever the Real
reaches parity with the Dollar. In an attempt to encourage fresh capital
inflows and reverse a deterioration in Brazil's current account, in March 1995
the Central Bank announced a currency band system of foreign exchange and set
a Real-Dollar commercial exchange rate band of R$ 0.88 to R$ 0.93 per Dollar.
This rate represented a devaluation of the Real as compared to the exchange
rates of February 1995, when the Real fluctuated between R$ 0.834 to R$ 0.852
per Dollar. See "Balance of Payments and Foreign Trade--General." The current
commercial exchange rate band was set in June of this year when the Central
Bank announced that it would intervene to prevent the commercial exchange rate
from falling below R$ 0.91 per Dollar or rising above R$ 0.99 per Dollar.
The tourism exchange market was established in December 1988 with the
objective of liberalizing certain transactions mainly related to travel,
unilateral transfers, certain services and gold operations. Banks buy and sell
currency in this market at freely negotiated rates. Since its creation, the
premium of the tourism exchange market to the commercial exchange market has
declined. After reaching values higher than 160.0% in 1989, the premium in
relation to the commercial exchange market rate at October 31, 1995 stood at
0.25%. In October 1994, certain limitations on the acquisition of foreign
currency in connection with certain tourist and health care activities,
education, scientific and cultural operations, certain asset transfers,
software acquisitions and transactions involving credit cards were eliminated.
A-13
<PAGE>
The following table sets forth average exchange rates recorded in the
commercial exchange market (sell side) on the last day of the periods
indicated, together with the appreciation of the Dollar relative to the Real
and the inflation rate as measured by the GPI-DS.
EXCHANGE RATES, APPRECIATION OF US$ RELATIVE TO REAL AND INFLATION
<TABLE>
<CAPTION>
REAIS PER PCT. APPRECIATION INFLATION
US$ AT END OF US$ CHANGE IN
OF PERIOD(1) RELATIVE TO REAL GPI-DS INDEX
------------ ----------------- ------------
<S> <C> <C> <C>
1990--December...................... 0.000062 1397.3% 1476.6%
1991--December...................... 0.000389 528.5% 480.2%
1992--December...................... 0.004505 1059.0% 1158.0%
1993--December...................... 0.118584 2532.5% 2708.6%
1994--December...................... 0.846000 613.4% 909.6%
1994
January.......................... 0.166785 40.6% 42.2%
February......................... 0.231800 39.0% 42.4%
March............................ 0.332125 43.3% 44.8%
April............................ 0.473556 42.6% 42.5%
May.............................. 0.681916 44.0% 41.0%
June............................. 1.000000 46.6% 46.6%
July............................. 0.940000 -6.0% 24.7%
August........................... 0.889000 -5.4% 3.3%
September........................ 0.853000 -4.0% 1.6%
October.......................... 0.846000 -0.8% 2.6%
November......................... 0.845000 -0.1% 2.5%
December......................... 0.846000 0.1% 0.6%
1995
January.......................... 0.842000 -0.5% 1.4%
February......................... 0.852000 1.2% 1.2%
March............................ 0.896000 5.2% 1.8%
April............................ 0.913000 1.9% 2.3%
May.............................. 0.906000 -0.8% 0.4%
June............................. 0.922000 1.8% 2.6%
July............................. 0.936000 1.6% 2.2%
August........................... 0.95100 1.6% 1.3%
September........................ 0.95400 0.3% -1.1%
</TABLE>
- --------
(1) The average rate on the last day of month in the commercial exchange
market.
Source: Central Bank
PUBLIC DEBT
Public sector debt in Brazil, composed of the internal and external debt of
the federal Government, State and local governments and government-controlled
enterprises, amounted to approximately $266 billion (43.4% of GDP) as of
December 31, 1994. The gross debt of State and local governments constitutes a
significant portion of Brazil's overall public sector debt.
During the period from 1982 to April 1994, Brazil failed to make payments on
certain of its external indebtedness to commercial banks as originally
scheduled, and, in February 1987, declared a moratorium on principal and
interest payments on external indebtedness to commercial banks. However, in
April 1994, Brazil concluded Brady Plan-type debt restructuring agreements
with its private sector debtors. Pursuant to the agreements, interest and
arrearages were capitalized, previously outstanding principal obligations were
reduced
A-14
<PAGE>
by about $4 billion, and the maturity profile of Brazil's public-sector
external debt was lengthened from an average of 6.1 years at December 31, 1993
to an average of 11.4 years at December 31, 1994.
The following table sets forth the external debt outstanding at December 31
for each of the years 1990 through 1994.
<TABLE>
<CAPTION>
EXTERNAL DEBT OUTSTANDING
---------------------------------------------------
1990 1991 1992 1993 1994
-------- -------- --------- --------- ---------
(MILLIONS OF US$)
<S> <C> <C> <C> <C> <C>
Medium and Long Term....... $ 96,546 $ 92,996 $ 110,835 $ 114,270 $ 119,668
Public..................... 78,837 75,423 86,669 83,515 86,864
Private.................... 17,709 17,573 24,166 30,755 32,804
Short Term................. 14,167 14,581 19,798 24,941 28,241
Interest Arrears........... 12,726 16,333 5,316 6,449 386
Total...................... 123,439 123,910 135,949 145,660 148,295
Percent of GDP............. 29.6% 28.4% 30.2% 30.0% 28.4%
</TABLE>
Source: Central Bank
THE FINANCIAL SYSTEM
The Brazilian financial system is composed of (i) the Monetary Council,
which is the highest authority on monetary and financial policies in Brazil
and is in charge of the overall supervision of monetary, credit, budgetary,
fiscal and public debt policies, (ii) the Central Bank, which implements
policies set by the Monetary Council, (iii) the Brazilian Securities
Commission, (iv) public sector financial institutions such as the Banco do
Brasil, Brazil's largest commercial bank (accounting for over 53% of the
Brazilian banking system's total demand deposits and 51% of total assets at
November 30, 1994), and the National Bank for Economic and Social Development
("BNDES"), a development bank that grants financing to the private sector and
implements the federal Government's privatization program, and (v) private
sector financial institutions.
Since the establishment of the Plano Real in July 1994, the Brazilian
banking system has come under considerable pressure. During the highly
inflationary years prior to that time, the financial sector profited from
financial gains derived from investing funds in high yielding, inflation-
adjusted Government instruments and from short-term financial intermediation.
Earnings and return on equity were fairly constant for private sector banks.
The performance of the public sector banks, however, has been less consistent,
reflecting the fact that, in addition to their normal commercial activities,
they also extend credit in accordance with Government economic policy
objectives. Furthermore, the Plano Real and the associated high reserve
requirements on both deposits and loans, limitations on the provisions of
credit, tight money supply and high real interest rates have adversely
affected the operations of Brazilian banks. Banks are suffering high levels of
non-performing loans and are having to make provisions accordingly. Commencing
in August 1994, two large public banks, BANESPA and BANERJ, required support
coordinated by the Central Bank. In August 1995, Banco Economico (a large
private bank principally operating in Bahia State) failed and is now under the
administration of the Central Bank, as are other smaller banks that have also
failed.
BRAZILIAN CORPORATE TAXES
In summary, the current corporate taxes in Brazil are: (i) the Corporate
Income Tax (IRPJ); (ii) the Social Insurance Contribution (CSL); (iii) the
Social Security Financing Contribution (COFINS); (iv) the Social Integration
Program (PIS); (v) the Tax on Distribution of Goods and Services (ICMS); (vi)
the Tax on Manufactured Products (IPI); and (vii) the Tax on Services (ISS).
Corporate Income Tax (IRPJ and IRPJ Surtax)
Corporate income tax is levied at 25% on taxable profits at the end of the
base period. An annual surtax will be assessed as follows: (i) 12% on any
portion of the taxable profit from R$ 180,000.00 to R$ 780,000.00;
A-15
<PAGE>
and (ii) 18% over R$ 780,000.00. The prevailing tax laws establish that, as
from January 1, 1996, the surtax will be calculated at 10% (15% for financial
institutions) on any part of the taxable profit that exceeds R$ 204,000.00.
The taxable profit is determined by deducting such expenses and costs as were
needed to produce the year's income from the gross earnings derived from the
company's regular business and any incidental business. There are also certain
items, expenses and costs that are considered tax-exempt when determining a
company's taxable profit, by virtue of their nature or the amount involved.
Social Insurance Contributions (CSL, PIS and COFINS)
Companies must also pay into Federal Revenue Office coffers 10% of the net
profits before the income tax provision, by way of the Social Contribution on
Profits (CSL). In the case of financial institutions, this percentage will be
30%.
Profit Participation Program (PIS) contributions are levied at 0.75% on
billings of commercial and industrial companies and 5% on income tax for
exclusively service-rendering companies. Financial institutions must pay the
0.75% PIS rate on their gross monthly operating revenues from June 1994
through December 1995.
The Social Security Financing Contribution (COFINS) is levied at 2% on
billings of merchandise and services. Financial institutions need not pay this
tax. Neither PIS nor COFINS is required on export of manufactured products or
of certain inputs.
There is also a social security contribution that is levied on the payroll
at the average rate of 30%. This contribution is paid by the company.
Sales Taxes (IPI and ICMS)
Sales taxes are payable on goods and services. There are two different types
of sales taxes, depending on the nature of the transactions: the Tax on
Manufactured Products (IPI) and the Tax on the Distribution of Goods and
Services (ICMS).
IPI is a federal tax payable on the domestic manufacture of products and the
import of foreign products. It is levied on the manufacturers and/or the
importers of foreign products. IPI rates vary according to the nature of the
products, generally ranging from 0 to 15%. Higher rates apply to nonessential
products such as cigarettes, beverages and cosmetics.
ICMS is payable at all stages of sale, from the manufacturer to the final
consumer, as well as for telecommunications and interstate transport services.
ICMS is levied on the manufacturer and/or the trader. ICMS rates vary from one
state to another: the normal rate is 17% for interstate and interstate
operations, but
depends on the essentiality of the good (e.g., 25% for luxury goods in the
state of Sao Paulo). Exemptions, reductions and tax incentives in respect of
ICMS are granted or cancelled by means of conventions between the states.
Tax on Services (ISS)
The Tax on Services (ISS) is based on lists prepared by each municipality of
taxable services performed by companies or by self-employed persons of
professional status. ISS rates vary from 0.5 to 10% (with a few exceptions),
and the basis for its assessment is the cost of the services.
Tax Reform
A tax reform by means of a constitutional amendment has been proposed,
changing Chapter I of Title VI of the Brazilian Constitution, which deals with
the Brazilian tax system. The reform targets a change in the Brazilian tax
system that will favor Brazil's integration into a competitive global economy,
by reducing the number of taxes, simplifying its tax collection rules, and
disencumbering exports.
A-16
<PAGE>
The proposed reform would extinguish IPI as of January 1, 1998. As from this
date, the federal Government would levy new tax similar to an ICMS surtax.
This tax would have a broader scope than the current IPI. A state rate as well
as a federal rate would be applied to the same tax base. Furthermore, the
reform would seek to cap the ISS rates. Imports of products and services would
be subject to the same state ICMS surtax assessed on products and services
produced in Brazil.
According to the Administration, this tax is not intended to increase the
tax burden but rather to redistribute the burden among taxpayers. The
constitutional tax reform would be followed by drafting of supplementary and
ordinary laws.
Tax Package
The Administration introduced a bill in the Brazilian Congress proposing
various amendments to corporate income tax as of the 1996 tax year. The main
proposals are a decrease in nominal rates, the elimination of monetary
adjustment of financial statements (as part of the measures that have been
taken by the Administration to de-index the economy and conform to the
stabilization program), and the closing of the existing loopholes that allow
companies to legitimately avoid assessment of income tax by tax planning. It
is important to point out however that aside from this proposal, corporate
taxation in Brazil will still be subject to ongoing changes and reform.
A-17
<PAGE>
SAMPLE ONLY
SUBSCRIPTION CERTIFICATE NUMBER: ________
NUMBER OF RIGHTS: ________
CUSIP
NO.: 105759 112
APPENDIX B
[FORM OF SUBSCRIPTION CERTIFICATE]
THE BRAZIL FUND, INC.
SUBSCRIPTION RIGHT FOR SHARES OF COMMON STOCK
This Subscription Certificate represents the number of Rights set forth in
the upper right hand corner of this Form. The registered holder hereof (the
"Holder") is entitled to acquire one (1) share of the Common Stock of The
Brazil Fund, Inc. (the "Fund") for each three (3) Rights held.
To subscribe for shares of Common Stock, the Holder must present to State
Street Bank and Trust Company, Corporate Reorganization Department, P.O. Box
9061, Boston, MA 02205-8686 (the "Subscription Agent"), prior to 5:00 p.m.,
New York City time, on the Expiration Date, either:
(1) a properly completed and executed Subscription Certificate and a
money order or check drawn on a bank located in the United States and
payable to the order of The Brazil Fund, Inc. for an amount equal to the
number of Shares subscribed for in the Primary Subscription (and, if such
Holder is a Record Date Shareholder electing to exercise the Over-
Subscription Privilege, under the Over-Subscription Privilege) multiplied
by the Subscription Price; or
(2) a Notice of Guaranteed Delivery guaranteeing delivery of (i) a
properly completed and executed Subscription Certificate; and (ii) a money
order or check drawn on a bank located in the United States and payable to
the order of The Brazil Fund, Inc. for an amount equal to the number of
Shares subscribed for in the Primary Subscription (and, if such Holder is a
Record Date Shareholder electing to exercise the Over-Subscription
Privilege, pursuant to the Over-Subscription Privilege) multiplied by the
Subscription Price (which certificate and money order or check must then be
delivered by the close of business on the third Business Day after the
Expiration Date (the "Protect Period")).
If the Holder of this certificate is entitled to subscribe for additional
shares pursuant to the Over-Subscription Privilege, Part B of this
Subscription Certificate must be completed to indicate the maximum number of
Shares for which such privilege is being exercised.
Any excess payment to be refunded by the Fund to a Record Date Shareholder
who is not allocated the full amount of Shares subscribed for pursuant to the
Over-Subscription Privilege will be mailed by the Subscription Agent. An
Exercising Rights Holder will have no right to rescind or modify a purchase
after the Subscription Agent has received a properly completed and executed
Subscription Certificate or a Notice of Guaranteed Delivery. Any excess
payment to be refunded by the Fund to a Rights Holder will be mailed by the
Subscription Agent to him as promptly as practicable.
If the Holder does not make payment of any amounts due in respect of Shares
subscribed for, the Fund and the Subscription Agent reserve the right to (i)
find other shareholders or Rights Holders for the subscribed and unpaid for
Shares; (ii) apply any payment actually received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such holder
upon exercise of the Primary Subscription and/or Over-Subscription Privilege;
and/or (iii) exercise any and all other rights and/or remedies to which it may
be entitled, including, without limitation, the right to set-off against
payments actually received by it with respect to such subscribed Shares.
This Subscription Certificate may be transferred, in the same manner and
with the same effect as in the case of a negotiable instrument payable to
specific persons, by duly completing and signing the assignment on the reverse
side hereof. Capitalized terms used but not defined in this Subscription
Certificate shall have the meanings assigned to them in the Prospectus, dated
, 1995, relating to the Rights.
THIS SUBSCRIPTION RIGHT IS TRANSFERABLE AND MAY BE COMBINED OR DIVIDED
(BUT ONLY INTO SUBSCRIPTION CERTIFICATES EVIDENCING A WHOLE NUMBER OF RIGHTS)
AT THE OFFICE OF THE SUBSCRIPTION AGENT
ANY QUESTIONS REGARDING THIS SUBSCRIPTION CERTIFICATE AND THE
OFFER MAY BE DIRECTED TO THE INFORMATION AGENT, GEORGESON & COMPANY INC.
TOLL FREE AT (800) 223-2064 OR COLLECT AT (212) 509-6240
The Brazil Fund, Inc.
State Street Bank and Trust Company,
By: _________________________________
as Subscription Agent
By: _________________________________
REGISTERED OWNER: CONTROL NUMBER
B-1
<PAGE>
EXPIRATION DATE: DECEMBER 15, 1995
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C> <C> <C>
BY MAIL: BY OVERNIGHT BY HAND:
P.O. Box 9061 COURIER:
Boston, MA 02205-8686 500 Victory Road 225 Franklin Street 61 Broadway
MB2 Concourse Level or Concourse Level
Marina Bay Boston, MA 02110 New York, NY 10006
North Quincy, MA 02171
</TABLE>
SECTION I: TO SUBSCRIBE: I hereby irrevocably subscribe for the dollar amount
of Common Stock indicated as the total of A and B below upon the
terms and conditions specified in the Prospectus related hereto,
receipt of which is acknowledged.
TO SELL: If I have checked either the box on line C or the box on
line D, I authorize the sale of Rights by the
Subscription Agent according to the procedures described in the
Prospectus. The check for the proceeds of sale will be mailed to the
address of record.
Please check below:
<TABLE>
<S> <C> <C>
[_] A. Primary Subscription / 3 = .000x $ =$
---------- --------------------- ------------------ ------------------
(Rights (Full Shares of Common (Subscription Price) (Amount Requested)
Exercised) Stock Requested)
[_] B. Over-Subscription Privilege .000 x $ =$ (*)
-------------------------------- ---------------- -----------------
(Full Shares of Common (Subscription Price) (Amount Requested)
Stock Requested)
Amount of Check or Money Order Enclosed (total of A + B) = $
----------------
Make check payable to the order of "The Brazil Fund, Inc."
(*) The Over-Subscription Privilege can be exercised by
Record Date Shareholders only, as described in the Prospectus.
</TABLE>
[_] C. Sell any remaining unexercised Rights
[_] D. Sell all of my Rights
[_] E. The following Broker-Dealer is hereby designated as having been
instrumental in the exercise of the Rights:
[_] Smith Barney Inc. Account #
[_] Other Firm:__________________ Account #
- -----------------Please provide your telephone number Day ( ) _______
Signature of Evening ( ) _______
Subscriber(s)/Seller(s)
- ---------------------------------
Social Security Number or Taxpayer Identification Number
SECTION II: TO TRANSFER RIGHTS: (except pursuant to C and D above)
For value received,______of the Rights represented by this Subscription
Certificate are assigned to
- ------------------------------------- -------------------------------------
Social Security Number or Tax (Print Full Name of Assignee)
ID of Assignee
- ------------------------------------- -------------------------------------
Signature(s) of Assignee(s) (Print Full Address including
postal Zip Code)
The signature(s) must correspond with the name(s) as written upon the face of
this Subscription Certificate, in every particular, without alteration.
IMPORTANT: For Transfer, a Signature Guarantee must be provided by an eligible
financial institution as defined in Rule 17Ad-15 of the Securities Exchange
Act of 1934, as amended, subject to the standards and procedures adopted by
the issuer.
SIGNATURE GUARANTEED BY:
- -------------------------
For value received,_____of the Rights represented by this Subscription
Certificate as assigned to
[_] CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE
HEREOF AND COMPLETE THE FOLLOWING:
NAME(S) OF REGISTERED OWNER(S):
WINDOW TICKET NUMBER (IF ANY):
DATE OF EXECUTION OF NOTICE OF GUARANTEED DELIVERY:
NAME OF INSTITUTION WHICH GUARANTEED DELIVERY:
PROCEEDS FROM THE SALE OF RIGHTS MAY BE SUBJECT TO WITHHOLDING OF U.S. TAXES
UNLESS THE SELLER'S CERTIFIED U.S. TAXPAYER IDENTIFICATION NUMBER (OR
CERTIFICATION REGARDING FOREIGN STATUS) IS ON FILE WITH THE SUBSCRIPTION AGENT
AND THE SELLER IS NOT OTHERWISE SUBJECT TO U.S. BACKUP WITHHOLDING.
B-2
<PAGE>
APPENDIX C
[Form of Notice of Guaranteed Delivery]
NOTICE OF GUARANTEED DELIVERY OF SUBSCRIPTION RIGHTS AND
THE SUBSCRIPTION PRICE FOR SHARES OF COMMON STOCK OF
THE BRAZIL FUND, INC. SUBSCRIBED FOR IN THE PRIMARY SUBSCRIPTION
AND THE OVER-SUBSCRIPTION PRIVILEGE
As set forth in the Prospectus under "The Offer--Payment for Shares," this
form or one substantially equivalent hereto may be used as a means of
effecting subscription and payment for all Shares of The Brazil Fund, Inc.
Common Stock subscribed for in the Primary Subscription and the Over-
Subscription Privilege. Such form may be delivered by hand or sent by
facsimile transmission, overnight courier or mail to the Subscription Agent.
The Subscription Agent is:
STATE STREET BANK AND TRUST COMPANY
Attention: Corporate Reorganization Department
By Mail: By Facsimile:
P.O. Box 9061 (617) 774-4519
Boston, MA 02205-8686 with the original Subscription Certificate
to be sent by mail, hand or overnight
courier. Conform facsimile by telephone
to (617) 774-4511
By Overnight Courier: By Hand:
500 Victory Road 225 Franklin Street 61 Broadway
MB2 Concourse Level Concourse Level
Marina Bay Boston, MA 02110 New York, NY 10006
North Quincy, MA 02171
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS
SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of Shares
subscribed for (under both the Primary Subscription and the Over-Subscription
Privilege) to the Subscription Agent and must deliver this Notice of
Guaranteed Delivery guaranteeing delivery of (i) payment in full for all
subscribed Shares and (ii) a properly completed and executed Subscription
Certificate (which certificate and full payment must then be delivered by the
close of business on the third business day after the expiration Date, as
defined in the Prospectus) to the Subscription Agent prior to 5:00 p.m., New
York City time, on the Expiration Date (December 15, 1995, unless extended).
Failure to do so will result in a forfeiture of the Rights.
C-1
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company, guarantees delivery to the Subscription Agent by the close of
business (5:00 p.m., New York City time) on the third Business Day after the
Expiration Date (December 15, 1995, unless extended) of (A) a properly
completed and executed Subscription Certificate and (B) payment of the full
Subscription Price for Shares subscribed for in the Primary Subscription and
pursuant to the Over-Subscription Privilege, if applicable, as subscription
for such Shares is indicated herein or in the Subscription Certificate.
_____________________________________ _____________________________________
Number of Shares subscribed for in Number of Shares subscribed for
the Primary Subscription for which pursuant to the Over-Subscription
you are guaranteeing delivery of Privilege for which you are
Rights and payment guaranteeing delivery of Rights and
payment
Number of Rights to be delivered:
Total Subscription Price payment to _____________________________________
be delivered:
Method of Delivery [circle one]
$ ___________________________________
A. Through DTC
B. Direct to Corporation
Please note that if you are guaranteeing for Over-Subscription Shares, and
are a DTC participant, you must also execute and forward to State Street Bank
and Trust Company a Nominee Holder Over-Subscription Exercise Form.
_____________________________________ _____________________________________
Name of Firm
Authorized Signature
_____________________________________ _____________________________________
Address
Title
_____________________________________ _____________________________________
Zip Code
(Type of Print)
_____________________________________ _____________________________________
Name of Regsistered Holder (If
Applicable)
_____________________________________
_____________________________________ Date
Telephone Number
PLEASE NOTE THAT IF YOU ARE GUARANTEEING FOR OVER-SUBSCRIPTION SHARES AND ARE
A DTC PARTICIPANT, YOU MUST ALSO EXECUTE AND FORWARD TO THE SUBSCRIPTION AGENT
A NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM.
C-2
<PAGE>
APPENDIX D
[FORM OF NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM]
THE BRAZIL FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION EXERCISE FORM
PLEASE COMPLETE ALL APPLICABLE INFORMATION
STATE STREET BANK AND TRUST COMPANY
CORPORATE REORGANIZATION DEPARTMENT
By Mail: By Hand: By Overnight Courier:
225 Franklin Street 500 Victory Road
Concourse Level MB2
P.O. Box 9061 Boston, MA 02101 Marina Bay
Boston, MA 00205-8686 or North Quincy, MA 02171
61Broadway
Concourse Level
New York, New York 10006
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE OVER-
SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE PRIMARY
SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF A
COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST BE
EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
----------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED , 1995 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE.COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE FUND.
----------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00
P.M., NEW YORK CITY TIME, ON DECEMBER 15, 1995, UNLESS EXTENDED BY THE FUND
(THE "EXPIRATION DATE").
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it has
either (i) exercised the Primary Subscription right in respect of Rights
and delivered such exercised Rights to the Subscription Agent by means of
transfer to the Depository Account of the Fund or (ii) delivered to the
Subscription Agent a Notice of Guaranteed Delivery in respect of the
exercise of the Primary Subscription Right and will deliver the Rights
called for in such Notice of Guaranteed Delivery to the Subscription Agent
by means of transfer to such Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to
the Subscription Agent that such Over-Subscription Privilege is being
exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.(*)
3. The undersigned understands that payment of the Subscription Price of $
per Share for each share of Common Stock subscribed for pursuant to the
Over-Subscription Privilege must be received by the Subscription Agent at
or before 5:00 p.m., New York City time, on the Expiration Date and
represents that such payment, in the aggregate amount of $ either (check
appropriate box):
[_] has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above or
[_] is being delivered to the Subscription Agent herewith or
[_] has been delivered separately to the Subscription Agent;
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check
appropriate box and complete information relating thereto):
[_] uncertified check
[_] certified check
[_] bank draft
[_] money order
- ------------------------------------- -------------------------------------
Depository Primary Subscription Name of Nominee Holder
Confirmation Number
- ------------------------------------- -------------------------------------
Depository Participant Number Address
-------------------------------------
City State Zip Code
Contact Name_________________________ By:__________________________________
Phone Number:________________________ Name:________________________________
Dated: ________, 1995 Title:_______________________________
* PLEASE COMPLETE THE BENEFICIAL CERTIFICATION ON THE BACK HEREOF CONTAINING
THE RECORD DATE POSITION OF PRIMARY RIGHTS OWNED, THE NUMBER OF PRIMARY
SHARES SUBSCRIBED FOR AND THE NUMBER OF OVER-SUBSCRIPTION SHARES, IF
APPLICABLE, REQUESTED BY EACH SUCH OWNER.
D-1
<PAGE>
THE BRAZIL FUND, INC.
BENEFICIAL OWNER CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of common Stock, $0.01 par value ("Common Stock"), of The
Brazil Fund, Inc. (the "Fund") pursuant to the Rights offering (the "Offer")
described and provided for in the Fund's Prospectus dated , 1995 (the
"Prospectus") hereby certifies to the Fund and to State Street Bank and Trust
Company as Subscription Agent for such Offer, that for each numbered line
filled in below the undersigned has exercised, on behalf of the beneficial
owner thereof (which may be the undersigned), the number of Rights specified
on such line in the Primary Subscription (as defined in the Prospectus) and
such beneficial owner wishes to subscribe for the purchase of additional
shares of Common Stock pursuant to the Over-Subscription Privilege (as defined
in the Prospectus), in the amount set forth in the third column of such line:
<TABLE>
<CAPTION>
NUMBER OF SHARES REQUESTED
NUMBER OF RIGHTS EXERCISED PURSUANT TO THE
IN THE PRIMARY OVER-
RECORD DATE SHARES SUBSCRIPTION SUBSCRIPTION PRIVILEGE
<S> <C> <C> <C>
1) __________________________ __________________________ __________________________
2) __________________________ __________________________ __________________________
3) __________________________ __________________________ __________________________
4) __________________________ __________________________ __________________________
5) __________________________ __________________________ __________________________
6) __________________________ __________________________ __________________________
7) __________________________ __________________________ __________________________
8) __________________________ __________________________ __________________________
9) __________________________ __________________________ __________________________
10) __________________________ __________________________ __________________________
</TABLE>
- ----------------------------------- ---------------------------------------
Name of Nominee Holder Depository Participant Number
- ----------------------------------- ---------------------------------------
Name: Depository Primary Subscription
Title: Confirmation Number(s)
Dated: ________, 1995
D-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMA-
TION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNEC-
TION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE FUND,
THE MANAGER OR THE DEALER MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
OR A SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information... 2
Expense Information..... 4
Prospectus Summary...... 5
Financial Highlights.... 10
Market and Net Asset
Value Information...... 11
The Fund................ 11
The Offer............... 12
Use of Proceeds......... 20
Investment Objective and
Policies............... 20
Certain Investment
Practices.............. 22
Foreign Investment and
Exchange Controls in
Brazil................. 23
Risk Factors and Special
Considerations......... 25
The Brazilian Securities
Market................. 31
Investment Advisers and
Administrator.......... 40
Dividends and
Distributions; Dividend
Reinvestment and Cash
Purchase Plan.......... 46
Taxation................ 47
Common Stock............ 49
Dividend Paying Agent,
Transfer Agent and
Registrar.............. 50
Custodian............... 50
Official Documents...... 50
Experts................. 50
Validity of The Shares.. 50
Further Information..... 50
The Federative Republic
of Brazil.............. A-1
Form of Subscription
Certificate............ B-1
Form of Notice of
Guaranteed Delivery.... C-1
Form of Nominee Holder
Over-Subscription
Exercise Form.......... D-1
</TABLE>
------------
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE FUND SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BRAZIL FUND, INC.
4,060,000 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS TO
SUBSCRIBE FOR SUCH SHARES
[LOGO]
--------
PROSPECTUS
, 1995
--------
SMITH BARNEY INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE BRAZIL FUND, INC.
----------------
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and
should be read in conjunction with the Prospectus, dated , 1995 (the
"Prospectus"). This SAI does not include all information that a prospective
investor should consider before purchasing shares of the Fund and investors
should obtain and read the Prospectus prior to purchasing shares. A copy of the
Prospectus may be obtained without charge by calling the Fund's Information
Agent, Georgeson & Company Inc. at (800) 223-2064 or collect at (212) 509-6240.
This SAI incorporates by reference the entire Prospectus. Defined terms used
herein shall have the same meaning as provided in the Prospectus. The date of
this SAI is , 1995.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Restrictions.................................................... 2
Certain Investment Practices............................................... 4
Directors and Officers..................................................... 6
Net Asset Value............................................................ 9
Taxation................................................................... 10
Portfolio Transactions and Brokerage....................................... 16
Financial Statements....................................................... F-1
Report of Independent Accountants.......................................... F-2
Report of Independent Accountants.......................................... F-13
</TABLE>
<PAGE>
INVESTMENT RESTRICTIONS
The following restrictions are the Fund's only fundamental policies--that
is, policies which cannot be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities. If a percentage
restriction on investment or use of assets set forth below is adhered to at
the time a transaction is effected, later changes in percentage resulting from
changing values will not be considered a violation.
The Fund may not:
1. Purchase securities on margin, except such short-term credits as may
be necessary for clearance of transactions and the maintenance of margin
with respect to futures and forward contracts.
2. Make short sales of securities or maintain a short position.
3. Issue senior securities, borrow money or pledge its assets, except
that the Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 5% (taken at the lower of cost or current value) of
its total assets (not including the amount borrowed), and may also pledge
its assets to secure such borrowings. For the purposes of this investment
restriction, collateral arrangements with respect to the writing of options
or the purchase or sale of futures contracts are not deemed a pledge of
assets or the issuance of a senior security.
4. Purchase any security if, as a result, more than 25% of the Fund's
total assets (taken at current value) would be invested in a single
industry. The exercise of stock subscription rights or conversion rights is
not deemed to be a purchase for purposes of this restriction.
5. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities that
are secured by real estate or commodities and securities of companies that
invest or deal in real estate or commodities and may purchase and sell
futures and forward contracts on stock indices, foreign currencies and
precious metals, to the extent permitted under applicable law.
6. Make loans, provided that the Fund may enter into repurchase
agreements (repurchase agreements with a maturity of longer than seven days
together with securities that are not readily marketable being limited to
15% of the Fund's total assets). Brazilian law currently precludes the Fund
from entering into repurchase agreements, as well as lending portfolio
securities unless expressly authorized by the Brazilian Securities
Commission or by the Central Bank, in their respective spheres of
authority. Should the Fund receive such approval from the Central Bank, the
Fund may lend portfolio securities, in an amount not to exceed 25% of the
Fund's total assets and to the extent permitted under applicable Brazilian
law.
7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an underwriter
under applicable law.
The following additional restrictions are not fundamental policies of the
Fund and may be changed by the Board of Directors.
The Fund may not:
8. Purchase any security (other than obligations of the U.S. government,
its agencies or instrumentalities or of the Government, its agencies or
instrumentalities) if as a result more than 10% of the Fund's total assets
(taken at value) would then be invested in securities of a single issuer.
The exercise of stock subscription rights or conversion rights is not
deemed to be a purchase for purposes of this restriction.
9. Make investments for the purpose of exercising control or management.
10. Participate on a joint and several basis in any trading account in
securities.
As noted above, in addition to the foregoing restrictions, the Fund is
subject to the Regulations and to the Code with respect to its Portfolio. See
"Taxation--United States Federal Income Taxes--General." The investment
restrictions imposed by the Regulations are implemented and interpreted, and
may be supplemented, by the Brazilian Securities Commission and may be amended
by the Monetary Council.
2
<PAGE>
The Regulations require that an average at least 70% of the total
investments in the Portfolio consist of shares of common and preferred stocks
issued by publicly held companies and traded in the Brazilian securities
markets. Such securities may only be acquired on one of the Stock Exchanges or
by subscription or in an over-the-counter market organized by an entity
accredited by the Brazilian Securities Commission. As no entities have yet
been so accredited, the Fund is not currently permitted to invest in Brazil's
over-the-counter market. The Fund is subject not only to the investment
requirements in the Regulations, but also to the Fund's own policy normally to
invest at least 70% of its total assets in common and preferred stocks of
companies registered with the Brazilian Securities Commission and listed on
the Stock Exchanges or traded in the over-the-counter market. See "Investment
Objective and Policies" in the Prospectus.
Subscriptions include the acquisition by the Fund of newly issued shares
acquired through private or public offerings as long as such shares are
registered with the Brazilian Securities Commission for public trading in
Brazil. In addition, according to the opinion of the staff of the Brazilian
Securities Commission, the Fund may acquire such shares offered in a secondary
public offering, even if such a transaction is not effected through a Stock
Exchange.
The balance of the Portfolio, on average no more than 30%, may be invested
in (a) other securities issued by Brazilian publicly held companies
(acquisition of fixed-income securities is currently prohibited), (b) Agrarian
Debt Notes, BDF Bonds, and debentures issued by Siderurgia Brasileira S.A.,
and (c) other investment mechanisms expressly authorized by the Central Bank
and the Brazilian Securities Commission jointly, as is the case of margin
account transactions. At present, the Fund is not allowed to invest in the
debt securities of the Government and of the Central Bank; however, if
permitted to do so in the future, such debt securities would include Treasury
Bonds, Treasury Bills, Central Bank Bonds and Central Bank Bills, described in
"The Brazilian Securities Market--The Secondary Markets--Debt Securities
Market." Treasury Bonds and Bills are direct obligations of the Government,
and Central Bank Bonds and Bills are direct obligations of the Central Bank
and are backed by the full faith and credit of the Government.
The requirement of the Regulations that 70% of the Portfolio consist of
common and preferred stocks is tested against average portfolio positions for
the preceding 720 days. If the Portfolio fails to satisfy the 70% requirement
as of a given date, the requirement will nevertheless be satisfied as of that
date if, within the following 360 days, the test (measured against average
portfolio positions for the preceding 720 days) would be satisfied. On any
day, such equity investments must make up at least 35% of the value of the
Portfolio. A statement of composition and diversification of investments is
submitted monthly to the Brazilian Securities Commission by the Brazilian
Administrator. The Fund has received confirmation from the Brazilian
Securities Commission that the Fund will have one year from the date the Offer
was approved by the Brazilian Securities Commission to adapt its portfolio to
meet these requirements.
Other investment restrictions imposed by the Regulations do not permit the
Fund with respect to its Portfolio to: (a) act as surety, guarantor or co-
obligor in any way, or make loans of any kind (other than the lending of
portfolio securities, which is permitted with the authorization of the
Brazilian Securities Commission or the Central Bank, in their respective
spheres of authority); (b) purchase or sell securities other than those
authorized by the Monetary Council (namely, shares and other securities issued
by publicly held companies that are traded in the Brazilian securities market
(with the exception of fixed-income securities); (c) make investments abroad,
except that, prior to the entry in Brazil of the proceeds of any offering of
Common Stock, Fund assets may be invested in United States Government
securities and money market instruments; or (d) subscribe for or otherwise
acquire shares of investment companies or investment funds. The Regulations
permit the Fund to acquire bonds or securities issued or co-guaranteed by the
Brazilian Administrator or an affiliate thereof only with the approval of all
of the Fund's shareholders.
The Regulations also empower the Brazilian Securities Commission to cancel
the authorization of the Brazilian Administrator if it fails to comply with
applicable law and regulations, and to approve its successor. See "Investment
Advisers and Administrator." In addition, the Fund is required to file with
the Brazilian
3
<PAGE>
Securities Commission specified reports, including period-end reports as to
the Fund's portfolio holdings and equity transactions.
Should any investment restriction imposed by the Regulations or other
Brazilian legal requirements, or by the Code, be removed or liberalized, the
Fund reserves the right to invest accordingly, without shareholder approval,
except to the extent that such investment conflicts with the Fund's investment
objective or the Investment Restrictions contained in paragraphs 1-7 above.
Other restrictions on the Fund may be imposed by general foreign investment
and exchange controls in effect in Brazil. See "Foreign Investment and
Exchange Controls in Brazil" in the Prospectus.
CERTAIN INVESTMENT PRACTICES
Described below are certain transactions that the Fund has typically entered
into until very recently but that are not currently permitted under the
changes to the Regulations. See "Certain Investment Practices" in the
Prospectus. If such restrictions were to be lifted in the future, the Fund
might again engage in such transactions. There can be no assurance, however,
that the Regulations would then allow these transactions to be carried out in
the same fashion as before.
FUTURES CONTRACTS
In Brazil, futures contracts are standardized contracts for the future
delivery of a commodity, security or index at a future date for an agreed
price. Under the Regulations previously in force, the Fund was permitted to
enter into futures contracts only for foreign currency and for stock indexes.
Parties to futures contracts must make a good faith deposit, referred to as
initial margin, that is a percentage of the value of the contract. Subsequent
payments, called "variation margin," will be made on a daily basis as the
price of the underlying commodity or index fluctuates, making the long and
short positions in the futures contracts more or less valuable.
Futures contract positions are typically liquidated by entering into an
offsetting transaction on an exchange. If an offsetting contract is not
entered into prior to the maturity of a contract, the parties must take or
make delivery of the underlying commodity against payment of the agreed price,
except in the case of certain futures contracts, including foreign currency
and stock index contracts, which generally are settled by payments of cash.
Commodity futures exchanges generally impose daily limits on permitted
fluctuations in the price of futures contracts traded thereon. Consequently,
if in the future the Fund were permitted to enter into futures contracts, in a
period of widely fluctuating prices, it might be difficult for the Fund to
liquidate a position. If permitted to enter into futures contracts, the Fund
would continue its practice of entering into a futures contract only if in the
Manager's view a liquid market exists for such contracts. There could,
however, be no assurance that the Fund would be able to close out a contract
in a particular case in a timely manner or at all, in which case the Fund
might suffer a loss.
Under the Regulations previously in force, the Fund was not permitted to
enter into futures contracts if the aggregate amount of initial margin
deposits on the Fund's futures positions exceeded 5% of the value of the
Fund's total assets.
Even if, as in the past, the Fund could enter into futures contracts for
hedging purposes, changes in prices could result in a poorer overall
performance for the Fund than if it had not engaged in any such transaction.
In the case of stock index futures contracts, there could be an imperfect
correlation between the Fund's portfolio holdings of securities denominated in
Reais and futures contracts entered into by the Fund. This imperfect
correlation might prevent the Fund from achieving the intended hedge or expose
the Fund to risk of losses.
If permitted to enter into futures contracts, the Fund does not intend to
enter into futures contracts to protect the value of its portfolio securities
on a regular basis. The Fund also will not enter into such futures contracts
or
4
<PAGE>
maintain a net exposure to such contracts where the consummation of the
contracts would obligate the Fund to deliver an amount of currency in excess
of the value of the Fund's portfolio securities or other assets denominated in
that currency. Further, the Fund generally will not enter into a futures
contract with a term of greater than one year.
FUTURES CONTRACTS ON DOLLARS
In the past, the Fund was allowed to enter into futures contracts for
Dollars for hedging purposes. If permitted, the Fund may resume such practice.
For example, when the Fund enters into a contract for the purchase or sale of
a security denominated in Reais, or when the Fund anticipates the receipt in
Reais of dividends or interest payments on such a security that it holds, the
Fund may desire to "lock in" the Dollar price of the security or the Dollar
equivalent of such dividend or interest payment, as the case may be. In
addition, when the Manager believes that the Real may suffer a substantial
decline against the Dollar, the Manager may, if so permitted, enter into a
futures contract to sell, for a fixed amount of Dollars, the amount of Reais
approximating the value of some or all of the Fund's portfolio securities
denominated in Reais.
STOCK INDEX FUTURES CONTRACTS
If permitted under the Regulations, the Fund may seek to hedge all or a
portion of its portfolio investments through the use of stock index futures
contracts. A stock index futures contract is an agreement to take or make
delivery of the securities underlying the index or of an amount of cash equal
to the difference
between the value of the index at the beginning and at the end of the contract
period. Settlement of a stock index futures contract is normally by payment of
cash. At present, the Fund is prohibited by the U.S. Commodity Exchange Act
from purchasing or selling Brazilian stock index futures contracts. The Fund
reserves the right to purchase and sell such contracts should such activities
become lawful in the future, as a result of an application by the Fund or
otherwise.
If permitted to trade in stock index futures, the Fund may sell stock index
futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of equity securities in its portfolio that
might otherwise result. When the Fund is not fully invested in stocks and
anticipates a significant market advance, it may purchase stock index futures
to gain rapid market exposure that may partly or entirely offset increases in
the cost of the stocks that it intends to purchase. In a substantial majority
of these transactions, the Fund will purchase such securities upon termination
of the futures position but, under unusual market conditions, a futures
position may be terminated without the corresponding purchase of stocks. No
assurance can be given that the Manager will be able to make successful use of
stock index futures, if permitted to trade in them.
FORWARD CONTRACTS ON CURRENCIES
In order to hedge against exchange rate risks, and to the extent permitted
by the Regulations in the future, the Fund may enter into forward contracts to
purchase or sell Dollars. Forward currency contracts involve an obligation to
purchase or sell Dollars for Reais, or Reais for Dollars, for an agreed price
at a specified future date. These contracts are made in an over-the-counter
market conducted directly between currency traders (usually large commercial
banks and other institutions). At present, there is only a small forward
market for foreign currencies in Brazil, and such market is limited to
Dollars.
REPURCHASE AGREEMENTS
Repurchase agreements are contracts under which the seller of a security
agrees at the time of sale to repurchase the security at an agreed-upon price
and date. Such resale price reflects an agreed-upon interest rate effective
for the period the security is held by the purchaser and is unrelated to the
interest rate on the instrument. The staff of the Commission views repurchase
agreements as loans collateralized by the underlying security. If the Fund
enters into a repurchase agreement, the seller will be required to maintain
the value of the securities subject to the repurchase agreement, marked to
market daily, at not less than their repurchase price. Repurchase
5
<PAGE>
agreements may involve risks in the event of insolvency or other default by
the seller, including possible delays and expenses in liquidating the
underlying security, decline in its value and loss of interest. If the Fund
enters into a repurchase agreement, the Manager intends to monitor the
seller's compliance with its obligation to maintain the value of the
securities subject to the repurchase agreement at not less than their
repurchase price, and also to review the creditworthiness of the Fund's
counterparties in such transactions. In the past, the Regulations permitted
the Fund to enter into repurchase agreements in Brazil only with respect to
Government securities.
DIRECTORS AND OFFICERS
The names of the individuals who serve as directors and officers of the Fund
are set forth below, together with their positions and their principal
occupations during at least the past five years and, in the case of the
directors, their ages and their positions with certain other international
organizations and publicly-held companies. The Board of Directors is divided
into three classes, each director serving for a term of three years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE AND CLASS POSITION(S) WITH REGISTRANT DURING PAST FIVE YEARS
---------------------------- --------------------------- -----------------------
<C> <C> <S>
Juris Padegs*(1)............... Chairman of the Managing Director of
Age 63 Board and Scudder, Stevens &
Class of 1998 Director Clark, Inc.; serves on
the boards of 27
additional funds managed
by Scudder, Stevens &
Clark, Inc.
Nicholas Bratt*(1)............. President and Managing Director of
Age 47 Director Scudder, Stevens &
Class of 1996 Clark, Inc.; serves on
the boards of 13
additional funds managed
by Scudder, Stevens &
Clark, Inc.
Roberto Teixeira da Costa...... Director and President, Brasilpar
Brasilpar Consultoria Resident Consultoria Financeira e
Financeira e Servicos Ltda. Brazilian Servicos Ltda.
Alameda Santos, 1357-2 andar Director (financial consulting
01470-900 Sao Paulo, SP, Brazil and asset management);
Age 60 Chairman, CEAL (Latin
Class of 1996 American Businessmen
Council); Director of
seven Brazilian listed
and unlisted companies.
Edgar R. Fiedler............... Director Vice President and
845 Third Avenue Economic Counselor, The
New York, NY 10022 Conference Board, Inc.;
Age 66 Director, The Stanley
Class of 1996 Works (manufacturer of
tools and hardware),
Zurich American
Insurance Company, The
Emerging Mexico Fund,
Inc., Harris Insight
Funds (six directorships
in fund complex); serves
on the boards of seven
additional funds managed
by Scudder, Stevens &
Clark, Inc.
Ronaldo A. da Frota Nogueira... Director and Director and Chief
IMF Editora Ltda. Resident Executive Officer, IMF
Av. Erasmo Braga 227 Grupo 404 Brazilian Editora Ltda. (financial
20020-000 Rio de Janeiro, RJ, Director publisher); serves on
Brazil the boards of three
Age 57 additional funds managed
Class of 1998 by Scudder, Stevens &
Clark, Inc.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME, ADDRESS, AGE AND CLASS POSITION(S) WITH REGISTRANT DURING PAST FIVE YEARS
---------------------------- --------------------------- -----------------------
<C> <C> <S>
Dr. Wilson Nolen............... Director Consultant (1989-
1120 Fifth Avenue present); Director,
New York, NY 10128 Ecohealth, Inc.
Age 68 (biotechnology company);
Class of 1997 serves on the boards of
14 additional funds
managed by Scudder,
Stevens & Clark, Inc.
Edmond D. Villani*(1).......... Director President and Managing
Age 48 Director of Scudder,
Class of 1997 Stevens & Clark, Inc.;
serves on the boards of
15 additional funds
managed by Scudder,
Stevens & Clark, Inc.
Edmund B. Games, Jr.(2)........ Vice President Principal of Scudder,
Stevens & Clark, Inc.
Jerard K. Hartman(1)........... Vice President Managing Director of
Scudder, Stevens &
Clark, Inc.
David S. Lee(2)................ Vice President Managing Director of
Scudder, Stevens &
Clark, Inc.
William F. Truscott (2)........ Vice President Principal of Scudder,
Stevens & Clark, Inc.
Pamela A. McGrath(2)........... Treasurer Principal of Scudder,
Stevens & Clark, Inc.
Kathryn L. Quirk(1)............ Vice President Managing Director of
and Assistant Scudder, Stevens &
Secretary Clark, Inc.
Edward J. O'Connell(1)......... Vice President Principal of Scudder,
and Assistant Stevens & Clark, Inc.
Treasurer
Thomas F. McDonough(2)......... Secretary Principal of Scudder,
Stevens & Clark, Inc.
Coleen Downs Dinneen(2)........ Assistant Vice President of
Secretary Scudder, Stevens &
Clark, Inc.
</TABLE>
- --------
* Directors considered by the Fund and its Counsel to be persons who are
"interested persons," as defined in the 1940 Act, of the Fund, the Manager
or the Brazilian Adviser.
(1) Address: 345 Park Avenue, New York, NY 10154
(2) Address: Two International Place, Boston, MA 02110
The amount of shares in the Fund owned by the Fund's directors and officers
as a group is less than one percent of the Fund's outstanding stock.
The Fund's Board of Directors has an Executive Committee which may exercise
the powers of the Board to conduct the current and ordinary business of the
Fund while the Board is not in session. Currently, Messrs. Villani and Padegs
are members of the Executive Committee.
Scudder is a Delaware corporation. Daniel Pierce, Two International Place,
Boston, Massachusetts, is the Chairman of the Board of Scudder. Edmond D.
Villani, 345 Park Avenue, New York, New York, is the President of Scudder.
Stephen R. Beckwith, 345 Park Avenue, New York, New York, Lynn S. Birdsong,
345 Park Avenue, New York, New York, Nicholas Bratt, 345 Park Avenue, New
York, New York, Linda C. Coughlin, 345 Park Avenue, New York, New York,
Margaret D. Hadzima, Two International Place, Boston, Massachusetts, Jerard K.
Hartman, 345 Park Avenue, New York, New York, Richard A. Holt, Two Prudential
Plaza, 180 North Stetson, Suite 5400, Chicago, Illinois, Dudley H. Ladd, Two
International Place, Boston, Massachusetts, Douglas M. Loudon, 345 Park
Avenue, New York, New York, John T. Packard, 101 California Street, San
Francisco, California, Juris Padegs, 345 Park Avenue, New York, New York, and
Cornelia M. Small, 345 Park Avenue, New York, New York, are the other members
of the Board of Directors of Scudder. The principal occupation of each of the
above named individuals is serving as a Managing Director of Scudder.
7
<PAGE>
All the outstanding voting and nonvoting securities of the Manager are held
of record by Stephen R. Beckwith, Juris Padegs, Daniel Pierce and Edmond D.
Villani as representatives of the beneficial owners of such securities
pursuant to a Security Holders Agreement, under which such representatives
have the right to reallocate shares among the beneficial owners from time to
time, at net book value in cash transactions. All Managing Directors of the
Manager own voting and nonvoting stock; all Principals own nonvoting stock.
The officers of the Fund will conduct and supervise the daily business
operations of the Fund, while the directors, in addition to their functions
set forth under "Investment Advisers and Administrator," will review such
actions and decide on general policy.
The Fund pays each of its directors who is not an affiliated person of the
Manager or the Brazilian Adviser, in addition to certain out-of-pocket
expenses, an annual fee of $6,000 (except for Messrs. Nogueira and da Costa,
who as Resident Brazilian Directors receive an annual fee of $12,000), plus
$750 for each Board of Directors meeting, and $250 for each committee meeting
attended (other than audit committee meetings, for which such directors
receive a fee of $750). For the fiscal year ended December 31, 1994, the
aggregate amount for fees and expenses paid to such directors amounted to
$84,504. For the six months ended June 30, 1995, directors' fees and expenses
amounted to $43,692.
The following Compensation Table provides, in tabular form, the following
data:
Column (1) All Directors who receive compensation from the Fund.
Column (2) Aggregate compensation received by a Director from the Fund.
Columns (3) and (4) Pension or retirement benefits accrued or proposed to
be paid by the Fund. The Fund does not pay such benefits to its Directors.
Column (5) Total compensation received by a Director from the Fund plus
compensation received from all funds managed by Scudder for which a
Director serves. The total number of funds from which a Director receives
such compensation is also provided in column (5). Generally, compensation
received by a Director for serving on the Board of a closed-end fund is
greater than the compensation received by a Director for serving on the
Board of an open-end fund.
COMPENSATION TABLE
FOR THE YEAR ENDED DECEMBER 31, 1994
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
PENSION OF TOTAL COMPENSATION
AGGREGATE RETIREMENT BENEFITS ESTIMATED FROM THE FUND AND
NAME OF PERSON, COMPENSATION ACCRUED AS PART OF ANNUAL BENEFITS FUND COMPLEX
POSITION FROM THE FUND FUND EXPENSES UPON RETIREMENT PAID TO DIRECTORS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Roberto Teixeira da Cos- $13,868 N/A N/A $ 13,868
ta, Director........... (1 fund)
Edgar R. Fiedler, Direc- $11,373 N/A N/A $ 30,003*
tor.................... (6 funds)
Ronaldo A. de Frota $16,497 N/A N/A $ 54,997
Nogueira, Director..... (4 funds)
Dr. Wilson Nolen, Direc- $11,373 N/A N/A $ 132,023
tor.................... (15 funds)
</TABLE>
- --------
* As of December 31, 1994, Mr. Fiedler had a total of $183,603 accrued in a
deferred compensation program for serving on the Board of Scudder
Institutional Fund, Inc., which has four active portfolios, and $182,472
accrued in a deferred compensation program for serving on the Board of
Scudder Fund, Inc., which has five active portfolios.
8
<PAGE>
Although the Fund is a Maryland corporation, certain of its directors and
officers are residents of Brazil, and substantially all of the assets of such
persons may be located outside of the United States. As a result, it may be
difficult for United States investors to effect service of process upon such
directors or officers within the United States or to realize judgments of
courts of the United States based upon civil liabilities of such directors or
officers under the federal securities laws and other laws of the United
States. There is substantial doubt as to the enforceability in Brazil of such
civil remedies and criminal penalties as are afforded by the federal
securities laws in the United States. No extradition treaty currently is in
effect between the United States and Brazil which would subject the Fund's
directors and officers to enforcement of the criminal penalties of the federal
securities laws.
The By-Laws of the Fund provide that the Fund will indemnify directors,
officers, employees or agents of the Fund against liabilities and expenses
incurred in connection with litigation in which they may be involved because
of their offices with the Fund to the full extent permitted by law. However,
nothing in the Articles of Incorporation or the By-Laws of the Fund protects
or indemnifies a director, officer, employee or agent against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office.
To the best of the Fund's knowledge, as of October 31, 1995, no person owned
beneficially more than 5% of the Fund's outstanding shares.
Lino Otto Bohn serves as Honorary Director of the Fund. Honorary Directors
are invited to attend all Board meetings and to participate in Board
discussions, but are not entitled to vote on any matter presented to the
Board. Mr. Bohn had served as Director of the Fund since 1988. Mr. Bohn
retired as Director in 1993 in accordance with the Board of Directors'
retirement policy.
NET ASSET VALUE
The net asset value of shares of the Fund is determined no less frequently
than weekly, on the last business day of each month, and at such other times
as the Board of Directors may determine, by dividing the value of the total
assets of the Fund, less all liabilities, by the total number of shares of
Common Stock outstanding.
An exchange-traded equity security is valued at its most recent sale price.
Lacking any sales, the security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation (the "Calculated
Mean"). Lacking a Calculated Mean, the security is valued at the most recent
bid quotation. An equity security which is traded on the National Association
of Securities Dealers Automated Quotation ("NASDAQ") system is valued at its
most recent sale price. Lacking any sales, the security is valued at the high
or "inside" bid quotation. The value of an equity security not quoted on the
NASDAQ System, but traded in another over-the-counter market, is its most
recent sale price. Lacking any sales, the security is valued at the Calculated
Mean. Lacking a Calculated Mean, the security is valued at the most recent bid
quotation.
Debt securities, other than short-term securities, are valued at prices
supplied by the Fund's pricing agent(s) which reflect broker/dealer supplied
valuations and electronic data processing techniques. Short-term securities
with remaining maturities of sixty days or less are valued by the amortized
cost method, which the Board of Directors believes approximates market value.
If it is not possible to value a particular debt security pursuant to these
valuation methods, the value of such security is the most recent bid quotation
supplied by a bona fide marketmaker. If it is not possible to value a
particular debt security pursuant to the above methods, the Manager may
calculate the price of that debt security taking into account such factors as
the Manager deems appropriate. This valuation method may not be used with
respect to a particular security for longer than ten consecutive trading days,
or for securities with an aggregate value that exceeds 5% of the Fund's net
assets on a particular valuation date.
An exchange-traded options contract on securities, currencies, futures and
other financial instruments is valued at its most recent sale price on such
exchange. Lacking any sales, the options contract is valued at the
9
<PAGE>
Calculated Mean. Lacking any Calculated Mean, the options contract is valued
at the most recent bid quotation in the case of a purchased options contract,
or the most recent asked quotation in the case of a written options contract.
An options contract on securities, currencies and other financial instruments
traded over-the-counter is valued at the most recent bid quotation in the case
of a purchased options contract and at the most recent asked quotation in the
case of a written options contract. Futures contracts are valued at the most
recent settlement price. Foreign currency exchange forward contracts are
valued at the value of the underlying currency at the prevailing currency
exchange rate.
If a security is traded on more than one exchange, or upon one or more
exchanges and in the over-the-counter market, quotations are taken from the
market in which the security is traded most extensively.
If, in the opinion of the Fund's valuation committee (the "Valuation
Committee"), the value of a portfolio asset as determined in accordance with
these procedures does not represent the fair market value of the portfolio
asset, the value of the portfolio asset is taken to be an amount which, in the
opinion of the Valuation Committee, represents fair market value on the basis
of all available information. The value of other portfolio holdings owned by
the Fund is determined in a manner which, in the discretion of the Valuation
committee, most fairly reflects fair market value of the property on the
valuation date.
Following the valuations of securities or other portfolio assets in terms of
the currency in which the market quotation used is expressed ("Local
Currency"), the value of these portfolio assets is calculated in terms of
Dollars by converting the Local Currency into Dollars at the prevailing
currency exchange rate on the valuation date.
Under the Fund's Articles of Incorporation, the Fund cannot become an open-
end investment company without the approval of holders of 75% of the
outstanding shares of the Fund (a majority of such shares, if the change is
approved by 75% of the directors unaffiliated with an Interested Party (as
defined in the Fund's Articles of Incorporation) who have served on the Board
of Directors for a period of at least 12 months, or successors to such
directors who similarly are unaffiliated ("Continuing Directors")). Moreover,
the Regulations contemplate that a Managed Portfolio such as the Fund must be
organized as a closed-end investment company, not as an open-end investment
company, and the Fund is limited under Brazilian law in its ability to
repatriate capital. See "Foreign Investment and Exchange Controls in Brazil"
in the Prospectus. Such limitations on repatriation of capital, combined with
U.S. Federal income tax requirements applicable to regulated investment
companies, would as a practical matter make it unlikely that the Fund would be
able to engage in a program of repurchasing its own shares.
TAXATION
For a discussion of the U.S. Federal income tax consequences and the
Brazilian tax consequences to Record Date Shareholders and Rights Holders with
respect to the Offer, see "The Offer--U.S. Federal Income Tax Consequences;
Brazilian Tax Consequences" in the Prospectus.
UNITED STATES FEDERAL INCOME TAXES
THE U.S. FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS A SUMMARY INCLUDED
FOR GENERAL INFORMATION PURPOSES ONLY. IT DOES NOT INCLUDE INFORMATION SET
FORTH IN THE PROSPECTUS UNDER "TAXATION--U.S. TAXATION." IN VIEW OF THE
INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH SHAREHOLDER IS ADVISED TO CONSULT
HIS OR HER OWN TAX ADVISER WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
BEING A SHAREHOLDER OF THE FUND, INCLUDING THE EFFECT AND APPLICABILITY OF
U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX LAWS AND THE POSSIBLE EFFECTS OF
CHANGES THEREIN.
10
<PAGE>
General
The Fund has qualified and intends to continue to qualify to be treated as a
regulated investment company under the Code for each taxable year, although no
assurance can be given as to meeting the tests for such status.
To qualify as a regulated investment company, the Fund must, among other
things, (a) derive in each taxable year at least 90% of its gross income from
dividends, interest, payments with respect to stock or securities loans, gains
from the sale or other disposition of stock or securities, and certain other
related income, including, generally, gains from options, futures and forward
contracts and foreign currency gains (under regulations which may be
promulgated, foreign currency gains which are not directly related to the
Fund's principal business of investing in stock or securities may not be
treated as qualifying income for this purpose); (b) derive in each taxable
year less than 30% of its gross income from the sale or other disposition of
stock, securities, options, futures, forward contracts and foreign currencies,
held less than three months (excluding, for this purpose, gains from foreign
currencies (and options, futures and forward contracts on foreign currencies)
that are directly related to the Fund's principal business of investing in
stocks or securities or options or futures thereon); and (c) diversify its
holdings so that, at the end of each quarter of the taxable year, (i) at least
50% of the market value of the fund's assets is represented by cash, U.S.
government securities, securities of other regulated investment companies, and
other securities, with such other securities of any one issuer qualifying, for
purposes of this calculation, only if the Fund's investment is limited to an
amount not greater than 5% of the value of the Fund's total assets and not
greater than 10% of the outstanding voting securities of such issuer and (ii)
not more than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. government securities or the
securities of other regulated investment companies) or of any two or more
issuers that the Fund controls and that are determined to be engaged in the
same, similar or related businesses. Corporations owned or controlled by the
Government will be treated as separate issuers for this purpose, except that a
debt obligation of such a corporation may be treated as issued by the
Government if the obligation is backed by the full faith and credit of the
Government. Proposed legislation passed by the House of Representatives would
eliminate the 30% requirement; it is unclear whether, and in what form, such
legislation might be enacted.
As a regulated investment company, the Fund will not be subject to U.S.
Federal income tax on its income and capital gains, if any, that it
distributes to its shareholders, provided it distributes each taxable year at
least 90% of its "investment company taxable income," calculated without the
deduction for dividends paid, as determined for U.S. Federal income tax
purposes ("net investment income"). Net investment income includes dividends,
interest, net short-term capital gains in excess of any net long-term capital
losses and any capital loss carryovers from prior years, net of expenses, and,
net gain or loss on debt securities and futures contracts on debt securities,
to the extent attributable to fluctuations in currency exchange rates, and net
gain or loss on foreign currencies and foreign currency forward contracts.
Dividend income derived by a regulated investment company from its investments
is required to be taken into account for U.S. Federal income tax purposes as
of the ex-dividend date (rather than the payment date, which generally is
later). Accordingly, the Fund, in order to satisfy its distribution
requirements, may be required to make distributions based on earnings that
have been accrued but not yet received. Interest income from discount on
indebtedness held by the Fund will also give rise to such accrued earnings.
The Fund intends to distribute to its shareholders each year all of its net
investment income as computed for U.S. Federal income tax purposes. Brazilian
exchange control or other regulations, which may restrict repatriation of
investment income, capital or the proceeds of securities sales by foreign
investors such as the Fund, may limit the Fund's ability to make sufficient
distributions to satisfy the 90% distribution requirement and the calendar
year distribution requirement described below. See "Risk Factors and Special
Considerations--Currency Conversion and Repatriation" and "Other Taxation."
To the extent that the Fund retains for investment any net long-term capital
gains in excess of any net short-term capital losses (including in such losses
any capital loss carryovers from prior years), as computed for U.S. Federal
income tax purposes, it will be subject to U.S. Federal income tax on the
amount retained at the then current rate, which currently is 35%. If any such
amount is retained, the Fund expects to designate such amount as undistributed
capital gains in a notice to its shareholders who (i) if subject to U.S.
Federal income tax on long-term capital gains, will be required to include in
income for such tax purposes, as long-term capital gains,
11
<PAGE>
their proportionate shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of taxes paid by the Fund on
such undistributed amount against their U.S. Federal income tax liabilities
and to claim refunds to the extent such proportionate shares of the tax exceed
such liabilities. For U.S. Federal income tax purposes, the tax basis of
shares owned by a shareholder of the Fund will be increased by 65% of the
amount of undistributed capital gains included in the shareholder's gross
income.
The Fund will be subject to a non-deductible U.S. Federal 4% excise tax on
amounts not distributed (and not treated as having been distributed) on a
timely basis in accordance with a calendar year distribution requirement. To
avoid application of the excise tax, the Fund intends to make its
distributions in accordance with such requirement. Exchange control or other
regulations referred to above, however, could limit the Fund's ability to
satisfy such requirement.
Distributions
Shareholders subject to U.S. Federal alternative minimum tax will be
required to include distributions from the Fund in alternative minimum taxable
income.
If the fair market value of a shareholder's shares is reduced below the
shareholder's cost for such shares as a result of a distribution by the Fund,
such distribution will be taxable for U.S. Federal income tax purposes even
though from an economic viewpoint it may represent a return of invested
capital. Investors should, therefore, consider the tax implications of buying
shares in the Fund prior to a distribution since the price of shares purchased
at that time may reflect the amount of the forthcoming distribution and the
distribution will nevertheless be taxable to the purchasing shareholder. As of
October 31, 1995, there was approximately $160 million of net unrealized
appreciation in the Fund's net assets of approximately $284 million; if
realized and distributed, or deemed distributed, such gains would, in general,
be taxable to shareholders, including holders at that time of Shares acquired
upon exercise of the Rights. See "General" and "Non-U.S. Shareholders."
Shareholders will be notified as to the U.S. Federal income tax status of
any dividends, distributions and deemed distributions made by the Fund to its
shareholders.
Sale of Shares
Upon the sale or exchange of shares of the Fund, a U.S. shareholder will
realize a taxable gain or loss. Such gain or loss will be a capital gain or
loss if the shares are capital assets in the shareholder's hands, and will be
long-term or short-term depending upon whether the shareholder has held the
shares for more than one year. Under current U.S. Federal income tax law, the
maximum rate for long-term capital gains for individuals is 28% and short-term
capital gains are taxed at the same rate as ordinary income. Any loss realized
on a sale or exchange of Fund shares will be disallowed to the extent that the
shares disposed of are replaced, including, for example, pursuant to the Plan,
within a 61-day period beginning 30 days before and ending 30 days after the
date the shares are disposed of. In such a case, a U.S. shareholder will
adjust the basis of the shares acquired to reflect the disallowed loss. Any
loss realized by a U.S. shareholder on a disposition of Fund shares held by
the shareholder for six months or less will be treated as a long-term capital
loss to the extent of any distributions of net long-term capital gains
received by the shareholder (and any amounts retained by the Fund which were
designated as undistributed capital gains) with respect to such shares.
Non-U.S. Income Taxes
The Fund will be subject to Brazilian income taxes, including withholding
taxes, described below under "Brazilian Taxes." So long as more than 50% in
value of the Fund's total assets at the close of any taxable year in which it
is a regulated investment company consists of stocks or securities of non-U.S.
corporations, the Fund may elect to treat any such non-U.S. Federal taxes paid
by it during such year (to the extent that such taxes are treated as income
taxes under U.S. Federal tax principles) as paid by its shareholders. The Fund
has qualified and expects to continue to qualify for this election annually.
The Fund will notify shareholders in writing each
12
<PAGE>
year if it makes the election and of the amount of non-U.S. income taxes, if
any, to be treated as paid by the shareholders and the amount to be treated by
them as income from non-U.S. sources. If the Fund makes the election,
shareholders will be required to include in income their proportionate shares
of the amount of non-U.S. income taxes paid by the Fund for purposes of
computing their U.S. income tax. U.S. shareholders will be entitled to claim
either a credit (subject to the limitations discussed below) or, if they
itemize their deductions, a deduction for their shares of the non-U.S. income
taxes in computing their U.S. Federal income tax liability. (For the treatment
of non-U.S. shareholders, see "Non-U.S. Shareholders" below.) No deduction
will be permitted for such income taxes in computing the alternative minimum
tax imposed on individuals. Shareholders that are exempt from tax under
Section 501(a) of the Code, such as pension plans, generally will derive no
benefit from the Fund's election to pass through the Fund's non-U.S. income
taxes to its shareholders. However, such shareholders should not ordinarily be
disadvantaged because the amount of additional income they are deemed to
receive generally will not be subject to U.S. Federal income tax. Brazilian
withholding taxes currently imposed on dividends and interest qualify as
income taxes that the Fund may elect to treat as having been paid by its
shareholders, and the Fund believes that the Brazilian capital gains tax, if
imposed on the Fund by Brazil at some future date, should qualify for such
treatment. See "Brazilian Taxes."
Generally, a credit for non-U.S. income taxes is subject to the limitation
that it may not exceed the shareholder's U.S. Federal income tax (determined
without regard to the availability of the credit) attributable to his or her
total non-U.S. source taxable income. For this purpose, the portion of
distributions paid by the Fund from its non-U.S. source income will be treated
as non-U.S. source income. The Fund's gains from the sale of securities will
generally be treated as derived from U.S. sources, unless Brazilian capital
gains tax were to be imposed on such gains and the U.S. and Brazil entered
into a treaty permitting such gains to be treated as derived from a non-U.S.
source, in which case the Fund would expect to elect to treat such gains as so
derived. Additionally, certain currency fluctuation gains and losses,
including fluctuations gains from foreign currency denominated debt
securities, receivables and payables, will be treated as derived from U.S.
sources. The limitation on the foreign tax credit is applied separately to
non-U.S. source "passive income," such as the portion of dividends received
from the Fund which qualifies as non-U.S. source income. In addition, the
foreign tax credit is allowed to offset only 90% of the alternative minimum
tax imposed on corporations and individuals. Because of these limitations,
shareholders may be unable to claim a credit for the full amount of their
proportionate shares of the non-U.S. income taxes paid by the Fund.
The foregoing is only a general description of the treatment of non-U.S.
income taxes under the U.S. Federal income tax laws. Because the availability
of a credit or deduction depends on the particular circumstances of each
shareholder, shareholders are advised to consult their own tax advisers.
Backup Withholding
Corporate shareholders and other shareholders specified in the Code are
exempt from backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against the shareholder's U.S. Federal
income tax liability.
Non-U.S. Shareholders
U.S. Federal income taxation of a shareholder who, under the Code, is a non-
resident alien individual, a foreign trust or estate, foreign corporation, or
foreign partnership ("non-U.S. shareholder") depends on whether the income
from the Fund is "effectively connected" with a U.S. trade or business carried
on by such shareholder. Ordinarily, income from the Fund will not be treated
as so "effectively connected."
If the income from the Fund is not treated as "effectively connected" with a
U.S. trade or business carried on by the non-U.S. shareholder, dividends of
net investment income (which includes short-term capital gains), whether
received in cash or reinvested in shares, will be subject to a U.S. Federal
income tax of 30% (or lower treaty rate), which tax is generally withheld from
such dividends. See the definition of "net investment income" at "General"
above. Furthermore, such non-U.S. shareholders may be subject to U.S. Federal
income tax at the
13
<PAGE>
rate of 30% (or lower treaty rate) on their income resulting from the Fund's
election (described above) to "pass through" the amount of non-U.S. taxes paid
by the Fund, but may not be able to claim a credit or deduction with respect
to the non-U.S. income taxes treated as having been paid by them.
A non-U.S. shareholder whose income is not treated as "effectively
connected" with a U.S. trade or business generally will not be subject to U.S.
Federal income taxation on distributions of net long-term capital gains,
amounts retained by the Fund which are designated as undistributed capital
gains and any gain realized upon the sale of Fund shares. The Fund will incur
a U.S. Federal income tax liability with respect to amounts retained by it
that are designated as undistributed capital gains. The non-U.S. shareholder
may claim a credit with respect to such taxes paid by the Fund and may claim a
refund where such taxes exceed such shareholder's U.S. Federal income tax
liabilities, but must file a tax return to do so. In addition, if the non-U.S.
shareholder is treated as a non-resident alien individual but is physically
present in the United States for more than 182 days during the taxable year,
then in certain circumstances such distributions of net long-term capital
gains, amounts retained by the Fund which are designated as undistributed
capital gains, and gain from the sale of Fund shares will be subject to a U.S.
Federal income tax of 30% (or lower treaty rate). In the case of a non-U.S.
shareholder who is a non-resident alien individual, the Fund may be required
to withhold U.S. Federal income tax at a rate of 31% of distributions
(including distributions of net long-term capital gains) unless IRS Form W-8
is provided. See "Taxation--U.S. Taxation" in the Prospectus and "Backup
Withholding" above in this SAI.
If the income from the Fund is "effectively connected" with a U.S. trade or
business carried on by a non-U.S. shareholder, then distributions of net
investment income (which includes short-term capital gains), whether received
in cash or reinvested in shares, net long-term capital gains and amounts
otherwise includible in income, such as amounts retained by the Fund which are
designated as undistributed capital gains, and any gains realized upon the
sale of shares of the fund, will be subject to U.S. Federal income tax at the
graduated rates applicable to U.S. taxpayers. Non-U.S. shareholders that are
corporations may also be subject to the branch profits tax.
Transfers of shares of the Fund by gift by a non-U.S. shareholder will
generally not be subject to U.S. Federal gift tax, but the value of shares of
the Fund held by such a shareholder at death will be includible in the
shareholder's gross estate for U.S. Federal estate tax purposes.
The income tax and estate tax consequences to a non-U.S. shareholder
entitled to claim the benefits of an applicable tax treaty may be different
from those described herein. Non-U.S. shareholders may be required to provide
appropriate documentation to establish their entitlement to the benefits of
such a treaty.
Non-U.S. shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in shares
of the Fund.
Foreign Exchange-Related Transactions; Hedging Transactions
Debt securities denominated in foreign currencies (and, in some
circumstances, futures, options, forwards and other similar financial
instruments based on foreign currencies) held by the Fund, and gains or losses
attributable to fluctuations in exchange rates that occur between the time the
Fund accrues income or expense denominated in a foreign currency and the time
the Fund actually collects such income or pays such expense, will be subject
to special rules for determining, among other things, the character and timing
of income, deductions, gain, and loss attributable to foreign exchange gain or
loss. In general, these rules operate to treat as ordinary income or loss (to
be taken into account in computing net investment income) the portion of a
gain or loss so attributable. In addition, the hedging transactions which may
be undertaken by the Fund may result in "straddles" for U.S. Federal income
tax purposes. The straddle rules may affect the character and timing of
income, deduction, gain or loss recognized by the Fund. Certain hedging
transactions may increase the amount of short-term capital gain realized by
the Fund, which is taxed as ordinary income when distributed to shareholders.
These rules may also require the acceleration of the recognition of income or
gain by the Fund before the Fund receives the cash required to make
distributions to shareholders. All of these rules may affect the timing and
amount of distributions to shareholders. The gross income and diversification
requirements
14
<PAGE>
applicable to regulated investment companies, described above, may limit the
extent to which the Fund will be able to engage in transactions in options,
futures currency exchange contracts.
Other Taxation
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies," the Fund may be subject to U.S.
Federal income tax on a portion of any "excess distribution" or gain from the
disposition of such shares even if such income or gain is distributed as a
taxable dividend by the Fund to its shareholders. Additional charges in the
nature of interest may be imposed on the Fund in respect of deferred taxes
arising from such distributions or gains. Proposed regulations would generally
allow the Fund to elect to mark to market annually all of the stock of passive
foreign investment companies held by the Fund. Gain recognized pursuant to
such election is generally treated as ordinary income subject to the
distribution requirements discussed above. It is unclear, however, whether and
in what form such regulations might be promulgated in final form. If the Fund
were to invest in a passive foreign investment company which the Fund elected
to treat as a "qualified electing fund" under the Code, in lieu of the
foregoing requirements, the Fund would ordinarily be required to include in
income each year a portion of the ordinary earnings and net capital gains of
the qualified electing fund, even if not distributed to the Fund, and such
amounts would be subject to the 90% and calendar year distribution
requirements described above. Proposed legislation would revise the passive
foreign investment company rules in various respects; it is unclear whether
and in what form, such legislation might be enacted.
Distributions from the Fund may be subject to additional U.S. Federal,
state, local and non-U.S. taxes depending on each shareholder's particular
situation. Shareholders should consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund and of
the possible impact of changes in applicable tax laws.
If the Fund did not qualify as a regulated investment company for any
taxable year, (i) it would be subject to U.S. Federal income tax at regular
corporate rates on its taxable income (which would be computed without
deduction for distributions paid to shareholders) and to certain state and
local taxes, (ii) its distributions to shareholders out of its current or
accumulated earnings and profits would be taxable to shareholders as ordinary
dividend income (even if derived from long-term capital gains) and subject to
withholding in the case of non-U.S. shareholders and (iii) non-U.S. income
taxes, and U.S. Federal income taxes paid by the Fund on any undistributed
long-term capital gains, would not "pass through" to shareholders. In
addition, if the Fund failed to qualify for taxation as a regulated investment
company for a period greater than one taxable year, the Fund would be required
to recognize any net built-in gains (the excess of aggregate gains over
aggregate losses that would have been realized if it had been liquidated) if
it were to qualify as a regulated investment company in a later taxable year.
BRAZILIAN TAXES
The following description of certain Brazilian tax matters relating to the
Fund and its shareholders represents the opinion of Brazilian counsel to the
Fund.
Capital gains earned by the Fund from its activities in Brazil are currently
exempt from income tax. However, the Brazilian Government has introduced a
bill in the Brazilian Congress which included a proposal whereby the capital
gains earned by Managed Portfolios (such as the Fund) would be subject to
income tax at the following rates: (i) 5%, when earned in the 1996 calendar
year; (ii) 10%, when earned in the 1997 calendar year; and (iii) 15%, when
earned from the 1998 calendar year onward. A more recent proposal would
provide an exemption from such taxes for investments with a term of 180 days
or more. Following discussions, the Government agreed to withdraw its original
proposal. No guarantee can be given that capital gains earned by the Fund will
remain exempt from income tax in the future.
Under Brazilian Law 8981 of January 20, 1995, a 15% withholding tax is
imposed on distribution of dividends (but not on capital gains) received from
investments in securities at the time the Fund receives the
15
<PAGE>
income. Other income (excluding capital gains), such as interest, is subject
to a 10% withholding tax imposed at the time the Fund earns income.
Upon distribution of income and/or total or partial liquidation of the
investment, the amount attributed to the foreign investor (including capital
gains and income) can be remitted abroad tax-free.
Dividends paid by the Fund outside of Brazil are not subject to any
Brazilian taxes.
Should the Fund contravene any applicable regulations, it could become
subject to Brazilian tax rates applicable to other foreign investors, which
are likely to be less favorable than those described above.
Pursuant to Decree 1591 of August 10, 1995, Reais resulting from the
conversion of foreign currency by the Fund that are used by the Fund to invest
in securities of Brazilian entities are subject to a tax on financial
transactions ("IOF"). Under article four thereof, the Ministry of Finance is
empowered to establish the applicable IOF rate. The IOF tax rate initially was
set at 0%, subsequently increased to 1.0% and on March 10, 1995 reduced to 0%
again. Under Law 8894 of June 21, 1994, such IOF rate may be increased at any
time to a maximum rate of 25%.
There are no other Brazilian taxes (currency gain, estate, sales, transfer,
property, stamp, etc.) applicable to the Fund or its shareholders in
connection with the Fund's proposed activities in Brazil.
PORTFOLIO TRANSACTIONS AND BROKERAGE
To the maximum extent feasible, the Manager places orders for portfolio
transactions through its wholly owned subsidiary, Scudder Investor Services,
Inc. (the "Distributor"), which in turn places orders on behalf of the Fund
with other brokers and dealers. The Distributor receives no commission, fees
or other remuneration from the Fund for this service. Allocation of brokerage
is supervised by the Manager.
The primary objective of the Manager in placing orders for the purchase and
sale of securities for the Fund's portfolio is to obtain the most favorable
net results, taking into account such factors as price, commission (fixed in
the case of transactions on the Stock Exchanges and subject to a 50% discount
for transactions effected by Brazilian brokers), size of order, difficulty of
execution and skill required of the broker/dealer. Orders for agency
transactions may be placed among Brazilian brokers, consistent with this
policy. The Manager reviews on a routine basis commission rates, execution and
settlement services performed, and performs comparisons among the Fund's
brokers and with other brokers.
When it can be done consistently with the policy of obtaining the most
favorable net results, it is the Manager's practice to place such orders with
brokers and dealers who supply market quotations to the custodian of the Fund
for appraisal purposes, or who supply research, market and statistical
information to the Manager. The term "research, market and statistical
information" includes advice as to the value of securities, the advisability
of investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and
trends, portfolio strategy and the performance of accounts. The Manager is not
authorized when placing portfolio transactions for the Fund to pay a brokerage
commission or transaction cost in excess of that which another broker might
have charged for executing the same transaction solely on account of the
receipt of such research, market or statistical information. The Manager does
not place orders with brokers or dealers on the basis that the broker or
dealer has or has not sold shares of the Fund as part of its initial offering
or the present offering. Except for implementing the policy stated above,
there is no intention to place portfolio transactions with any particular
brokers or dealers or groups thereof. In effecting transactions in over-the-
counter securities, orders are placed with the principal market makers for the
security being traded unless, after exercising care, it appears that more
favorable results are available otherwise.
16
<PAGE>
Although certain research, market and statistical information from brokers
and dealers can be useful to the Fund and to the Manager, such information, in
the Manager's opinion, is only supplementary to the Manager's own research
effort, since the information must still be analyzed, weighed and reviewed by
the Manager's staff. Such information may be useful to the Manager in
providing services to clients other than the Fund, and not all such
information is used by the Manager in connection with the Fund. Conversely,
such information provided to the Manager by brokers and dealers through whom
other clients of the Manager effect securities transactions may be useful to
the Manager in providing services to the Fund.
Consistent with the policy of seeking to obtain the most favorable net
results for the year ended December 31, 1994, the Fund paid brokerage
commissions of $164,469 (100% of the total brokerage commissions) for
transactions placed with brokers and dealers who provided supplementary
research, market and statistical information to the Fund or the Manager. The
amount of such transactions aggregated $64,387,099 (100% of all transactions
subject to brokerage commissions). The balance of the brokerage commissions
for 1994 was not allocated to any particular broker or dealer or with regard
to the above-mentioned or any other special factors.
During the fiscal years ended December 31, 1992 and 1993, the Fund paid
total brokerage commissions of $77,285 and $80,178, respectively.
17
<PAGE>
[LOGO] BRAZIL FUND, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants, August 16, 1995........................ F-2
Investment Portfolio, June 30, 1995....................................... F-3
Statement of Assets and Liabilities, June 30, 1995........................ F-6
Statement of Operations, for the six months ended June 30, 1995........... F-7
Statements of Changes in net assets for the six months ended June 30, 1995
and year ended
December 31, 1994........................................................ F-8
Financial Highlights for the six months ended June 30, 1995 and for the
years ended
December 31, 1994........................................................ F-9
Notes to Financial Statements, June 30, 1995.............................. F-10
Report of Independent Accountants, February 13, 1995...................... F-13
Investment Portfolio, December 31, 1994................................... F-14
Statement of Assets and Liabilities, December 31, 1994.................... F-17
Statement of Operations, for the year ended December 31, 1994............. F-18
Statements of Changes in net assets for the years ended December 31, 1994
and 1993................................................................. F-19
Financial Highlights for the years ended December 31, 1994................ F-20
Notes to Financial Statements, December 31, 1994.......................... F-21
</TABLE>
F-1
<PAGE>
[LOGO] BRAZIL FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and the Board of Directors of The Brazil Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Brazil Fund,
Inc. (the "Fund") at June 30, 1995, the results of its operations, the changes
in its net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1995 by correspondence with the
custodian and brokers, and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 16, 1995
F-2
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO
AS OF JUNE 30, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
INDUSTRY SHARES COMPANY VALUE ($)
-------- ------ ------- ----------
<C> <C> <C> <S> <C>
EQUITY SECURITIES 96.0%
AUTO PARTS 0.9% 93,761,800 (pfd.) Metal Leve S.A.
Industria e Comercio... 2,648,351
----------
BANKING 9.9% 671,737,708 (pfd.) Banco Bradesco S.A. .... 5,692,074
76,294,208 (pfd.) Banco Itau S.A. ........ 23,207,364
----------
28,899,438
----------
CHEMICALS 6.4% 28,647,000 (voting) Companhia Petroquimica
do Sul S.A. ........... 1,117,249
5,039,400 (pfd.) COPENE Petroquimica do
Nordeste S.A. "A"...... 3,980,004
1,458,646,800 (voting) Ucar Carbon S.A. ....... 1,774,779
12,833,921,463 (voting) S/A White Martins ...... 11,711,563
----------
18,583,595
----------
CONSTRUCTION 1.5% 4,476,300 (voting) Odebrecht S.A. ......... 2,514,120
1,182,600 (voting) S/A Moinho Santista
Industrias Gerais*..... 1,862,868
----------
4,376,988
----------
ELECTRICAL EQUIPMENT 4.9% 9,042,000 (pfd.) Brasmotor S.A. ......... 1,669,897
5,813,800 (pfd.) Empresa Brasileira de
Compressores S.A.(b)... 3,979,027
610,582 (voting) Pirelli Cabos S.A.*..... 862,310
17,006,600 (pfd.) Weg S.A. ............... 7,759,665
----------
14,270,899
----------
FOOD AND BEVERAGE 12.0% 56,096,254 (pfd.) Companhia Cervejaria
Brahma ................ 18,403,593
1,001,659 (pfd.) Companhia Cervejaria
Brahma
(New (c)) ............. 299,246
6,314,433 (pfd.) Companhia Cervejaria
Brahma Warrants
(expire 9/30/96)* (b) 823,174
14,551,430 (pfd.) Sadia Concordia S/A. ... 13,595,035
1,768,900 (voting) Santista Alimentos
S.A.*.................. 1,345,171
43,281,812 (pfd.) Sementes Agroceres
S/A. .................. 728,808
----------
35,195,027
----------
FOREST PRODUCTS 10.2% 5,733,599 (pfd.) Aracruz Celulose S.A.
"B"*................... 13,391,893
2,199,600 (pfd.) Companhia Suzano de
Papel e Celulose....... 11,230,983
3,623,792 (pfd.) Industrias Klabin de
Papel e Celulose S/A. . 5,117,794
----------
29,740,670
----------
GLASS 3.2% 2,270,236 (voting) Companhia Vidraria Santa
Marina................. 9,310,311
----------
</TABLE>
F-3
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO
AS OF JUNE 30, 1995
<TABLE>
<CAPTION>
INDUSTRY SHARES COMPANY VALUE ($)
-------- ------ ------- -----------
<C> <C> <C> <S> <C>
IRON AND STEEL 3.2% 12,911,670 (voting) Companhia Siderurgica
Belgo-Mineira ......... 1,280,647
7,200,000,000 (pfd.) Usinas Siderurgicas de
Minas
Gerais S/A. ........... 8,134,709
-----------
9,415,356
-----------
MINING 6.6% 113,888,000 (pfd.) Companhia Vale do Rio
Doce .................. 17,197,645
10,368,389 (pfd.) S.A. Mineracao da
Trindade .............. 259,069
36,396,800 (voting) S.A. Mineracao da
Trindade .............. 1,779,311
-----------
19,236,025
-----------
PETROLEUM 6.4% 222,739,999 (pfd.) Petroleo Brasileiro
S/A. .................. 18,874,221
-----------
RETAILING 3.8% 15,408,041 (pfd.) Casa Anglo Brasileira
S.A.* ................. 1,456,273
101,031,600 (pfd.) Lojas Americanas S.A. .. 2,250,025
247,237,800 (voting) Lojas Americanas S.A. .. 5,626,977
27,899,465 (pfd.) Mesbla S.A. ............ 1,666,997
-----------
11,000,272
-----------
TELECOMMUNICATIONS 12.4% 511,256,600 (pfd.) Telecomunicacoes
Brasileiras S.A. ...... 16,828,979
7,358,900 (pfd.) Telecomunicacoes do
Parana S.A. ........... 2,046,582
141,212,067 (pfd.) Telecomunicacoes de
Sao Paulo S.A. ........ 17,486,978
-----------
36,362,539
-----------
TEXTILES AND APPAREL 3.2% 457,766,740 (pfd.) Cia. Hering ............ 3,978,418
92,193,348 (pfd.) Cia. Hering Textile (b)
....................... 250,389
32,529,600 (pfd.) Sao Paulo Alpargatas
S.A. .................. 5,124,163
-----------
9,352,970
-----------
TOBACCO 5.0% 1,943,043 (voting) Companhia Souza Cruz
Industria e Comercio .. 14,670,450
-----------
UTILITY 6.4% 19,000,000 (pfd.) Centrais Eletricas
Brasileiras
S/A "B" ............... 5,057,034
540,740,952 (pfd.) Companhia Energetica de
Minas Gerais .......... 10,573,968
45,510,000 (pfd.) Companhia Energetica de
Sao Paulo ............. 1,799,635
217,211,500 (voting) Companhia Paranaense de
Energia................ 1,422,906
-----------
18,853,543
-----------
TOTAL EQUITY SECURITIES
(Cost $120,276,286).... 280,790,655
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO
AS OF JUNE 30, 1995
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT ($) VALUE ($)
---------- -----------
<C> <C> <S> <C>
REPURCHASE 11,633,000 Repurchase Agreement with Donaldson,
AGREEMENT 4.0% Lufkin & Jenrette, dated 6/30/95 at
6.07%, to be repurchased at
$11,638,884 on 7/3/95,
collateralized by a $11,970,000 U.S.
Treasury Note, 4.75%, 8/31/98 (Cost
$11,633,000)........................ 11,633,000
-----------
TOTAL INVESTMENT PORTFOLIO--100.0%
(Cost $131,909,286) (a) ............ 292,423,655
===========
</TABLE>
- --------
(a) The cost of the investment portfolio for federal income tax purposes was
$131,928,453. At June 30, 1995, net unrealized appreciation for all
securities based on tax cost was $160,495,202. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $166,401,634 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $5,906,432.
(b) Securities valued in good faith by the Board of Directors. The cost of
these securities at June 30, 1995 aggregated $2,553,185. See Note A of the
Notes to Financial Statements.
(c) New shares issued during 1995, eligible for a pro rata share of 1995
dividends.
* Non-income producing security.
F-5
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1995
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (identified cost $131,909,286)
(Notes A and D)........................................ $292,423,655
Cash.................................................... 479
Foreign currency holdings, at market (identified cost
$4,884,225) (Note A)................................... 4,806,423
Receivable for investments sold......................... 65,770
Dividends and interest receivable....................... 666,390
Other assets............................................ 1,768
------------
Total assets........................................ 297,964,485
LIABILITIES
Payables:
Investments purchased................................. $ 86,710
Accrued management fee (Note C)....................... 299,268
Accrued administrator's fee (Note C).................. 8,333
Other accrued expenses (Note C)....................... 388,921
--------
Total liabilities................................... 783,232
------------
Net assets.............................................. $297,181,253
============
NET ASSETS
Net assets consist of:
Undistributed net investment income................... $ 3,143,646
Accumulated net realized gain......................... 10,221,173
Net unrealized appreciation (depreciation) on:
Investments......................................... 160,514,369
Foreign currency denominated transactions........... (83,646)
Common stock.......................................... 121,463
Additional paid-in capital............................ 123,264,248
------------
Net assets.............................................. $297,181,253
============
Net asset value per share ($297,181,253 divided by
12,146,285 shares of common stock outstanding,
50,000,000 shares authorized, $.01 par value).......... $ 24.47
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<S> <C> <C>
Investment income
Income:
Dividends (net of withholding tax of $976,899)
(Note A)..................................... $ 5,404,301
Interest...................................... 329,470
------------
5,733,771
Expenses:
Management fee (Note C)....................... $ 1,813,742
Administrator's fee (Note C).................. 28,660
Custodian and accounting fees (Note C)........ 542,296
Directors' fees and expenses (Note C)......... 43,692
Auditing and tax services..................... 49,250
Reports to shareholders....................... 26,541
Legal......................................... 8,920
Other......................................... 77,024 2,590,125
------------ ------------
Net investment income........................... 3,143,646
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVEST-
MENT TRANSACTIONS
Net realized gain (loss) from:
Investments (Note A).......................... 10,626,743
Foreign currency denominated transactions..... (302,140) 10,324,603
------------
Net unrealized depreciation during the period
on:
Investments................................... (91,018,976)
Foreign currency denominated transactions..... (46,186) (91,065,162)
------------ ------------
Net loss on investment transactions............. (80,740,559)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERA-
TIONS............................................ $(77,596,913)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
INCREASE (DECREASE) IN NET ASSETS JUNE 30, 1995 DECEMBER 31, 1994
- --------------------------------- ---------------- -----------------
<S> <C> <C>
Operations:
Net investment income (loss)................ $ 3,143,646 $ (2,009,799)
Net realized gain from investment transac-
tions...................................... 10,324,603 28,598,195
Net unrealized appreciation (depreciation)
on investment transactions during the
period..................................... (91,065,162) 125,691,549
------------ ------------
Net increase (decrease) in net assets
resulting from operations.................... (77,596,913) 152,279,945
------------ ------------
Distributions to shareholders from net
realized gains from investment transactions
($.24 and $2.46 per share, respectively)..... (2,853,224) (29,783,356)
------------ ------------
Net asset value of shares issued to
shareholders in reinvestment of
distributions................................ 1,109,418 330,047
------------ ------------
INCREASE (DECREASE) IN NET ASSETS............. (79,340,719) 122,826,636
Net assets at beginning of period............. 376,521,972 253,695,336
------------ ------------
NET ASSETS AT END OF PERIOD (including
undistributed net investment income of
$3,143,646 in 1995).......................... $297,181,253 $376,521,972
============ ============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period..... 12,107,722 12,093,826
Shares issued to shareholders in reinvest-
ment of distributions...................... 38,563 13,896
------------ ------------
Shares outstanding at end of period........... 12,146,285 12,107,722
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information dervied from the
financial statements and market price data.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED DECEMBER 31,
JUNE 30, ---------------------------------------
1995 1994 1993 1992 1991 1990
---------- ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning
of period................ $ 31.10 $20.98 $14.12 $13.80 $ 5.97 $ 18.85
------- ------ ------ ------ ------- -------
Net investment income
(loss)(a).............. .26 (.17) .10 .19 .95 1.32
Net realized and
unrealized gain (loss)
on investment
transactions(a)........ (6.65) 12.75 7.58 .79 6.88 (14.08)
------- ------ ------ ------ ------- -------
Total from investment
operations............... (6.39) 12.58 7.68 .98 7.83 (12.76)
------- ------ ------ ------ ------- -------
Less distributions from:
Net investment income... -- -- (.08) -- -- (.12)
Net realized gains on
investments............ (.24) (2.46) (.74) (.66) -- --
------- ------ ------ ------ ------- -------
Total distributions....... (.24) (2.46) (.82) (.66) -- (.12)
------- ------ ------ ------ ------- -------
Net asset value, end of
period................... $ 24.47 $31.10 $20.98 $14.12 $ 13.80 $ 5.97
======= ====== ====== ====== ======= =======
Market value, end of
period................... $ 25.13 $33.00 $21.13 $13.63 $ 14.75 $ 6.63
======= ====== ====== ====== ======= =======
TOTAL INVESTMENT RETURN
Per share market value
(%).................... (23.10)** 69.81 60.89 (3.91) 122.64 (47.98)
Per share net asset
value (%)(b)........... (20.50)** 61.09 54.19 6.43 131.16 (67.98)
RATIOS AND SUPPLEMENTAL
DATA
Net assets, end of
period ($ millions).... 297 377 254 171 167 72
Ratio of operating
expenses to average net
assets (%)(c).......... 1.67* 1.71 1.84 2.22 2.15 2.25
Ratio of net investment
income (loss) to
average net assets (%). 2.02* (.58) .56 1.13 8.13 11.27
Portfolio turnover rate
(%).................... 9.91* 5.76 4.67 7.94 12.69 4.31
</TABLE>
- --------
(a) Realized and unrealized currency losses on the Fund's interest bearing
accounts amounted to $.31, $.86 and $2.96 per share in 1992, 1991 and
1990, respectively, of which $1.27 per share is included in net investment
income in 1990.
(b) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund
during each period, and assumes dividends and capital gains distributions,
if any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value of the Fund during each period.
(c) For the years ended December 31, 1993, 1992 and 1990 the ratio of
expenses, including the Brazilian repatriation tax, to average net assets
was 2.22%, 2.39% and 2.56%, respectively.
* Annualized
** Not annualized
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
The Brazil Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good
faith by the Valuation Committee of the Board of Directors. Securities valued
in good faith amounted to $5,052,590 (1.7% of net assets) and are noted in the
Investment Portfolio as of June 30, 1995.
Foreign Currency Translations. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) values of investment securities, other assets and liabilities at the
daily rate of exchange;
(ii) purchases and sales of investment securities, dividend and interest
income and expenses at the daily rate of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Taxation. The Fund's policy is to comply with the requirements of the
Internal Revenue Code which are applicable to regulated investment companies,
and to distribute all of its taxable income to its shareholders. The Fund
accordingly paid no U.S. federal income taxes, and no federal income tax
provision was required.
The Fund is subject to a 15% withholding tax on dividend and interest
income.
Distribution of Income and Gains. The Fund intends to distribute to
shareholders, at least annually, all of its tax basis net investment income,
any net short-term capital gains in excess of net long-term capital losses
(including any capital loss carryover) and expects to distribute annually any
net long-term capital gains in excess of net short-term capital losses
(including any capital loss carryover), which would be taxable to the Fund if
not distributed. An additional distribution may be made to the extent
necessary to avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated investments and
certain securities sold at a loss. As a result,
F-10
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
net investment income (loss) and net realized gain (loss) on investment and
foreign currency related transactions for a reporting period may differ
significantly from distributions during such period. Accordingly, the Fund may
periodically make reclassifications among certain of its capital accounts
without impacting the net asset value of the Fund.
Other. Investment security transactions are accounted for on a trade date
basis. Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Distributions to shareholders are recorded at
the earlier of ex or record date. The Fund uses the identified cost method for
determining realized gain or loss on investments and foreign currency for both
financial and federal income tax reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
During the six months ended June 30, 1995, purchases and sales of investment
securities (excluding short-term investments) aggregated $15,123,855 and
$26,922,255, respectively.
C. INVESTMENT ADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATED PERSONS
Under the Fund's Investment Advisory and Management Agreement (the
"Management Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"),
the Fund agrees to pay the Adviser a monthly fee at an annual rate equal to
1.30% of the first $150,000,000 of the Fund's average weekly net assets, 1.25%
of such assets over $150,000,000 and up to and including $300,000,000, and
1.20% of such assets in excess of $300,000,000. For the six months ended June
30, 1995, the fee pursuant to the Management Agreement amounted to $1,813,742.
The Adviser has entered into a Research and Advisory Agreement (the
"Advisory Agreement") with Banco Icatu S/A (the "Brazilian Adviser"), whereby
the Brazilian Adviser provides such investment advice, research, and
assistance as the Adviser may from time to time reasonably request. Under the
Advisory Agreement, the Adviser pays the Brazilian Adviser a monthly fee,
equal to 0.25% of the first $150,000,000 of the Fund's average weekly net
assets, 0.15% of such assets over $150,000,000 and up to and including
$300,000,000, and 0.05% of such assets over $300,000,000. Additionally, the
Brazilian Adviser has agreed to waive approximately one half of their fees.
The Adviser has agreed to pass this waiver through to the Fund and has reduced
its fees accordingly. For the six months ended June 30, 1995, the fee pursuant
to the Advisory Agreement aggregated $299,142, of which $149,571 was waived
and reflected as a reduction of the management fee.
The Fund and the Adviser entered into an Administration Agreement with Banco
de Boston S.A. ("Banco de Boston"), pursuant to which Banco de Boston acts as
the Fund's Brazilian Administrator. The Fund has agreed to pay Banco de
Boston, for services rendered, an annual fee payable quarterly in Brazilian
currency equal to $50,000 per year plus out of pocket expenses. For the six
months ended June 30, 1995, the Administrator fee amounted to $28,660.
Effective June 6, 1995, Scudder Fund Accounting Corporation ("SFAC"), a
wholly-owned subsidiary of the Adviser, assumed responsibility for determining
the daily net asset value per share and maintaining the portfolio and general
accounting records of the Fund. For the six months ended June 30, 1995, the
amount charged to the Fund by SFAC aggregated $12,744, all of which is unpaid
at June 30, 1995.
The Fund pays each Director not affiliated with the Adviser an annual fee of
$6,000 except for two Directors who, as residents of Brazil, receive a fee of
$12,000, plus specified amounts for each Board of Directors or committee
meeting attended. For the six months ended June 30, 1995, Directors' fees and
expenses amounted to $43,692.
F-11
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL
Investing in Brazil may involve considerations not typically associated with
investing in securities issued by domestic companies such as more volatile
prices and less liquid securities.
The Brazilian Government has exercised and continues to exercise substantial
influence over many aspects of the private sector by legislation and
regulation, including regulation of prices and wages.
Brazilian law imposes certain limitations and controls which generally
affect foreign investors in Brazil. The Fund has obtained from the Brazilian
Securities Commission authorization, subject to certain restrictions, to
invest in Brazilian securities. Under current Brazilian law, the Fund may
repatriate income received from dividends and interest earned on, and net
realized capital gains from, its investments in Brazilian securities. Under
its authorization, the Fund may also repatriate capital, but only to the
extent necessary to distribute income and capital gains (as computed for U.S.
federal income tax purposes), to pay expenses incurred outside of Brazil, to
repay borrowings made for temporary or emergency purposes, and in connection
with the termination of the Fund (provided that the Fund's dissolution has
been approved by holders of at least two-thirds of the Fund's shares). Under
current Brazilian law, whenever there occurs a serious imbalance in Brazil's
balance of payments or serious reasons to foresee the imminence of such an
imbalance, Brazil's National Monetary Council may, for a limited period,
impose restrictions on foreign capital remittances abroad. Exchange control
regulations, which may restrict repatriation of investment income, capital or
the proceeds of securities sales by foreign investors, may limit the Fund's
ability to make sufficient distributions, within applicable time periods, to
qualify for the favorable U.S. tax treatment afforded to regulated investment
companies.
The Fund is unable to predict whether further economic reforms or
modifications to the existing policies by the Brazilian Government may
adversely affect the liquidity of the Brazilian stock market in the future.
E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
<TABLE>
<CAPTION>
NET GAIN (LOSS) NET INCREASE
ON INVESTMENT AND (DECREASE)
FOREIGN CURRENCY IN NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING
INCOME INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
------------ ----------------- ------------------ ------------------
PER PER PER PER
1995 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ------ ----- -------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31................ $3,337 $.27 $ 2,007 $ .17 $(104,842) $ (8.64) $(102,835) $ (8.47)
June 30................. 2,397 .20 1,137 .09 24,101 1.99 25,238 2.08
------ ---- -------- ------ --------- ------- --------- -------
Totals.................. $5,734 $.47 $ 3,144 $ .26 $ (80,741) $ (6.65) $ (77,597) $ (6.39)
====== ==== ======== ====== ========= ======= ========= =======
<CAPTION>
PER PER PER PER
1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ------ ----- -------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31................ $1,119 $.09 $ (373) $ (.03) $ 83,849 $ 6.93 $ 83,476 $ 6.90
June 30................. 986 .08 (133) (.01) (62,259) (5.15) (62,392) (5.16)
September 30............ 1,017 .09 (503) (.04) 182,768 15.11 182,265 15.07
December 31............. 829 .07 (1,001) (.09) (50,068) (4.14) (51,069) (4.23)
------ ---- -------- ------ --------- ------- --------- -------
Totals.................. $3,951 $.33 $ (2,010) $ (.17) $ 154,290 $12.75 $ 152,280 $12.58
====== ==== ======== ====== ========= ======= ========= =======
</TABLE>
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and the Board of Directors of The Brazil Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Brazil Fund,
Inc. (the "Fund") at December 31, 1994, the results of its operations, the
changes in its net assets and the financial highlights for each of the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1994 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 13, 1995
F-13
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO
AS OF DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
INDUSTRY SHARES COMPANY VALUE ($)
-------- ------ ------- ----------
<C> <C> <C> <S> <C>
EQUITY SECURITIES 92.8%
AUTO PARTS 1.1%.......... 103,761,800 (pfd.) Metal Leve S.A.
Industria e Comercio... 4,354,071
----------
BANKING 5.4% 77,794,208 (pfd.) Banco Itau S.A. ........ 21,794,332
----------
CHEMICALS 7.8% 21,347,000 (voting) Companhia Petroquimica
do Sul S.A. ........... 1,261,643
11,029,400 (pfd.) COPENE Petroquimica do
Nordeste S.A. "A"...... 9,634,429
182,330,850 (voting) Ucar Carbon S.A. ....... 3,232,816
1,176,720,133 (voting) S/A White Martins....... 17,108,342
----------
31,237,230
----------
CONSTRUCTION 2.2% 4,476,300 (voting) Odebrecht S.A........... 3,783,161
1,182,600 (voting) S/A Moinho Santista
Industrias Gerais*..... 4,892,553
----------
8,675,714
----------
ELECTRICAL EQUIPMENT 5.9% 14,718,000 (pfd.) Brasmotor S.A. ......... 5,967,227
5,613,800 (pfd.) Empresa Brasileira de
Compressores S.A. (b).. 5,175,844
610,582 (voting) Pirelli Cabos S.A.*..... 1,263,024
17,006,600 (pfd.) Weg S.A. (b)............ 11,458,348
----------
23,864,443
----------
FOOD AND BEVERAGE 11.2% 58,096,254 (pfd.) Companhia Cervejaria
Brahma................. 19,149,102
6,314,433 (pfd.) Companhia Cervejaria
Brahma Warrants (expire
9/30/96)*.............. 671,748
1,748,900 (voting) Santista Alimentos
S.A.*.................. 3,597,028
14,551,430 (pfd.) Sadia Concordia S/A. ... 20,296,321
51,481,812 (pfd.) Sementes Agroceres
S/A. .................. 1,399,624
----------
45,113,823
----------
FOREST PRODUCTS 9.0% 4,747,700 (pfd.) Aracruz Celulose S.A.
"B"*................... 12,901,847
2,236,600 (pfd.) Companhia Suzano de
Papel e Celulose S.A. . 15,333,664
5,199,792 (pfd.) Industrias Klabin de
Papel e
Celulose S/A. ......... 7,744,371
----------
35,979,882
----------
GLASS 2.9% 2,310,236 (voting) Companhia Vidraria Santa
Marina................. 11,824,258
----------
</TABLE>
F-14
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO--(CONTINUED)
AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
INDUSTRY SHARES COMPANY VALUE ($)
-------- ------ ------- -----------
<C> <C> <C> <S> <C>
IRON AND STEEL 5.0% 17,207,708 (pfd.) Companhia Siderugica
Belgo-Mineira.......... 2,379,789
12,911,670 (voting) Companhia Siderugica
Belgo-Mineira.......... 1,839,074
185,600,000 (voting) Companhia Siderugica
Nacional............... 6,329,267
7,000,000,000 (pfd.) Usinas Siderurgicas de
Minas
Gerais S/A............. 9,515,366
-----------
20,063,496
-----------
MINING 7.3% 133,888,000 (pfd.) Companhia Vale do Rio
Doce................... 25,479,868
32,408,536 (pfd.) S.A. Mineracao da
Trindade............... 1,681,720
33,088,000 (voting) S.A. Mineracao da
Trindade............... 1,994,667
-----------
29,156,255
-----------
PETROLEUM 7.7% 245,739,999 (pfd.) Petroleo Brasileiro
S/A. .................. 31,077,686
-----------
RETAILING 4.8% 15,408,041 (pfd.) Casa Anglo Brasileira
S.A.*.................. 3,642,563
119,311,600 (pfd.) Lojas Americanas S.A. .. 3,525,757
242,237,800 (voting) Lojas Americanas S.A. .. 6,731,691
29,909,465 (pfd.) Mesbla S.A. ............ 5,373,805
-----------
19,273,816
-----------
TELECOMMUNICATIONS 11.8% 561,256,600 (pfd.) Telecomunicacoes
Brasileiras S.A. ...... 25,143,765
6,478,900 (pfd.) Telecomunicacoes do
Parana S.A. ........... 2,144,317
141,212,067 (pfd.) Telecomunicacoes de
Sao Paulo S.A. ........ 20,113,539
-----------
47,401,621
-----------
TEXTILES AND APPAREL 3.3% 460,166,740 (pfd.) Cia. Hering............. 7,071,120
32,529,600 (pfd.) Sao Paulo Alpargatas
S.A ................... 6,152,170
-----------
13,223,290
-----------
TOBACCO 4.0% 1,943,043 (voting) Companhia Souza Cruz
Industria e Comercio... 16,077,188
-----------
TRANSPORTATION 0.1% 139,030 (pfd.) Varig S.A.*............. 460,147
-----------
UTILITY 3.3% 145,408,480 (pfd.) Cia. Energetica de Minas
Gerais................. 13,234,578
15,911,500 (voting) Companhia Paranaense
de Energia............. 169,459
13,404,037
-----------
TOTAL EQUITY SECURITIES
(Cost $121,447,944).... 372,981,289
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
INVESTMENT PORTFOLIO--(CONTINUED)
AS OF DECEMBER 31, 1994
The accompanying notes are an integral part of the financial statements.
<TABLE>
<CAPTION>
PRINCIPAL
INDUSTRY AMOUNT ($) COMPANY VALUE ($)
-------- ---------- ------- -----------
<C> <C> <C> <S> <C>
COMMERCIAL PAPER 7.2%
7,000,000 Chevron Oil Finance Co.,
5.48%, 1/5/95............. 7,000,000
21,762,000 CIT Group Holdings Inc.,
6.05%, 1/3/95............. 21,762,000
-----------
TOTAL COMMERCIAL PAPER
(Cost $28,762,000)........ 28,762,000
-----------
TOTAL INVESTMENT
PORTFOLIO--100.0%
(Cost $150,209,944) (a)... 401,743,289
===========
</TABLE>
- --------
(a) The cost of the investment portfolio for federal income tax purposes was
$150,229,111. At December 31, 1994, net unrealized appreciation for all
securities based on tax cost was $251,514,178. This consisted of aggregate
gross unrealized appreciation for all securities in which there was an
excess of market value over tax cost of $251,757,523 and aggregate gross
unrealized depreciation for all securities in which there was an excess of
tax cost over market value of $243,345.
(b) Securities valued in good faith by the Board of Directors. The cost of
these securities at December 31, 1994 aggregated $5,227,974. See Note A of
the Notes to Financial Statements.
* Non-income producing security.
F-16
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (identified cost $150,209,944)
(Notes A and D)...................................... $401,743,289
Cash.................................................. 3,102
Foreign currency holdings, at market (identified cost
$882,345) (Note A)................................... 888,603
Dividends and interest receivable..................... 243,342
Other assets.......................................... 1,979
------------
Total assets...................................... 402,880,315
LIABILITIES
Payables:
Dividend Payable.................................... $25,668,371
Accrued management fee (Note C)..................... 405,013
Accrued administrator's fee (Note C)................ 33,333
Other accrued expenses (Note C)..................... 251,626
-----------
Total liabilities................................. 26,358,343
------------
Net assets............................................ $376,521,972
============
NET ASSETS
Net assets consist of:
Accumulated net realized gain....................... $2,749,794
Net unrealized appreciation (depreciation) on:
Investments....................................... 251,533,345
Foreign currency denominated transactions......... (37,460)
Common stock........................................ 121,077
Additional paid-in capital.......................... 122,155,216
------------
Net assets............................................ $376,521,972
============
NET ASSET VALUE per share ($376,521,972 / 12,107,722
shares of common stock outstanding, 50,000,000 shares
authorized, $.01 par value).......................... $ 31.10
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<S> <C> <C>
Investment income
Income:
Dividends (net of withholding tax of $582,727)
(Note A)..................................... $ 3,283,641
Interest...................................... 667,145
------------
3,950,786
Expenses:
Management fee (Note C)....................... $ 4,371,086
Administrator's fee (Note C).................. 52,961
Directors' fees and expenses (Note C)......... 84,504
Custodian fees................................ 1,003,419
Auditing, accounting and tax services......... 85,600
Reports to shareholders....................... 51,917
Legal......................................... 27,069
IPMF tax (Note A)............................. 154,687
Other......................................... 129,342 5,960,585
------------ ------------
Net investment loss............................. (2,009,799)
------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENT TRANSACTIONS
Net realized gain (loss) from:
Investments (net of IOF tax of $47,046) (Note
A)........................................... 28,912,830
Foreign currency denominated transactions..... (314,635) 28,598,195
------------ ------------
Net unrealized appreciation during the period
on:
Investments................................... 125,676,020
Foreign currency denominated transactions..... 15,529 125,691,549
------------ ------------
Net gain on investment transactions............. 154,289,744
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS....................................... $152,279,945
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss)..................... $ (2,009,799) $ 1,231,789
Net realized gain from investment transactions... 28,598,195 10,570,428
Net unrealized appreciation on investment
transactions during the period.................. 125,691,549 80,936,531
------------ ------------
Net increase in net assets resulting from
operations........................................ 152,279,945 92,738,748
------------ ------------
Distributions to shareholders from:
Net investment income ($.08 per share)........... -- (967,506)
------------ ------------
Net realized gains from investment transactions
($2.46 and $.74 per share, respectively)........ (29,783,356) (8,888,487)
------------ ------------
Net asset value of shares issued to shareholders in
reinvestment of distributions..................... 330,047 181,900
------------ ------------
INCREASE IN NET ASSETS............................. 122,826,636 83,064,655
Net assets at beginning of period.................. 253,695,336 170,630,681
------------ ------------
NET ASSETS AT END OF PERIOD (including accumulated
net investment loss of $39,750 in 1993)........... $376,521,972 $253,695,336
============ ============
OTHER INFORMATION
INCREASE IN FUND SHARES
Shares outstanding at beginning of period.......... 12,093,826 12,081,227
Shares issued to shareholders in reinvestment of
distributions................................... 13,896 12,599
------------ ------------
Shares outstanding at end of period................ 12,107,722 12,093,826
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
FINANCIAL HIGHLIGHTS
The following table includes selected data for a share outstanding
throughout each period and other performance information derived from the
financial statements and market price data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period.. $20.98 $14.12 $13.80 $ 5.97 $ 18.85
------ ------ ------ ------- -------
Net investment income (loss)(a)..... (.17) .10 .19 .95 1.32
Net realized and unrealized gain
(loss) on investment
transactions(a).................... 12.75 7.58 .79 6.88 (14.08)
------ ------ ------ ------- -------
Total from investment operations...... 12.58 7.68 .98 7.83 (12.76)
------ ------ ------ ------- -------
Less distributions from:
Net investment income............... -- (.08) -- -- (.12)
Net realized gains on investments... (2.46) (.74) (.66) -- --
------ ------ ------ ------- -------
Total distributions................... (2.46) (.82) (.66) -- (.12)
------ ------ ------ ------- -------
Net asset value, end of period........ $31.10 $20.98 $14.12 $ 13.80 $ 5.97
====== ====== ====== ======= =======
Market value, end of period........... $33.00 $21.13 $13.63 $ 14.75 $ 6.63
====== ====== ====== ======= =======
TOTAL INVESTMENT RETURN
Per share market value (%).......... 69.81 60.89 (3.91) 122.64 (47.98)
Per share net asset value (%)(b).... 61.09 54.19 6.43 131.16 (67.98)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period ($
millions).......................... 377 254 171 167 72
Ratio of operating expenses to
average net assets (%)(c).......... 1.71 1.84 2.22 2.15 2.25
Ratio of net investment income
(loss) to average net
assets (%)......................... (.58) .56 1.13 8.13 11.27
Portfolio turnover rate (%)......... 5.76 4.67 7.94 12.69 4.31
</TABLE>
- --------
(a) Realized and unrealized currency losses on the Fund's interest bearing
accounts amounted to $.31, $.86 and $2.96 per share in 1992, 1991 and
1990, respectively, of which $1.27 per share is included in net investment
income in 1990.
(b) Total investment return based on per share net asset value reflects the
effects of changes in net asset value on the performance of the Fund
during each period, and assumes dividends and capital gains distributions,
if any, were reinvested. These percentages are not an indication of the
performance of a shareholder's investment in the Fund based on market
value due to differences between the market price of the stock and the net
asset value of the Fund during each period.
(c) For the years ended December 31, 1993, 1992 and 1990 the ratio of
expenses, including the Brazilian repatriation tax, to average net assets
was 2.22%, 2.39% and 2.56%, respectively.
F-20
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
A. SIGNIFICANT ACCOUNTING POLICIES
The Brazil Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company. The policies described below are followed consistently by
the Fund in the preparation of its financial statements in conformity with
generally accepted accounting principles.
Security Valuation. Portfolio securities which are traded on U.S. or foreign
stock exchanges are valued at the most recent sale price reported on the
exchange on which the security is traded most extensively. If no sale
occurred, the security is then valued at the calculated mean between the most
recent bid and asked quotations. If there are no such bid and asked
quotations, the most recent bid quotation is used.
Short-term investments having a maturity of sixty days or less are valued at
amortized cost.
All other securities are valued at their fair value as determined in good
faith by the Valuation Committee of the Board of Directors. Securities valued
in good faith amounted to $16,634,192 (4.4% of net assets) and are noted in
the Investment Portfolio as of December 31, 1994.
Foreign Currency Translations. The books and records of the Fund are
maintained in U.S. dollars. Foreign currency amounts are translated into U.S.
dollars on the following basis:
(i) values of investment securities, other assets and liabilities at the
daily rate of exchange;
(ii) purchases and sales of investment securities, dividend and interest
income and expenses at the daily rate of exchange prevailing on the
respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included
with the net realized and unrealized gains and losses from investments.
Net realized and unrealized gain (loss) from foreign currency related
transactions includes gains and losses between trade and settlement dates on
securities transactions, gains and losses arising from the sales of foreign
currency, and gains and losses between the ex and payment dates on dividends,
interest, and foreign withholding taxes.
Taxation. The Fund's policy is to comply with the requirements of the
Internal Revenue Code which are applicable to regulated investment companies,
and to distribute all of its taxable income to its shareholders. The Fund
accordingly paid no U.S. federal income taxes, and no federal income tax
provision was required.
Effective January 1, 1994, the Fund will be subject to a 15% withholding tax
on dividend and interest income. Prior to January 1, 1994, the Fund had been
subject to a 15% Brazilian repatriation tax with respect to remittances
outside of Brazil of its dividend and interest income net of applicable
expenses. The Fund is also subject to a 0.25% Imposto Provisorio Sobre
Movimentacoes Financieras ("IPMF") tax on debits (withdrawals) for banking
transactions. Effective January 1, 1995, the IPMF tax will no longer be
enforced. Additionally, the Fund is subject to a variable rate Imposto Sobre
Operacoes Financeiras ("IOF") tax which is imposed on the redemption of
certain short-term investments. Effective October 20, 1994, the Fund was no
longer able to hold such short-term investments. Therefore, the Fund was not
subject to the IOF tax subsequent to that date.
Distribution of Income and Gains. The Fund intends to distribute to
shareholders, at least annually, all of its tax basis net investment income,
any net short-term capital gains in excess of net long-term capital losses
(including any capital loss carryover) and expects to distribute annually any
net long-term capital gains in excess of net short-term capital losses
(including any capital loss carryover), which would be taxable to the Fund if
not
F-21
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
distributed. An additional distribution may be made to the extent necessary to
avoid the payment of a four percent federal excise tax.
The timing and characterization of certain income and capital gains
distributions are determined annually in accordance with federal tax
regulations which may differ from generally accepted accounting principles.
These differences primarily relate to foreign denominated investments and
certain securities sold at a loss. As a result, net investment income (loss)
and net realized gain (loss) on investment and foreign currency related
transactions for a reporting period may differ significantly from
distributions during such period. Accordingly, the Fund may periodically make
reclassifications among certain of its capital accounts without impacting the
net asset value of the Fund.
Other. Investment security transactions are accounted for on a trade date
basis. Dividend income is recorded on the ex-dividend date. Interest income is
recorded on the accrual basis. Distributions to shareholders are recorded at
the earlier of ex or record date. The Fund uses the identified cost method for
determining realized gain or loss on investments and foreign currency for both
financial and federal income tax reporting purposes.
B. PURCHASES AND SALES OF SECURITIES
During the year ended December 31, 1994, purchases and sales of investment
securities (excluding short-term investments) aggregated $18,932,956 and
$46,021,425, respectively.
C. INVESTMENT ADVISORY AGREEMENTS AND TRANSACTIONS WITH AFFILIATED PERSONS
Under the Fund's Investment Advisory and Management Agreement (the
"Management Agreement") with Scudder, Stevens & Clark, Inc. (the "Adviser"),
the Fund agrees to pay the Adviser a monthly fee at an annual rate equal to
1.30% of the first $150,000,000 of the Fund's average weekly net assets, 1.25%
of such assets over $150,000,000 and up to and including $300,000,000, and
1.20% of such assets in excess of $300,000,000. For the year ended December
31, 1994, the fee pursuant to the Management Agreement amounted to $4,371,086.
The Adviser has entered into a Research and Advisory Agreement (the
"Advisory Agreement") with Banco Icatu S/A (the "Brazilian Adviser"), whereby
the Brazilian Adviser provides such investment advice, research, and
assistance as the Adviser may from time to time reasonably request. Under the
Advisory Agreement, the Adviser pays the Brazilian Adviser a monthly fee,
equal to 0.25% of the first $150,000,000 of the Fund's average weekly net
assets, 0.15% of such assets over $150,000,000 and up to and including
$300,000,000, and 0.05% of such assets over $300,000,000. Effective November
1, 1994, the Brazilian Adviser has agreed to waive approximately one half of
their fees. The Adviser has agreed to pass this waiver through to the Fund and
has reduced its fees accordingly. For the year ended December 31, 1994, the
fee pursuant to the Advisory Agreement aggregated $617,844, of which $55,048
was waived and reflected as a reduction of the management fee.
The Fund and the Adviser entered into an Administration Agreement with Banco
de Boston S.A. ("Banco de Boston"), pursuant to which Banco de Boston acts as
the Fund's Brazilian Administrator. The Fund has agreed to pay Banco de
Boston, for services rendered, an annual fee payable quarterly in Brazilian
currency equal to $50,000 per year plus out of pocket expenses. For the year
ended December 31, 1994, the Administrator fee amounted to $52,961.
The Fund pays each Director not affiliated with the Adviser an annual fee of
$4,500 except for two Directors who, as residents of Brazil, receive a fee of
$9,000, plus specified amounts for each Board of Directors or committee
meeting attended. Effective August 1, 1994, the Fund pays each Director not
affiliated with the Adviser an annual fee of $6,000 except for two Directors
who, as residents of Brazil, receive a fee of $12,000, plus specified amounts
for each Board of Directors or committee meeting attended. For the year ended
December 31, 1994, Directors' fees and expenses amounted to $84,504, of which
$4,886 is unpaid at December 31, 1994.
F-22
<PAGE>
[LOGO] THE BRAZIL FUND, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
D. FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN BRAZIL
Investing in Brazil may involve considerations not typically associated with
investing in securities issued by domestic companies such as more volatile
prices and less liquid securities.
The Brazilian Government has exercised and continues to exercise substantial
influence over many aspects of the private sector by legislation and
regulation, including regulation of prices and wages.
Brazilian law imposes certain limitations and controls which generally
affect foreign investors in Brazil. The Fund has obtained from the Brazilian
Securities Commission authorization, subject to certain restrictions, to
invest in Brazilian securities. Under current Brazilian law, the Fund may
repatriate income received from dividends and interest earned on, and net
realized capital gain from, its investments in Brazilian securities. Under its
authorization, the Fund may also repatriate capital, but only to the extent
necessary to distribute income and capital gains (as computed for U.S. federal
income tax purposes), to pay expenses incurred outside of Brazil, to repay
borrowings made for temporary or emergency purposes, and in connection with
the termination of the Fund (provided that the Fund's dissolution has been
approved by holders of at least two-thirds of the Fund's shares). Under
current Brazilian law, whenever there occurs a serious imbalance in Brazil's
balance of payments or serious reasons to foresee the imminence of such an
imbalance, Brazil's National Monetary Council may, for a limited period,
impose restrictions on foreign capital remittances abroad. Exchange control
regulations, which may restrict repatriation of investment income, capital or
the proceeds of securities sales by foreign investors, may limit the Fund's
ability to make sufficient distributions, within applicable time periods, to
qualify for the favorable U.S. tax treatment afforded to regulated investment
companies.
The Fund is unable to predict whether further economic reforms or
modifications to the existing policies by the Brazilian Government may
adversely affect the liquidity of the Brazilian stock market in the future.
E. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (000 OMITTED)
<TABLE>
<CAPTION>
NET GAIN (LOSS) NET INCREASE
ON INVESTMENT AND (DECREASE)
FOREIGN CURRENCY IN NET ASSETS
INVESTMENT NET INVESTMENT DENOMINATED RESULTING
INCOME INCOME (LOSS) TRANSACTIONS FROM OPERATIONS
-------------- ----------------- ------------------- ----------------
PER PER PER PER
1994 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ------- ----- -------- ------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31................ $ 1,119 $ .09 $ (373) $ (.03) $ 83,849 $ 6.93 $ 83,476 $ 6.90
June 30................. 986 .08 (133) (.01) (62,259) (5.15) (62,392) (5.16)
September 30............ 1,017 .09 (503) (.04) 182,768 15.11 182,265 15.07
December 31............. 829 .07 (1,001) (.09) (50,068) (4.14) (51,069) (4.23)
------- ----- -------- ------ --------- ------- -------- ------
Totals................ $ 3,951 $ .33 $ (2,010) $ (.17) $ 154,290 $ 12.75 $152,280 $12.58
======= ===== ======== ====== ========= ======= ======== ======
<CAPTION>
PER PER PER PER
1993 TOTAL SHARE TOTAL SHARE TOTAL SHARE TOTAL SHARE
- ---- ------- ----- -------- ------- --------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31................ $ 1,180 $ .10 $ 245 $ .02 $ 28,741 $ 2.38 $ 28,986 $ 2.40
June 30................. 3,097 .26 1,757 .15 23,242 1.92 24,999 2.07
September 30............ 3,985 .33 2,526 .21 29,066 2.41 31,592 2.62
December 31............. (2,135) (.18) (3,296) (.28) 10,458 .87 7,162 .59
------- ----- -------- ------ --------- ------- -------- ------
Totals................ $ 6,127 $ .51 $ 1,232 $ .10 $ 91,507 $ 7.58 $ 92,739 $ 7.68
======= ===== ======== ====== ========= ======= ======== ======
</TABLE>
F-23
<PAGE>
THE BRAZIL FUND, INC.
PART C--OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) FINANCIAL STATEMENTS
The following Financial Statements have been included as part of Item 23:
<TABLE>
<C> <C> <S>
(i) --Investment Portfolio as of December 31, 1994 and June 30, 1995
(ii) --Statement of Assets and Liabilities as of December 31, 1994 and
June 30, 1995
(iii) --Statement of Operations for the year ended December 31, 1994 and
the six months ended June 30, 1995
(iv) --Statements of Changes in Net Assets for the year ended December
31, 1994 and for the six months ended June 30, 1995
(v) --Financial Highlights for each of the years ended December 31, 1990
through 1994 and for the six months ended June 30, 1995
(vi) --Notes of Financial Statements for the year ended December 31, 1994
and the six months ended June 30, 1995
(vii) --Reports of Independent Accountants
</TABLE>
(2) EXHIBITS
<TABLE>
<C> <C> <S>
a. (i) --Articles of Incorporation dated September 25, 1987. (Incorporated
by reference to Exhibit 1 to the Fund's original Registration
Statement on Form N-2, Registration No. 33-18274 (the
"Registration Statement").)
a. (ii) --Amendment to Articles of Incorporation dated November 21, 1990.
(Incorporated by reference to Exhibit 1(b) to Amendment No. 5 to
the Registration Statement ("Amendment No. 5").)
b. (i) --By-Laws dated October 26, 1987. (Incorporated by reference to
Exhibit (2)(a) to the Registration Statement.)
b. (ii) --Amendment to By-Laws dated November 28, 1989. (Incorporated by
reference to Exhibit (2)(b) to Amendment No. 4 to the Registration
Statement ("Amendment No. 4.").)
b. (iii) --Amendment to By-Laws dated February 22, 1990. (Incorporated by
reference to Exhibit (2)(c) to Amendment No. 4.)
b. (iv) --Amendment to By-Laws dated May 30, 1991. (Incorporated by
reference to Exhibit 2(d) to Amendment No. 6 to the Registration
Statement.)
b. (v) --Amendment to By-Laws dated May 21, 1992.
b. (vi) --Amendment to By-Laws dated July 28, 1992.
b. (vii) --Amendment to By-Laws dated July 27, 1993.
b. (viii) --Amendment to By-Laws dated May 19, 1994.
c. --Not applicable.
d. --Specimen certificate representing shares of Common Stock, $.01
par value per share. (Incorporated by reference to Exhibit 4 to
Amendment No. 3 to the Registration Statement ("Amendment
No. 3").)
e. --Amended Dividend Reinvestment and Cash Purchase Plan dated July
26, 1990. (Incorporated by reference to Exhibit 10 to Amendment
No. 5.)
f. --Not applicable.
g. (i) --Investment Advisory, Management and Administration Agreement,
dated July 26, 1995, between the Fund and the Manager.
(Incorporated by reference to Exhibit g(i) to Amendment No. 7 to
the Registration Statement ("Amendment No. 7").)
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <C> <S>
g. (ii) --Research and Advisory Agreement, dated July 26, 1995, between the
Manager and the Brazilian Adviser. (Incorporated by reference to
Exhibit g(ii) to Amendment No. 7.)
g. (iii) --Administration Agreement, dated April 30, 1992, between the
Manager and the Brazilian Administrator. (Incorporated by reference
to Exhibit g(iii) to Amendment No. 7.)
h. (i) --Form of Dealer Manager Agreement.
h. (ii) --Form of Soliciting Dealer Agreement.
h. (iii) --Form of Selling Group Agreement.
i. --Not applicable.
j. (i) --Custodian Agreement (the "Custodian Agreement"), dated as of March
2, 1995, between the Fund and Brown Brothers Harriman & Co. (the
"Custodian").
j. (ii) --Fee Schedule relating to the Custodian Agreement.
j. (iii) --Subcustodian Agreement, dated March 30, 1988, between the
Custodian and The First National Bank of Boston. (Incorporated by
reference to Exhibit 9(b)(1) to the Registration Statement.)
k. (i) --Form of Subscription Agent Agreement.
k. (ii) --Form of Information Agent Agreement.
k (iii) --Shareholder Servicing Agreement, dated as of June 16, 1994,
between the Fund and Scudder Service Corporation
k. (iv) --Fund Accounting Services Agreement, dated June 6, 1995, between
the Fund and Scudder Fund Accounting Corporation.
l. --Opinion of Debevoise & Plimpton, and consent to use of same.
m. --Not applicable.
n. (i) --Opinion of Pinheiro Neto-Advogados, and consent to use of same.
n. (ii) --Consent of Price Waterhouse LLP.
n. (iii) --Approval of the Brazilian Securities Commission in connection with
the issuance of additional Shares.
o. --Not applicable.
p. --Subscription Agreement, dated November 4, 1987, between the Fund
and the Manager. (Incorporated by reference to Exhibit 14 to the
Registration Statement.)
q. --Not applicable.
r. --Financial Data Schedule. (Incorporated by reference to Exhibit r
to Amendment No. 7.)
Other Exhibit: Powers of Attorney. (Incorporated by reference to Amendment No.
7.)
</TABLE>
ITEM 25. MARKETING ARRANGEMENTS
See Exhibits h(i), h(ii) and h(iii) to this Amendment No. 8.
II-2
<PAGE>
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:
<TABLE>
<S> <C>
SEC Registration fees............................................ $ 28,000
Stock exchange listing fees...................................... $ 14,700
NASD fees........................................................ $ 8,600
Printing (other than stock certificates) and related delivery
expenses........................................................ $125,000
Dealer Manager expense reimbursement............................. $100,000
Information Agent's fees and expenses............................ $ 45,000
Subscription Agent's fees and expenses........................... $ 58,150
Fees and expenses of qualification under state securities laws
(including fees of counsel)..................................... $ 12,500
Accounting fees and expenses..................................... $ 15,000
Legal fees and expenses.......................................... $210,000
Miscellaneous.................................................... $ 43,050
--------
Total.......................................................... $660,000
========
</TABLE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.01 per share; 919 record holders as of November
10, 1995
ITEM 29. INDEMNIFICATION
The information under Item 3 of Part II of Amendment No. 5 is herein
incorporated by reference. See "The Offer--Distribution Arrangements" in the
Prospectus.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information as to the directors and officers of the Manager and the
Brazilian Adviser, File Nos. 801-252 and 801-31511, respectively, is included
in their respective Forms ADV filed with the Commission and is incorporated
herein by reference thereto.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
Certain accounts, books and other documents required to be maintained by
Section 31(a) of the 1940 Act and the rules promulgated thereunder are
maintained by Scudder, Stevens & Clark, Inc., 345 Park Avenue, New York, New
York 10154. Records relating to the duties of the registrant's custodian are
maintained by Brown Brothers Harriman & Co., 40 Water Street, Boston,
Massachusetts, and those relating to the duties of the transfer agent are
maintained by The First National Bank of Boston, P.O. Box 644, Boston,
Massachusetts 02102-0644.
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) Registrant undertakes to suspend offering of the shares covered hereby
until it amends its prospectus contained herein if (1) subsequent to the
effective date of this Registration Statement, its net asset value per share
II-3
<PAGE>
declines more than 10 percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in the
prospectus contained herein.
(b) Registrant undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415, a post-effective amendment to the Registration
Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(d) Registrant hereby undertakes to send by first-class mail or other means
designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, a Statement of Additional Information.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, AND STATE OF NEW YORK, ON
THE 16TH DAY OF NOVEMBER, 1995.
The Brazil Fund, Inc.
/s/ Juris Padegs
By __________________________________
JURIS PADEGS
CHAIRMAN OF THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED:
/s/ Juris Padegs Chairman of the
- ------------------------------------- Board (Principal November 16,
JURIS PADEGS Executive Officer) 1995
and Director
Treasurer (Principal
/s/ Pamela A. McGrath Financial and November 16,
- ------------------------------------- Accounting Officer) 1995
PAMELA A. MCGRATH
* President and
- ------------------------------------- Director November 16,
NICHOLAS BRATT 1995
* Director
- ------------------------------------- November 16,
EDGAR R. FIEDLER 1995
* Director
- ------------------------------------- November 16,
WILSON NOLEN 1995
* Director and
- ------------------------------------- Resident Brazilian November 16,
RONALDO A. DA FROTA NOGUEIRA Director 1995
* Director and
- ------------------------------------- Resident Brazilian November 16,
ROBERTO TEIXEIRA DA COSTA Director 1995
* Director
- ------------------------------------- November 16,
EDMOND D. VILLANI 1995
/s/ Juris Padegs
*By _________________________________ November 16,
JURIS PADEGS, ATTORNEY-IN-FACT 1995
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
------- ----------- ------------
<C> <C> <S> <C>
a. (i) --Articles of Incorporation dated September 25,
1987. (Incorporated by reference to Exhibit 1 to
the Fund's original Registration Statement on Form
N-2, Registration No. 33-18274 (the "Registration
Statement").)
a. (ii) --Amendment to Articles of Incorporation dated
November 21, 1990. (Incorporated by reference to
Exhibit 1(b) to Amendment No. 5 to the Registration
Statement ("Amendment No. 5").)
b. (i) --By-Laws dated October 26, 1987. (Incorporated by
reference to Exhibit (2)(a) to the Registration
Statement.)
b. (ii) --Amendment to By-Laws dated November 28, 1989.
(Incorporated by reference to Exhibit (2)(b) to
Amendment No. 4 to the Registration Statement
("Amendment No. 4.").)
b. (iii) --Amendment to By-Laws dated February 22, 1990.
(Incorporated by reference to Exhibit (2)(c) to
Amendment No. 4.)
b. (iv) --Amendment to By-Laws dated May 30, 1991.
(Incorporated by reference to Exhibit 2(d) to
Amendment No. 6 to the Registration Statement.)
b. (v) --Amendment to By-Laws dated May 21, 1992.
b. (vi) --Amendment to By-Laws dated July 28, 1992.
b. (vii) --Amendment to By-Laws dated July 27, 1993.
b. (viii) --Amendment to By-laws dated May 19, 1994.
c. --Not applicable.
d. --Specimen certificate representing shares of Common
Stock, $.01 par value per share. (Incorporated by
reference to Exhibit 4 to Amendment No. 3 to the
Registration Statement ("Amendment No. 3").)
e. --Amended Dividend Reinvestment and Cash Purchase
Plan dated July 26, 1990. (Incorporated by
reference to Exhibit 10 to Amendment No. 5.)
f. --Not applicable.
g. (i) --Investment Advisory, Management and Administration
Agreement, dated July 26, 1995, between the Fund
and the Manager. (Incorporated by reference to
Exhibit g(i) to Amendment No. 7 to the Registration
Statement ("Amendment No. 7").)
g. (ii) --Research and Advisory Agreement, dated July 26,
1995, between the Manager and the Brazilian
Adviser. (Incorporated by reference to Exhibit
g(ii) to Amendment No. 7.)
g. (iii) --Administration Agreement, dated April 30, 1992,
between the Manager and the Brazilian
Administrator. (Incorporated by reference to
Exhibit g(iii) to Amendment No. 7.)
h. (i) --Form of Dealer Manager Agreement.
h. (ii) --Form of Soliciting Dealer Agreement.
h. (iii) --Form of Selling Group Agreement.
i. --Not applicable.
j. (i) --Custodian Agreement (the "Custodian Agreement"),
dated as of March 2, 1995, between the Fund and
Brown Brothers Harriman & Co. (the "Custodian").
j. (ii) --Fee Schedule relating to the Custodian Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT DESCRIPTION PAGES
------- ----------- ------------
<C> <C> <S> <C>
j. (iii) --Subcustodian Agreement, dated March 30, 1988,
between the Custodian and The First National Bank of
Boston. (Incorporated by reference to Exhibit
9(b)(1) to the Registration Statement.)
k. (i) --Form of Subscription Agent Agreement.
k. (ii) --Form of Information Agent Agreement.
k. (iii) --Shareholder Servicing Agreement, dated as of June
16, 1994, between the Fund and Scudder Service
Corporation.
k. (iv) --Fund Accounting Services Agreement, dated June 6,
1995, between the Fund and Scudder Fund Accounting
Corporation.
l. --Opinion of Debevoise & Plimpton, and consent to use
of same.
m. --Not applicable.
n. (i) --Opinion of Pinheiro Neto-Advogados, and consent to
use of same.
n. (ii) --Consent of Price Waterhouse LLP.
n. (iii) --Approval of the Brazilian Securities Commission in
connection with the issuance of additional Shares.
o. --Not applicable.
p. --Subscription Agreement, dated November 4, 1987,
between the Fund and the Manager. (Incorporated by
reference to Exhibit 14 to the Registration
Statement.)
q. --Not applicable.
r. --Financial Data Schedule. (Incorporated by reference
to Exhibit r to Amendment No. 7.)
Other Exhibit: Powers of Attorney. (Incorporated by reference to Amendment
No. 7.)
</TABLE>
<PAGE>
EXHIBIT 99.B(v)
THE BRAZIL FUND, INC.
On May 21, 1992, the Board of Directors of The Brazil Fund, Inc. (the
"Fund") amended the By-Laws of the Fund as follows:
RESOLVED, that pursuant to the provision of Section 11.1 of the Fund's By-
Laws, the first sentence of Section 2.1 of the Fund's By-Laws is hereby
amended to read as follows:
Section 2.1 - Annual Meetings. An annual meeting of the stockholders for
------------------------------
the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held on the first Tuesday in
July, if not a legal holiday, or if a legal holiday, then the next
succeeding day not a legal holiday; provided that the Board of Directors
may select another date in the month of July for holding said annual
stockholders' meeting.
<PAGE>
EXHIBIT 99.B(vi)
THE BRAZIL FUND, INC.
On July 28, 1992, the Board of Directors of The Brazil Fund, Inc. (the
"Fund") amended the By-Laws of the Fund as follows:
RESOLVED, that pursuant to the provisions of Article XI, Section 11.1 of
the Fund's By-Laws, the first sentence of Article IV, Section 4.1 shall be
amended to read as follows:
Section 4.1 - Organization. By resolution adopted by the Board of
---------------------------
Directors, the Board may designate one or more committees, including an
Executive Committee, which shall consist of not less than two Directors.
<PAGE>
EXHIBIT 99.B(vii)
THE BRAZIL FUND, INC.
Amendment to the By-Laws
On July 27, 1993, the Board of Directors of the Brazil Fund, Inc. adopted the
following resolution amending the By-Laws of the Fund
RESOLVED, that pursuant to the provision of Section 11.1 of the Fund's
By-Laws, the first sentence of Section 2.1 of the Fund's By-Laws is hereby
amended to read as follows (changes are underlined, deletions are
----------
struckout):
Section 2.1 - Annual Meetings. An annual meeting of the stockholders for
------------------------------
the election of Directors and the transaction of such other business as may
properly come before the meeting shall be held on the first Tuesday in July
October, if not a legal holiday, or if a legal holiday, then the next
- -------
succeeding day not a legal holiday; provided that the Board of Directors
may select another date in the month of July for holding said annual
stockholder's meeting.
<PAGE>
EXHIBIT 99.B(viii)
THE BRAZIL FUND, INC.
Certificate as to Resolution
of
Board of Directors
The undersigned certifies that she is the Assistant Secretary of The Brazil
Fund, Inc., a Maryland corporation (the "Fund"), and that, as such, she is
authorized to execute this Certificate on behalf of the Fund, and further
certifies that the following is a complete and correct copy of a resolution duly
adopted by the duly elected Board of Directors of the Fund at a meeting duly
called, convened and held on May 19, 1994, at which a quorum was present and
acting throughout, and that such resolution has not been amended and is in full
force and effect.
RESOLVED, that pursuant to the provision of Section 11.1 of the Fund's
By-Laws, the first sentence of Section 2.1 of the Fund's By-Laws is
hereby amended to read as follows (changes are underlined, deletions
----------
are crossed out):
Section 2.1 - Annual Meetings. An annual meeting of the stockholders
------------------------------
for the election of Directors and the transaction of such other
business as may properly come before the meeting shall be held in
October July.
----
IN WITNESS WHEREOF, I hereunto set my hand on this 5th day of July, 1994.
- --------------------------------
Assistant Secretary
<PAGE>
EXHIBIT 99.H(i)
S&C Draft dated November 13, 1995
DEALER MANAGER AGREEMENT
November __, 1995
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
The Brazil Fund, Inc., a corporation formed under the laws of the
State of Maryland (the "Company"), and Smith Barney Inc., a corporation formed
under the laws of the State of Delaware ("Smith Barney"), confirm their
agreement, subject to the terms and conditions set out below, with respect to
the proposed issuance by the Company to its shareholders of rights entitling
their holders to subscribe for shares of the Company's Common Stock, par value
$.01 per share.
1. DEFINITIONS
The following terms have the following meanings when used in this
Agreement:
(a) "Acts" means the Securities Act and the Investment Company
Act collectively.
(b) "Agreement" means this Dealer Manager Agreement as originally
executed and as amended, modified, supplemented or restated from time to time.
(c) "Availability Date" has the meaning set forth in Section 8(d)
of this Agreement.
(d) "Business Day" means any day on which the NYSE is open for
trading.
(e) "Code" means the U.S. Internal Revenue Code of 1986, as
amended.
(f) "Commission" means the U.S. Securities and Exchange
Commission.
<PAGE>
(g) "Common Stock" means the Company's Common Stock, par value
$.01 per share.
(h) "Custodian" means Brown Brothers Harriman & Co.
(i) "Custodian Agreement" means the Custodian Agreement, dated
March 30, 1988, between the Company and the Custodian.
(j) "Effective Date" means the date of the Effective Time.
(k) "Effective Time" has the meaning set forth in Section 4(a) of
this Agreement.
(l) "Exchange Act" means the U.S. Securities Exchange Act of
1934, as amended.
(m) "Exercising Rights Holders" means Record Date Shareholders
and Rights Holders purchasing Shares in the Primary Subscription.
(n) "Expiration Date" means December 15, 1995.
(o) "Investment Advisers Act" means the U.S. Investment Advisers
Act of 1940, as amended.
(p) "Investment Company Act" means the U.S. Investment Company
Act of 1940, as amended.
(q) "Brazil" means the Federative Republic of Brazil.
(r) "Brazilian Adviser" means Banco Icatu S.A.
(s) "Manager" means Scudder, Stevens & Clark, Inc., the Company's
investment adviser and manager.
(t) "Management Agreement" means the Investment Advisory,
Management and Administration Agreement, dated as of July 26, 1995, between the
Company and the Manager.
(u) "NYSE" means the New York Stock Exchange, Inc.
(v) "Offer" means the offer of Shares contemplated by the
Company's proposed issuance of Rights.
-2-
<PAGE>
(w) "Primary Subscription" means a Record Date Shareholder's
right to acquire Shares during the Subscription Period at the Subscription
Price.
(x) "Prospectus" means the form of prospectus as first filed with
the Commission pursuant to and in accordance with Rule 497(h) under the
Securities Act or (if no such filing is required) as included in the
Registration Statement.
(y) "Record Date" means November 20, 1995.
(z) "Record Date Shareholders" means the Company's shareholders
of record as of the close of business on the Record Date.
(aa) "Registration Statement" means the registration statement
relating to the Offer on Form N-2 (File No. 33-63381) under the Acts, as amended
at the Effective Time, including all information (if any) deemed to be a part of
such registration statement as of the Effective Time pursuant to Rule 430A(b)
under the Securities Act, filed by the Company with the Commission.
(bb) "Research Agreement" means the Research and Advisory
Agreement, dated July 26, 1995, between the Manager and the Brazilian Adviser.
(cc) "Rights" means the rights proposed to be issued by the
Company to Record Date Shareholders, which rights entitle their holders to
subscribe for Shares.
(dd) "Rights Holders" means the holders of Rights.
(ee) "Rules and Regulations" means the rules and regulations
adopted by the Commission under the Securities Act and/or the Investment Company
Act.
(ff) "Securities Act" means the U.S. Securities Act of 1933, as
amended.
(gg) "Shares" means an aggregate of up to 4,050,000 shares of
Common Stock for which Rights Holders may subscribe.
(hh) "Subscription Agent" means State Street Bank and Trust
Company.
(ii) "Subscription Agent Agreement" means the Subscription Rights
Distribution and Agency Agreement, dated as of November __, 1995, between the
Company and the Subscription Agent.
-3-
<PAGE>
(jj) "Subscription Period" means the period of time beginning on
November 20, 1995 and ending at 5:00 p.m., New York City time, on the Expiration
Date.
(kk) "Subscription Price" means the Subscription Price per Share
of $______.
2. THE OFFER
The Company is proposing to issue Rights to Record Date Shareholders,
which Rights entitle their holders to subscribe for Shares. Under the Company's
proposal, each Record Date Shareholder will be issued one Right for each full
share of Common Stock owned on the Record Date. No fractional Rights will be
issued. The Rights will entitle each Record Date Shareholder to acquire in the
Primary Subscription at the Subscription Price one Share for each three Rights
held, except that any Record Date Shareholder who is issued fewer than three
Rights will be able to subscribe for one full Share at the Subscription Price.
All Rights will be able to be exercised immediately upon receipt and until 5:00
p.m., New York City time, on the Expiration Date. Any Record Date Shareholder
who fully exercises all Rights initially issued to him (other than those Rights
that cannot be exercised because they represent the right to acquire less than
one Share) will be entitled to subscribe for, subject to allotment, Shares that
are not otherwise subscribed for by Exercising Rights Holders on the Primary
Subscription. Additional terms and conditions of the Offer are set out in the
Registration Statement.
3. APPOINTMENT OF DEALER MANAGER
The Company appoints Smith Barney as the exclusive dealer manager in
connection with the Offer and Smith Barney accepts that appointment. The
Company also authorizes Smith Barney to form and manage a group of securities
dealers (each, a "Selling Group Member," and, collectively, the "Selling Group")
to solicit the exercise of Rights and sell Shares purchased by Smith Barney from
the Company through the exercise of Rights. Smith Barney represents and
warrants that it is a broker-dealer registered under the Exchange Act.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to, and agrees with, Smith Barney
that:
(a) A registration statement (No. 33-63381) including a form of
prospectus relating to the Offer has been filed with the Commission and either
(i) has been declared effective under the Securities Act and is not proposed to
be amended or
-4-
<PAGE>
(ii) is proposed to be amended by amendment or post-effective amendment. If the
Company does not propose to amend such registration statement and if any post-
effective amendment to such registration statement has been filed with the
Commission prior to the execution and delivery of this Agreement, the most
recent such amendment has been declared effective by the Commission. For
purposes of this Agreement, "Effective Time" means (i) if the Company has
advised Smith Barney that is does not propose to amend such registration
statement, the date and time as of which such registration statement, or the
most recent post-effective amendment thereto (if any) filed prior to the
execution and delivery of this Agreement, was declared effective by the
Commission, or (ii) if the Company has advised Smith Barney that it proposes to
file an amendment or post-effective amendment to such registration statement,
the date and time as of which such registration statement, as amended by such
amendment or post-effective amendment, as the case may be, is declared effective
by the Commission.
(b) If the Effective Time is prior to the execution and delivery of
this Agreement: (i) on the Effective Date, the Registration Statement conformed
in all respects to the requirements of the Acts and the Rules and Regulations
and did not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) on the date of this Agreement, the Registration
Statement conforms, and at the time of filing of the Prospectus pursuant to Rule
497(h) under the Securities Act, the Registration Statement and the Prospectus
will conform, in all respects to the requirements of the Acts and the Rules and
Regulations, and neither of such documents includes, or will include, any untrue
statement of a material fact or omits, or will omit, to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. If the Effective Time is subsequent to the execution and delivery
of this Agreement: on the Effective Date, the Registration Statement and the
Prospectus will conform in all respects to the requirements of the Acts and the
Rules and Regulations, and neither of such documents will include any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary to make the statements therein not misleading.
The two preceding sentences do not apply to statements in or omissions from the
Registration Statement or Prospectus based upon written information furnished to
the Company by Smith Barney specifically for use therein.
(c) Price Waterhouse LLP, whose report appears in the Prospectus, are
independent accountants as required by the Acts and the Rules and Regulations
with respect to the Company. The financial statements and financial highlights
(including the related notes) included in the Registration Statement or the
Prospectus present fairly the financial position, results of operations, changes
in net assets and financial highlights of the Company at the dates and for the
periods indicated therein
-5-
<PAGE>
and have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Maryland, with full
power and authority to own or lease its properties and conduct its business as
described in the Prospectus and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the character of
the business conducted by it or the location of the properties owned or leased
by it make such qualification necessary.
(e) All of the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof; the Offer, the Rights and
the Shares have been duly authorized, and the Rights and the Shares, upon
issuance and delivery and, in the case of the Shares, payment therefor, as
described in the Registration Statement and the Prospectus, will be validly
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership thereof. Except for the Rights, there are no preemptive rights or
other rights to subscribe for or to purchase, or any restriction upon the voting
or transfer of, any shares of Common Stock (including the Shares) pursuant to
the Company's Articles of Incorporation, by-laws or other governing documents or
any agreement or other instrument to which the Company is a party or by which it
may be bound. Neither the filing of the Registration Statement nor the Offer as
contemplated by this Agreement and the Subscription Agent Agreement gives rise
to any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock or other securities
of the Company. The capitalization of the Company as of December 31, 1994 is as
set forth in the Prospectus, and the Rights and the Shares conform to the
descriptions thereof contained in the Prospectus.
(f) Except as described in or contemplated by the Registration
Statement and the Prospectus, there has not been any material adverse change in,
or adverse development which materially affects, the condition (financial or
other), results of operation, business or prospects, of the Company from the
date as of which information is given in the Prospectus.
(g) Except as described in the Prospectus, there is no litigation or
governmental proceeding to which the Company is a party or to which any property
of the Company is subject or which is pending or, to the knowledge of the
Company, contemplated against the Company which might result in any material
adverse change in the condition (financial or other), results of operations,
business or prospects of the Company or which is required to be disclosed in the
Prospectus.
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(h) The Company is not in violation of any law, ordinance,
governmental rule or regulation or court decree to which it may be subject which
violation might have a material adverse effect on the condition (financial or
other), results of operation, business or prospects of the Company.
(i) The Subscription Agent Agreement has been duly authorized,
executed and delivered by the Company and, assuming due authorization, execution
and delivery by the Subscription Agent, constitutes the valid and binding
agreement of the Company and is enforceable against the Company in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights and to
general equity principles.
(j) This Agreement has been duly authorized, executed and delivered
by the Company and constitutes the valid and binding agreement of the Company,
and is enforceable against the Company in accordance with its terms subject, as
to enforcement, to bankruptcy, insolvency, reorganization or other laws relating
to or affecting creditors' rights and to general equitable principles.
(k) The Company is not, or with the giving of notice or lapse of time
or both would not be, in violation of or in default under, nor will the
execution or delivery hereof and of the Subscription Agent Agreement or
consummation of the transactions contemplated hereby or by the Subscription
Agent Agreement, including, without limitation, the distribution of the Rights
and the allotment, issue and sale of the Shares, result in a violation of, or
constitute a default under, the Articles of Incorporation or by-laws of the
Company, or any agreement, indenture or other instrument, to which the Company
is a party or by which it is bound, or to which any of its properties is
subject, nor will the performance by the Company of its obligations hereunder or
under the Subscription Agent Agreement violate any law, rule, administrative
regulation or decree of any court, or any governmental agency or body having
jurisdiction over the Company, or any of its properties, or result in the
creation or imposition of any lien, charge, claim or encumbrance upon any
property or asset of the Company. Except for permits and similar authorizations
required under the Acts and the securities or "Blue Sky" laws of certain
jurisdictions and for such permits and authorization which have been obtained,
no consent, approval, authorization or order of any court, governmental agency
or body or financial institution is required in connection with the consummation
of the transactions contemplated by this Agreement or the Subscription Agent
Agreement.
(l) The Rights are duly authorized for listing, subject to official
notice of issuance, on the NYSE and are, or as soon as practicable after the
date of this Agreement, will be, admitted to trading on the NYSE.
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(m) The Shares are duly authorized for listing, subject to official
notice of issuance, on the NYSE and, as soon as practicable after the date of
this Agreement, will be admitted to trading on the NYSE.
(n) The Company has not taken and shall not take, directly or
indirectly, any action designed to cause or result in, or which has constituted
or which might reasonably be expected to constitute, the stabilization or
manipulation of the price of the shares of Common Stock to facilitate the Offer,
provided that the Company makes no representation with respect to any
transactions by Smith Barney or any other broker or dealer unaffiliated with the
Company, the Manager or the Brazilian Adviser to stabilize the price of the
shares of Common Stock in connection with the Offer.
(o) The Company is duly registered with the Commission under the
Investment Company Act as a closed-end non-diversified management investment
company.
5. REPRESENTATIONS AND WARRANTIES OF THE MANAGER
The Manager represents and warrants to, and agrees with, Smith Barney
that:
(a) The Manager has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to conduct its business as described in the
Prospectus.
(b) The Manager is duly registered as an investment adviser under the
Investment Advisers Act and is not prohibited by the Investment Advisers Act or
the Investment Company Act, or the rules and regulations under such acts, from
acting as Manager for the Company as contemplated by the Prospectus.
(c) This Agreement has been duly authorized, executed and delivered
by the Manager.
(d) The Management Agreement and the Research Agreement have each
been duly authorized, executed and delivered on behalf of the Manager and each
constitutes a valid and binding obligation of the Manager enforceable in
accordance with its terms, subject, as to enforcement, to applicable bankruptcy,
insolvency, reorganization or other laws relating to or affecting creditors'
rights generally and to general equity principles; and neither the execution and
delivery of this Agreement, the Management Agreement or the Research Agreement
nor the performance by the Manager of its obligations thereunder will conflict
with or result in a breach or violation of any of the terms and provisions of
the charter or By-laws of the Manager
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or any law, order, rule or regulation applicable to the Manager of any United
States jurisdiction, court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities association
having jurisdiction over the Manager or its properties or operations, or, to the
best knowledge of the Manager after reasonable investigation, constitute, with
or without giving notice or lapse of time or both, a default under, any
agreement or instrument to which the Manager is a party or by which the Manager
or to which any of the properties of the Manager is subject.
(e) All written information furnished by the Manager specifically for
use in the Registration Statement and Prospectus, including, without limitation,
the description of the Manager, does not, and on the Expiration Date will not,
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the Registration Statement and Prospectus not misleading.
(f) There has not, since the date of the Prospectus, been any
material adverse change, or any development reasonably likely to cause a
material adverse change, in the Manager's ability to perform its obligations
under this Agreement or under the Management Agreement.
6. SOLICITATION OF RIGHTS EXERCISE; FINANCIAL ADVISORY SERVICES
(a) On the basis of the representations and warranties, and subject
to the terms and conditions, set forth in this Agreement:
(i) Smith Barney agrees to (A) solicit, in accordance with the Acts,
the Exchange Act, the Rules and Regulations and its customary practice, the
exercise of the Rights, subject to the terms and conditions of this Agreement,
the Subscription Agent Agreement and the procedures described in the
Registration Statement; and (B) form and manage the Selling Group to (i)
solicit, in accordance with the Acts, the Exchange Act, the Rules and
Regulations and its customary practice, the exercise of the Rights, subject to
the terms and conditions of this Agreement, the Subscription Agent Agreement and
the procedures described in the Registration Statement, and (ii) sell Shares
purchased by Smith Barney from the Company as provided herein. No securities
dealer shall be considered a Selling Group Member until it shall have entered
into a Selling Group Agreement with Smith Barney in substantially the form of
Exhibit D hereto.
(ii) Smith Barney is authorized to buy and exercise Rights and to
sell Shares to the public or to Selling Group Members at the offering price set
by Smith Barney from time to time. Sales of Shares by Smith Barney or Selling
Group Members shall be at not more than the offering price set by Smith Barney
from time to time. Such offering price shall not be increased more than once
during any
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calendar day and at the time any such price is set shall not be less than the
Subscription Price specified in the Prospectus nor more than the greater of the
last sale or the current offering price on the NYSE, plus an exchange
commission.
(iii) the Company agrees to furnish, or cause to be furnished, to
Smith Barney, lists, or copies of those lists, showing the names and addresses
of, and number of Shares held by, Record Date Shareholders as of the Record
Date, and to use its best efforts to advise Smith Barney, or cause it to be
advised, on each Business Day during the Subscription Period as to any transfers
of Rights, and Smith Barney agrees to use such information only in connection
with the Offer, and not to furnish the information to any other person except
for Selling Group Members, or other securities brokers and dealers that Smith
Barney has requested to solicit exercises of Rights;
(iv) the Company will arrange for the Subscription Agent (A) to
inform Smith Barney orally, on each Business Day during the Subscription Period
(to be followed by written confirmation), as to the number of Rights that have
been exercised since its previous daily report to Smith Barney under the
provision of this Section 6(a)(iv), (B) not later than 10:00 a.m. (New York City
time) on December __, 1995, to provide Smith Barney with a written statement as
to the total number of Rights exercised (separately setting forth the number of
Rights exercised by Record Date Shareholders), (C) to sell any Rights received
for resale from Record Date Shareholders exclusively to or through Smith Barney,
which may, at its election, purchase such Rights as principal or act as Agent
for such resales and (D) to issue shares of Common Stock upon Smith Barney's
exercise of Rights no later than the close of business on the business day
following the day that full payment for such shares has been received by the
Agent.
(v) Smith Barney agrees to notify the Company on or prior to December
___, 1995 of the Shares purchased by Smith Barney through the exercise of Rights
and sold to the public or to each Selling Group Member and the total amount of
the commissions payable by the Fund pursuant to Section 7 of this Agreement in
connection with such sales.
(b) Smith Barney agrees to provide to the Company, in addition to the
services described in paragraph (a) of this Section 6, financial advisory
services in connection with the Offer.
(c) The Company and Smith Barney agree that Smith Barney and each
Selling Group Member is an independent contractor with respect to its
solicitation of the exercise of Rights contemplated by this Agreement and the
performance of financial advisory services to the Company contemplated by this
Agreement, and Smith Barney represents and warrants that it is not a partner or
agent of any other
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securities broker, dealer or other person soliciting the exercise of Rights as
contemplated by this Agreement, or of the Company or any of its affiliates.
(d) In rendering the services contemplated by this Agreement, Smith
Barney and the Selling Group Members agree not to make any representations, oral
or written, to any shareholders or prospective shareholders of the Company that
are not contained in the Prospectus, unless previously authorized to do so in
writing by the Company.
(e) In rendering the services contemplated by this Agreement, neither
Smith Barney nor any Selling Group Member will be subject to any liability to
the Company, the Manager, the Brazilian Adviser or any of their affiliates, for
any act or omission on the part of any securities broker or dealer (other than
itself or any of its affiliates) or any other person, and neither Smith Barney
nor any Selling Group Member will be liable for its own acts or omissions in
performing its obligations under this Agreement, except for any losses, claims,
damages, liabilities and expenses that resulted from any acts or omissions
undertaken or omitted to be taken by Smith Barney or a Selling Group Member
through its gross negligence or willful misconduct.
7. DEALER MANAGER AND SOLICITATION FEES
The Company agrees to pay in New York Clearing House (next day) funds
on December __, 1995:
(a) to Smith Barney, as compensation for its services to the Company
as financial adviser in connection with the Offer, a fee equal to an amount
computed by multiplying (i) .01, by (ii) the aggregate number of Shares
purchased in the Offer, by (iii) the Subscription Price;
(b) to Smith Barney for its own account a fee equal to an amount
computed by multiplying (i) .025, by (ii) the sum of the number of Shares
purchased pursuant to each subscription form relating to the Rights upon which
Smith Barney is designated (other than Shares purchased by Smith Barney through
the exercise of Rights and sold to the public or to Selling Group Members) plus
the number of Shares sold by Smith Barney to the public as indicated in the
notice provided by Smith Barney to the Fund pursuant to Section 6(a)(v) of this
Agreement, by (iii) the Subscription Price;
(c) to Smith Barney for the account of each Selling Group Member a
fee equal to an amount computed by multiplying (i) .025, by (ii) the sum of the
number of Shares purchased pursuant to each subscription form relating to the
Rights upon which the Selling Group Member is designated plus the number of
Shares sold
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<PAGE>
by Smith Barney to such Selling Group Member as indicated in the notice provided
by Smith Barney to the Fund pursuant to Section 6(a)(v) of this Agreement, by
(iii) the Subscription Price;
(d) to each securities broker or dealer who has executed the
Company's Soliciting Dealer Agreement (other than Smith Barney or any Selling
Group Member) designated on any subscription form related to the Rights ("Listed
Broker") a fee equal to an amount computed by multiplying (i) .005, by (ii) the
number of Shares purchased pursuant to each subscription form upon which the
Listed Broker is designated, by (iii) the Subscription Price, provided that the
--------
aggregate fees paid to any Listed Broker (other than a Listed Broker who is
registered as a specialist in the Rights with the NYSE and who has been approved
by the NYSE to act as such during the Subscription Period) may not exceed the
product of (A) .50% of the Subscription Price per Share, times (B) the aggregate
number of shares of Common Stock held in such Listed Broker's participant
accounts with The Depository Trust Company on the Record Date divided by _____;
and
(e) to Smith Barney a fee equal to an amount computed by multiplying
(i) .025, by (ii) the number of Shares purchased pursuant to each subscription
form upon which neither Smith Barney nor any Selling Group Member or Listed
Broker is designated plus the number of Shares purchased pursuant to
subscription forms upon which a Listed Broker is designated but which are in
excess of the limit set forth in clause (B) of the proviso in paragraph (d) of
this Section 7, by (iii) the Subscription Price.
8. COVENANTS OF THE COMPANY
The Company agrees:
(a) If the Effective Time is prior to the execution and delivery of
this Agreement, the Company will file the Prospectus with the Commission
pursuant to and in accordance with Rule 497(h) under the Securities Act not
later than the earlier of (a) the second business day following execution and
delivery of this Agreement or (b) the fifteenth business day after the Effective
Date.
The Company will advise Smith Barney promptly of any such filing
pursuant to Rule 497(h).
(b) The Company will advise Smith Barney promptly of any proposal to
amend or supplement the registration statement as filed, or the related
prospectus, and will not effect such amendment or supplementation without Smith
Barney's consent; the Company will also advise Smith Barney promptly of the
effectiveness of the Registration Statement (if the Effective Time is subsequent
to the execution and
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<PAGE>
delivery of this Agreement) and of any amendments or supplementation of the
Registration Statement or the Prospectus, and of the institution by the
Commission of any stop order proceedings in respect of the Registration
Statement, and will use its best efforts to prevent the issuance of any such
stop order and to obtain as soon as possible its lifting, if issued.
(c) If at any time when a prospectus relating to the Offer is
required to be delivered under the Securities Act, any event occurs as a result
of which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact, or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at any time to amend the
Prospectus to comply with the Acts, the Company promptly will prepare and file
with the Commission an amendment or supplement which will correct such statement
or omission or an amendment which will effect such compliance.
(d) As soon as practicable, but not later than the Availability Date
(as defined below), the Company will make generally available to its security
holders an earnings statement covering a period of at least twelve months
beginning after the effective date of the Registration Statement which will
satisfy the provisions of Section 11(a) of the Securities Act. For the purpose
of the preceding sentence "Availability Date" means the 60th day after the end
of the fourth fiscal quarter following the fiscal quarter that includes the
Effective Date, except that, if such fiscal quarter is the last quarter of the
Company's fiscal year, "Availability Date" means the 90th day after the end of
such fourth fiscal quarter.
(e) The Company will furnish to Smith Barney copies of the
Registration Statement (one of which will be signed and will include all
exhibits), the Prospectus, and all amendments and supplements to such documents,
in each case as soon as available and in such quantities as Smith Barney
requests.
(f) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, and will reimburse the Dealer Manager (i)
for its out-of-pocket expenses (including fees and disbursements of counsel) up
to an aggregate of $100,000 and (ii) for any reasonable expenses (including
reasonable fees and disbursements of counsel) incurred by it in connection with
qualification of the Rights and the Shares under the securities law of the
jurisdictions as provided in paragraph (g) of this Section 8 and the printing of
memoranda relating thereto, and for the filing fee of the National Association
of Securities Dealers, Inc. relating to the Rights and the Shares. If this
Agreement is terminated pursuant to Section 10 or if for any reason the issuance
of the Rights and the sale of the Shares is not consummated, the Company shall
not be required to reimburse Smith Barney for its expenses pursuant to Section
8(f)(i). Smith Barney will be entitled to the payment of
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<PAGE>
any fees pursuant to Section 7 earned with respect to Shares purchased upon the
exercise of Rights prior to the date of any termination and to Shares purchased
pursuant to the Over-Subscription Privilege, as defined in the Registration
Statement, by holders who exercised such Rights prior to such date.
(g) To use every reasonable effort in cooperating with Smith Barney
to permit the distribution of the Rights and the offer and sale of the Shares
under the securities laws of the United States (including any state, territory
or possession and the District of Columbia) for so long as necessary for the
distribution of the Rights and the Shares, provided, however, that the Company
shall not be obligated to file any general consent to service of process, or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not now so qualified.
(h) During the period of five years hereafter, the Company will
furnish to Smith Barney, as soon as practicable after the end of each fiscal
year, a copy of its annual report to stockholders for such year; and the Company
will furnish to Smith Barney (i) as soon as available, a copy of each report or
definitive proxy statement of the Company filed with the Commission under the
Investment Company Act or the Exchange Act or mailed to stockholders, and (ii)
from time to time, such other information concerning the Company as Smith Barney
may reasonably request.
(i) To advise Smith Barney promptly of any action by the NYSE
rejecting, suspending or terminating the application for the listing of, or the
listing of, the Rights or the Shares, as the case may be.
9. INDEMNIFICATION AND CONTRIBUTION
(a) The Company agrees to indemnify and hold harmless Smith Barney
and each person, if any, who controls Smith Barney within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which Smith Barney or such controlling person may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; and will reimburse
Smith Barney and each such controlling person for any legal or other expenses
reasonably incurred by Smith Barney or such controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
-------- -------
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in
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<PAGE>
any of such documents in reliance upon and in conformity with written
information furnished to the Company by Smith Barney specifically for use
therein, (ii) any failure of the Company to consummate the Offer, including any
failure of the Company to issue the Rights or issue and sell the Shares, (iii)
any action taken or omitted to be taken by Smith Barney with the consent of the
Company, (iv) any action taken or omitted to be taken by the Company, and/or the
Manager and/or the Brazilian Adviser, (v) any breach by the Company of any
representation or warranty, or any failure by the Company and/or the Manager to
comply with any agreement or covenant contained in this Agreement or (vi) any of
the other transactions contemplated by the Offer or by Smith Barney's
performance of its obligations under this Agreement, and will reimburse Smith
Barney and each person, if any, who controls Smith Barney within the meaning of
the Securities Act for any legal or other expenses reasonably incurred by Smith
Barney or such controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Smith Barney agrees to indemnify and hold harmless the Company
and its directors, each of the Company's officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by
Smith Barney specifically for use therein; and will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in
addition to any liability Smith Barney may otherwise have.
(c) The Manager agrees to indemnify and hold harmless Smith Barney
and each person, if any, who controls Smith Barney within the meaning of the
Securities Act, against any losses, claims, damages or liabilities to which
Smith Barney or such controlling person of Smith Barney may become subject,
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or
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<PAGE>
alleged untrue statement of any material fact contained in the Registration
Statement, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by the Manager specifically for use therein; and will
reimburse any legal or other expenses reasonably incurred by Smith Barney or
such controlling person of Smith Barney in connection with investigating or
defending any such loss, claim, damage, liability or action. This indemnity
agreement will be in addition to any liability the Manager may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than the
reasonable costs of investigation. No indemnifying party shall be liable under
the foregoing indemnity agreement in respect of any compromise or settlement of
any such action without its consent, which consent shall not be unreasonably
delayed or withheld. If settlement is made with the consent of the indemnifying
party, such indemnifying party shall indemnify and hold harmless the indemnified
party against any loss or liability incurred by reason of such settlement.
(e) If the indemnification provided for in this Section is
unavailable, for any reason other than as specified therein, to hold harmless an
indemnified party under subsection (a), (b) or (c) above, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of the losses, claims, damages or liabilities referred to in
subsection (a), (b) or (c) above in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and Smith Barney
on the other from the Offer. If the allocation
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provided by the immediately preceding sentence is not permitted by applicable
law in the case of a claim for contribution by an indemnified party under
subsection (a) above, then the Company and the Manager shall each contribute to
the amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in subsection (a) above in such
proportion as is appropriate to reflect not only the relative benefits referred
to in the immediately preceding sentence but also the relative fault of the
Company, the Manager and Smith Barney in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities as well
as any other relevant equitable considerations. If the allocation provided by
the second preceding sentence is not permitted by applicable law in the case of
a claim for contribution by an indemnified party under subsection (b) above,
then Smith Barney shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in subsection (b) above in such proportion as is appropriate to
reflect not only the relative benefits referred to in the second preceding
sentence but also the relative fault of the Company on the one hand and Smith
Barney on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and Smith Barney on the other shall be deemed to be in
the same proportion as the total net proceeds from the subscription for the
Shares (before deducting expenses) received by the Company bear to the total
fees received by Smith Barney pursuant to Section 7 of this Agreement with
respect to the Offer. The relative fault of the Company and Smith Barney shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or Smith Barney
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
relative fault of the Manager shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to any negligence, recklessness or
willful misfeasance by the Manager in its performance of, or its failure to
perform, its obligations to the Company under the Management Agreement, and the
Manager shall not be liable for contribution under this subsection (e) in the
absence of such negligence, recklessness or willful misfeasance. The amount
paid by an indemnified party as a result of the losses, claims, damages or
liabilities referred to in this subsection (e) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any action or claim which is the
subject of this subsection (e). Notwithstanding the provisions of this
subsection (e), Smith Barney shall not be required to contribute any amount in
excess of the amount by which the total fees received by Smith Barney pursuant
to Section 7 of this Agreement exceeds the amount of any damages that Smith
Barney has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty
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of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(f) The obligations of the Company and the Manager under this Section
shall be in addition to any liability which the Company or the Manager may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls Smith Barney within the meaning of the Securities
Act; and the obligations of Smith Barney under this Section shall be in addition
to any liability which Smith Barney may otherwise have and shall extend, upon
the same terms and conditions, to each director of the Company, to each officer
of the Company who has signed the Registration Statement and to each person, if
any, who controls the Company within the meaning of the Securities Act.
(g) Smith Barney confirms that the statements with respect to the
public offering of the Rights and Shares set forth in the paragraph immediately
following the table appearing on the cover page of, and in the fifth and sixth
paragraphs under the caption "The Offer -- Distribution Arrangements" in the
Prospectus, and the stabilization legend on the inside cover of the Prospectus,
are correct and constitute the only information furnished in writing to the
Company by Smith Barney for inclusion in the Registration Statement and the
Prospectus.
(h) The Manager confirms that the statements set forth in the
penultimate sentence under the caption "Use of Proceeds" and under the caption
"Investment Advisers and Administrator--The Investment Manager" in the
Prospectus are correct and constitute the only information furnished in writing
to the Company by the Manager for inclusion in the Registration Statement and
the Prospectus.
10. TERMINATION
Smith Barney may terminate this Agreement, in its absolute discretion,
by notice given to and received by the Company prior to the issuance of the
Rights, or if (a) the Company or the Manager has failed, refused or been unable
to perform any material agreement on its part to be performed under this
Agreement, (b) there has been, since the dates as of which information is given
in the Registration Statement, any material adverse change in the net asset
value of the Company or the tax, exchange control or other laws or regulations
applicable to the Company in Brazil or the United States, the effect of which,
in the reasonable judgment of Smith Barney, renders it impracticable to proceed
with the solicitation of the exercise of Rights, or (c) any other condition of
Smith Barney's obligations under this Agreement is not fulfilled. Any
termination of this Agreement pursuant to this Section 10 will be without
liability on the part of the Company, the Manager or Smith Barney except as
otherwise provided in Section 8(f), Section 9 and/or Section 12 of this
Agreement.
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<PAGE>
Termination of this Agreement by Smith Barney will not preclude the Company from
consummating the Offer at its discretion.
11. CONDITIONS OF SMITH BARNEY'S OBLIGATIONS
The obligations of Smith Barney to perform and to continue to perform
as Dealer Manager under this Agreement will at all times be subject to the
accuracy, when made and at all times during the Offer and the Subscription
Period, including any extension thereof, of the representations and warranties
of the Company herein, to the accuracy of the statements of the officers of the
Company and Manager made pursuant to the provisions hereof, to the performance
by the Company and the Manager of their respective obligations hereunder and to
each of the following additional conditions precedent:
(a) Smith Barney shall have received a letter, dated the date of
delivery thereof (which, if the Effective Time is prior to the execution and
delivery of this Agreement, shall be on or prior to the date of this Agreement
or, if the Effective Time is subsequent to the execution and delivery of this
Agreement, shall be prior to the filing of the amendment or post-effective
amendment to the registration statement to be filed shortly prior to the
Effective Time), of Price Waterhouse LLP confirming that they are independent
accountants within the meaning of the Acts and the Rules and Regulations and
stating in effect that:
(i) in their opinion the financial statements including the schedules
audited by them and included in the Registration Statement comply in form
in all material respects with the applicable accounting requirements of the
Acts and the related published Rules and Regulations as applicable to Form
N-2;
(ii) on the basis of a reading of the latest available unaudited
financial information of the Company, inquiries of officials of the Company
who have responsibility for financial and accounting matters and a reading
of the minutes of the board of directors meetings, nothing came to their
attention that caused them to believe that, at a specified date not more
than five days prior to the date of this Agreement, there was any change in
the Common Stock, any increase in long-term debt of the Company or any
decrease in net assets, as compared with amounts shown on the latest
balance sheet included in the Prospectus; except in all cases for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or they shall state any specific changes or decreases; and
(iii) they have compared certain dollar amounts (or percentages derived
from such dollar amounts) and other financial information contained in the
Registration Statement, which have been specified by the Dealer Manager, to
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<PAGE>
the appropriate accounts in the Company's accounting records subject to the
internal controls of the Company's accounting system and to schedules
prepared by the Company therefrom and have found such dollar amounts,
percentages and other financial information to be in agreement. The Dealer
Manager will inform Price Waterhouse LLP as to which amounts and
information shall be subject to the comparison described in this subsection
(iii).
For purposes of this subsection, if the Effective Time is subsequent
to the execution and delivery of this Agreement, "Registration Statement" shall
mean the registration statement as proposed to be amended by the amendment or
post-effective amendment to be filed shortly prior to the Effective Time, and
"Prospectus" shall mean the prospectus included in the Registration Statement.
(b) If the Effective Time is not prior to execution and delivery of
this Agreement, the Effective Time shall have occurred not later than 10:00
P.M., New York City Time, on the date of this Agreement, or such later date as
shall have been consented to by Smith Barney. If the Effective Time is prior to
the execution and delivery of this Agreement, the Prospectus shall have been
filed with the Commission in accordance with the Rules and Regulations and
Section 8(a) of this Agreement. At or before the date of this Agreement, no
stop order suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been instituted, or
to the knowledge of the Company, the Manager or Smith Barney, shall be
contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting particularly the business or properties of
the Company which, in the judgment of Smith Barney, materially impairs the
investment quality of the Shares, (ii) any suspension or limitation of trading
in securities generally on the NYSE, the Sao Paulo Stock Exchange or the Rio de
Janeiro Stock Exchange, or any setting of minimum prices for trading on either
of such exchanges, or any suspension of trading of the Common Stock of the
Company on any exchange or in the over-the-counter market; (iii) any banking
moratorium declared by federal, New York or Brazilian authorities; (iv) any
outbreak or escalation of major hostilities in which the United States or Brazil
is involved, any declaration of war by Congress or Brazil or any other
substantial U.S. or Brazilian national or international calamity or emergency
if, in the judgment of Smith Barney the effect of any such outbreak, escalation,
declaration, calamity or emergency makes it impractical or inadvisable to
proceed with the solicitation of the exercise of the Rights; or (v) any material
adverse change in general economic, political or financial conditions that, or
any international conditions the effect of which on the financial markets in the
United States, in the
-20-
<PAGE>
judgment of Smith Barney, makes it impractical or inadvisable to proceed with
the solicitation of the exercise of the Rights.
(d) The Rights have been listed on the NYSE no later than the opening
of trading on the NYSE on the first full day of trading after the date of this
Agreement and admitted for trading on the NYSE no later than the opening of
trading on the NYSE on the first full day of trading after the date of this
Agreement.
(e) The Comissao de Valores Mobiliarios shall not have issued any
order rescinding their authorization for the Company to issue the Shares.
(f) On the date of this Agreement, there shall have been furnished to
Smith Barney an opinion of Debevoise & Plimpton, counsel for the Company, dated
the date of this Agreement, and addressed to Smith Barney, to the effect set
forth in Exhibit A to this Agreement.
(g) On the date of this Agreement, there shall have been furnished to
Smith Barney an opinion of Counsel for the Manager, dated the date of this
Agreement, and addressed to Smith Barney, to the effect set forth in Exhibit B
to this Agreement.
(h) On the date of this Agreement, there shall have been furnished to
Smith Barney an opinion of Pinheiro Neto, Brazilian counsel for the Company,
dated the date of this Agreement, and addressed to Smith Barney, to the effect
set forth in Exhibit C to this Agreement.
(i) Smith Barney shall have received from Sullivan & Cromwell,
counsel for the Dealer Manager, such opinion or opinions, dated the date of this
Agreement, with respect to the incorporation of the Company, the validity of the
Shares, the Registration Statement, the Prospectus, and other related matters as
Smith Barney may require, and the Company shall have furnished to such counsel
such documents as they request for the purpose of enabling them to pass upon
such matters.
(j) Smith Barney shall have received certificates of the Chairman,
President or any Vice-President and a principal financial or accounting officer
of the Company, and of the President and any Vice-President or any two Vice-
Presidents of the Manager, each dated the date of this Agreement, in which such
officers, to the best of their knowledge after reasonable investigation, shall
state that each such party has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the date of
this Agreement, and, in the case of the certificate of officers of the Company,
that the representations and warranties of the Company in this Agreement are
true and correct as of such date, that no stop
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<PAGE>
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or are contemplated by
the Commission, and that, subsequent to the date of the balance sheet in the
Prospectus, there has been no material adverse change in the financial position
or results of operation of the Company except as set forth or contemplated in
the Prospectus or as described in such certificate.
The Company and the Manager will furnish Smith Barney with such conformed copies
of such opinions, certificates, letters and documents as Smith Barney reasonably
requests.
12. SURVIVAL OF CERTAIN REPRESENTATIONS AND OBLIGATIONS
The respective indemnities, agreements, representations, warranties,
and other statements of the Company and the Manager or their respective officers
and of Smith Barney set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of termination of this Agreement, and
regardless of any investigation, or statement as to the results thereof, made by
or on behalf of Smith Barney or the Company and the Manager or any of their
respective officers or directors or any controlling person, and will survive
delivery of the Rights and the Shares. If this Agreement is terminated pursuant
to Section 10 or if for any reason the issuance of the Rights and the sale of
Shares is not consummated, the Company shall remain responsible for the expenses
to be paid or reimbursed by it pursuant to Section 8(f) and the respective
obligations of the Company and the Manager and Smith Barney pursuant to Section
9 shall remain in effect.
13. NOTICES
All communications hereunder will be in writing and, if sent to Smith
Barney will be mailed, delivered or telegraphed and confirmed to it at 388
Greenwich Street, New York, New York 10013, Attention: __________________, if
sent to the Company, will be mailed, delivered or telegraphed and confirmed to
it at 345 Park Avenue, New York, New York 10154, Attention: President, or if
sent to the Manager, will be mailed, delivered or telegraphed and confirmed to
it at 345 Park Avenue, New York, New York 10154, Attention: President.
14. SUCCESSORS
This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the officers and directors
and controlling persons referred to in Section 9, and no other person will have
any right or obligation hereunder.
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<PAGE>
15. APPLICABLE LAW
This Agreement will be governed by, and construed in accordance with,
the laws of the State of New York applicable to contacts made and to be
performed within the State of New York.
16. COUNTERPARTS.
This Agreement may be executed in one or more counterparts and, if
executed in more than one counterpart, the executed counterparts will each be
deemed to be an original but all such counterparts will together constitute one
and the same instrument.
* * * * *
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<PAGE>
If the foregoing correctly sets forth the agreement among the Company, the
Manager and Smith Barney, please indicate Smith Barney's acceptance in the space
provided for that purpose below, whereupon it will become a binding agreement
among the Company, the Manager and Smith Barney in accordance with its terms.
Very truly yours,
THE BRAZIL FUND, INC.
By: ______________________________________
Name:
Title:
SCUDDER, STEVENS & CLARK, INC.,
as Manager
By: ______________________________________
Name:
Title:
Accepted as of the date
first above written:
SMITH BARNEY INC.
By: ________________________________
Name:
Title:
-24-
<PAGE>
EXHIBIT A
Form of Opinion of Debevoise & Plimpton
---------------------------------------
Debevoise & Plimpton is of the opinion that:
(1) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Maryland,
with corporate power and authority to own its properties and conduct its
business as described in the Prospectus; and the Company is duly qualified
to do business as a foreign corporation in good standing in New York, and
in all other United States jurisdictions in which it owns or leases
substantial properties or in which the conduct of its business requires
such qualification except where failure to so qualify would not have a
material adverse effect on the business of the Company.
(2) All of the outstanding shares of the Common Stock of the Company
have been duly authorized, validly issued, fully paid and nonassessable;
the Offer, the Rights and the Shares have been duly authorized, and the
Rights and the Shares, upon issuance and delivery and, in the case of the
Shares, payment therefor, as described in the Registration Statement and
the Prospectus, will be, validly issued, fully paid and nonassessable; the
Rights conform to the statements concerning them included in the
Prospectus; the Shares conform to the description thereof contained under
the caption "Common Stock" in the Prospectus; the Rights are duly
authorized for listing, subject to official notice of issuance, on the NYSE
and are, or as soon as practicable after the date of this Agreement, will
be, admitted to trading on the NYSE; the Shares are duly authorized for
listing, subject to official notice of issuance, on the NYSE and, as soon
as practicable after the date of this Agreement, will be admitted to
trading on the NYSE and are registered under the Exchange Act; and the
stockholders of the Company have no preemptive rights (except for the
Rights) with respect to the Shares.
(3) Each of this Agreement and the Subscription Agent Agreement has
been duly authorized, executed and delivered by the Company, and the
Subscription Agent Agreement constitutes the valid and binding agreement of
the Company and is enforceable against the Company, in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights and
to general equity principles.
(4) The Management Agreement, the Research Agreement and the Custodian
Agreement have each been duly authorized and approved by the Company and
comply with all applicable provisions of the Investment
<PAGE>
Company Act, and the Management Agreement and Custodian Agreement have been
duly executed and delivered by the Company and constitute the valid and
binding obligations of the Company enforceable in accordance with their
respective terms subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or affecting creditors' rights and
to general equity principles.
(5) The Company is duly registered with the Commission under the
Investment Company Act as a closed-end non-diversified management
investment company, and all required action has been taken by the Company
under the Acts and the Exchange Act to make the public offering and
consummate the issuance of the Rights and sale of the Shares pursuant to
this Agreement; the provisions of the Articles of Incorporation and By-laws
of the Company comply as to form in all material respects with the
requirements of the Investment Company Act; and no consent, approval,
authorization or order of, or filing with, any court or governmental
agency, authority or body is required under Maryland corporate law, the
laws of New York or federal law, or, to the best of such counsel's
knowledge, the laws of any other jurisdiction in the United States for the
consummation of the transactions contemplated herein or in the Subscription
Agent Agreement in connection with the issuance of the Rights or the sale
of the Shares by the Company except such as have been obtained under the
Acts and the Exchange Act and such as may be required under state
securities laws in connection with the distribution of the Rights and the
Shares.
(6) The execution, delivery and performance of this Agreement and the
Subscription Agent Agreement and the consummation of the transactions
contemplated herein and in the Subscription Agent Agreement will not result
in a breach or violation of any of the terms and provisions of the Articles
of Incorporation or By-laws of the Company or any law, order, rule or
regulation applicable to the Company of any United States jurisdiction,
court, federal or state regulatory body, administrative agency or other
governmental body, stock exchange or securities association having
jurisdiction over the Company, or its properties or operations, or, to the
best knowledge of such counsel after reasonable investigation, constitute,
with or without giving notice or lapse of time or both, a default under,
any agreement or instrument to which the Company is a party or by which the
Company is bound or to which any of the properties of the Company is
subject (except that in this paragraph (6) they express no opinion as to
the accuracy or completeness of the Registration Statement or of the
Prospectus).
(7) The Registration Statement was declared effective under the
Securities Act as of the date and as of the time specified in such opinion,
the
A-2
<PAGE>
Prospectus was either filed with the Commission pursuant to the
subparagraph of Rule 497(h) specified in such opinion on the date specified
therein or was included in the Registration Statement (as the case may be),
and, to the best of the knowledge of such counsel, no stop order suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, and the Registration Statement and
the Prospectus (except as to the financial statements and other financial
data contained therein, as to which they express no belief), as of their
respective effective or issue dates, complied as to form in all material
respects with the requirements of the Acts and the Rules and Regulations.
(8) The descriptions in the Registration Statement and Prospectus of
United States statutes, legal and governmental proceedings and contracts
and other documents are accurate and fairly present the information
required to be shown; and such counsel do not know of any legal or
governmental proceedings required to be described in the Prospectus which
are not described as required, nor of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to be filed as exhibits to the Registration Statement which
are not described and filed as required.
Such counsel shall also state that, while they have not themselves
checked the accuracy and completeness of or otherwise verified, and are not
passing upon and assume no responsibility for the accuracy or completeness of,
the statements contained in the Registration Statement or the Prospectus, except
to the limited extent stated in paragraph (8) above, in the course of their
review and discussion of the contents of the Registration Statement and
Prospectus with certain officers and employees of the Company and its
independent accountants and with Brazilian counsel to the Company, no facts have
come to their attention which cause them to believe that either the Registration
Statement or the Prospectus, or any amendment or supplement thereto (except as
to any financial statements or other financial data included in the Registration
Statement, the Prospectus or any such amendment or supplement, as to which they
express no belief), as of such respective effective or issue dates, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements contained therein not
misleading.
A-3
<PAGE>
EXHIBIT B
Form of Opinion of Counsel for Manager
--------------------------------------
Counsel for the Manager is of the opinion that:
(1) The Manager has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to conduct its business as described in the
Prospectus.
(2) The Manager is duly registered as an investment adviser under the
Investment Advisers Act and is not prohibited by the Investment Advisers
Act or the Investment Company Act, or the rules and regulations under such
acts, from acting as Manager for the Company as contemplated by the
Prospectus.
(3) This Agreement has been duly authorized, executed and delivered by
the Manager.
(4) The Management Agreement and the Research Agreement have each been
duly authorized, executed and delivered on behalf of the Manager and each
constitutes a valid and binding obligation of the Manager enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization or other laws relating to or affecting
creditors' rights and to general equity principles; and neither the
execution and delivery of this Agreement, the Management Agreement or the
Research Agreement nor the performance by the Manager of its obligations
thereunder will conflict with or result in a breach or violation of any of
the terms and provisions of the charter or By-laws of the Manager or any
law, order, rule or regulation applicable to the Manager of any United
States jurisdiction, court, federal or state regulatory body,
administrative agency or other governmental body, stock exchange or
securities association having jurisdiction over the Manager or its
properties or operations, or, to the best knowledge of such counsel after
reasonable investigation, constitute, with or without giving notice or
lapse of time or both, a default under, any agreement or instrument to
which the Manager is a party or by which the Manager or to which any of the
properties of the Manager is subject.
<PAGE>
EXHIBIT C
Form of Opinion of Pinheiro Neto
--------------------------------
Pinheiro Neto is of the opinion that:
(1) The information in the Prospectus, to the extent that it relates
to matters of Brazilian law or legal conclusions, has been reviewed by them
and is an accurate and complete description of all Brazilian law or legal
conclusions applicable to the Company and the operation of its business as
described in the Prospectus and, at the Effective Time, such information
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading; and such counsel has no reason to
believe that the Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective effective or issue
dates, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading.
(2) The Company, the Manager and the Brazilian Adviser have received
all governmental and other licenses, authorizations, approvals and consents
in Brazil which are necessary for the consummation by the Company, the
Manager and the Brazilian Adviser of the transactions contemplated by this
Agreement, the Subscription Agent Agreement, the Management Agreement, the
Research Agreement and the Custodian Agreement, as the case may be, and for
the operation of the business of the Company as described in the
Prospectus, and there is no other license, authorization, approval or
consent of, or filing with, any governmental or other regulatory authority,
stock exchange or securities business association in Brazil necessary in
order for the Company, the Manager and the Brazilian Adviser lawfully to
perform their respective obligations under such Agreements or to conduct
the business of the Company as described in the Prospectus.
(3) To the best of the knowledge of such counsel, there are no
actions, investigations or other proceedings in Brazil of any nature
pending, commenced or threatened, which in any case or in the aggregate,
might result in any material adverse change in the business of the Company,
the Manager or the Brazilian Adviser or which question the validity of the
Agreements referred to under (2) above or the performance by the Company,
the Manager or the Brazilian Adviser, of such Agreements.
(4) The Brazilian Adviser has been duly organized and is validly
existing under the laws of Brazil, with corporate power to conduct its
business as described in the Prospectus.
<PAGE>
(5) The Research Agreement has been duly authorized, executed and
delivered on behalf of the Brazilian Adviser and constitutes a valid and
binding obligation of the Brazilian Adviser enforceable in accordance with
its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization or other laws relating to or generally affecting creditors'
rights, and neither the execution and delivery of the Research Agreement
nor the performance by the Brazilian Adviser of its obligations thereunder
will, to the best of such counsel's knowledge after reasonable
investigation, conflict with, or result in a breach or violation of any of
the terms and provisions of, or constitute, with or without giving notice
or lapse of time or both, a default under, any agreement or instrument to
which the Brazilian Adviser is a party or by which the Brazilian Adviser is
bound or to which any of the properties of the Brazilian Adviser is
subject, or the charter or by-laws of the Brazilian Adviser or will violate
any law, order, rule or regulation in Brazil applicable to the Brazilian
Adviser of any jurisdiction, court, regulatory body, administrative agency
or other governmental body, stock exchange or securities business
association in Brazil having jurisdiction over the Brazilian Adviser or its
properties or operations.
In addition, such counsel will also confirm their opinions set forth
under the caption "Taxation--Brazilian Taxes" in the Prospectus.
C-2
<PAGE>
EXHIBIT 99.H(ii)
S&C Draft dated November 13, 1995
THE BRAZIL FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
DECEMBER 15, 1995, UNLESS EXTENDED.
To Securities Dealers and Brokers:
The Brazil Fund, Inc. (the "Company") is issuing to its shareholders of
record ("Record Date Shareholders") as of the close of business on November 20,
1995 (the "Record Date") rights ("Rights") to subscribe for an aggregate of
4,050,000 shares of Common Stock (the "Shares") of the Company upon the terms
and subject to the conditions set forth in the Company's Prospectus dated
November __, 1995 (the "Offer"). Each such Record Date Shareholder is being
issued one Right for each full share of Common Stock owned on the Record Date.
No fractional Rights will be issued. The Rights may be traded on the New York
Stock Exchange. The Rights entitle the Record Date Shareholders and holders of
Rights acquired during the Subscription Period (as hereinafter defined) to
acquire at the Subscription Price (as hereafter defined), one Share for each [ ]
Rights held in the primary subscription. The Subscription Price is $_____ per
Share. Any Record Date Shareholder who is issued fewer than [ ] Rights may
subscribe, at the Subscription Price, for one full Share of Common Stock during
the Subscription Period, which commences on November 20, 1995 and ends at 5:00
p.m., New York City time, on the Expiration Date. (With respect to the Offer,
the term "Expiration Date" means 5:00 p.m., New York City time, on Friday,
December 15, 1995, unless and until the Company shall, in its sole discretion,
have extended the period for which the Offer is open, in which event the term
"Expiration Date" with respect to the Offer will mean the latest time and date
on which the Offer, as so extended by the Company, will expire.) Any Record Date
Shareholder who fully exercises all Rights issued to him (other than those
Rights which cannot be exercised because they represent the right to acquire
less than one Share) is entitled to subscribe for Shares which were not
otherwise subscribed for by others on primary subscription (the "Over-
Subscription Privilege"). Shares acquired pursuant to the Over-Subscription
Privilege are subject to allotment, as more fully discussed in the Prospectus.
For the duration of the Offer, the Company will pay Soliciting Fees (as
defined below) to any qualified broker or dealer who solicits the exercise of
Rights in connection with the Offer and who complies with the procedures
described below (a "Soliciting Dealer"). Upon timely delivery to State Street
Bank and Trust Company, the Company's Subscription Agent for the Offer (the
"Subscription Agent"), of payment for Shares purchased pursuant to the exercise
of Rights and of properly completed and executed documentation as set forth in
this Soliciting Dealer Agreement, a Soliciting Dealer will be entitled to
receive a fees equal to .50% of the Subscription Price per Share purchased
pursuant to exercise of the Rights (the "Soliciting Fees"); provided that the
--------
aggregate fees paid to any Soliciting Dealer hereunder (other than a Soliciting
Dealer who is registered as a specialist in the Rights with The New York Stock
Exchange and who has been approved by The New York Stock Exchange to act as such
during the Subscription Period) may not exceed the product of (i) .50% of the
Subscription Price Per Share, times (ii) the aggregate number of shares of
Common Stock held in such Soliciting Dealer's participant accounts with The
Depository Trust Company on the Record Date divided by three. A qualified broker
or dealer is a broker or dealer which is a member of a registered national
securities exchange in the United States or the National Association of
Securities Dealers, Inc. ("NASD").
The Company hereby agrees to pay the Soliciting Fees payable to the
Soliciting Dealers. Solicitation and other activities by Soliciting Dealers may
be undertaken only in accordance with the applicable rules and regulations of
the Securities and Exchange Commission and only in those states and other
jurisdictions where such solicitations and other activities may lawfully be
undertaken and in
<PAGE>
accordance with the laws thereof. Compensation will not be paid for
solicitations in any state or other jurisdiction in which, in the opinion of
counsel to the Company or counsel to Smith Barney Inc., the Dealer Manager in
connection with the Offer (the "Dealer Manager"), such compensation may not
lawfully be paid. No Soliciting Dealer shall be paid Soliciting Fees with
respect to Shares purchased pursuant to an exercise of Rights for its own
account or for the account of any affiliate of the Soliciting Dealer, except
that the Dealer Manager shall receive the Soliciting Fees with respect to Shares
purchased pursuant to an exercise of Rights for its own account provided that
such Shares are offered and sold by the Dealer Manager to its clients. No
Soliciting Dealer or any other person is authorized by the Company or the Dealer
Manager to give any information or make any representations in connection with
the Offer other than those contained in the Prospectus and other authorized
solicitation material furnished by the Company through the Dealer Manager. No
Soliciting Dealer is authorized to act as agent of the Company or the Dealer
Manager in any connection or transaction. In addition, nothing herein contained
shall constitute the Soliciting Dealers partners with the Dealer Manager or with
one another, or agents of the Dealer Manager or of the Company, or create any
association between such parties, or shall render the Dealer Manager or the
Company liable for the obligations of any Soliciting Dealer. The Dealer Manager
shall be under no liability to make any payment to any Soliciting Dealer, and
shall be subject to no other liabilities to any Soliciting Dealer, and no
obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Soliciting Fees, the
Subscription Agent must have received from such Soliciting Dealer no later than
5:00 p.m., New York City time, on the Expiration Date, a properly completed and
duly executed Soliciting Dealer Agreement (or a facsimile thereof), accompanied
by either (i) a properly completed and duly executed Subscription Certificate
with respect to Shares purchased pursuant to the exercise of Rights and full
payment for such Shares; or (ii) a Notice of Guaranteed Delivery guaranteeing
delivery to the Subscription Agent, by close of business on the third New York
Stock Exchange trading day after the Expiration Date, of a properly completed
and duly executed Subscription Certificate with respect to Shares purchased
pursuant to the exercise of Rights and full payment for such Shares. In the case
of a Notice of Guaranteed Delivery, Soliciting Fees will only be paid after
payment and delivery in accordance with such Notice of Guaranteed Delivery has
been effected.
All questions as to the form, validity and eligibility (including time of
receipt) of the Soliciting Dealer Agreement will be determined by the Company,
in its sole discretion, which determination shall be final and binding. Unless
waived, any irregularities in connection with a Soliciting Dealer Agreement or
delivery thereof must be cured within such time as the Company shall determine.
None of the Company, the Dealer Manager, the Information Agent for the Offer
(Georgeson & Company Inc.) or any other person will be under any duty to give
notification of any defects or irregularities in any Soliciting Dealer Agreement
or incur any liability for failure to give such notification.
The acceptance of Soliciting Fees from the Company by a Soliciting Dealer
shall constitute a representation by such Soliciting Dealer to the Company that:
(i) it has received and reviewed the Prospectus; (ii) in soliciting purchases of
Shares pursuant to the exercise of the Rights, it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the applicable rules and regulations thereunder, any applicable
securities laws of any state or jurisdiction where such solicitations may
lawfully be made, and the applicable rules and regulations of any self-
regulatory organization or registered national securities exchange; (iii) in
soliciting purchases of Shares pursuant to the exercise of the Rights, it has
not published, circulated or used any soliciting materials other than the
Prospectus and any other authorized solicitation material furnished by the
Company through the Dealer Manager; (iv) it has not purported to act as agent of
the Company or the Dealer Manager in any connection or transaction relating to
the Offer; (v) the information contained in this Soliciting Dealer Agreement is,
to its best knowledge, true and complete; (vi) it is not affiliated with the
Company; (vii) it will not accept Soliciting Fees paid by the Company pursuant
to the terms hereof with respect to Shares purchased by the Soliciting Dealer
pursuant to an exercise of Rights for its own account; (viii) it will not
<PAGE>
remit, directly or indirectly, any part of Soliciting Fees paid by the Company
pursuant to the terms hereof to any beneficial owner of Shares purchased
pursuant to the Offer; and (ix) it has agreed to the amount of the Soliciting
Fees and the terms and conditions set forth herein with respect to receiving
such Soliciting Fees. By returning a Soliciting Dealer Agreement and accepting
Soliciting Fees, a Soliciting Dealer will be deemed to have agreed to indemnify
the Company against losses, claims, damages and liabilities to which the Company
may become subject as a result of the breach of such Soliciting Dealer's
representations made herein and described above. In making the foregoing
representations, Soliciting Dealers are reminded of the possible applicability
of Rule 10b-6 under the Exchange Act if they have bought, sold, dealt in or
traded in any Shares for their own account since the commencement of the Offer.
Soliciting Fees due to eligible Soliciting Dealers will be paid promptly
after consummation of the Offer. Upon expiration of the Offer, no Soliciting
Fees will be payable to Soliciting Dealers with respect to Shares purchased
thereafter.
This Soliciting Dealer Agreement will be governed by the laws of the State
of New York.
This Soliciting Dealer Agreement may be signed in two or more
counterparts, each of which will be an original, with the same effect as if the
signatures were upon the same instrument.
Please list on the Appendix attached hereto and forming part of this
Soliciting Dealer Agreement the number of Shares purchased pursuant to exercise
of the Rights by each beneficial owner whose purchases pursuant to exercise of
Rights you, as a Soliciting Dealer, have solicited. All amounts beneficially
owned by a beneficial owner, whether in one account or several, and in however
many capacities, must be aggregated for purposes of completing the table in the
Appendix hereto. Any questions as to what constitutes beneficial ownership
should be directed to the Company. The number of shares not listed in the
Appendix for reasons of inadequate space should be listed on a separate schedule
attached to, and forming part of, this Soliciting Dealer Agreement.
Please execute this Soliciting Dealer Agreement below accepting the terms
and conditions hereof and confirming that you are a member firm of a registered
national securities exchange or of the NASD, and certifying that you have
solicited the purchase of the Shares pursuant to exercise of the Rights, all as
described above, in accordance with the terms and conditions set forth in this
Soliciting Dealer Agreement.
Very truly yours,
__________________________________
Juris Padegs
Chairman of the Board
The Brazil Fund, Inc.
ACCEPTED AND CONFIRMED
______________________ ___________________________
Printed Firm Name Address
______________________ ___________________________
Authorized Signature Area Code and Telephone Number
______________________
Name and Title
Dated: _______________
-3-
<PAGE>
ALL SOLICITING DEALER AGREEMENTS SHOULD BE RETURNED TO
STATE STREET BANK AND TRUST COMPANY BY FACSIMILE (TELECOPIER)
AT (617) 774-4519. FACSIMILE TRANSMISSIONS
MAY BE CONFIRMED BY CALLING (617) 575-4511.
ALL QUESTIONS CONCERNING SOLICITING DEALER AGREEMENTS
SHOULD BE DIRECTED TO GEORGESON & COMPANY INC. AS FOLLOWS:
FOR BANK INQUIRIES, PLEASE CALL (212) 440-9901 AND FOR
BROKER INQUIRIES, PLEASE CALL (212) 440-9907.
-4-
<PAGE>
<TABLE>
<CAPTION>
APPENDIX TO SOLICITING DEALER AGREEMENT
TO BE COMPLETED BY THE SOLICITING DEALER
Beneficial Owners Number of Shares Purchased
<S> <C>
Beneficial Owner No. 1
Beneficial Owner No. 2
Beneficial Owner No. 3
Beneficial Owner No. 4
Beneficial Owner No. 5
Beneficial Owner No. 6
Beneficial Owner No. 7
Beneficial Owner No. 8
Beneficial Owner No. 9
Beneficial Owner No. 10
Beneficial Owner No. 11
Beneficial Owner No. 12
Beneficial Owner No. 13
Beneficial Owner No. 14
Beneficial Owner No. 15
Beneficial Owner No. 16
Beneficial Owner No. 17
Beneficial Owner No. 18
Beneficial Owner No. 19
Beneficial Owner No. 20
Beneficial Owner No. 21
TOTAL:
</TABLE>
-5-
<PAGE>
EXHIBIT 99.H(iii)
S&C Draft dated November 10, 1995
SELLING GROUP AGREEMENT
-----------------------
November __, 1995
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
We understand that The Brazil Fund, Inc., a Maryland corporation (the
"Fund"), proposes to issue to its shareholders of record as of November 20, 1995
rights ("Rights") entitling their holders to subscribe for an aggregate of
4,050,000 shares ("Shares") of the Fund's Common Stock, par value $.01 per share
("Common Stock"). We further understand that the Fund has appointed you as the
exclusive Dealer Manager in connection with the offer of Shares contemplated by
the proposed issuance of Rights (the "Offer").
We hereby express our interest in participating in the Offer as a
Selling Group Member.
We hereby agree with you as follows:
<PAGE>
I.
We have received and reviewed the Prospectus dated November 20, 1995
(the "Prospectus") relating to the Offer and we understand that additional
copies of the Prospectus (or of the Prospectus as it may be subsequently
supplemented or amended, if applicable) and any other solicitation materials
authorized by the Fund relating to the Offer ("Offering Materials") will be
supplied to us in reasonable quantities upon our request therefor to you. We
agree that we will not use any solicitation material other than the Prospectus
(as supplemented or amended, if applicable) and such Offering Materials and we
agree not to make any representation, oral or written, to any shareholders or
prospective shareholders of the Fund that are not contained in the Prospectus,
unless previously authorized to do so in writing by the Fund.
II.
From time to time during the period (the "Subscription Period")
commencing on November 20, 1995 and ending at 5:00 p.m., New York time, on
December 15, 1995, unless extended by the Fund and you (the "Expiration Date"),
we may solicit the exercise of Rights in connection with the Offer. We will be
entitled to receive fees in the amounts and at the times described in Article IV
of this Agreement with respect to Shares purchased pursuant to the exercise of
-2-
<PAGE>
Rights and with respect to which The First National Bank of Boston (the
"Subscription Agent") has received, no later than 5:00 p.m., New York time, on
the Expiration Date, either (i) a properly completed and executed Subscription
Certificate (in the form attached to the Prospectus), identifying us as the
broker-dealer having been instrumental in the exercise of such Rights, and full
payment for such Shares or (ii) a Notice of Guaranteed Delivery (in the form
attached to the Prospectus) guaranteeing to the Subscription Agent by the close
of business of the third business day after the Expiration Date of a properly
completed and duly executed Subscription Certificate, similarly identifying us,
and full payment for such Shares. We understand that we will not be paid these
fees with respect to Shares purchased pursuant to an exercise of Rights for our
own account or for the account of any of our affiliates except that we may
receive such fees with respect to Shares purchased pursuant to an exercise of
Rights for our own account provided that such Shares are offered and sold by us
to our clients. We also understand and agree that we are not entitled to
receive any fees in connection with the solicitation of the exercise of Rights
other than pursuant to the terms of this Agreement and, in particular, that we
will not be entitled to receive any fees under the Fund's Soliciting Dealer
Agreement.
-3-
<PAGE>
We agree to solicit the exercise of Rights in accordance with the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the Investment
Company Act of 1940, as amended, and the rules and regulations under each such
Act, any applicable securities laws of any state or jurisdiction where such
solicitations may be lawfully made, the applicable rules and regulations of any
self-regulatory organization or registered national securities exchange and
customary practice and subject to the terms of the Subscription Agent Agreement
between the Fund and the Subscription Agent and the procedures described in the
Fund's registration statement on Form N-2 (File No. 33-63381, as amended (the
"Registration Statement").
III.
From time to time during the Subscription Period, we may indicate
interest in purchasing Shares from you as Dealer Manager. We understand that
from time to time you intend to offer Shares obtained or to be obtained by you
through the exercise of Rights to Selling Group Members who have so indicated
interest at prices which shall be determined by you (the "Offering Price"). We
agree that with respect to any such Shares purchased by us from you the sale of
such Shares to us shall be irrevocable and we will offer them to the public at
the Offering Price at which we
-4-
<PAGE>
purchase them from you. Shares not sold by us at such Offering Price may be
offered by us after the next succeeding Offering Price is set at the latest
Offering Price set by you. You agree that, if requested by any Selling Group
Member, and subject to applicable law, you will set a new Offering Price prior
to 4:00 p.m., New York time, on any business day.
We agree to advise you from time to time upon request, prior to the
termination of this Agreement, of the number of Shares remaining unsold which
were purchased by us from you and, on your request, we will resell to you any of
such Shares remaining unsold at the purchase price thereof if in your opinion
such Shares are needed to make delivery against sales made to other Selling
Group Members.
Any shares purchased hereunder from you shall be subject to regular
way settlement through the facilities of the Depository Trust Company.
IV.
We understand that you will remit to us, on or shortly after [DECEMBER
29], 1995 (or, if the Expiration Date is extended, on such later date not more
than 15 days after the Expiration Date as you may determine), following receipt
by you from the Fund, a fee equal to an amount computed by multiplying 0.025 by
the sum of (i) the number of Shares purchased pursuant to each Subscription
-5-
<PAGE>
Certificate upon which we are designated, as certified to you by the
Subscription Agent, as a result of our solicitation efforts in accordance with
Article II of this Agreement, and (ii) the number of Shares sold by you to us in
accordance with Article III of this Agreement (less any Shares resold to you
pursuant to the second paragraph thereof), multiplied by the subscription price
of $_____. Your only obligation with respect to payment of the foregoing fee to
us is to remit to us amounts owing to us and actually received by you from the
Fund. Except as aforesaid, you shall be under no liability to make any payments
to us pursuant to this Agreement.
V.
We agree that you, as Dealer Manager, have full authority to take such
action as may seem advisable to you in respect of all matters pertaining to the
Offer. You are authorized to approve on our behalf any amendments or
supplements to the Registration Statement or the Prospectus.
VI.
We represent that we are a member in good standing of the NASD and, in
making sales of Shares, agree to comply with all applicable rules of the NASD
including, without limitation, the NASD's Interpretation with Respect to Free-
-6-
<PAGE>
Riding and Withholding and Section 24 of Article III of the NASD's Rule of Fair
Practice.
We understand that no action has been taken by you or the Fund to
permit the solicitation of the exercise of Rights or the sale of Shares in any
jurisdiction (other than the United States) where action would be required for
such purpose.
We represent that we have at all times complied with the provisions of
Rule 10b-6 under the Securities Act applicable to the Offer and we agree that we
will not, without your approval in advance, buy, sell, deal or trade in, on a
when-issued basis or otherwise, the Rights or the Shares or any other option to
acquire or sell Shares for our own account or for the accounts of customers,
except as provided in Articles II and III hereof and except that we may buy or
sell Rights or Shares in brokerage transactions on consolidated orders which
have not resulted from activities on our part in connection with the
solicitation of the exercise of Rights and which are executed by us in the
ordinary course of our brokerage business.
We will keep an accurate record of the names and addresses of all
persons to whom we give copies of the Registration Statement, the Prospectus,
any preliminary prospectus (or any amendment or supplement thereto) or any
Offering Materials and, when furnished with any subsequent amendment to the
Registration Statement and any subsequent
-7-
<PAGE>
prospectus, we will, upon your request, promptly forward copies thereof to such
persons.
VII.
Nothing contained in this Agreement will constitute the Selling Group
Members partners with the Dealer Manager or with one another or create any
association between those parties, or will render the Dealer Manager or the Fund
liable for the obligations of any Selling Group Member. The Dealer Manager will
be under no liability to make any payment to any Selling Group Member other than
as provided in Article IV of this Agreement, and will be subject to no other
liabilities to any Selling Group Member, and no obligations of any sort will be
implied.
We agree to indemnify and hold harmless you and each other Selling
Group Member and each person, if any, who controls you and any such Selling
Group Member within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, against loss or liability caused by any breach
by us of the terms of this Agreement.
VIII.
We agree to pay any transfer taxes which may be assessed and paid on
account of any sales or transfers for our account and a percentage, based upon
the ratio of the fees payable to us pursuant to Article IV of this Agreement
-8-
<PAGE>
to the aggregate fees payable by the Fund to you and all Selling Group Members
pursuant to Article IV of each Selling Group Agreement, of (i) all expenses
incurred by you in investigating or defending against any claim or proceeding
which is asserted or instituted by any party (including any governmental or
regulatory body) other than a Selling Group Member relating to the Registration
Statement, any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto) or any Offering Materials and (ii) any liability, including
attorneys' fees, incurred by you in respect of any such claim or proceeding,
whether such liability shall be the result of a judgment or as a result of any
settlement agreed to by you, other than any such expense or liability as to
which you receive indemnity pursuant to Article VII of this Agreement or
indemnity or contribution from the Fund. Our agreements contained in this
Article VIII shall remain operative and in full force and effect regardless of
(i) any investigation made by or on behalf of any Selling Group Member or any
person controlling any Selling Group Member or by or on behalf of the Fund, its
directors or officers or any person controlling the Fund and (ii) acceptance of
and payment for the Shares.
IX.
All communications to you relating to the Offer will be addressed to:
__________ Department, Smith Barney
-9-
<PAGE>
Inc., 388 Greenwich Street, New York, New York 10013, Attention:
____________________.
X.
This Agreement will be governed by the internal laws of the State of
New York.
Very truly yours,
_________________________
[Firm Name]
By_______________________
Name:
Title:
Confirmed and Accepted
this ___ day of November, 1995
SMITH BARNEY INC.
By___________________________
-10-
<PAGE>
EXHIBIT 99.J(i)
CUSTODIAN AGREEMENT
Dated as of
March 2, 1995
Between
THE BRAZIL FUND, INC.
and
BROWN BROTHERS HARRIMAN & CO.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
APPOINTMENT OF CUSTODIAN
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
<TABLE>
<CAPTION>
<S> <C>
2.1. Safekeeping........................... 1
2.2. Manner of Holding Securities.......... 2
2.3. Registered Name; Nominee.............. 2
2.4. Purchases by the Fund................. 2
2.5. Exchanges of Securities............... 3
2.6. Sales of Securities................... 4
2.7. Depositary Receipts................... 4
2.8. Exercise of Rights; Tender Offers..... 5
2.9. Stock Dividends, Rights, Etc.......... 5
2.10. Options............................... 5
2.11. Futures and Forward Contracts......... 6
2.12. Borrowings............................ 6
2.13. Bank Accounts......................... 7
2.14. Interest-Bearing Deposits............. 7
2.15. Foreign Exchange Transactions......... 8
2.16. Securities Loans...................... 9
2.17. Collections........................... 9
2.18. Dividends, Distributions and
Redemptions......................... 10
2.19. Proxies; Communications Relating to
Portfolio Securities................ 10
2.20. Bills................................. 11
2.21. Nondiscretionary Details.............. 11
2.22. Deposit of Fund Assets in Securities
Systems............................. 11
2.23. Other Transfers....................... 12
2.24. Establishment of Segregated Accounts.. 12
2.25. Custodian Advances.................... 13
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
<TABLE>
<S> <C>
3.1. Proper Instructions and Special
Instructions........................ 13
3.2. Authorized Persons.................... 14
3.3 Persons Having Access to Assets of the
Fund................................ 15
3.4. Actions of Custodian Based on Proper
Instructions and Special Instructions 15
ARTICLE IV
SUBCUSTODIANS
4.1. Domestic Subcustodians................ 15
4.2. Foreign Subcustodians and Interim
Subcustodians....................... 16
4.3. Termination of a Subcustodian......... 17
4.4. Agents................................ 18
ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1. Standard of Care...................... 18
5.2. Liability of Custodian for Actions of
Other Persons....................... 20
5.3. Indemnification....................... 20
5.4. Investment Limitations................ 21
5.5. Fund's Right to Proceed............... 22
ARTICLE VI
RECORDS
6.1. Preparation of Reports................ 23
6.2. Custodian's Books and Records......... 23
6.3. Opinion of Fund's Independent Certified
Public Accountants.................. 23
6.4. Reports of Custodian's Independent
Certified Public Accountants........ 24
6.5. Calculation of Net Asset Value........ 24
6.6. Information Regarding Foreign
Subcustodians and Foreign Depositories 26
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE VII
CUSTODIAN FEES
ARTICLE VIII
TERMINATION
ARTICLE IX
MISCELLANEOUS
<TABLE>
<S> <C>
9.1. Execution of Documents................. 28
9.2. Entire Agreement....................... 29
9.3. Waivers and Amendments................. 29
9.4. Captions............................... 29
9.5. Governing Law.......................... 29
9.6. Notices................................ 29
9.7. Successors and Assigns................. 29
9.8. Counterparts........................... 29
9.9. Representative Capacity; Nonrecourse
Obligations.......................... 30
</TABLE>
Appendix A Procedures Relating to Custodian's Security Interest
Appendix B Subcustodians, Foreign Countries, and Foreign Depositories
Appendix C Sources of Price Quotations
iii
<PAGE>
FORM OF CUSTODIAN AGREEMENT
---------------------------
CUSTODIAN AGREEMENT dated as of March 2, 1995, between The Brazil
Fund, Inc. (the "Fund"), a Maryland corporation, and Brown Brothers Harriman &
Co. (the "Custodian"), a New York limited partnership.
In consideration of the mutual covenants and agreements herein
contained, the parties hereto agree as follows:
ARTICLE I
APPOINTMENT OF CUSTODIAN
The Fund hereby employs and appoints the Custodian as a custodian for
the term of and subject to the provisions of this Agreement. The Fund agrees to
deliver to the Custodian all securities, cash and other assets owned by it, and
all payments of income, payments of principal or capital distributions received
by it with respect to all securities owned by the Fund from time to time, and
the cash consideration received by it for such new or treasury shares of capital
stock of the Fund as may be issued or sold from time to time.
The Custodian shall not be under any duty or obligation to require the
Fund to deliver to it any securities, cash or other assets owned by the Fund and
shall have no responsibility or liability for or on account of securities, cash
or other assets not so delivered. The Fund will deposit with the Custodian
copies of the Articles of Incorporation and By-Laws (or comparable documents) of
the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
ARTICLE II
POWERS AND DUTIES OF CUSTODIAN
The Custodian shall have and perform, or cause to be performed in
accordance with this Agreement, the powers and duties set forth in this Article
II. Pursuant to and in accordance with Article IV, the Custodian may appoint
one or more Subcustodians (as that term is defined in Article IV) to exercise
the powers and perform the duties of the Custodian set forth in this Article II
and, except as the context shall otherwise require, references to the Custodian
in this Article II shall include any Subcustodian so appointed.
2.1. SAFEKEEPING. The Custodian shall keep safely the cash,
-----------
securities and other assets of the Fund that have been delivered to the
Custodian and from time to time shall accept delivery of cash, securities and
other assets for safekeeping.
<PAGE>
2.2. MANNER OF HOLDING SECURITIES. (a) The Custodian shall hold
----------------------------
securities of the Fund (i) by physical possession of the share certificates or
-
other instruments representing such securities in registered or bearer form, or
the broker's receipts or confirmations for forward contracts, futures contracts,
options and similar contracts and securities, or (ii) in book-entry form by a
--
Securities System (as that term is defined in section 2.22) or (iii) by a
---
Foreign Depository (as that term is defined in section 4.2(a)).
(b) The Custodian shall identify securities and other assets held by
it hereunder as being held for the account of the Fund and shall require each
Subcustodian to identify securities and other assets held by such Subcustodian
as being held for the account of the Custodian for the Fund (or, if authorized
by Special Instructions, for customers of the Custodian) or for the account of
another Subcustodian for the Fund (or, if authorized by Special Instructions,
for customers of such Subcustodian); provided that if assets are held for the
--------
account of the Custodian or a Subcustodian for customers of the Custodian or
such Subcustodian, the records of the Custodian shall at all times indicate the
Fund and other customers of the Custodian for which such assets are held in such
account and their respective interests therein.
2.3. REGISTERED NAME; NOMINEE. (a) The Custodian shall hold
------------------------
registered securities and other assets of the Fund (i) in the name of the
-
Custodian (including any Subcustodian), the Fund, a Securities System, a Foreign
Depository or any nominee of any such person or (ii) in street certificate form,
--
so-called, and in any case with or without any indication of fiduciary capacity,
provided that such securities and other assets of the Fund are held in an
- --------
account of the Custodian containing only assets of the Fund or only assets held
as fiduciary or custodian for customers.
(b) Except with respect to securities or other assets which under
local custom and practice generally accepted by Institutional Clients are held
in the investor's name, the Custodian shall not hold registered securities or
other assets in the name of the Fund, and shall require each Subcustodian not to
hold registered securities or other assets in the name of the Fund, unless the
Custodian or such Subcustodian promptly notifies the Fund that such registered
securities are being held in the Fund's name and causes the Securities System,
Foreign Depository, issuer or other relevant person to direct all correspondence
and payments to the address of the Custodian or such Subcustodian, as the case
may be.
2.4. PURCHASES BY THE FUND. Upon receipt of Proper Instructions (as
---------------------
that term is defined in section 3.1(a)) and insofar as funds are available for
the purpose (or as funds are otherwise provided by the Custodian at its
discretion pursuant to section 2.25),
2
<PAGE>
the Custodian shall pay for and receive securities or other assets purchased for
the account of the Fund, payment being made only upon receipt of the securities
or other assets (a) by the Custodian, or (b) by credit to an account which the
- -
Custodian may have with a Securities System, clearing corporation of a national
securities exchange, Foreign Depository or other financial institution approved
by the Fund. Notwithstanding the foregoing, upon receipt of Proper Instructions:
(i) in the case of-repurchase agreements entered into by the Fund in a
-
transaction involving a Securities System or a Foreign Depository, the Custodian
may release funds to the Securities System or Foreign Depository prior to the
receipt of advice from the Securities System or Foreign Depository that the
securities underlying such repurchase agreement have been transferred by book
entry into the Account (as defined in section 2.22) of the Custodian maintained
with such Securities System or similar account with a Foreign Depository,
provided that the instructions of the Custodian to the Securities System
- --------
or Foreign Depository require that the Securities System or Foreign Depository,
as the case may be, may make payment of such funds to the other party to the
repurchase agreement only upon transfer by book-entry of the securities
underlying the repurchase agreement into the Account, (ii) in the case of
--
futures and forward contracts, options and similar securities, foreign currency
purchased from third parties, time deposits, foreign currency call account
deposits, and other bank deposits, and transactions pursuant to sections 2.10,
2.11, 2.13, 2.14 and 2.15, the Custodian may make payment therefor prior to
delivery of the contract, currency, option or security without receiving an
instrument evidencing said contract, currency, option, security or deposit, and
(iii) in the case of the purchase of securities or other assets the settlement
---
of which occurs outside the United States of America, the Custodian may make
payment therefor and receive delivery thereof in accordance with local custom
and practice generally accepted by Institutional Clients (as defined below) in
the country in which settlement occurs, provided that in every case the
--------
Custodian shall be subject to the standard of care set forth in Article V and to
any Special Instructions given in accordance with section 3.1(b). Except in the
cases provided for in the immediately preceding sentence, in any case where
payment for purchase of securities or other assets for the account of the Fund
is made by the Custodian in advance of receipt of the securities or other assets
so purchased in the absence of Proper Instructions to so pay in advance, the
Custodian shall be absolutely liable to the Fund for such securities or other
assets to the same extent as if the securities or other assets had been received
by the Custodian. For purposes of this Agreement, "Institutional Clients" means
U.S. registered investment companies, or major, U.S.-based commercial banks,
insurance companies, pension funds or substantially similar financial
institutions which, as a substantial part of their business operations, purchase
or sell securities and make use of custodial services.
2.5. EXCHANGES OF SECURITIES. Upon receipt of Proper Instructions,
-----------------------
the Custodian shall exchange securities held by it for the account of the Fund
for other securities in connection with any
3
<PAGE>
reorganization, recapitalization, split-up of shares, change of par value,
conversion or other event, and to deposit any such securities in accordance with
the terms of any reorganization or protective plan. Without Proper Instructions,
the Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into a name or nominee name as
permitted in section 2.3, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness,provided that the securities to be issued are
--------
to be delivered to the Custodian.
2.6. SALES OF SECURITIES. Upon receipt of Proper Instructions, the
-------------------
Custodian shall make delivery of securities or other assets which have been sold
for the account of the Fund, but only against payment therefor (a) in cash, by a
-
certified check, bank cashier's check, bank credit, or bank wire transfer, or
(b) by credit to the account of the Custodian with a Securities System, clearing
-
corporation of a national securities exchange, Foreign Depository or other
financial institution approved by the Fund by Proper Instructions. However, (i)
-
in the case of delivery of physical certificates or instruments representing
securities, the Custodian may make delivery to the broker acting as agent for
the buyer of the securities, against receipt therefor, for examination in
accordance with "street delivery" custom, provided that the Custodian shall have
--------
taken reasonable steps to ensure prompt collection of the payment for, or the
return of, such securities by the broker or its clearing agent and (ii) in the
--
case of the sale of securities or other assets the settlement of which occurs
outside the United States of America, such securities shall be delivered and
paid for in accordance with local custom and practice generally accepted by
Institutional Clients in the country in which settlement occurs, provided that
--------
in every case the Custodian shall be subject to the standard of care set forth
in Article V and to any Special Instructions given in accordance with section
3.1(b). Except in the cases provided for in the immediately preceding sentence,
in any case where delivery of securities or other assets for the account of the
Fund is made by the Custodian in advance of receipt of payment for the
securities or other assets so sold in the absence of Proper Instructions to so
deliver in advance, the Custodian shall be absolutely liable to the Fund for
such payment to the same extent as if such payment had been received by the
Custodian.
2.7. DEPOSITARY RECEIPTS. Upon receipt of Proper Instructions, the
-------------------
Custodian shall surrender securities to the depositary used by an issuer of
American Depositary Receipts, European Depositary Receipts, Global Depositary
Receipts, International Depositary Receipts and other types of Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Custodian that the depositary has
acknowledged receipt of instructions to issue ADRs with respect to such
securities in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston,
4
<PAGE>
Massachusetts, or at such other place as the Custodian may from time to time
designate.
Upon receipt of Proper Instructions, the Custodian shall surrender
ADRs to the issuer thereof against a written receipt therefor adequately
describing the ADRs surrendered and written evidence satisfactory to the
Custodian that the issuer of the ADRs has acknowledged receipt of instructions
to cause its depositary to deliver the securities underlying such ADRs to the
Custodian.
2.8. EXERCISE OF RIGHTS; TENDER OFFERS. Upon receipt of Proper
---------------------------------
Instructions, the Custodian shall (a) deliver to the issuer or trustee thereof,
-
or to the agent of either, warrants, puts, calls, futures contracts, options,
rights or similar securities for the purpose of being exercised or sold,
provided that the new securities and cash, if any, acquired by such action are
- --------
to be delivered to the Custodian, and (b) deposit securities upon invitations
-
for tenders of securities, provided that the consideration is to be paid or
--------
delivered or the tendered securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the Custodian
shall take all necessary action, unless otherwise directed to the contrary by
Proper Instructions, to comply with the terms of all mandatory or compulsory
exchanges, calls, tenders, redemptions or similar rights of security ownership
of which the Custodian receives notice or otherwise becomes aware, and shall
promptly notify the Fund of any such action in writing by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
2.9. STOCK DIVIDENDS, RIGHTS, ETC. The Custodian shall receive and
----------------------------
collect all stock dividends, rights and other items of like nature and shall
deal with the same as it would other deposited assets or as directed in Proper
Instructions.
2.10. OPTIONS AND SWAPS. Upon receipt of Proper Instructions or
-----------------
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall (a) receive and retain confirmations or other documents (to
-
the extent confirmations or other documents are provided to the Custodian)
evidencing the purchase, sale or writing of an option or swap of any type on or
in respect of a security, securities index, currency or similar form of property
by the Fund; (b) deposit and maintain in a segregated account, either physically
-
or by book-entry in a Securities System or Foreign Depository or with a broker,
dealer or other party designated by the Fund, securities, cash or other assets
in connection with options transactions or swap agreements entered into by the
Fund; (c) transfer securities, cash or other assets to a Securities System,
-
Foreign Depository, broker, dealer or other party or organization, as margin
(including variation margin) or other security for the Fund's obligations in
respect of an option or swap; and (d) pay, release and/or transfer such
-
securities, cash or other assets only in accordance with a notice or other
communication evidencing the expira-
5
<PAGE>
tion, termination, exercise of any such option or default under any such option
or swap furnished by The Options Clearing Corporation, the securities or options
exchange on which such option is traded, or such other organization, party,
broker or dealer as may be responsible for handling such options or swap
transactions or have authority to give such notice or communication under a
Procedural Agreement. Subject to the standard of care set forth in Article V
(and to its safekeeping duties set forth in section 2.1), the Custodian shall
not be responsible for the sufficiency of assets held in any segregated account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement. For purposes of this Agreement, a "Procedural Agreement"
is a procedural agreement relating to options, swaps (including caps, floors and
similar arrangements), futures contracts, forward contracts or borrowings by the
Fund to which the Fund, the Custodian and a third party are parties.
2.11. FUTURES AND FORWARD CONTRACTS. Upon receipt of Proper
-----------------------------
Instructions or instructions from a third party properly given under any
Procedural Agreement, the Custodian shall (a) receive and retain confirmations
-
or other documents (to the extent confirmations or other documents are provided
to the Custodian) evidencing the purchase or sale of a futures contract or an
option on a futures contract by the Fund or the entry into a forward contract by
the Fund; (b) deposit and maintain in a segregated account, either physically or
-
by book entry in a Securities System or Foreign Depository, for the benefit of
any futures commission merchant, or pay to such futures commission merchant,
securities, cash or other assets designated by the Fund as initial, maintenance
or variation "margin" deposits intended to secure the Fund's performance of its
obligations under any futures contracts purchased or sold or any options on
futures contracts written, purchased or sold by the Fund or any forward
contracts entered into, in accordance with the provisions of any Procedural
Agreement designed to comply with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar organization or
organizations on which such contracts or options are traded; and (c) pay,
-
release and/or transfer securities, cash or other assets into or out of such
margin accounts only in accordance with any such agreements or rules. Subject
to the standard of care set forth in Article V, the Custodian shall not be
responsible for the sufficiency of assets held in any such margin account
established and maintained in accordance with Proper Instructions or
instructions from a third party properly given under any Procedural Agreement or
for the performance by the Fund or any third party of its obligations under any
Procedural Agreement.
2.12. BORROWINGS. Upon receipt of Proper Instructions or
----------
instructions from a third party properly given under any Procedural Agreement,
the Custodian shall deliver securities of the Fund to lenders or their agents,
or otherwise establish a segregated account
6
<PAGE>
as agreed to by the Fund and the Custodian, as collateral for borrowings
effected by the Fund, but only against receipt of the amounts borrowed (or to
adjust the amount of such collateral in accordance with the Procedural
Agreement), provided that if such collateral is
--------
held in book-entry form by a Securities System or Foreign Depository, such
collateral may be transferred by book-entry to such lender or its agent against
receipt by the Custodian of an undertaking by such lender to pay such borrowed
money to or upon the order of the Fund on the next business day following such
transfer of collateral.
2.13. BANK ACCOUNTS. The Custodian shall open and operate one or
-------------
more accounts in the name of the Fund on the Custodian's books subject only to
draft or order by the Custodian. All funds received by the Custodian from or
for the account of the Fund shall be deposited in said account(s). The
responsibilities of the Custodian to the Fund for deposits accepted on the
Custodian's books shall be that of a U.S. bank for a similar deposit.
Upon receipt of Proper Instructions, the Custodian may open and
operate additional accounts in such other banks or trust companies, including
any Subcustodian, as may be designated by the Fund in such instructions (any
such bank or trust company other than the Custodian so designated by the Fund
being referred to hereafter as a "Banking Institution"), provided that any such
--------
account shall be in the name of the Custodian for the account of the Fund (or,
if authorized by Special Instructions, for the account of the Custodian's
customers generally) and subject only to the Custodian's draft or order;
provided that if assets are held in such an account for the account of the
- --------
Custodian's customers generally, the records of the Custodian shall at all times
indicate the Fund and other customers for which such assets are held in such
account and their respective interests therein. Such accounts may be opened
with Banking Institutions in the United States and in other countries and may be
denominated in U.S. Dollars or such other currencies as the Fund may determine.
So long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, the Custodian shall have no responsibility for the failure
of any Banking Institution to make payment from such an account upon demand.
2.14. INTEREST-BEARING DEPOSITS. The Custodian shall place interest-
-------------------------
bearing fixed term and call deposits with such banks and in such amounts as the
Fund may authorize pursuant to Proper Instructions. Such deposits may be placed
with the Custodian or with Subcustodians or other Banking Institutions as the
Fund may determine. Deposits may be denominated in U.S. Dollars or other
currencies, as the Fund may determine, and need not be evidenced by the issuance
or delivery of a certificate to the Custodian, provided that the Custodian shall
--------
include in its records with respect to the assets of the Fund, appropriate
notation as to the amount and currency of each such deposit, the accepting
Banking Institution and all other appropriate details, and shall retain such
forms of advice or receipt
7
<PAGE>
evidencing such deposits as may be forwarded to the Custodian by the Banking
Institution in question. The responsibility of the Custodian for such deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit. With respect to interest-bearing deposits other than those accepted on
the Custodian's books, (a) the Custodian shall be responsible for the collection
-
of income as set forth in section 2.17, and (b) so long as the Custodian
-
exercises reasonable care and diligence in executing Proper Instructions, the
Custodian shall have no responsibility for the failure of any Banking
Institution to make payment in accordance with the terms of such an account.
Upon receipt of Proper Instructions, the Custodian shall take such reasonable
steps as the Fund deems necessary or appropriate to cause such deposits to be
insured to the maximum extent possible by the Federal Deposit Insurance
Corporation and any other applicable deposit insurers.
2.15. FOREIGN EXCHANGE TRANSACTIONS. (a) Upon receipt of Proper
-----------------------------
Instructions, the Custodian shall settle foreign exchange contracts or options
to purchase and sell foreign currencies for spot and future delivery on behalf
and for the account of the Fund with such currency brokers or Banking
Institutions as the Fund may direct pursuant to Proper Instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements received by the Custodian evidencing or relating to such foreign
exchange transactions and the maintenance of proper records as set forth in
section 6.2. In connection with such transactions, upon receipt of Proper
Instructions, the Custodian shall be authorized to make free outgoing payments
of cash in the form of U.S. Dollars or foreign currency without receiving
confirmation of a foreign exchange contract or option or confirmation that the
countervalue currency completing the foreign exchange contract has been
delivered or that the option has been delivered or received. The Custodian
shall have no authority to select third party foreign exchange dealers and, so
long as the Custodian exercises reasonable care and diligence in executing
Proper Instructions, shall have no responsibility for the failure of any such
dealer to settle any such contract or option in accordance with its terms. The
Fund shall reimburse the Custodian for any interest charges or reasonable out-
of-pocket expenses incurred by the Custodian resulting from the failure or delay
of third party foreign exchange dealers to deliver foreign exchange, other than
interest charges and expenses occasioned by or resulting from the negligence,
misfeasance or misconduct of the Custodian.
(b)The Custodian shall not be obligated to enter into foreign exchange
transactions as principal. However, if the Custodian has made available to the
Fund its services as principal in foreign exchange transactions, upon receipt of
Proper Instructions, the Custodian shall enter into foreign exchange contracts
or options to purchase and sell foreign currencies for spot and future delivery
on behalf of and for the account of the Fund with the Custodian as prin-
8
<PAGE>
cipal. The responsibility of the Custodian with respect to foreign exchange
contracts and options executed with the Custodian as principal shall be that of
a U.S. bank with respect to a similar contract or option.
2.16. SECURITIES LOANS. Upon receipt of Proper Instructions, the
----------------
Custodian shall deliver securities of the Fund, in connection with loans of
securities by the Fund, to the borrower thereof in accordance with the terms of
a written securities lending agreement to which the Fund is a party or which is
otherwise approved by the Fund.
2.17. COLLECTIONS. The Custodian shall promptly collect, receive
-----------
and deposit in the account or accounts referred to in section 2.13 all income,
payments of principal and other payments with respect to the securities and
other assets held hereunder, promptly endorse and deliver any instruments
required to effect such collections and in connection therewith deliver the
certificates or other instruments representing securities to the issuer thereof
or its agent when securities are called, redeemed, retired or otherwise become
payable; provided that the payment is to be made in such form and manner and at
--------
such time, which may be after delivery by the Custodian of the instrument
representing the security, as is in accordance with the terms of the instrument
representing the security, such Proper Instructions as the Custodian may
receive, governmental regulations, the rules of the Securities System or Foreign
Depository in which such security is held or, with respect to securities
referred to in clause (iii) of the second sentence of section 2.4, in accordance
with local custom and practice generally accepted by Institutional Clients in
the market where payment or delivery occurs, but in all events subject to the
standard of care set forth in Article V. The Custodian shall promptly execute
ownership and other certificates and affidavits for all federal, state and
foreign tax purposes in connection with receipt of income or other payments with
respect to securities or other assets of the Fund or in connection with transfer
of securities or other assets. Pursuant to Proper Instructions, the Custodian
shall take such other actions, which may involve an investment decision, as the
Fund may request with respect to the collection or receipt of funds or the
transfer of securities. Except in the cases provided for in the first sentence
of this section, in any case where delivery of securities for the account of the
Fund is made by the Custodian in advance of receipt of payment with respect to
such securities in the absence of Proper Instructions to so deliver in advance,
the Custodian shall be absolutely liable to the Fund for such payment to the
same extent as if such payment had been received by the Custodian. The
Custodian shall promptly notify the Fund in writing by facsimile transmission or
in such other manner as the Fund and the Custodian may agree in writing if any
amount payable with respect to securities or other assets of the Fund is not
received by the Custodian when due.
9
<PAGE>
2.18. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS. Upon receipt of
----------------------------------------
Proper Instructions, or upon receipt of instructions from the Fund's shareholder
servicing agent or agent with comparable duties (the "Shareholder Servicing
Agent") (given by such person or persons and in such manner on behalf of the
Shareholder Servicing Agent as the Fund shall have authorized by Proper
Instructions), the Custodian shall release funds or securities, insofar as
available, to the Shareholder Servicing Agent or as such Shareholder Servicing
Agent shall otherwise instruct (a) for the payment of dividends or other
-
distributions to Fund shareholders or (b) for payment to the Fund shareholders
-
who have delivered to such Shareholder Servicing Agent a request for repurchase
or redemption of their shares of capital stock of the Fund.
2.19. PROXIES; COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. The
--------------------------------------------------------
Custodian shall, as promptly as is appropriate under the circumstances, deliver
or mail to the Fund all forms of proxies and all notices of meetings and any
other notices, announcements or information (including, without limitation,
information relating to pendency of calls and maturities of securities and
expirations of rights in connection therewith, notices of exercise of call and
put options written by the Fund, and notices of the maturity of futures
contracts (and options thereon) purchased or sold by the Fund) affecting or
relating to securities owned by the Fund that are received by the Custodian.
Upon receipt of Proper Instructions, the Custodian shall execute and deliver or
cause its nominee to execute and deliver such proxies or other authorizations as
may be required. Neither the Custodian nor its nominees shall vote upon any of
such securities or execute any proxy to vote thereon or give any consent or take
any other action with respect to securities or other assets of the Fund (except
as otherwise herein provided) unless ordered to do so by Proper Instructions.
The Custodian shall notify the Fund on or before ex-date (or if later
within 24 hours after receipt by the Custodian of the notice of such corporate
action) of all corporate actions affecting portfolio securities of the Fund
received by the Custodian from the issuers of the securities involved, from
third parties proposing a corporate action, from subcustodians, or from commonly
utilized sources (including proprietary sources) providing corporate action
information, a list of which will be provided by the Custodian to the Fund from
time to time upon request. Information as to corporate actions shall include
information as to dividends, distributions, stock splits, stock dividends,
rights offerings, conversions, exchanges, tender offers, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
ex-, record and pay dates and the amounts or other terms thereof. If the Fund
desires to take action with respect to any corporate action, the Fund shall
notify the Custodian within such period as will give the Custodian (including
any Subcustodian) a sufficient amount of time to take such action.
10
<PAGE>
2.20. BILLS. Upon receipt of Proper Instructions, the Custodian
-----
shall pay or cause to be paid, insofar as funds are available for the purpose,
bills, statements, or other obligations of the Fund (including but not limited
to interest charges, taxes, advisory fees, compensation to Fund officers and
employees, and other operating expenses of the Fund).
2.21. NONDISCRETIONARY DETAILS. Without the necessity of express
------------------------
authorization from the Fund, the Custodian shall (a) attend to all
-
nondiscretionary details in connection with the sale, exchange, substitution,
purchase, transfer or other dealings with securities, cash or other assets of
the Fund held by the Custodian except as otherwise directed from time to time by
the Board of Directors of the Fund, and (b) make payments to itself or others
-
for minor expenses of handling securities or other assets and for other similar
items relating to the Custodian's duties under this Agreement, provided that all
--------
such payments shall be accounted for to the Fund.
2.22. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS. The Custodian
--------------------------------------------
may deposit and/or maintain securities owned by the Fund in (a) The Depository
-
Trust Company, (b) the Participants Trust Company, (c) any book-entry system as
- -
provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of 31
CFR Part 350, or the book-entry regulations of federal agencies substantially in
the form of Subpart O, or (d) any other domestic clearing agency registered with
-
the Securities and Exchange Commission (the "SEC") under Section 17A of the
Securities Exchange Act of 1934, as amended, which acts as a securities
depository and whose use the Fund has previously approved by Special
Instructions (as that term is defined in section 3.1(b)) (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and SEC rules and regulations, if any, and subject to the following provisions:
(i) The Custodian may deposit and/or maintain securities held
hereunder in a Securities System, provided that such securities are
--------
represented in an account ("Account") of the Custodian in the Securities
System which shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian, or otherwise for customers;
(ii) The records of the Custodian with respect to securities of the
Fund which are maintained in a securities System shall identify by book
entry those securities belonging to the Fund;
(iii) The Custodian shall pay for securities purchased for the
account of the Fund only upon (A) receipt of advice from the Securities
-
System that such securities have been transferred to the Account, and (B)
-
the making of an entry on the records of the
11
<PAGE>
Custodian to reflect such payment and transfer for the account of the Fund.
The Custodian shall transfer securities sold for the account of the Fund
only upon (1) receipt of advice from the Securities System that payment for
-
such securities has been transferred to the Account, and (2) the making of
-
an entry on the records of the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of all advices from the
Securities System of transfers of securities for the account of the Fund
shall identify the Fund, be maintained for the Fund by the Custodian and be
provided to the Fund at its request. The Custodian shall furnish the Fund
confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next business day;
(iv) The Custodian shall provide the Fund with any report obtained by
the Custodian on the Securities System's accounting system, internal
accounting control and procedures for safeguarding securities deposited in
the Securities System; and the Custodian shall send to the Fund such
reports on its own systems of internal accounting control as the Fund may
reasonably request from time to time; and
(v) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any such Securities System on behalf of the Fund as
promptly as practicable and shall take all actions reasonably practicable
to safeguard the securities of the Fund that had been maintained with such
Securities System.
2.23. OTHER TRANSFERS. The Custodian shall deliver securities, cash,
---------------
and other assets of the Fund to a Subcustodian as necessary to effect
transactions authorized by Proper Instructions. Upon receipt of Proper
Instructions in writing in advance, the Custodian shall make such other
disposition of securities, cash or other assets of the Fund in a manner other
than or for purposes other than as enumerated in this Agreement, provided that
--------
such written Proper Instructions relating to such disposition shall include a
statement of the purpose for which the delivery is to be made, the amount of
funds and/or securities to be delivered and the name of the person or persons to
whom delivery is to be made.
2.24. ESTABLISHMENT OF SEGREGATED ACCOUNTS. Upon receipt of Proper
------------------------------------
Instructions, the Custodian shall establish and maintain on its books a
segregated account or accounts for and on behalf of the Fund, into which account
or accounts may be transferred cash and/or securities or other assets of the
Fund, including securities maintained by the Custodian in a Securities System,
said account to be maintained (a) for the purposes set forth in sections 2.10,
-
2.11, 2.12 and 2.15; (b) for the purposes of compliance by the Fund with the
-
procedures required by Release No. 10666 under the Investment Company
12
<PAGE>
Act of 1940, as amended (the "1940 Act"), or any subsequent release or releases
of the SEC relating to the maintenance of segregated accounts by registered
investment companies; or (c) for such other purposes as set forth, from time to
-
time, in Special Instructions.
2.25. CUSTODIAN ADVANCES. (a) In the event that the Custodian is
------------------
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the Custodian on
behalf of the Fund, the Custodian may, in its discretion without further Proper
Instructions, provide an advance ("Advance") to the Fund in an amount sufficient
to allow the completion of the transaction by reason of which such payment or
transfer of funds is to be made. In addition, in the event the Custodian is
directed by Proper Instructions to make any payment or transfer of funds on
behalf of the Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Custodian as of the close of business on the
date of such payment or transfer, said overdraft shall constitute an Advance.
Any Advance shall be payable on demand by the Custodian, unless otherwise agreed
by the Fund and the Custodian, and shall accrue interest from the date of the
Advance to the date of payment by the Fund at a rate agreed upon in writing from
time to time by the Custodian and the Fund. It is understood that any
transaction in respect of which the Custodian shall have made an Advance,
including but not limited to a foreign exchange contract or other transaction in
respect of which the Custodian is not acting as a principal, is for the account
of and at the risk of the Fund, and not, by reason of such Advance, deemed to be
a transaction undertaken by the Custodian for its own account and risk. The
Custodian and the Fund acknowledge that the purpose of Advances is to finance
temporarily the purchase or sale of securities for prompt delivery or to meet
redemptions or emergency expenses or cash needs that are not reasonably
foreseeable by the Fund. The Custodian shall promptly notify the Fund in
writing (an "Notice of Advance") of any Advance by facsimile transmission or in
such other manner as the Fund and the Custodian may agree in writing. At the
request of the Custodian, the Fund shall pledge, assign and grant to the
Custodian a security interest in certain specified securities of the Fund, as
security for Advances provided to the Fund, under the terms and conditions set
forth in Appendix A attached hereto.
ARTICLE III
PROPER INSTRUCTIONS, SPECIAL INSTRUCTIONS
AND RELATED MATTERS
3.1. PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS.
--------------------------------------------
(a) Proper Instructions. As used in this Agreement, the term "Proper
-------------------
Instructions" shall mean: (i) a tested telex from the Fund or the Fund's
-
investment manager or adviser, or a written request, direction, instruction or
certification (which may be given
13
<PAGE>
by facsimile transmission) signed or initialed on behalf of the Fund by, one or
more Authorized Persons (as that term is defined in section 3.2); (ii) a
--
telephonic or other oral communication by one or more Authorized Persons; or
(iii) a communication (other than facsimile transmission) effected directly
---
between electro-mechanical or electronic devices or systems (including, without
limitation, computers) by the Fund or the Fund's investment manager or adviser
or by one or more Authorized Persons on behalf of the Fund; provided that
--------
communications of the types described in clauses (ii) and (iii) above purporting
-- ---
to be given by an Authorized Person shall be considered Proper Instructions only
if the Custodian reasonably believes such communications to have been given by
an Authorized Person with respect to the transaction involved. Instructions
given in the form of Proper Instructions under clause (i) shall be deemed to be
Proper Instructions if they are reasonably believed by the Custodian to be
genuine. Proper Instructions in the form of oral communications shall be
confirmed by the Fund in the manner set forth in clauses (i) or (iii) above, but
the lack of such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the Custodian's
receipt of such confirmation. The Fund, the Custodian and any investment manager
or adviser of the Fund each is hereby authorized to record any telephonic or
other oral communications between the Custodian and any such person. Proper
Instructions may relate to specific transactions or to types or classes of
transactions, provided that Proper Instructions may take the form of
--------
standing instructions only if they are in writing.
(b) Special Instructions. As used in this Agreement, the term
--------------------
"Special Instructions" shall mean Proper Instructions countersigned or confirmed
in writing by the Treasurer or any Assistant Treasurer of the Fund or any other
person designated by the Treasurer of the Fund in writing, which
countersignature or confirmation shall be (i) included on the instrument
-
containing the Proper Instructions or on a separate instrument relating thereto,
and (ii) delivered by hand, facsimile transmission, mail or courier service or
--
in such other manner as the Fund and the Custodian agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
--------------------------------------------------------
Instructions and Special Instructions shall be delivered to the Custodian at the
address and/or telephone, telecopy or telex number agreed upon from time to time
by the Custodian and the Fund.
3.2. AUTHORIZED PERSONS. Concurrently with the execution of this
------------------
Agreement and from time to time thereafter, as appropriate, the Fund shall
deliver to the Custodian a certificate, duly certified by the Secretary or
Assistant Secretary of the Fund, setting forth: (a) the names, titles,
-
signatures and scope of authority of all persons authorized to give Proper
Instructions or any other notice, request, direction, instruction, certificate
or instrument on behalf of the Fund (each an "Authorized Person"); and (b) the
-
names, titles
14
<PAGE>
and signatures of those persons authorized to issue Special Instructions. Such
certificate may be accepted and relied upon by the Custodian as conclusive
evidence of the facts set forth therein and shall be considered to be in full
force and effect until delivery to the Custodian of a similar certificate to the
contrary. Upon delivery of a certificate which deletes the name(s) of a person
previously authorized to give Proper Instructions or to issue Special
Instructions, such persons shall no longer be considered an Authorized Person or
authorized to issue Special Instructions.
3.3. PERSONS HAVING ACCESS TO ASSETS OF THE FUND. Notwithstanding
-------------------------------------------
anything to the contrary in this Agreement, the Custodian shall not deliver any
assets of the Fund held by the Custodian to or for the account of any Authorized
Person, director, officer, employee or agent of the Fund, provided that nothing
--------
in this section 3.3 shall prohibit (a) any Authorized Person from giving Proper
-
Instructions, or any person authorized to issue Special Instructions from
issuing Special Instructions, provided such action does not result in delivery
--------
of or access to assets of the Fund prohibited by this section 3.3; or (b) the
-
Fund's independent certified public accountants from examining or reviewing the
assets of the Fund held by the Custodian. The Fund shall provide a list of such
persons to the Custodian, and the Custodian shall be entitled to rely upon such
list and any modifications thereto that are provided to the Custodian from time
to time by the Fund.
3.4. ACTIONS OF CUSTODIAN BASED ON PROPER INSTRUCTIONS AND SPECIAL
-------------------------------------------------------------
INSTRUCTIONS. So long as and to the extent that the Custodian acts in
- ------------
accordance with Proper Instructions or Special Instructions, as the case may be,
and the terms of this Agreement, the Custodian shall not be responsible for the
title, validity or genuineness of any property, or evidence of title thereof,
received or delivered by it pursuant to this Agreement.
ARTICLE IV
SUBCUSTODIANS
THE CUSTODIAN MAY, FROM TIME TO TIME, IN ACCORDANCE WITH THE RELEVANT
PROVISIONS OF THIS ARTICLE IV, APPOINT ONE OR MORE DOMESTIC SUBCUSTODIANS,
FOREIGN SUBCUSTODIANS AND INTERIM SUBCUSTODIANS (AS SUCH TERMS ARE DEFINED
BELOW) TO ACT ON BEHALF OF THE FUND. FOR PURPOSES OF THIS AGREEMENT, ALL DULY
APPOINTED DOMESTIC SUBCUSTODIANS, FOREIGN SUBCUSTODIANS AND INTERIM
SUBCUSTODIANS ARE REFERRED TO COLLECTIVELY AS "SUBCUSTODIANS."
4.1. DOMESTIC SUBCUSTODIANS. The Custodian may, at any time and from
----------------------
time to time, at its own expense, appoint any bank as defined in section 2(a)(5)
of the 1940 Act meeting the requirements of a custodian under section 17(f) of
the 1940 Act and the rules and regulations thereunder, to act on behalf of the
Fund as a subcustodian
15
<PAGE>
for purposes of holding cash, securities and other assets
of the Fund and performing other functions of the Custodian within the United
States (a "Domestic Subcustodian"), provided that the Custodian shall notify the
--------
Fund in writing of the identity and qualifications of any proposed Domestic
Subcustodian at least 30 days prior to appointment of such Domestic
Subcustodian, and the Fund may, in its sole discretion, by written notice to the
Custodian executed by an Authorized Person disapprove of the appointment of such
Domestic Subcustodian. If following notice by the Custodian to the Fund
regarding appointment of a Domestic Subcustodian and the expiration of 30 days
after the date of such notice, the Fund shall have failed to notify the
Custodian of its disapproval thereof, the Custodian may, in its discretion,
appoint such proposed Domestic Subcustodian as its subcustodian.
4.2. FOREIGN SUBCUSTODIANS AND INTERIM SUBCUSTODIANS.
-----------------------------------------------
(a) Foreign Subcustodians. The Custodian may, at any time and from time
------- ------------
to time, at its own expense, appoint: (i) any bank, trust company or other
-
entity meeting
the requirements of an "eligible foreign custodian" under section 17(f) of the
1940 Act and the rules and regulations thereunder or exempted therefrom by order
of the SEC, or (ii) any bank as defined in section 2(a)(5) of the 1940 Act
--
meeting the requirements of a custodian under section 17(f) of the 1940 Act and
the rules and regulations thereunder to act on behalf of the Fund as a
subcustodian for purposes of holding cash, securities and other assets of the
Fund and performing other functions of the Custodian in countries other than the
United States of America (a "Foreign Subcustodian"); provided that prior to the
--------
appointment of any Foreign Subcustodian, the Custodian shall have obtained
written confirmation of the approval of the Board of Directors of the Fund
(which approval may be withheld in the sole discretion of such Board of
Directors) with respect to (A) the identity and qualifications of any proposed
-
Foreign Subcustodian, (B) the country or countries in which, and the securities
-
depositories or clearing agencies (meeting the requirements of an "eligible
foreign custodian" under section 17(f) of the 1940 Act and the rules and
regulations thereunder or exempted therefrom by order of the SEC) through which,
any proposed Foreign Subcustodian is authorized to hold Securities, cash and
other assets of the Fund (each a "Foreign Depository") and (C) the form and
-
terms of the subcustodian agreement to be entered into between such proposed
Foreign Subcustodian and the Custodian. In addition, the Custodian may utilize
directly any Foreign Depository, provided the Board of Directors shall have
approved in writing the use of such Foreign Depository by the Custodian. Each
such duly approved Foreign Subcustodian and the countries where and the Foreign
Depositories through which it may hold securities and other assets of the Fund
and the Foreign Depositories that the Custodian may utilize shall be listed in
Appendix B, as it may be amended from time to time in accordance with the
provisions of section 9.3. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed investment which is to be held
in a country in which no Foreign Subcustodian is authorized to act, in order
that there shall
16
<PAGE>
be sufficient time for the Custodian to effect the appropriate
arrangements with a proposed Foreign Subcustodian, including obtaining approval
as provided in this section 4.2(a). The Custodian shall not agree to any
material amendment to any subcustodian agreement entered into with a Foreign
Subcustodian, or agree to permit any material changes thereunder, or waive any
material rights under such agreement, except upon prior approval pursuant to
Special Instructions. The Custodian shall promptly provide the Fund with notice
of any such amendment, change, or waiver, whether or not material, including a
copy of any such amendment. For purposes of this subsection, a material
amendment, change or waiver means an amendment, change or waiver that may
reasonably be expected to have an adverse effect on the Fund in any material
way, including but not limited to the Fund's or the Board's obligations under
the 1940 Act, including Rule 17f-5 thereunder.
(b) Interim Subcustodians. In the event that the Fund shall invest
---------------------
in a security or other asset to be held in a country in which no Foreign
Subcustodian is authorized to act (whether because the Custodian has not
appointed a Foreign Subcustodian in such country and entered into a subcustodian
agreement with it or because the Board of Directors of the Fund has not approved
the Foreign Subcustodian appointed by the Custodian in such country and the
related subcustodian agreement), the Custodian shall promptly notify the Fund in
writing by facsimile transmission or in such other manner as the Fund and
Custodian shall agree in writing that no Foreign Subcustodian is approved in
such country and the Custodian shall, upon receipt of Special Instructions,
appoint any person designated by the Fund in such Special Instructions to hold
such security or other asset. Any person appointed as a Subcustodian pursuant
to this section 4.2(b) is hereinafter referred to herein as an "Interim
Subcustodian." Each Interim Custodian and the securities or assets of the Fund
that it is authorized to hold shall be set forth in Appendix B.
In the absence of such Special Instructions, such security or other
asset shall be held by such agent as the Custodian may appoint unless and until
the Fund shall instruct the Custodian to move the security or other asset into
the possession of the Custodian or a Subcustodian.
4.3. TERMINATION OF A SUBCUSTODIAN. The Custodian shall (a) cause
----------------------------- -
each Domestic Subcustodian and Foreign Subcustodian to, and (b) use its best
-
efforts to cause each Interim Subcustodian to, perform all of its obligations in
accordance with the terms and conditions of the subcustodian agreement between
the Custodian and such Subcustodian. In the event that the Custodian is unable
to cause such Subcustodian to fully perform its obligations thereunder, the
Custodian shall forthwith, upon the receipt of Special Instructions, exercise
its best efforts to recover any Losses (as hereinafter defined) incurred by the
Fund because of such failure to perform from such Subcustodian under the
applicable subcustodian agreement and, if necessary or desirable, terminate such
subcustodian and appoint a
17
<PAGE>
replacement Subcustodian in accordance with the provisions of this Agreement. In
addition to the foregoing, the Custodian (i) may, at any time in its discretion,
upon written notification to the Fund, terminate any Domestic Subcustodian,
Foreign Subcustodian or Interim Subcustodian, and (ii) shall, upon receipt of
Special Instructions, terminate--any Subcustodian with respect to the Fund, in
each case in accordance with the termination provisions of the applicable
subcustodian agreement.
4.4. AGENTS. The Custodian may at any time or times in its
------
discretion appoint (and may at any time remove) any other bank, trust company,
securities depository or clearing agency that is itself qualified to act as a
custodian under the 1940 Act and the rules and regulations thereunder, as its
agent (an "Agent") to carry out such of the provisions of this Agreement as the
Custodian may from time to time direct, provided that the appointment of one or
--------
more Agents (other than an agent appointed to the second paragraph of section
4.2(b)) shall not relieve the Custodian of its responsibilities under this
Agreement. Without limiting the foregoing, the Custodian shall be responsible
for any notices, documents or other information, or any securities, cash or
other assets of the Fund, received by any Agent on behalf of the Custodian or
the Fund as if the Custodian had received such items itself.
ARTICLE V
STANDARD OF CARE; INDEMNIFICATION
5.1. STANDARD OF CARE.
----------------
(a) General Standard of Care. The Custodian shall exercise
------------------------
reasonable care and diligence in carrying out all of its duties and obligations
under this Agreement, and shall be liable to the Fund for all Losses suffered or
incurred by the Fund resulting from the failure of the Custodian to exercise
such reasonable care and diligence. For purposes of this Agreement, "Losses"
means any losses, damages, and expenses.
(b) Actions Prohibited by Applicable Law, Etc. In no event shall the
------------------------------------------
Custodian incur liability hereunder if the Custodian or any Subcustodian or
Securities System, or any subcustodian, securities depository or securities
system utilized by any such Subcustodian or the Custodian, or any nominee of the
Custodian or any Subcustodian, is prevented, forbidden or delayed from
performing, or omits to perform, any act or thing which this Agreement provides
shall be performed or omitted to be performed, by reason of: (i) any provision
-
of any present or future law or regulation or order of the United States of
America, or any state thereof, or of any foreign country, or political
subdivision thereof or of any court of competent jurisdiction; or (ii) any act
--
of God or war or action of any de facto or de jure government or other similar
circumstance beyond the control of the
18
<PAGE>
Custodian, unless, in each case, such delay or nonperformance is caused by the
negligence, misfeasance or misconduct of such person.
(c) Mitigation by Custodian. Upon the occurrence of any event which
-----------------------
causes or may cause any Losses to the Fund (i) the Custodian shall, and shall
-
cause any applicable Domestic Subcustodian or Foreign Subcustodian to, and (ii)
--
the Custodian shall use its best efforts to cause any applicable Interim
Subcustodian to, use all commercially reasonable efforts and take all reasonable
steps under the circumstances to mitigate the effects of such event and to avoid
continuing harm to the Fund.
(d) Advice of Counsel. The Custodian shall be entitled to receive
-----------------
and act upon advice of counsel on all matters. The Custodian shall be without
liability for any action reasonably taken or omitted in good faith pursuant to
the advice of (i) counsel for the Fund, or (ii) at the expense of the Custodian,
- --
such other counsel as the Fund may agree to, such agreement not to be
unreasonably withheld or delayed; provided that with respect to the performance
--------
of any action or omission of any action upon such advice, the Custodian shall be
required to conform to the standard of care set forth in section 5.1(a).
(e) Expenses. In addition to the liability of the Custodian under
--------
this Article V, the Custodian shall be liable to the Fund for all reasonable
costs and expenses incurred by the Fund in connection with any claim by the Fund
against the Custodian arising from the obligations of the Custodian hereunder
including, without limitation, all reasonable attorneys' fees and expenses
incurred by the Fund in asserting any such claim, and all reasonable expenses
incurred by the Fund in connection with any investigations, lawsuits or
proceedings relating to such claim, provided that the Fund has recovered from
--------
the Custodian for such claim.
(f) Liability for Past Records. The Custodian shall have no
--------------------------
liability in respect of any Losses suffered by the Fund, insofar as such Losses
arise from the performance of the Custodian's duties hereunder by reason of the
Custodian's reliance upon records that were maintained for the Fund by entities
other than the Custodian prior to the Custodian's employment hereunder.
(g) Reliance on Certifications. The Secretary or an Assistant
--------------------------
Secretary of the Fund shall certify to the Custodian the names and signatures of
the officers of the Fund, the name and address of the Shareholder Servicing
Agent, and any instructions or directions to the Custodian by the Fund's Board
of Directors or shareholders. Any such certificate may be accepted and relied
upon by the Custodian as conclusive evidence of the facts set forth therein and
may be considered in full force and effect until receipt of a similar
certificate to the contrary.
19
<PAGE>
5.2. LIABILITY OF CUSTODIAN FOR ACTIONS OF OTHER PERSONS.
---------------------------------------------------
(a) Domestic Subcustodians, Foreign Subcustodians and Agents. The
--------------------------------------------------------
Custodian shall be liable for the actions or omissions of any Domestic
Subcustodian, Foreign Subcustodian or Agent (other than an agent appointed
pursuant to section 4.2(b)) to the same extent as if such action or omission
were performed by the Custodian itself pursuant to this Agreement. In the event
of any Losses suffered or incurred by the Fund caused by or resulting from the
actions or omissions of any Domestic Subcustodian, Foreign Subcustodian or Agent
(other than an agent appointed pursuant to section 4.2(b)) for which the
Custodian would be directly liable if such actions or omissions were those of
the Custodian, the Custodian shall promptly reimburse the Fund in the amount of
any such Losses.
(b) Interim Subcustodians. Notwithstanding the provisions of section
---------------------
5.1 to the contrary, the Custodian shall not be liable to the Fund for any
Losses suffered or incurred by the Fund resulting from the actions or omissions
of an Interim Subcustodian or an agent appointed pursuant to section 4.2(b)
unless such Losses are caused by, or result from, the negligence, misfeasance or
misconduct of the Custodian; provided that in the event of any Losses (whether
--------
or not caused by or resulting from the negligence, misfeasance or misconduct of
the Custodian), the Custodian shall take all reasonable steps to enforce such
rights as it may have against such Interim Subcustodian or agent to protect the
interests of the Fund.
(c) Securities Systems and Foreign Depositories. Notwithstanding the
-------------------------------------------
provisions of section 5.1 to the contrary, the Custodian shall not be liable to
the Fund for any Losses suffered or incurred by the Fund resulting from the use
by the Custodian or any Subcustodian of a Securities System or Foreign
Depository, unless such Losses are caused by, or result from, the negligence,
misfeasance or misconduct of the Custodian; provided that in the event of any
--------
such Losses, the Custodian shall take all reasonable steps to enforce such
rights as it may have against the Securities System or Foreign Depository, as
the case may be, to protect the interests of the Fund.
(d) Reimbursement of Expenses. The Fund agrees to reimburse the
-------------------------
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.2,
provided that such reimbursement shall not apply to expenses occasioned by or
- --------
resulting from the negligence, misfeasance or misconduct of the Custodian.
5.3. INDEMNIFICATION.
---------------
(a) Indemnification Obligations. Subject to the limitations set
---------------------------
forth in this Agreement, the Fund agrees to indemnify and hold harmless the
Custodian and its nominees for all Losses suffered or incurred by the Custodian
or its nominee (including Losses suffered under the Custodian's indemnity
obligations to Subcustodians) caused by or arising from actions taken by the
Custodian in the performance of its duties and obligations under this Agreement,
20
<PAGE>
provided that such indemnity shall not apply to Losses occasioned by or
- --------
resulting from the negligence, misfeasance or misconduct of the Custodian or any
Subcustodian, Securities System, Foreign Depository or their respective
nominees. In addition, the Fund agrees to indemnify the Custodian against any
liability incurred by reason of taxes assessed to the Custodian, any
Subcustodian, any Securities System, any Foreign Depository, and their
respective nominees, or other Losses incurred by such persons, resulting from
the fact that securities and other property of the Fund are registered in the
name of such persons, provided that in no event shall such indemnification be
--------
applicable to income, franchise or similar taxes which may be imposed or
assessed against such persons.
(b) Notice of Litigation, Right to Prosecute, etc. The Fund shall
---------------------------------------------
not be liable for indemnification under this section 5.3 unless the person
seeking indemnification shall have notified the Fund in writing (i) within such
-
time after the assertion of any claim as is sufficient for such person to
determine that it will seek indemnification from the Fund in respect of such
claim or (ii) promptly after the commencement of any litigation or proceeding
--
brought against such person, in respect of which indemnity may be sought;
provided that in the case of clause (i) of this section 5.3(b) the Fund shall
- --------
not be liable for such indemnification to the extent the Fund is disadvantaged
by any such delay in notification. With respect to claims in such litigation or
proceedings for which indemnity by the Fund may be sought and subject to
applicable law and the ruling of any court of competent jurisdiction, the Fund
shall be entitled to participate in any such litigation or proceeding and, after
written notice from the Fund to the person seeking indemnification, the Fund may
assume the defense of such litigation or proceeding with counsel of its choice
at its own expense in respect of that portion of the litigation for which the
Fund may be subject to an indemnification obligation, provided that such person
--------
shall be entitled to participate in (but not control) at its own cost and
expense, the defense of any such litigation or proceeding if the Fund has not
acknowledged in writing its obligation to indemnify such person with respect to
such litigation or proceeding. If the Fund is not permitted to participate in
or control such litigation or proceeding under applicable law or by a ruling of
a court of competent jurisdiction, such person shall reasonably prosecute such
litigation or proceeding. A person seeking indemnification hereunder shall not
consent to the entry of any judgment or enter into any settlement of any such
litigation or proceeding without providing the Fund with adequate notice of any
such settlement or judgment and without the Fund's prior written consent, which
consent shall not be unreasonably withheld or delayed. All persons seeking
indemnification hereunder shall submit written evidence to the Fund with respect
to any cost or expense for which they are seeking indemnification in such form
and detail as the Fund may reasonably request.
5.4. INVESTMENT LIMITATIONS. If the Custodian has otherwise complied
----------------------
with the terms and conditions of this Agreement in
21
<PAGE>
performing its duties generally, and more particularly in connection with the
purchase, sale or exchange of securities made by or for the Fund, the Custodian
shall not be liable to the Fund, and the Fund agrees to indemnify the Custodian
and its nominees, for any Losses suffered or incurred by the Custodian and its
nominees arising out of any violation of any investment or other limitation to
which the Fund is subject.
5.5. FUND'S RIGHT TO PROCEED. Notwithstanding anything to the
-----------------------
contrary contained herein, the Fund shall have, at its election upon reasonable
notice to the Custodian, the right to enforce, to the extent permitted by any
applicable agreement and applicable law, the Custodian's rights against any
Subcustodian, Securities System, Foreign Depository or other person for Losses
caused the Fund by such Subcustodian, Securities System, Foreign Depository or
other person, and shall be entitled to enforce the rights of the Custodian with
respect to any claim against such Subcustodian, Securities System, Foreign
Depository or other person which the Custodian may have as a consequence of any
such Losses, if and to the extent that the Fund has not been made whole for such
Losses. If the Custodian makes the Fund whole for such Losses, the Custodian
shall retain the ability to enforce its rights directly against such
Subcustodian, Securities System, Foreign Depository or other person. Upon the
Fund's election to enforce any rights of the Custodian under this section 5.5,
the Fund shall reasonably prosecute all actions and proceedings directly
relating to the rights of the Custodian in respect of the Losses incurred by the
Fund; provided that, so long as the Fund has acknowledged in writing its
--------
obligation to indemnify the Custodian under section 5.3 hereof with respect to
such claim, the Fund shall retain the right to settle, compromise and/or
terminate any action or proceeding in respect of the Losses incurred by the Fund
without the Custodian's consent; and provided further that if the Fund has not
-------- -------
made an acknowledgement of its obligation to indemnify the Custodian, the Fund
shall not settle, compromise or terminate any such action or proceeding without
the written consent of the Custodian, which consent shall not be unreasonably
withheld or delayed. The Custodian agrees to cooperate with the Fund and take
all actions reasonably requested by the Fund in connection with the Fund's
enforcement of any rights of the Custodian. The Fund agrees to reimburse the
Custodian for all reasonable out-of-pocket expenses incurred by the Custodian in
connection with the fulfillment of its obligations under this section 5.5,
provided that such reimbursement shall not apply to expenses occasioned by or
- --------
resulting from the negligence, misfeasance or misconduct of the Custodian.
22
<PAGE>
ARTICLE VI
RECORDS
6.1. PREPARATION OF REPORTS. The Custodian shall, as reasonably
----------------------
requested by the Fund, assist generally in the preparation of reports to Fund
shareholders, regulatory authorities and others, audits of accounts, and other
ministerial matters of like nature. The Custodian shall render statements,
including interim monthly and complete quarterly financial statements, or copies
thereof, from time to time as reasonably requested by Proper Instructions.
6.2. CUSTODIAN'S BOOKS AND RECORDS. The Custodian shall maintain
-----------------------------
complete and accurate records with respect to securities and other assets held
for the account of the Fund as required by the rules and regulations of the SEC
applicable to investment companies registered under the 1940 Act, including: (a)
-
journals or other records of original entry containing a detailed and itemized
daily record of all receipts and deliveries of securities (including certificate
and transaction identification numbers, if any), and all receipts and
disbursements of cash; (b) ledgers or other records reflecting (i) securities in
- -
physical possession, (ii) securities in transfer, (iii) securities borrowed,
-- ---
loaned or collateralizing obligations of the Fund, (iv) monies borrowed and
--
monies loaned (together with a record of the collateral therefor and
substitutions of collateral), and (v) dividends and interest received; and (c)
- -
cancelled checks and bank records related thereto. The Custodian shall keep
such other books and records of the Fund as the Fund shall reasonably request.
All such books and records maintained by the Custodian shall be maintained in a
form acceptable to the Fund and in compliance with the rules and regulations of
the SEC (including, but not limited to, books and records required to be
maintained under Section 31(a) of the 1940 Act and the rules and regulations
from time to time adopted thereunder), and any other applicable Federal, State
and foreign tax laws and administrative regulations. All such records will be
the property of the Fund and in the event of termination of this Agreement shall
be delivered to the successor custodian.
All books and records maintained by the Custodian pursuant to this
Agreement and any insurance policies and fidelity or similar bonds maintained by
the Custodian shall be made available for inspection and audit at reasonable
times by officers of, attorneys for, and auditors employed by, the Fund and the
Custodian shall promptly provide the Fund with copies of all reports of its
independent auditors regarding the Custodian's controls and procedures.
6.3. OPINION OF FUND'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS. The
----------------------------------------------------------
Custodian shall take all reasonable action as the Fund may request to obtain
from year to year favorable opinions from
23
<PAGE>
the Fund's independent certified public accountants with respect to the
Custodian's activities hereunder in connection with the preparation of any
periodic reports to or filings with the SEC and with respect to any other
requirements of the SEC.
6.4. REPORTS OF CUSTODIAN'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS.
--------------------------------------------------------------
At the request of the Fund, the Custodian shall deliver to the Fund a written
report prepared by the Custodian's independent certified public accountants with
respect to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system, internal
accounting control and procedures for safeguarding cash, securities and other
assets, including cash, securities and other assets deposited and/or maintained
in a Securities System or with a Subcustodian. Such report shall be of
sufficient scope and in sufficient detail as may reasonably be required by the
Fund and as may reasonably be obtained by the Custodian.
6.5. CALCULATION OF NET ASSET VALUE. The Custodian shall compute and
------------------------------
determine the net asset value per share of capital stock of the Fund as of the
close of regular business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instructions. Such
computation and determination shall be made in accordance with (a) the
-
provisions of the By-Laws of the Fund and Articles of Incorporation, as they may
from time to time be amended and delivered to the Custodian, (b) the votes of
-
the Board of Directors of the Fund at the time in force and applicable, as they
may from time to time be delivered to the Custodian, and (c) Proper
-
Instructions. On each day that the Custodian shall compute the net asset value
per share of the Fund, the Custodian shall provide the Fund with written reports
which permit the Fund to verify that portfolio transactions have been recorded
in accordance with the Fund's instructions.
In computing the net asset value, the Custodian may rely upon any
information furnished by Proper Instructions, including without limitation any
information (i) as to accrual of liabilities of the Fund and as to liabilities
-
of the Fund not appearing on the books of account kept by the Custodian, (ii) as
--
to the existence, status and proper treatment of reserves, if any, authorized by
the Fund, (iii) as to the sources of quotations to be used in computing the net
---
asset value, including those listed in Appendix C hereto, (iv) as to the fair
--
value to be assigned to any securities or other assets for which price
quotations are not readily available, and (v) as to the sources of information
-
with respect to "corporate actions" affecting portfolio securities of the Fund,
including those listed in Appendix C. (Information as to "corporate actions"
shall include information as to dividends, distributions, stock splits, stock
dividends, rights offerings, conversions, exchanges, recapitalizations, mergers,
redemptions, calls, maturity dates and similar transactions, including the ex-
and record dates and the amounts or other terms thereof.)
24
<PAGE>
In like manner, the Custodian shall compute and determine the net
asset value as of such other times as the Board of Directors of the Fund, or any
valuation committee thereof, from time to time may reasonably request.
The Custodian shall be held to the standard of care set forth in
Article V with respect to the performance of its responsibilities under this
Article VI. The parties hereto acknowledge, however, that the Custodian's
causing an error or delay in the determination of net asset value may, but does
not in and of itself, constitute negligence, gross negligence or reckless or
willful misconduct. The Custodian's liability for any such negligence, gross
negligence or reckless or willful misconduct which results in an error in
determination of such net asset value shall be limited to the direct, out-of-
pocket loss the Fund, shareholder or former shareholder shall actually incur,
measured by the difference between the actual and the erroneously computed net
asset value, and any expenses incurred by the Fund in connection with correcting
the records of the Fund affected by such error (including charges made by the
Fund's registrar and transfer agent for making such corrections), communicating
with shareholders or former shareholders of the Fund affected by such error or
responding to or defending against any inquiry or proceeding with respect to
such error made or initiated by the SEC or other regulatory or self-regulatory
body.
Without limiting the foregoing, the Custodian shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or Losses any of them may suffer or incur
resulting from (A) the Custodian's failure to receive timely and suitable
-
notification concerning quotations or corporate actions relating to or affecting
securities of the Fund or (B) any errors in the computation of the net asset
-
value based upon or arising out of quotations or information as to corporate
actions if received by the Custodian either (1) from a source which the
-
Custodian was authorized pursuant to the second paragraph of this section 6.5 to
rely upon, or (2) from a source which in the Custodian's reasonable judgment was
-
as reliable a source for such quotations or information as the sources
authorized pursuant to that paragraph. Nevertheless, the Custodian will use its
best judgment in determining whether to verify through other sources any
information it has received as to quotations or corporate actions if the
Custodian has reason to believe that any such information might be incorrect.
In the event of any error or delay in the determination of such net
asset value for which the Custodian may be liable, the Fund and the Custodian
will consult and make good faith efforts to reach agreement on what actions
should be taken in order to mitigate any Losses suffered by the Fund or its
present or former shareholders, in order that the Custodian's exposure to
liability shall be reduced to the extent possible after taking into account all
relevant factors and alternatives. Such actions might include the Fund or the
Custodian
25
<PAGE>
taking reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of shares such
overpaid amount or to collect from any shareholder who has underpaid upon a
purchase of shares the amount of such underpayment or to reduce the number of
shares issued to such shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which should
appropriately be borne by the Custodian, the Fund and the Custodian will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have reasonably expected to have detected the error sooner than
the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.
Upon written notice from the Fund to the Custodian, the Custodian's
responsibilities under this Section 6.5 shall terminate, but this Agreement
shall otherwise continue in full force and effect. Upon such termination, the
fee schedule provided for under Article VII hereof shall be adjusted by the
parties in such manner as they may agree, and the Custodian will transfer such
of the Fund's books and records, and provide such other reasonable cooperation,
as the Fund may request in connection with the transfer of such
responsibilities.
6.6. INFORMATION REGARDING FOREIGN SUBCUSTODIANS AND FOREIGN
-------------------------------------------------------
DEPOSITORIES. (a) The Custodian shall use reasonable efforts to assist the
- ------------
Fund in obtaining the following with respect to any country in which any assets
of the Fund are held or proposed to be held:
(1) information concerning whether, and to what extent, applicable
foreign law would restrict the access afforded the Fund's independent
public accountants to books and records kept by a foreign custodian or
foreign securities depository used, or proposed to be used, in that
country;
(2) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover its assets in the
event of the bankruptcy of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
(3) information concerning whether, and to what extent, applicable
foreign law would restrict the Fund's ability to recover assets that are
lost while under the control of a foreign custodian or foreign securities
depository used, or proposed to be used, in that country;
26
<PAGE>
(4) information concerning the likelihood of expropriation,
nationalization, freezes or confiscation of the Fund's assets in that
country;
(5) information concerning whether difficulties in converting the
Fund's cash and cash equivalents held in that country into U.S. Dollars are
reasonably foreseeable, including without limitation as a result of
applicable foreign currency exchange regulations;
(6) information concerning the financial strength, general reputation
and standing and ability to perform custodial services of each foreign
custodian or foreign securities depository used, or proposed to be used, in
that country;
(7) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country would
provide a level of safeguards for maintaining the Fund's assets not
materially different from that provided by the Custodian in maintaining the
Fund's securities in the United States;
(8) information concerning whether each foreign custodian or foreign
securities depository used, or proposed to be used, in that country has
offices in the United States in order to facilitate the assertion of
jurisdiction over and enforcement of judgments against such custodian or
depository;
(9) as to each foreign securities depository used, or proposed to be
used, in that country information concerning the number of participants in,
and operating history of, such depository; and
(10) such other information as may be requested by the Fund to ensure
compliance with Rule 17f-5 under the 1940 Act.
(b) During the term of this Agreement, the Custodian shall use
reasonable efforts to provide the Fund with prompt notice of any material
changes in the facts or circumstances upon which any of the foregoing
information or statements were based.
(c) Upon request of the Fund, the Custodian shall deliver to the Fund
a certificate stating: (i) the identity of each Foreign Subcustodian then
-
acting on behalf of the Custodian; and (ii) the countries in which and the
--
Foreign Depositories through which each such Foreign Subcustodian or the
Custodian is then holding cash, securities and other assets of the Fund.
27
<PAGE>
ARTICLE VII
CUSTODIAN FEES
The Fund shall pay the Custodian a custody fee based on such fee
schedule as may from time to time be agreed upon in writing by the Custodian and
the Fund. Such fee, together with all amounts for which the Custodian is to be
reimbursed in accordance with the following sentence, shall be billed to the
Fund in such a manner as to permit payment either by a direct cash payment to
the Custodian or by placing Fund portfolio transactions with the Custodian
resulting in an agreed-upon amount of commissions being paid to the Custodian
within an agreed-upon period of time. The Custodian shall be entitled to
receive reimbursement from the Fund on demand for its cash disbursements and
expenses (including cash disbursements and expenses of any Subcustodian or Agent
for which the Custodian has reimbursed such Subcustodian or Agent) permitted by
this Agreement, but excluding salaries and usual overhead expenses, upon receipt
by the Fund of reasonable evidence thereof.
ARTICLE VIII
TERMINATION
This Agreement shall continue in full force and effect until
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid, to the other party, such termination to take effect not sooner
than sixty (60) days after the date of such delivery or mailing. In the event
of termination, the Custodian shall be entitled to receive prior to delivery of
the securities, cash and other assets held by it all accrued fees and
unreimbursed expenses the payment of which is contemplated by Article VII, upon
receipt by the Fund of a statement setting forth such fees and expenses.
In the event of the appointment of a successor Custodian, it is agreed
that the cash, securities and other assets owned by the Fund and held by the
Custodian or any Subcustodian or Agent shall be delivered to the successor
custodian, and the Custodian agrees to cooperate with the Fund in execution of
documents and performance of other actions necessary or desirable in order to
substitute the successor custodian for the Custodian under this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1. EXECUTION OF DOCUMENTS. Upon request, the Fund shall deliver to
----------------------
the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
28
<PAGE>
9.2. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
understanding and agreement of the parties hereto with respect to the subject
matter hereof.
9.3. WAIVERS AND AMENDMENTS. No provision of this Agreement may be
----------------------
amended or terminated except by a statement in writing signed by the party
against which enforcement of the amendment or termination is sought, provided
--------
that Appendix B listing the Foreign Subcustodians and Foreign Depositories
approved by the Fund and Appendix C listing quotation and information sources
may be amended from time to time to add or delete one or more of such entities
or sources by delivery to the Custodian of a revised Appendix B or C executed by
an Authorized Person, such amendment to take effect immediately upon execution
of the revised Appendix B or C by the Custodian.
In connection with the operation of this Agreement, the Custodian and
the Fund may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
9.4. CAPTIONS. The section headings in this Agreement are for the
--------
convenience of the parties and in no way alter, amend, limit or restrict the
contractual obligations of the parties set forth in this Agreement.
9.5. GOVERNING LAW. This instrument shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
9.6. NOTICES. Notices and other writings delivered or mailed postage
-------
prepaid to the Fund addressed to the Fund at 345 Park Avenue, New York, NY 10154
or to such other address as the Fund may have designated to the Custodian in
writing, or to the Custodian at 40 Water Street, Boston, Massachusetts 02109,
Attention: Manager, Securities Department, or to such other address as the
Custodian may have designated to the Fund in writing, shall be deemed to have
been properly delivered or given hereunder to the respective addressee.
9.7. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on
----------------------
and shall inure to the benefit of the Fund and the Custodian and their
respective successors and assigns, provided that neither party hereto may assign
this Agreement or any of its rights hereunder without the prior written consent
of the other party.
9.8. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original.
29
<PAGE>
This Agreement shall become effective when one or more counterparts have been
signed and delivered by each of the parties.
9.9. REPRESENTATIVE CAPACITY; NONRECOURSE OBLIGATIONS. The
------------------------------------------------
Custodian agrees that any claims by it against the Fund under this Agreement may
be satisfied only from the assets of the Fund; that the person executing this
Agreement has executed it on behalf of the Fund and not individually, and that
the obligations of the Fund arising out of this Agreement are not binding upon
such person or the Fund's shareholders individually but are binding only upon
the assets and property of the Fund; and that no shareholders, directors or
officers of the Fund may be held personally liable or responsible for any
obligations of the Fund arising out of this Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro /s/ Stokley P. Towles
_____________________
Name: Stokley P. Towles
Title: Partner
THE BRAZIL FUND, INC.
By: /s/ Nicholas Bratt
_________________________
Name: Nicholas Bratt
Title: President
30
<PAGE>
APPENDIX A TO THE
CUSTODIAN AGREEMENT BETWEEN
THE BRAZIL FUND, INC. AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF March 2, 1995
PROCEDURES RELATING TO CUSTODIAN'S SECURITY INTEREST
----------------------------------------------------
As security for any Advances (as defined in the Custodian Agreement)
of the Fund, the Fund shall pledge, assign and grant to the Custodian a security
interest in Collateral (as hereinafter defined), under the terms, circumstances
and conditions set forth in this Appendix A.
SECTION 1. DEFINED TERMS. As used in this
--------------
Appendix A the following terms shall have the following respective meanings:
(a) "Business Day" shall mean any day that is not a Saturday, a Sunday or
a day on which the Custodian is closed for business.
(b) "Collateral" shall mean those securities having a fair market value
(as determined in accordance with the procedures set forth in the prospectus for
the Fund) equal to the aggregate of all Advance Obligations of the Fund that are
(i) identified in any Pledge Certificate executed on behalf of the Fund or (ii)
- --
designated by the Custodian for the Fund pursuant to Section 3 of this Appendix
A. Such securities shall consist of marketable securities held by the Custodian
on behalf of the Fund or, if no such marketable securities are held by the
Custodian on behalf of the Fund, such other securities designated by the Fund in
the applicable Pledge Certificate or by the Custodian pursuant to Section 3 of
this Appendix A.
(c) "Advance Obligations" shall mean the amount of any outstanding
Advance(s) provided by the Custodian to the Fund together with all accrued
interest thereon.
(d) "Pledge Certificate" shall mean a Pledge Certificate in the form
attached as Exhibit 1 to this Appendix A, executed by a duly authorized officer
of the Fund and delivered by the Fund to the Custodian by facsimile transmission
or in such other manner as the Fund and the Custodian may agree in writing.
(e) "Release Certificate" shall mean a Release Certificate in the form
attached as Exhibit 2 to this Appendix A, executed by a duly authorized officer
of the Custodian and delivered by the Custodian to the Fund by facsimile
transmission or in such other manner as the Fund and the Custodian may agree in
writing.
31
<PAGE>
(f) "Written Notice" shall mean a written notice executed by a duly
authorized officer of the party delivering the notice and delivered by facsimile
transmission or in such other manner as the Fund and the Custodian shall agree
in writing.
SECTION 2. PLEDGE OF COLLATERAL. To the extent that any Advance
--------------------
Obligations of the Fund are not satisfied by the close of business on the first
Business Day following the Business Day on which the Fund receives a Written
Notice requesting security for such Advance Obligation and stating the amount of
such Advance Obligation, the Fund shall pledge, assign and grant to the
Custodian a first priority security interest in Collateral specified by the Fund
by delivering to the Custodian a Pledge Certificate executed by the Fund
describing such Collateral. Such Written Notice may, in the discretion of the
Custodian, be included within or accompany the Notice of Advance (as defined in
the Custodian Agreement) relating to the applicable Advance Obligation.
SECTION 3. FAILURE TO PLEDGE COLLATERAL. In the event that the Fund shall
----------------------------
fail (a) to pay the Advance Obligation described in such Written Notice, (b) to
- -
deliver to the Custodian a Pledge Certificate pursuant to Section 2, or (c) to
-
identify substitute securities pursuant to Section 6 upon the sale or maturity
of any securities identified as Collateral, the Custodian may, by Written Notice
to the Fund, specify Collateral which shall secure the applicable Advance
Obligation. The Fund hereby pledges, assigns and grants to the Custodian a
first priority security interest in any and all Collateral specified in such
Written Notice; provided that such pledge, assignment and grant of security
--------
shall be deemed to be effective only upon receipt by the Fund of such Written
Notice, and provided further that if the Custodian specifies Collateral in which
--------
a first priority security interest has already been granted, the security
interest pledged, assigned and granted hereunder shall be a security interest
that is not a first priority security interest.
SECTION 4. DELIVERY OF ADDITIONAL COLLATERAL. If at any time the
---------------------------------
Custodian shall notify the Fund by Written Notice that the fair market value of
the Collateral securing any Advance Obligation is less than the amount of such
Advance Obligation, the Fund shall deliver to the Custodian, within one Business
Day following the Fund's receipt of such Written Notice, an additional Pledge
Certificate describing additional Collateral. If the Fund shall fail to deliver
such additional Pledge Certificate, the Custodian may specify Collateral which
shall secure the unsecured amount of the applicable Advance Obligation in
accordance with Section 3 of this Appendix A.
SECTION 5. RELEASE OF COLLATERAL. Upon payment by the Fund of any Advance
---------------------
Obligation secured by the pledge of Collateral, the Custodian shall promptly
deliver to the Fund a Release
32
<PAGE>
Certificate pursuant to which the Custodian shall release Collateral from the
lien under the applicable Pledge Certificate or Written Notice pursuant to
Section 3 having a fair market value equal to the amount paid by the Fund on
account of such Advance Obligation. In addition, if at any time the Fund shall
notify the Custodian by Written Notice that the Fund desires that specified
Collateral be released and (a) that the fair market value
-
of the Collateral securing any Advance Obligation exceeds the amount of such
Advance Obligation, or (b) that the Fund has delivered a Pledge Certificate
-
pursuant to Section 6 substituting Collateral in respect of such Advance
Obligation, the Custodian shall deliver to the Fund, within one Business Day
following the Custodian's receipt of such Written Notice, a Release Certificate
relating to the Collateral specified in such Written Notice.
SECTION 6. SUBSTITUTION OF COLLATERAL. The Fund may substitute securities
--------------------------
for any securities identified as Collateral by delivery to the Custodian of a
Pledge Certificate executed by the Fund, indicating the securities pledged as
Collateral.
SECTION 7. SECURITY FOR FUND ADVANCE OBLIGATIONS. The pledge of
-------------------------------------
Collateral by the Fund shall secure only Advance Obligations of the Fund. In no
event shall the pledge of Collateral by the Fund be deemed or considered to be
security for any other types of obligations of the Fund to the Custodian or for
the Advance Obligations or other types of obligations of any other fund.
SECTION 8. CUSTODIAN'S REMEDIES. Upon (a) the Fund's failure to pay any
-------------------- -
Advance Obligation of the Fund within thirty days after receipt by the Fund of a
Written Notice demanding security therefor, and (b) one Business Day's prior
-
Written Notice to the Fund, the Custodian may elect to enforce its security
interest in the Collateral securing such Advance Obligation, by taking title to
(at the then prevailing fair market value), or selling in a commercially
reasonable manner, so much of the Collateral as shall be required to pay such
Advance Obligation in full. Notwithstanding the provisions of any applicable
law, including, without limitation, the Uniform Commercial Code, the remedy set
forth in the preceding sentence shall be the only right or remedy to which the
Custodian is entitled with respect to the pledge and security interest granted
pursuant to any Pledge Certificate or Section 3. Without limiting the
foregoing, the Custodian hereby waives and relinquishes all contractual and
common law rights of set-off to which it may now or hereafter be or become
entitled with respect to any obligations of the Fund to the Custodian arising
under this Appendix A to the Custodian Agreement.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Appendix A to be
executed in its name and behalf on the day and year first above written.
BROWN BROTHERS HARRIMAN & CO.
per pro /s/ Stokley P. Towles
______________________
Name: Stokley P. Towles
Title:Partner
THE BRAZIL FUND, INC.
By: /s/ Nicholas Bratt
_________________________
Name: Nicholas Bratt
Title: President
34
<PAGE>
EXHIBIT 1
TO
Appendix A
PLEDGE CERTIFICATE
------------------
This Pledge Certificate is delivered pursuant to the Custodian
Agreement dated as of _____________________ (the "Agreement"), between
_____________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to [Section 2
or Section 4] of Appendix A attached to the Agreement, the Fund hereby pledges,
assigns and grants to the Custodian a first priority security interest in the
securities listed on Schedule A attached to this Pledge Certificate
(collectively, the "Pledged Securities"). Upon delivery of this Pledge
Certificate, the Pledged Securities shall constitute Collateral, and shall
secure all Advance Obligations of the Fund described in that certain Written
Notice dated _________, 19__, delivered by the Custodian to the Fund. The
pledge, assignment and grant of security in the Pledged Securities hereunder
shall be subject in all respects to the terms and conditions of the Agreement,
including, without limitation, Sections 7 and 8 of Appendix A attached hereto.
IN WITNESS WHEREOF, the Fund has caused this Pledge Certificate to be
executed in its name, on behalf of the Fund this _____ day of ___________, 19__.
By: _____________________
Name: _____________________
Title: _____________________
35
<PAGE>
SCHEDULE A
TO
PLEDGE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ------
36
<PAGE>
EXHIBIT 2
TO
Appendix A
RELEASE CERTIFICATE
-------------------
This Release Certificate is delivered pursuant to the Custodian
Agreement dated as of _________, 199_ (the "Agreement"), between
_______________________ (the "Fund") and Brown Brothers Harriman & Co. (the
"Custodian"). Capitalized terms used herein without definition shall have the
respective meanings ascribed to them in the Agreement. Pursuant to Section 5 of
Appendix A attached to the Agreement, the Custodian hereby releases the
securities listed on Schedule A attached to this Release Certificate from the
lien under the [Pledge Certificate dated __________, 19 or the Written Notice
delivered pursuant to Section 3 of Appendix A dated ___________, 19 ].
IN WITNESS WHEREOF, the Custodian has caused this Release Certificate
to be executed in its name and on its behalf this ____ day of 19__.
Brown Brothers Harriman & Co.
By: _____________________
Name: _____________________
Title: _____________________
37
<PAGE>
SCHEDULE A
TO
RELEASE CERTIFICATE
Type of Certificate/CUSIP Number of
Issuer Security Numbers Shares
- ------ -------- ----------------- ----------
38
<PAGE>
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
THE BRAZIL FUND, INC.
APPENDIX B
COUNTRY SUBCUSTODIAN DEPOSITORY
------- ------------ ----------
BRAZIL BANK OF BOSTON, SAO PAULO BOVESPA
First National Bank of Boston Agreement CLC
1/5/88
Omnibus Amendment 2/22/94
I HEREBY CERTIFY THAT THE BOARD APPROVED THE COUNTRIES, SUBCUSTODIANS,
AGREEMENTS, AND CENTRAL DEPOSITORIES LISTED ON THIS APPENDIX.
- ---------------------- ----------------------
(SIGNATURE) (DATE)
- ----------------------
(TITLE)
<PAGE>
EXHIBIT 99.J(ii)
BROWN BROTHERS HARRIMAN & CO.
April, 1994
SCUDDER FEE SCHEDULE
SCHEDULE A
<TABLE>
<CAPTION>
MARKET ASSET CHARGE(BP) TRANSACTION CHARGE
<S> <C> <C>
Group 1
United States 1.0 on first $100 million DTC: $10
.5 on all over $100 million Physical and Same Day
Money Market Transactions: $25
GROUP 2
Euroclear and Cedel* 3 35
GROUP 3
Canada 4 20
GROUP 4
Germany 5 30
Japan 5 30
Switzerland 5 50
United Kingdom 5 45
GROUP 5
Australia 6 50
Denmark 6 50
France 6 60
Netherlands 6 75
New Zealand 6 50
Sweden 6 60
</TABLE>
1
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
<TABLE>
<S> <C> <C>
GROUP 6
Belgium 8 50
Finland 8 60
Hong Kong 8 75
Ireland 8 50
Italy 8 60
Luxembourg 8 50
Norway 8 75
Singapore 8 75
GROUP 7
Austria 10 60
Malaysia 10 75
Spain 10 60
GROUP 8
Indonesia 15 75
Mexico 15 50
Thailand 15 75
EMERGING MARKETS
Argentina 27 75
Brazil 21 50
Chile 35 75
China 35 60
Colombia 45 100
Greece 50 150
India 40 100 per partial
Israel 25 150
Korea 22 50
Pakistan 35 100
Phillipines 25 50
Poland 50 50
Portugal 25 125
Sri Lanka 20 50
Taiwan 25 75
Turkey 35 75
Uruguay 50 150
Venezuela 35 75
</TABLE>
2
<PAGE>
BROWN BROTHERS HARRIMAN & CO.
. Annual Minimum Custody Fee: $10,000 per account
. Automation: This schedule assumes machine readable trade instructions.
----------
. For the Korea Fund, BBH&Co. will charge 14.5 basis points.
Out-of Pocket Expenses
----------------------
Out-of-pocket expenses including but not limited to communication
expenses, wire charges, telex, legal, telephone, postage and direct expenses
including but not limited to stamp duties, commissions, dividend and income
collection charges, taxes, certificate fees, special handling, transfer and
registration fees would be additional.
3
<PAGE>
EXHIBIT 99.k(i)
Draft -- November 16, 1995
STATE STREET BANK AND TRUST COMPANY
SUBSCRIPTION RIGHTS DISTRIBUTION AND AGENCY AGREEMENT
This Subscription Rights Distribution and Agency Agreement (the
"Agreement") is made as of November __, 1995 between The Brazil Fund, Inc. (the
"Company"), a Maryland corporation and State Street Bank and Trust Company, a
national banking association, as subscription and distribution agent ("Agent").
Certain capitalized terms used herein without definition have the respective
meanings specified therefor in the Prospectus (as defined below).
WHEREAS, the Company proposes to make a subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Company ("Subscription Certificates"), to shareholders of record ("Record
Date Shareholders") of its Common Stock, par value $0.01 per share ("Common
Stock"), as of a record date specified by the Company (the "Record Date"),
pursuant to which each Record Date Shareholder will receive transferable rights
(the "Rights") to subscribe to purchase shares of Common Stock, as described in
the prospectus (the "Prospectus") included in the Form N-2 Registration
Statement filed by the Company with the Securities and Exchange Commission on
October 13, 1995, as amended by any amendments filed with respect thereto (the
"Registration Statement");
WHEREAS, the Company wishes the Agent to perform certain acts on
behalf of the Company and the Agent is willing so to act, in connection with the
distribution of the Subscription Certificates and the issuance and exercise of
the Rights all upon the terms and conditions set forth herein and in the manner
described in the Prospectus;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
<PAGE>
1. The Company hereby appoints and authorizes the Agent to act on its behalf
in accordance with the provisions hereof, and the Agent hereby accepts such
appointment and agrees to so act.
2. (a) Each Subscription Certificate shall evidence the Rights of the Record
Date Shareholder therein named to purchase Common Stock upon the terms and
conditions therein and in the Prospectus set forth.
(b) Upon the written advice of the Company signed by its Chairman, President,
Secretary or Assistant Secretary, as to the Record Date, the Agent shall,
from a list of the Company's Shareholders as of the Record Date to be
prepared by the Agent in its capacity as the Company's Transfer Agent,
prepare and record Subscription Certificates in the names of the Record
Date Shareholders, setting forth the number of Rights to subscribe to the
Company's Common Stock calculated on the basis of one Right for each share
recorded on the Company's books in the name of each such Record Date
Shareholder as of the Record Date. Fractional Rights will not be issued.
Each Subscription Certificate shall be dated as of the Record Date. Upon
the written advice as to the effective date of the Registration Statement,
the Agent shall as promptly as practicable deliver the Subscription
Certificates, together with a copy of the Prospectus, to all Record Date
Shareholders whose addresses are in the United States.
3. (a) Each Subscription Certificate shall be irrevocable and shall be fully
transferable. The Agent shall maintain a register of Subscription Certificates
and the holders of record thereof. Each Subscription Certificate shall entitle
the holder to the rights set forth on the face thereof and set forth in the
Prospectus.
2
<PAGE>
(b) A Record Date Shareholder may exercise his Rights under the Primary
Subscription and Over-Subscription Privilege by delivery to the Agent in the
manner specified in the Prospectus of (i) the Subscription Certificate with
-
respect thereto, duly executed by such Record Date Shareholder in accordance
with and as provided by the terms and conditions of the Subscription
Certificate, together with (ii) the Subscription Price for each share of Common
--
Stock subscribed for by exercise of such Rights, in United States dollars in
cash, by check, or money order drawn on a bank in the continental United States
or by postal, telegraphic, or express money order, in each case payable to the
order of the Company.
(c) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M.
New York City Time on such date as the Company shall designate to the Agent
in writing (the "Expiration Date"). For the purpose of determining the
time of the exercise of any Rights, delivery of any material to the Agent
shall be deemed to occur when such materials are received at the corporate
office of the Agent specified in the Prospectus.
(d) Notwithstanding the provisions of Section 3(b) and 3(c) regarding delivery
of an executed Subscription Certificate to the Agent prior to 5:00 P.M. New
York City Time on the Expiration Date, if prior to such time the Agent
receives notice of guaranteed delivery by telegram or otherwise from a
bank, trust company or a New York Stock Exchange member guaranteeing
delivery of (i) full payment for Shares purchased and subscribed for under
-
the Primary Subscription and the Over-Subscription Privilege (if any) and
(ii) a properly completed and executed Subscription Certificate, then such
---
exercise of Primary Subscription Rights and the Over-Subscription
3
<PAGE>
Privilege shall be regarded as timely, subject, however, to receipt of the
duly executed Subscription Certificate and full payment for the Common
Stock by the Agent within three business days after the Expiration Date.
(e) Within eight Business Days following the Expiration Date (the "Confirmation
Date"), the Agent shall sent to each shareholder (or, if shares of Common
Stock on the Record Date are held by Cede & Co. or any other depository or
nominee, to Cede & Co. or such other depository or nominee), (A) a
-
confirmation showing (i) the number of Shares acquired pursuant to the
-
Primary Subscription Rights, (ii) the number of Shares, if any, acquired
--
pursuant to the Over-Subscription Privilege, (iii) the per Share and total
---
purchase price for the Shares, (iv) any amount payable to the Shareholder
--
pursuant to Section 9, and (v) any excess to be refunded by the Company to
-
such Shareholder, in each case based on the Subscription Price; and (B) a
-
letter explaining the allocation of shares pursuant to the Over-
Subscription Privilege. Any excess payment to be refunded by the Company
to a Shareholder, shall be mailed by the Agent to the Shareholder as
promptly as possible but in no event later than fifteen Business Days after
the Expiration Date, as provided in Section 5 below.
4. If, after allocation of Shares to persons exercising Rights in the Primary
Subscription, there remain unexercised Rights, then the Agent shall allot the
Shares issuable upon exercise of such unexercised Rights (the "Remaining
Shares") to persons exercising the Over-Subscription Privilege, in the amounts
of such Over-Subscriptions. If the number of Shares for which the Over-
Subscription Privilege has been exercised is greater than the Remaining Shares,
the Agent shall allot the Remaining Shares to the persons exercising the Over-
Subscription Privilege pro rata based solely
4
<PAGE>
on the number of Rights originally issued to them, as more fully described in
the Prospectus. The Agent shall advise the Company immediately upon the
completion of the allocation set forth above as to the total number of Shares
subscribed and distributable.
5. The Agent will deliver (i) certificates representing those Shares purchased
-
pursuant to the Primary Subscription as soon as practicable after the
corresponding Rights have been validly exercised and full payment for such
Shares has been received and cleared, it being understood that certificates
representing those Shares subscribed for by the Dealer Manager upon its exercise
of the corresponding Rights will be delivered to the Dealer Manager no later
than the close of business on the Business Day following the day that full
payment for such Shares has been received by the Agent; (ii) certificates
--
representing those Shares purchased pursuant to the Over-Subscription Privilege
as soon as practicable after the Expiration Date and after all allocations have
been effected; (iii) in the case of each holder of Rights whose Rights were sold
---
pursuant to Section 9, as promptly as possible but in no event later than
fifteen Business Days after the Expiration Date, proceeds of such sale
(provided, however, that proceeds of sales on behalf of Record Date Shareholders
whose Subscription Certificates are undeliverable shall be held by the Agent
until they are either claimed or escheated); (iv) in the case of each Record
--
Date Shareholder who subscribed, pursuant to the Over-Subscription Privilege,
for a greater number of Shares than was allotted to such Record Date Shareholder
under Section 4, as promptly as possible but in no event later than fifteen
Business Days after the Expiration Date, a refund in the amount of the
difference between the purchase price delivered for the Shares subscribed for
pursuant to such Over-Subscription Privilege and the purchase price of the
Shares so allotted under Section 4 (an "Excess Payment"), and the Agent will
deliver to the Company all interest accrued on such Excess
5
<PAGE>
Payment; (v) in the case of Record Date shareholders who are participants in the
-
Dividend Reinvestment and Cash Purchase Plan, as promptly as possible but in no
event later than fifteen Business Days after the Expiration Date, account
statements reflecting a credit of uncertificated Shares for their Primary
Subscription and Over-Subscription Shares unless such shareholders have elected
to receive certificates.
6. (a) All proceeds received by the Agent from holders of Rights in respect
of the exercise of Rights shall be held by the Agent, on behalf of the Company,
in a segregated, interest-bearing account (the "Account") pending disbursement
in the manner described in Section 6(b) below.
(b) The Agent shall deliver all proceeds received in respect of the exercise of
the Rights (including interest earned thereon) to the Company as promptly
as practicable after full payment in respect of such exercise has been
received and cleared; provided that the Agent shall not deliver to the
--------
Company proceeds in excess of the aggregate maximum offering price shown on
the Registration Statement, and any such excess proceeds shall be held in
the Account to fund Excess Payments after the Expiration Date.
7. The Agent (a) shall supply the Company with a certified list of Record Date
-
Shareholders and the number of shares owned of record by each and (b) shall
-
promptly advise the Company as to the date of delivery of and the number of
Common Stock issued pursuant to the exercise of Rights hereunder.
8. The Agent shall account promptly to the Company with respect to Rights
exercised and concurrently account for all monies received and returned by the
Agent with respect to the purchase of Shares of Common Stock upon the exercise
of Rights.
6
<PAGE>
9. The Agent shall use its best efforts to sell, at current market prices,
either to the Dealer Manager or through the Dealer Manager on the New York Stock
Exchange, on the terms set forth in the Prospectus, (i) all Rights submitted to
-
it for sale by Record Date Shareholders in accordance with the Prospectus,
provided such Rights are received by the Agent at least one day prior to the
Expiration Date, (ii) all Rights of Record Date Shareholders whose Subscription
--
Certificates remain unclaimed as a result of being returned by postal
authorities as undeliverable as of the fourth Business Day prior to the
Expiration Date, (iii) all Rights of Foreign Record Date Shareholders in respect
---
of which no instructions have been received by the Agent by 12:00 noon, New York
City time, two Business Days prior to the Expiration Date, and (iv) all Rights a
--
Record Date Holder is unable to exercise because such Rights represent the right
to subscribe for less than one Share. To the extent permitted by applicable law,
such sales will be made exclusively either to or through the Dealer Manager, and
the Agent shall deliver the proceeds of such sales to the respective Record Date
Holders net of commissions charged by the Dealer Manager. The Agent agrees to
inform the Dealer Manager at reasonable intervals each Business Day during the
Subscription Period (orally, to be followed by written confirmation) of the
number of Rights available for sale pursuant to this Section 9.
10. In the event that the Agent does not receive, within three Business Days
after the Expiration Date, any Certificate or amount due from a holder of Rights
as specified in Section 3(d), then it shall take such action with respect to
such Holder's Rights as may be instructed by telephone or in writing by the
Company including without limitation (i) applying any payment actually received
-
by it toward the purchase of the greatest whole number of Shares of common stock
which could be acquired with such payment, (ii) allocating the Shares subject to
--
such Rights to Record Date
7
<PAGE>
Shareholders who have exercised their Over-Subscription Privilege as set forth
in the Prospectus, but have not been allocated the full number of shares
requested, and (iii) selling all or a portion of the Shares of Common Stock
---
deliverable upon exercise of such Rights on the open market, and applying the
proceeds thereof to the amount owed.
11. No Subscription Certificate shall entitle a holder of Rights to vote or
receive dividends or be deemed the holder of Shares of Common Stock for any
purpose, nor shall anything contained in any Subscription Certificate be
construed to confer upon any holder of Rights any of the rights of a shareholder
of the Company or any right to vote, give or withhold consent to any action by
the Company (whether upon any recapitalization, issue of stock, reclassification
of stock, consolidation, merger, conveyance or otherwise), receive notice of
meetings or other action affecting shareholders or receive dividends or
otherwise, until the Rights evidenced thereby shall have been exercised and the
Shares of Common Stock purchasable upon the exercise thereof shall have become
deliverable as provided in this Agreement and in the Prospectus.
12. If the Agent is requested to issue a new Subscription Certificate to
replace one that has been lost, stolen, mutilated or destroyed, the Agent may
issue a new Subscription Certificate of like denomination in substitution for
the Subscription Certificate so lost, stolen, mutilated or destroyed, subject to
the conditions that the party requesting the replacement Subscription
Certificate (i) provides appropriate indemnification to the Company, (ii) in the
- --
case of a mutilated Subscription Certificate, surrenders such Subscription
Certificate and (iii) complies with any such other conditions as the Agent in
---
its discretion may impose.
13. (a) The Company covenants that all Shares of Common Stock issued on
exercise of Rights set forth in
8
<PAGE>
the Subscription Certificates will be validly issued, fully paid, nonassessable
and free of preemptive rights (other than the Rights).
(b) The Company shall furnish to the Agent, upon request, an opinion of counsel
satisfactory to the Agent to the effect that a registration statement under
the Securities Act of 1933, as amended (the "Act"), is then in effect with
respect to its Shares of Common Stock issuable upon the exercise of the
Rights evidenced by the Subscription Certificates. Upon written advice to
the Agent that the Securities and Exchange Commission shall have issued or
threatened to have issued any order preventing or suspending the use of the
Prospectus, or if for any reason it shall be necessary to amend or
supplement the Prospectus in order to comply with the Act, the Agent shall
cease acting hereunder until receipt of written instructions from the
Company and such assurances as it may reasonably request that it may comply
with such instruction without violation of the Act.
14. (a) Any corporation into which the Agent may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Agent, shall be
the successor to the Agent hereunder without the execution or filing of any of
the parties hereto, provided that such corporation would be eligible for
appointment as a successor agent. In case at the time such successor to the
Agent shall succeed to the agency created by this Agreement, any of the
Subscription Certificates shall have been countersigned but not delivered, any
such successor to the Agent may adopt the countersignature of the original agent
and deliver such Subscription Certificates so countersigned,
9
<PAGE>
and in case at that time any of the Subscription Certificates shall not have
been countersigned, any successor to the Agent may countersign such Subscription
Certificates either in the name of the predecessor Agent or in the name of the
successor Agent, and in all such cases such Subscription Certificates shall have
the full force provided in the Subscription Certificates and in this Agreement.
(b) In case at any time the name of the Agent shall be changed and at such time
any of the Subscription Certificates shall have been signed but not
delivered, the Agent may adopt the signature under its prior name and
deliver Subscription Certificates so signed, and in case at that time any
of the Subscription Certificates shall not have been signed, the Agent may
sign such Subscription Certificates either in its prior name or in its
changed name, and in all such cases such Subscription Certificates shall
have the full force provided in the Subscription Certificates and this
Agreement.
15. The Company agrees to pay to the Agent from time to time, on demand of the
Agent, reasonable compensation for all services rendered by it hereunder and
also its reasonable expenses and other disbursements incurred in the
administration and execution of this Agreement and the exercise and performance
of its duties hereunder, all as set forth in the Rights Subscription Fee
Schedule attached hereto.
16. The Agent undertakes the duties and obligations imposed by this Agreement
upon the following terms and conditions:
(a) Whenever in the performance of its duties under this Agreement the Agent
shall deem it necessary or desirable that any fact or matter be proved or
established, prior to taking or suffering any
10
<PAGE>
action hereunder, such fact or matter (unless other evidence in respect
thereof is herein specifically prescribed) may be deemed to be conclusively
proved and established by a certificate signed by the Chairman of the Board
or President or a Vice President or the Secretary or Assistant Secretary or
the Treasurer of the Company delivered to the Agent, and such certificate
shall be full authorization to the Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon
such certificate.
(b) The Agent shall not be responsible for and the Company shall indemnify and
hold the Agent harmless from and against any and all losses, damages,
costs, charges, counsel fees, payments, expenses and liability arising out
of or attributable to all actions of the Agent or its agents or
subcontractors required to be taken pursuant to this Agreement, provided
that such actions are taken in good faith and without negligence, willful
misconduct, or material breach of this Agreement.
(c) Nothing herein shall preclude the Agent from acting in any other capacity
for the Company or for any other legal entity.
(d) The Agent is hereby authorized and directed to accept instructions with
respect to the performance of its duties hereunder from any officer
referred to in subsection (a) above of the Company and to apply to any such
officer of the Company for advice or instructions in connection with its
duties, and shall be indemnified and not liable for any action taken or
suffered by it in good faith in accordance with instructions of such
officer.
11
<PAGE>
(e) The Agent shall be indemnified and shall incur no liability for or in
respect of any action taken, suffered, or omitted by it in reliance upon any
Subscription Certificate or certificate for Common Stock, instrument of
assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement or other paper or document
that it reasonably believes to be genuine and to be signed, executed and, where
necessary, verified or acknowledged, by the proper person or persons.
(f) Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
17. The Agent may, without the consent or concurrence of the shareholders in
whose names Subscription Certificates are registered, by supplemental agreement
or otherwise, concur with the Company in making any changes or corrections in a
Subscription Certificate that it shall have been advised by counsel (who may be
counsel for the Company) and are appropriate to cure any ambiguity or to correct
any defective or inconsistent provision or clerical omission or mistake or
manifest error therein or herein contained, and which shall not be inconsistent
with the provisions of the Subscription Certificate except insofar as any such
change may confer additional rights upon the holders of Rights.
18. (a) Except as provided in Subsection (c) below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
12
<PAGE>
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
(c) The Agent may, without further consent on the part of the Company
subcontract for the performance hereof with (i) Boston Financial Data
-
Services, Inc., a Massachusetts Corporation ("BFDS"), which is duly
registered as a transfer agent pursuant to Section 17(c)(1) of the
Securities Exchange Act of 1934 or (ii) the current third party vendor
--
utilized by BFDS; provided, however, that the Agent shall be as fully
responsible to the Company for the acts and omissions of any agent or
subcontractor as it is for its own acts and omissions.
19. All covenants and provisions of this Agreement by or for the benefit of the
Company or the Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
20. The validity, interpretation and performance of this Agreement shall be
governed by the law of the Commonwealth of Massachusetts.
STATE STREET BANK THE BRAZIL FUND, INC.
AND TRUST COMPANY
By: By:
---------------------------- ----------------------------
Vice President Title:
Dated: Dated:
------------------------- -------------------------
13
<PAGE>
EXHIBIT 99.K(ii)
[LETTERHEAD OF GEORGESON & COMPANY INC.]
LOGO GEORGESON & COMPANY
- --------------------------------------------------------------------------------
GEORGESON
& COMPANY INC.
October 12, 1995
The Brazil Fund, Inc.
345 Park Avenue
New York, NY 10154
LETTER OF AGREEMENT
This Letter of Agreement (the "Agreement") sets forth the terms and conditions
under which Georgeson & Company Inc. ("Georgeson") has been retained by The
Brazil Fund, Inc. (the "Fund") as Information Agent for its rights offer (the
"Offer"). The term of the Agreement shall be the term of the Offer, including
any extensions thereof.
1. During the term of the Agreement, Georgeson will: provide advice and
consultation with respect to the planning and execution of the Offer;
assist in the preparation and placement of newspaper ads; assist in the
distribution of Offer documents to brokers, banks, nominees, institutional
investors, and other shareholders and investment community accounts; answer
telephone inquiries from shareholders and their representatives; and, if
requested, call individuals who are registered holders or Non-Objecting
Beneficial Owners ("NOBOs").
2. The Fund will pay Georgeson a fee of $7,500, of which half is payable
in advance per the enclosed invoice and the balance at the expiration of
the Offer, plus an additional fee to be mutually agreed upon if the offer
is extended more than fifteen days beyond the initial expiration date. If
Georgeson is requested to call individuals who are registered holders or
NOBO's of Common Stock of the Fund, the Fund will pay Georgeson an
additional sum computed on the basis of $5.00 per call. In addition, the
Fund will reimburse Georgeson for reasonable costs and expenses incurred by
Georgeson in fulfilling the Agreement, including but not limited to:
expenses incurred by Georgeson in the preparation and placement of
newspaper ads, including typesetting and space charges; postage and freight
charges incurred by Georgeson in the delivery of Offer documents; printing
costs; charges for the production of shareholder lists (paper, computer
cards, etc.), statistical analyses, mailing labels, or other forms of
information requested by the Fund or its agents and other expenses or
disbursements authorized in writing by the Fund or its agents.
3. If requested, Georgeson will check, itemize and pay, on the Fund's
behalf, from funds provided by the Fund, the charges of brokers and banks
for
<PAGE>
The Brazil Fund, Inc.
October 12, 1995
Page 2
forwarding Offer material to beneficial owners. To ensure that Georgeson
has sufficient funds in the Fund's account to pay these bills promptly,
the Fund agrees to provide Georgeson, at the time Georgeson completes
the initial delivery of this material, with a preliminary payment equal
to 75% of the anticipated broker and bank charges for distributing this
material. For this service, the Fund will pay Georgeson five dollars and
fifty cents ($5.50) for each broker and bank invoice paid by Georgeson.
If the Fund prefers to pay these bills directly, please strike out and
initial this clause before returning the Agreement to Georgeson.
4. Georgeson hereby agrees not to make any representations not included in
the Fund's Registration Statement when it becomes effective.
5. The Fund agrees to indemnify and hold Georgeson harmless against any
loss, damage, expense (including, without limitation, reasonable legal
fees and expenses), liability or claim arising out of Georgeson's
fulfillment of the Agreement (except for any loss, damage, expense,
liability or claim arising out of Georgeson's own negligence or
misconduct or failure to substantially perform any of its duties or
obligations under this Agreement). At its election, the Fund may assume
the defense of any such action. Georgeson hereby agrees to advise the
Fund of any such liability or claim promptly after receipt of any notice
thereof. The Fund shall not be liable for any settlement of any action
without its written consent. The indemnification contained in this
paragraph will survive the term of the Agreement for a period of there
years from the date thereof.
6. Georgeson agrees to preserve the confidentiality of all non-public
information provided by the Fund or its agents for our use in providing
services under this Agreement, or information developed by Georgeson
based upon such non-public information.
By executing the AGreement below the undersigned agrees to be bound by its
terms.
ACCEPTED: Sincerely,
THE BRAZIL FUND, INC. GEORGESON & COMPANY INC.
By: /s/ Juris Padegs By: /s/ John C. Stevenson
-------------------------- --------------------------
John C. Stevenson
Senior Vice President
Title: Chairman of the Board
---------------------
Date: October 19, 1995
----------------
<PAGE>
EXHIBIT 99.K(iii)
SHAREHOLDER SERVICING AGREEMENT
-------------------------------
AGREEMENT (the "Agreement") made as of June 16, 1994, between THE
BRAZIL FUND, INC., a Maryland corporation, having its principal place of
business at 345 Park Avenue, New York, New York 10154 (the "Fund") and SCUDDER
SERVICE CORPORATION ("Service Corporation"), a Massachusetts corporation having
its principal place of business at Two International Place, Boston,
Massachusetts 02110.
WHEREAS, the Fund has determined that it is in the best interests of
the Fund to establish a toll-free "800" number and to provide personnel to
respond to certain inquiries regarding the Fund (as more fully described below,
the "Service"); and
WHEREAS, Service Corporation will initiate and provide the Service on
behalf of the Fund;
NOW, THEREFORE, it is agreed as follows:
1. The Fund hereby employs Service Corporation to provide, and
Service Corporation hereby agrees to provide, the Service. In accordance with
procedures established from time to time, Service Corporation agrees that the
Service consists of responding to telephone inquiries from shareholders and
others about the Fund and providing certain information via an audio response
system.
2. For the performance by Service Corporation pursuant to this
Agreement, the Fund agrees to pay a fee and reimburse Service Corporation for
reasonable out-of-pocket expenses and advances as set out in the fee schedule
attached hereto and made a part hereof. Such fee schedule may be amended from
time to time subject to the approval of a majority of the Directors of the Fund
who are not "interested persons" (as defined in the Investment Company Act of
1940, as amended (the "1940 Act")) of the Fund.
3. In addition to the fee paid under Section 2 above, the Fund agrees
to reimburse Service Corporation for reasonable out-of-pocket expenses or
advances incurred by Service Corporation for the items set out in the fee
schedule agreed to by both parties in writing. Such out-of-pocket expenses shall
include, but shall not be limited to, the Fund's allocable portion of (i) the
initial start-up costs of setting up the Service; (ii) the usage costs charged
by the telephone company for maintaining the Service; and (iii) telephone and
postage costs incurred in connection with providing the Service. In addition,
any other expenses incurred by Service Corporation at the request or with the
consent of the Fund will be reimbursed by the Fund.
4. The Fund agrees to pay all fees and reimbursable expenses
promptly, the terms, method and procedures for which are detailed on the fee
schedule agreed to by both parties in writing.
5. Nothing herein shall be construed as prohibiting Service
Corporation from providing
<PAGE>
shareholder services for, or entering into shareholder servicing agreements
with, other clients (including other registered investment companies), nor shall
anything herein be construed as constituting Service Corporation an agent of the
Fund.
6. To the extent that Service Corporation acts in good faith and
without gross negligence or willful misconduct, Service Corporation shall not be
responsible for, and the Fund shall indemnify and hold Service Corporation
harmless from and against, any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liabilities arising out of and attributable to all
actions of Service Corporation, its directors, officers and employees taken
pursuant to this Agreement. Service Corporation shall indemnify and hold the
Fund harmless from and against any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to the lack of good faith, gross negligence or willful misconduct of Service
Corporation, its directors, officers and employees in the performance of Service
Corporation's obligations under this Agreement.
7. This Agreement shall become effective as of the date first above
written, and shall remain in full force and effect until terminated. This
Agreement may be terminated by either party upon sixty (60) days' written notice
to the other. Should the Fund exercise its right to terminate, Service
Corporation reserves the right to charge reasonable expenses associated with
such termination.
8. Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the written consent of the other party.
9. This Agreement may be executed by the parties hereto in any number
of counterparts, and all of said counterparts taken together shall be deemed to
constitute one and the same agreement.
10. This Agreement shall be construed in accordance with the laws of
The Commonwealth of Massachusetts, provided, however, that nothing herein shall
be construed as being inconsistent with the 1940 Act.
<PAGE>
IN WITNESS WHEREOF the parties have caused this Agreement to be executed by
their officers or directors, as appropriate, hereunto duly authorized all as of
the day and year first above written.
THE BRAZIL FUND, INC.
By: /s/ Nicholas Bratt
-----------------------------
Nicholas Bratt, President
SCUDDER SERVICE CORPORATION
By: /s/ Daniel Pierce
-----------------------------
Daniel Pierce, President
<PAGE>
SCUDDER SERVICE CORPORATION
FEE INFORMATION FOR SERVICES PROVIDED UNDER
SHAREHOLDER SERVICING AGREEMENT
SERVICE FEE FOR THE FUND
- ------------------------
$1,250 per month, for a total annual cost of $15,000
OTHER FEES
- ----------
$2,571.43 Pro Rata Start-up Costs: Includes the pro rata costs of a one-time
charge to add a new "800" number to the existing Megacom service, costs for
updating the existing software and script recording, and additional system ports
to connect the telephone lines to the audio response system.
Out-of-pocket expenses shall be reimbursed by the Fund to Scudder Service
Corporation or paid directly by the Fund. Such expenses shall include but not
be limited to:
Telephone
Postage, overnight service or similar service
Stationery and envelopes
Data circuits
Lease and maintenance of audio response system
Recording devices and related materials
Expenses incurred at the specific direction of the fund
PAYMENT
- -------
The above will be billed within the first five (5) business days of each month
and will be paid by wire within five (5) business days of receipt.
The Brazil Fund, Inc. Scudder Service Corporation
By By
----------------------- ----------------------
Dated: June 16, 1994 Dated: June 16, 1994
<PAGE>
ATTACHMENT A
SHAREHOLDER SERVICING AGREEMENT
LIST OF FUNDS
SCUDDER NEW ASIA FUND, INC.
SCUDDER NEW EUROPE FUND, INC.
THE ARGENTINA FUND, INC.
THE BRAZIL FUND, INC.
THE FIRST IBERIAN FUND, INC.
THE KOREA FUND, INC.
THE LATIN AMERICA DOLLAR INCOME FUND, INC.
SCUDDER WORLD INCOME OPPORTUNITIES FUND, INC.
<PAGE>
EXHIBIT 99.K(iv)
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT is made on the 6th day of June, 1995 between The Brazil Fund,
Inc. (the "Fund"), a registered closed-end management investment company with
its principal place of business in New York, New York and Scudder Fund
Accounting Corporation, with its principal place of business in Boston,
Massachusetts (hereinafter called "FUND ACCOUNTING").
WHEREAS, the Fund has need for certain accounting services which FUND
ACCOUNTING is willing and able to provide;
NOW THEREFORE in consideration for the mutual promises herein made, the Fund
and FUND ACCOUNTING agree as follows:
Section 1. Duties of FUND ACCOUNTING - General
FUND ACCOUNTING is authorized to act under the terms of this Agreement as
the Fund's fund accounting agent, and as such FUND ACCOUNTING shall:
a. Maintain and preserve all accounts, books, financial records and other
documents as are required of the Fund under Section 31 of the Investment
Company Act of 1940 (the "1940 Act") and Rules 31a-1, 31a-2 and 31a-3
thereunder, applicable federal and state laws and any other law or
administrative rules or procedures which may be applicable to the Fund,
other than those accounts, books and financial records required to be
maintained by the Fund's custodian or transfer agent and/or books and
records maintained by all other service providers necessary for the Fund
to conduct its business as a registered closed-end management investment
company. All such books and records shall be the property of the Fund
and shall at all times during regular business hours be open for
inspection by, and shall be surrendered promptly upon request of, duly
authorized officers of the Fund. All such books and records shall at all
times during regular business hours be open for inspection, upon request
of duly authorized officers of the Fund, by employees or agents of the
Fund and employees and agents of the Securities and Exchange Commission.
b. Record the current day's trading activity and such other proper
bookkeeping entries as are necessary for determining that day's net
asset value and net income.
c. Render statements or copies of records as from time to time are
reasonably requested by the Fund.
d. Facilitate audits of accounts by the Fund's independent public
accountants or by any other auditors employed or engaged by the Fund or
by any regulatory body with jurisdiction over the Fund.
e. Compute the Fund's net asset value per share, and, if applicable, its
public offering price and/or its daily dividend rates and money market
yields, in accordance with Section 3 of the Agreement and notify the
Fund and such other persons as the Fund may reasonably request of the
net asset value per share, the public offering price and/or its daily
dividend rates and money market yields.
Section 2. Valuation of Securities
<PAGE>
Securities shall be valued in accordance with (a) the Fund's
Registration Statement, as amended or supplemented from time to time
(hereinafter referred to as the "Registration Statement"); (b) the
resolutions of the Board of Directors of the Fund at the time in force
and applicable, as they may from time to time be delivered to FUND
ACCOUNTING, and (c) Proper Instructions from such officers of the Fund
or other persons as are from time to time authorized by the Board of
Directors of the Fund to give instructions with respect to computation
and determination of the net asset value. FUND ACCOUNTING may use one or
more external pricing services, including broker-dealers, provided that
an appropriate officer of the Fund shall have approved such use in
advance.
Section 3. Computation of Net Asset Value, Public Offering Price, Daily Dividend
Rates and Yields.
FUND ACCOUNTING shall compute the Fund's net asset value, including net
income, in a manner consistent with the specific provisions of the
Registration Statement. Such computation shall be made as of the time or
times specified in the Registration Statement.
FUND ACCOUNTING shall compute the daily dividend rates and money market
yield, if applicable, in accordance with the methodology set forth in
the Registration Statement.
Section 4. FUND ACCOUNTING's Reliance on Instructions and Advice
In maintaining the Fund's books of account and ,making the necessary
computations, FUND ACCOUNTING shall be entitled to receive, and may rely
upon, information furnished it by means of Proper Instructions,
including but not limited to:
a. The manner and amount of accrual of expenses to be recorded on the
books of the Fund;
b. The source of quotations to be used for such securities as may not be
available through FUND ACCOUNTING's normal pricing services;
c. The value to be assigned to any asset for which no price quotations
are readily available;
d. If applicable, the manner of computation of the public offering price
and such other computations as may be necessary;
e. Transactions in portfolio securities;
f. Transactions in capital shares.
FUND ACCOUNTING shall be entitled to receive, and shall be entitled to
rely upon, as conclusive proof of any fact or matter required to be
ascertained by it hereunder, a certificate, letter or other instrument
signed by an authorized officer of the Fund or any other person
authorized by the Fund's Board of Directors.
FUND ACCOUNTING shall be entitled to receive and act upon advice of
Counsel (which may be Counsel for the Fund) at the reasonable expense of
the Fund and shall be without liability for any action taken or thing
done in good faith in reliance upon such advice.
2
<PAGE>
FUND ACCOUNTING shall be entitle to receive, and may rely upon,
information received from the Transfer Agent.
Section 5. Proper Instructions
"Proper Instructions" as used herein mans any certificate, letter or
other instrument or telephone call reasonably believed by FUND
ACCOUNTING to be genuine and have been properly made or signed by any
authorized officer of the Fund or person certified to FUND ACCOUNTING as
being authorized by the Board of Directors. The Fund shall cause oral
instructions to be confirmed in writing. Proper Instructions may include
communications effected directly between electro-mechanical or
electronic devices as from time to time agreed to by an authorized
officer of the Fund and FUND ACCOUNTING.
The Fund agrees to furnish to the appropriate person(s) within FUND
ACCOUNTING a copy of the Registration Statement as in effect from time
to time. FUND ACCOUNTING may conclusively rely on the Fund's most
recently delivered Registration Statement for all purposes under this
Agreement and shall not be liable to the Fund in acting in reliance
thereon.
Section 6. Standard of Care and Indemnification
FUND ACCOUNTING shall exercise reasonable car and diligence i the
performance of its duties hereunder. The Fund agrees that FUND
ACCOUNTING shall not be liable under this Agreement for any error of
judgment or mistake of law made in good faith and consistent with e
foregoing standard of care, provided that nothing in this Agreement
shall be deemed to protect or purport to protect FUND ACCOUNTING against
any liability to the Fund or its shareholder to which FUND ACCOUNTING
would otherwise be subject by reason of willful misfeasance, bad faith
or negligence with the performance of its duties, or by reason of its
reckless disregard of its obligations and duties hereunder.
The Fund agrees to indemnify and hold harmless FUND ACCOUNTING and its
employees, agents and nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including reasonable attorney's
fees) incurred or assessed against them in connection with the
performance of this Agreement, except such as may arise from their own
negligent action, negligent failure to act or willful misconduct. The
foregoing notwithstanding, FUND ACCOUNTING will in no event be liable
for any loss resulting from the acts, omissions, lack of financial
responsibility, or failure to perform the obligation of any person or
organization designated by the Fund to be the authorized agent of the
Fund as a party to any transactions.
FUND ACCOUNTING's responsibility for damage or loss with respect to the
Fund's records arising from fire, flood, Acts of God, military power,
war, insurrection or nuclear fission or radioactivity shall be limited
to the use of FUND ACCOUNTING's best efforts to recover the Fund's
records determined to be lost, missing or destroyed.
Section 7. Compensation and FUND ACCOUNTING Expenses
3
<PAGE>
FUND ACCOUNTING shall be paid as compensation for its services pursuant
to this Agreement such compensation as may from time to time be agreed
upon in writing by the two parties. FUND ACCOUNTING shall be entitled to
recover its reasonable telephone, courier or delivery service, and all
other reasonable out-of-pocket, expenses as incurred, including, without
limitation, reasonable attorneys' fees and reasonable fees for pricing
services.
Section 8. Amendment and Termination
This Agreement shall continue in full force and effect until terminated
as hereinafter provided, may be amended at any time by mutual agreement
of the parties hereto and may be terminated by an instrument in writing
delivered to or mailed to the other party. Such termination shall take
effect not sooner than ninety (90) days after the date of delivery or
mailing os such notice of termination. Any termination date is to be no
earlier than four months from the effective date hereof. Upon
termination FUND ACCOUNTING will turn over to the Fund or its designee
and cease to retain in FUND ACCOUNTING files, records of the calculation
of net asset value and all other records pertaining to its services
hereunder; provided however, FUND ACCOUNTING in its discretion may make
and retain copies of any and all such records and document which it
determines appropriate for it protection.
Section 9. Services Not Exclusive
FUND ACCOUNTING's services pursuant to this Agreement are not to be
deemed to be exclusive, and it is understood that FUND ACCOUNTING may
perform fund accounting services for others. In acting under this
Agreement, FUND ACCOUNTING shall be an independent contractor and not an
agent of the Fund.
Section 10. Notices
Any notice shall be sufficiently given when delivered or mailed to the
other party at the address of such party set forth below or to such
other person or at such other address as such party may from time to
time specify in writing to the other party.
If to FUND ACCOUNTING: Scudder Fund Accounting Corporation
Two International Place
Boston, Massachusetts 021l0
Attn: Vice President
If to the Fund: The Brazil Fund, Inc.
345 Park Avenue
New York, NY 10154
Attn: President, Secretary or Treasurer
Section 11. Miscellaneous
4
<PAGE>
This Agreement may not be assigned by FUND ACCOUNTING without the
consent of the Fund as authorized or approved by resolution of its Board
of Directors.
In connection with the operation of this Agreement, the Fund and FUND
ACCOUNTING may agree from time to time on such provisions interpretive
of or in addition to the provisions of this Agreement as in their joint
opinions may be consistent with this Agreement. Any such interpretive or
additional provisions shall be in writing, signed by both parties and
annexed hereto, but no such provisions shall be deemed to be an
amendment of this Agreement.
This Agreement shall be governed and construed in accordance with the
laws of the Commonwealth of Massachusetts.
This Agreement may be executes simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof, and supersedes any and all prior
understandings.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized and its seal to be
hereunder affixed as of the date firs written above.
[SEAL] THE BRAZIL FUND, INC.
By: ________________________________
President
[SEAL] SCUDDER FUND ACCOUNTING CORPORATION
By: ________________________________
Vice President
5
<PAGE>
EXHIBIT 99(l)
[LETTERHEAD OF DEBEVOISE & PLIMPTON]
November 16, 1995
The Brazil Fund, Inc.
345 Park Avenue
New York, New York 10154
The Brazil Fund, Inc.
Registration Statement on Form N-2
---------------------------------
Ladies and Gentlemen:
We have acted as counsel for The Brazil Fund, Inc., a Maryland
corporation (the "Fund"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Act") of a Registration Statement on Form N-2 (File
Nos. 33-63381 and 811-5269) (the "Registration Statement"), relating to the
issuance of transferable rights (the "Rights") for the purchase of shares of
common stock of the Fund, par value $.01 per share (the "Shares").
In so acting, we have examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such documents,
records, certificates and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below.
<PAGE>
The Brazil Fund, Inc. 2 November 16, 1995
We are of the opinion that the Shares have been duly authorized for
issuance and, when issued and paid for pursuant to the terms set forth in the
Registration Statement, will be validly issued, fully paid and non-assessable.
We consent to the filing of this opinion as an Exhibit to Amendment No.
8 to the Registration Statement and to the reference to us under the heading
"Validity of the Shares" in the Prospectus forming a part of the Registration
Statement. In giving such consent, we do not hereby concede that we are within
the category of persons whose consent is required under Section 7 of the Act or
Rules and Regulations of the Commission thereunder.
Very truly yours,
/s/ Debevoise & Plimpton
<PAGE>
EXHIBIT 99.N(i)
[PINHEIRO NETO - ADVOGADOS LETTERHEAD]
Sao Paulo, November 16, 1995
Re: THE BRAZIL FUND, INC. - RIGHTS OFFERING
Dear Sirs,
1. - We have acted as legal advisers in Brazil to The Brazil Fund,
Inc. (the "Fund") in connection with the rights offering by the Fund to its
shareholders of record, entitling the holders thereof to subscribe for shares of
the Fund's common stock (the "Offer").
2. - In this capacity, we have examined:
(i) the Prospectus; and
(ii) the Statement of Additional Information.
3. - Terms defined in the Prospectus and the Statement of Additional
Information are used herein as therein defined.
4. - In giving this opinion, we have assumed that:
(a) all documents submitted to us as copies or specimen
documents conform to their originals;
(b) the documents have been validly authorized, executed
and delivered by all of the parties thereto; and
(c) the signatures on the originals of all documents
submitted to us are genuine.
TO:
THE BRAZIL FUND, INC.
<PAGE>
PINHEIRO NETO - ADVOGADOS -2-
5. - Based upon and subject to the above, we are of the opinion that:
(1) the information in the Prospectus and in the Statement of
Additional Information has been reviewed by us and, to the extent that it
relates to matters of Brazilian law or legal conclusions thereunder, is an
accurate and complete description of all Brazilian law or legal conclusions
applicable to the Fund and to the operation of its business in Brazil as
described in the Prospectus and in the Statement of Additional Information. At
the date of this letter, such information did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. We have no
reason to believe that the Prospectus and the Statement of Additional
Information, and each amendment or supplement thereto, as of their respective
effective or issue dates, contain any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and
(2) the statements in the Statement of Additional Information
under the heading "Taxation - Brazilian Taxes", to the extent that they
constitute matters or law or legal conclusions thereon, have been reviewed by us
and are correct in all material respects.
6. - We express no opinion as to any laws other than the laws of
Brazil as in effect at the date of this letter, and have assumed that there is
nothing in any other law that affects our opinion. We are giving this opinion to
you solely for the benefit of the Offer. This opinion is not to be circulated,
quoted or otherwise referred to for any other purpose. You may, however, provide
a copy to your legal advisers.
7. - We hereby consent to the use in the Statement of Additional
Information of our opinion as to certain Brazilian tax matters under the heading
"Taxation - Brazilian Taxes" and to the reference to our firm under the heading
"Validity of the Shares" in the Prospectus. We also consent to the use of this
opinion in the Registration Statement filed by the Fund in connection with the
Offer. In giving such consent, we do not hereby concede that we are within the
category of persons whose consent is required under Section VII of the
Securities Act of 1933, as amended, or the rules or regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
PINHEIRO NETO - ADVOGADOS
By /s/ J.M. Pinheiro Neto
-------------------------------
<PAGE>
EXHIBIT 99.N(ii)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this post-effective amendment No. 8 to the registration
statement on Form N-2 (File No. 811-5269) (the "Registration Statement") of our
reports dated August 16, 1995 and February 13, 1995, relating to the financial
statements and financial highlights of The Brazil Fund, Inc., which appear in
such Statement of Additional Information. We also consent to the references to
us under the headings "Financial Highlights" and "Experts" in the prospectus
which constitutes part of this Registration Statement.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
November 15, 1995
<PAGE>
EXHIBIT 99.N(iii)
TRANSLATION
(November 7, 1995)
SECURITIES COMMISSION
Resolution No. 185 of October 30, 1995
Provides for the concession of authorization for issue of BRAZIL FUND INC.
shares.
The President of the SECURITIES COMMISSION - CVM announces that the full group
in session of October 26, 1995, based on article 1 of Regulations Attachment III
to Resolution No. 1289 of March 20, 1987, of the Brazilian Monetary Council, and
article 5 of CVM Resolution No. 51 of June 1987, resolved:
I - To authorize the distribution of a new common share issue for BRAZIL FUND
INC. up to the limit of five million shares:
II - To grant a term of 1 (one) year as from the date of publication of the
resolution for entry of funds into Brazil and compliance with the provisions of
articles 25 and 26 of Regulations Attachment III to CMN Resolution No. 1289 of
March 20, 1987; and
III - This resolution will take effect on the date of its publication in the
Official Gazette of the Federal Executive.
FRANCISCO AUGUSTO DA COSTA E SILVA
(Official letter 96/95)
