<PAGE>
As filed with the Securities and Exchange Commission on June 7, 1996
Securities Act File No. 33-
Investment Company Act File No. 811-6555
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / PRE-EFFECTIVE AMENDMENT NO.__
/ / POST-EFFECTIVE AMENDMENT NO.__
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 3
____________________
THE BRAZILIAN EQUITY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
____________________
153 East 53rd Street
New York, New York 10022
(Address of principal executive offices)
(212) 832-2626
(Registrant's telephone number, including area code)
____________________
Emilio Bassini, President
The Brazilian Equity Fund, Inc.
153 East 53rd Street
New York, New York 10022
(Name and address of agent for service)
____________________
With copies to:
DANIEL SCHLOENDORN, ESQ. THOMAS A. HALE, ESQ.
WILLKIE FARR & GALLAGHER SKADDEN, ARPS, SLATE, MEAGHER & FLOM
ONE CITICORP CENTER 333 WEST WACKER DRIVE
153 EAST 53RD STREET CHICAGO, ILLINOIS 60606
NEW YORK, NEW YORK 10022
____________________
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 (check appropriate
box)
/ / when declared effective pursuant to Section 8(c)
If appropriate, check the following box:
/ / This amendment designates a new effective date for a previously
filed registration statement.
/ / This Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration statement
for the same offering is_____________________ .
____________________
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
================================================================================
Title of Securities Amount Proposed Proposed Amount of
Being Registered Being Maximum Maximum Registration
Registered Offering Aggregate Fee(2)
Price per Offering Price
Unit(1)
- --------------------------------------------------------------------------------
Shares of Common
Stock, par value $27,398,548.65 $14.19 $27,398,548.65 $9,447.78
$.001 per share
share
================================================================================
(1) As calculated pursuant to Rule 457(c) under the Securities Act of
1933, as amended. Based on the average of the high and low sales prices
reported on the New York Stock Exchange on June 3, 1996.
(2) $9,447.78 was wired to the Securities and Exchange Commission's
account at Mellon Bank in payment of the required registration fee due in
connection with this Registration Statement.
____________________________
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS 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 BRAZILIAN EQUITY FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ------- ----------------------
PART A - Information Required in a Prospectus
1. Outside Front Cover . . . . . . . . . . . Front Cover Page
2. Inside Front and Outside Back Cover Page . Front Cover Page
3. Fee Table and Synopsis . . . . . . . . . . Prospectus Summary; Fee Table
4. Financial Highlights . . . . . . . . . . . Financial Highlights
5. Plan of Distribution Front Cover Page; Prospectus
Summary; The Offer;
Distribution Arrangements
6. Selling Shareholders . . . . . . . . . . . Not Applicable
7. Use of Proceeds . . . . . . . . . . . . . Use of Proceeds
8. General Description of the Registrant. . . Front Cover Page; Prospectus
Summary; The Fund; Investment
Objective and Policies; Risk
Factors and Special
Considerations; Common Stock;
Net Asset Value
9. Management . . . . . . . . . . . . . . . . Management of the Fund;
Portfolio Transactions;
Custodians and Transfer and
Dividend Paying Agent and
Registrar
10. Capital Stock, Long-Term Debt and
Other Securities . . . . . . . . . . . . . The Offer; Common Stock;
Dividends and Distributions;
Dividend Reinvestment and Cash
Purchase Plan; Net Asset Value;
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 the
Statement of Additional
Information
PART B - Information required in a Statement of Additional Information
14. Cover Page . . . . . . . . . . . . . . . . Front Cover Page
15. Table of Contents . . . . . . . . . . . . Front Cover Page
16. General Information and History . . . . . Not Applicable
17. Investment Objective and Policies. . . . . Investment Objective and
Policies; Investment
Restrictions
18. Management . . . . . . . . . . . . . . . . Management of the Fund
<PAGE>
19. Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . Common Stock
20. Investment Advisory and Other Services . . Management of the Fund
21. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . . . Portfolio Transactions
22. Tax Status . . . . . . . . . . . . . . . . Taxation
23. Financial Statements . . . . . . . . . . . Financial Statements
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>
SUBJECT TO COMPLETION DATED JUNE 7, 1996
PROSPECTUS
THE BRAZILIAN EQUITY FUND, INC.
1,544,668 SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF RIGHTS
TO SUBSCRIBE FOR SUCH SHARES
The Brazilian Equity Fund, Inc. (the "Fund") is issuing to its shareholders
of record ("Record Date Shareholders") as of the close of business on
, 1996 (the "Record Date") non-transferable rights ("Rights") entitling the
holders thereof to subscribe for an aggregate of 1,544,668 shares ("Shares") of
the Fund's common stock ( the "Offer"). Each Record Date Shareholder is being
issued one Right for each whole share of the Fund's common stock ("Common
Stock") owned on the Record Date. The Rights entitle the Record Date
Shareholder to acquire at the Subscription Price (as hereinafter defined) one
Share for every three Rights held (one for three). Shareholders who fully
exercise their Rights will be entitled to subscribe for additional shares of
Common Stock pursuant to an Over-Subscription Privilege, as described herein.
The Fund may increase at its discretion the number of shares of Common Stock
subject to subscription by up to 25% of the Shares, or 386,167 Shares, for an
aggregate total of 1,930,835 Shares. Fractional Shares will not be issued upon
the exercise of Rights. Accordingly, Shares may be purchased only pursuant to
the exercise of Rights in integral multiples of three. The Rights are non-
transferable and will not be admitted for trading on the New York Stock Exchange
or any other exchange. See "The Offer." THE SUBSCRIPTION PRICE PER SHARE (THE
"SUBSCRIPTION PRICE") WILL BE ___% OF THE LOWER OF (i) THE AVERAGE OF THE LAST
REPORTED SALES PRICE OF A SHARE OF THE FUND'S COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE ON THE DATE OF THE EXPIRATION OF THE OFFER (THE "PRICING DATE") AND ON
THE FOUR PRECEDING BUSINESS DAYS THEREOF AND (ii) THE NET ASSET VALUE PER SHARE
AS OF THE CLOSE OF BUSINESS ON THE PRICING DATE.
The Fund announced the Offer after the close of trading on the New York
Stock Exchange on June 6, 1996. Shares of the Common Stock trade on that
exchange under the symbol "BZL." The last reported net asset value per share of
Common Stock at the close of business on June 6, 1996 and , 1996 was
$15.51 and $ , respectively, and the last reported sales price of a
share of the Fund's Common Stock on that exchange on those dates was $13.5 and $
, respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED AS DESCRIBED HEREIN.
Upon the completion of the Offer, Record Date Shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would otherwise be the case if the Offer had not been made. In addition,
because the Subscription Price per Share will be less than the current net asset
value per share, the Offer will result in dilution of net asset value per share
for all shareholders. If the Subscription Price per Share were to be
substantially less than the current net asset value per share, such dilution
would be substantial. Shareholders will have no right to rescind their
subscriptions after receipt of their payment for Shares by the Subscription
Agent. See "Risk Factors and Special Considerations -- Certain Effects of the
Offer."
If you have questions or need further information about the Offer, please
write or call Shareholder Communications Corporation or (800) ________,
extension ____.
The Fund is a closed-end, non-diversified management investment company
that seeks long-term capital appreciation by investing primarily in Brazilian
equity securities. It is the policy of the Fund, under normal market
conditions, to invest at least 65% of its total assets in equity securities of
Brazilian issuers. It is anticipated that at least 80% of the Fund's assets
normally will be invested in equity securities of Brazilian issuers. There can
be no assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies." BEA Associates serves as the Fund's
investment adviser. The address of the Fund is One Citicorp Center, 57th Floor,
153 East 53rd Street, New York, New York 10022, and the Fund's telephone number
is (212) 832-2626.
Investment in Brazil involves certain special considerations not typically
associated with investments in the United States. SEE "RISK FACTORS AND SPECIAL
CONSIDERATIONS."
This Prospectus sets forth information about the Fund that a prospective
investor ought to know before investing and should be retained for future
reference. A Statement of Additional Information dated ______, 1996 (the "SAI")
containing additional information about the Fund has been filed with the
Securities and Exchange Commission and is incorporated by reference in its
entirety into this Prospectus. A copy of the SAI, the table of contents of
which appears on page __ of this Prospectus, may be obtained without charge by
contacting the Information Agent at the address and telephone number set forth
above. Any such request will be honored within two business days of receipt.
_____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
ESTIMATED ESTIMATED ESTIMATED PROCEEDS
SUBSCRIPTION PRICE(1) SALES LOAD(2) TO THE FUND(3)(4)
Per Share........... $ $ $
Total Maximum(5).... $ $ $
(FOOTNOTES ON THE FOLLOWING PAGE)
Bear, Stearns & Co. Inc.
THE DATE OF THIS PROSPECTUS IS _______ __, 1996
___________________
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
(FOOTNOTES FROM THE PREVIOUS PAGE)
(1) Estimated on the basis of ____% of the market price per share on
, 1996. See "The Offer -- Subscription Price."
(2) In connection with the Offer, Bear, Stearns & Co. Inc. (the "Dealer
Manager") and other broker-dealers soliciting the exercise of Rights will
receive soliciting fees equal to 2.50% of the Subscription Price per Share
for each Share issued upon exercise of the Rights and the Over-Subscription
Privilege. The Fund has also agreed to pay the Dealer Manager a fee for
financial advisory and marketing services in connection with the Offer
equal to 1.125% of the Subscription Price per Share for Shares issued upon
exercise of the Rights and the Over-Subscription Privilege and has agreed
to indemnify the Dealer Manager against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
(3) Before deduction of offering expenses incurred by the Fund, estimated at
$396,250, including an aggregate of up to $100,000 to be paid to the Dealer
Manager as partial reimbursement for its expenses.
(4) Funds received by check prior to the final due date of this Offer will be
deposited into a segregated interest bearing account (which interest will
be paid to the Fund) pending proration and distribution of Shares.
(5) Assumes all Rights are exercised at the Estimated Subscription Price.
Pursuant to the Over-Subscription Privilege, the Fund may at its discretion
increase the number of Shares subject to subscription by up to 25% of the
Shares offered hereby. If the Fund increases the number of Shares subject
to subscription by 25%, the aggregate maximum Estimated Subscription Price,
Estimated Sales Load and Estimated Proceeds to the Fund will be $
, $ and $ , respectively.
Unless otherwise specified, all references in this Prospectus to "U.S.
dollars," "dollars," "US$" or "$" are to United States dollars.
Unless otherwise specified, all references to "Reals" are to the Real which
is the legal tender currency of Brazil as of July 1, 1994.
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<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS AND THE STATEMENT OF
ADDITIONAL INFORMATION ("SAI").
PURPOSE OF THE OFFER
The Board of Directors of The Brazilian Equity Fund, Inc. (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,
thereby enabling the Fund to more fully take advantage of available investment
opportunities consistent with the Fund's investment objective of long-term
capital appreciation. In reaching its decision, the Board of Directors was
advised by BEA Associates that the availability of new funds would provide the
Fund with additional investment flexibility as well as increase the Fund's
ability to take advantage of what BEA Associates believes to be timely
opportunities in the Brazilian market as a result of recent economic and
political events and stock market developments. In evaluating such investment
opportunities, the Board considered among other things the impact that Brazil's
reform process would have on the country's stock prices, the future prospects
for Brazil's growth and the likelihood of future privatizations.
The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's common stock ("Common Stock") on the New York
Stock Exchange, where the shares are listed and traded. The Board of Directors
also considered the proposed terms of the Offer (as defined below), including
the expenses of the Offer, and its dilutive effect, including the effect on non-
exercising shareholders of the Fund. After careful consideration, the Fund's
Board of Directors unanimously voted to approve the Offer.
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 Investment Company Act of 1940, as
amended (the "1940 Act").
TERMS OF THE OFFER
The Fund is issuing to its shareholders of record ("Record Date
Shareholders") as of the close of business on _______, 1996 (the "Record Date")
non-transferable rights ("Rights") to subscribe for an aggregate of 1,544,668
shares ("Shares") of the Fund's Common Stock, par value $0.001 per share (the
"Offer"). Each Record Date Shareholder is being issued one Right for each whole
share of Common Stock owned on the Record Date. The Rights entitle the Record
Date Shareholder to acquire at the Subscription Price (as hereinafter defined)
one Share for every three Rights held (one for three). Rights may be exercised
at any time during the offering period (the "Subscription Period"), which
commences on _________, 1996 and ends at 5:00 p.m., New York City time, on _____
, 1996 (the "Expiration Date"), unless extended by the Fund until 5:00 p.m., New
York City time, on a date no later than ________, 1996. The right to acquire
one Share for every three Rights held during the Subscription Period at the
Subscription Price is hereinafter referred to as the "Primary Subscription."
OVER-SUBSCRIPTION PRIVILEGE
Any Record Date Shareholder who fully exercises all Rights issued to such
shareholder is entitled to subscribe for Shares which were not otherwise
subscribed for by others on Primary Subscription (the "Over-Subscription
Privilege"). If sufficient Shares are not available to honor all requests for
over-subscriptions, the
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<PAGE>
Fund may, at its discretion, issue shares of Common Stock up to an additional
25% of the Shares available pursuant to the Offer (up to 386,167 Shares) in
order to satisfy such over-subscription requests. Shares requested pursuant to
the Over-Subscription Privilege may be subject to allotment, which is more fully
discussed under "The Offer--Over-Subscription Privilege."
SUBSCRIPTION PRICE
The subscription price per Share (the "Subscription Price") will be __%
of the lower of (i) the average of the last reported sales price of a share of
the Fund's Common Stock on the New York Stock Exchange on the Expiration Date
(the "Pricing Date") and on the four preceding business days thereof and (ii)
the net asset value per share as of the close of business on the Pricing Date.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased or
sold. The Rights will not be admitted for trading on the New York Stock
Exchange or any other exchange. However, the Shares to be issued pursuant to
the Rights will be admitted for trading on the New York Stock Exchange.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by subscription certificates ("Subscription
Certificates") that will be mailed to Record Date Shareholders, or if shares are
held by Cede & Co. ("Cede"), the nominee for The Depository Trust Company, or
any other depository or nominee, to Cede or such other depository or nominee.
Rights may be exercised by completing and signing a Subscription Certificate and
delivering it, together with payment, either by means of a notice of guaranteed
delivery or a check, to First National Bank of Boston (the "Subscription
Agent"). Shareholders who exercise their Rights will have no right to rescind
their subscription after the Subscription Agent has received payment. See "The
Offer--Subscription Agent" and "The Offer--Method of Exercise of Rights."
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) ("Foreign Record Date Shareholders"). The Rights to which such
Subscription Certificates relate will be held by the Subscription Agent for such
Foreign Record Date Shareholder's accounts until instructions are received to
exercise the Rights.
-4-
<PAGE>
IMPORTANT DATES TO REMEMBER
EVENT DATE
- ----- ----
Record Date ______ , 1996
Subscription Period ______ , 1996 to _____ , 1996*
Payment for Shares or Notice of
Guaranteed Delivery Due ______ , 1996*
Expiration and Pricing Date ______ , 1996*
Payment for Guarantees of Delivery Due ______ , 1996*
Confirmation to Participants ______ , 1996*
Final Payment for Shares ______ , 1996*
- -------------------------
* Unless the Offer is extended to a
date not later than ______, 1996.
INFORMATION AGENT
The Information Agent for the Offer (the "Information Agent") is:
Shareholder Communications Corporation
Toll Free: (800) ___-____ , Extension ______
DISTRIBUTION ARRANGEMENTS
Bear, Stearns & Co. Inc. (the "Dealer Manager") will act as the dealer
manager for the Offer. The Fund has agreed to pay the Dealer Manager a fee for
its financial advisory and marketing services equal to 1.125% of the
Subscription Price per Share for Shares issued upon exercise of the Rights and
the Over-Subscription Privilege, and to pay broker-dealers, including the Dealer
Manager, fees for their soliciting efforts equal to 2.50% of the Subscription
Price per Share for each Share issued upon exercise of the Rights and the Over-
Subscription Privilege. See "Distribution Arrangements."
INFORMATION REGARDING THE FUND
The Fund has been engaged in business as a closed-end, non-diversified
management investment company since April 10, 1992. The Fund's investment
objective is long-term capital appreciation by investing primarily in Brazilian
equity securities. The Fund's policy, under normal market conditions, is to
invest at least 65% of its total assets in equity securities of Brazilian
issuers. The Fund expects, under normal market conditions, to have at least 80%
of its assets invested in Brazilian equity securities. The Fund may also invest
up to 25% of its assets in corporate and governmental debt securities of
Brazilian issuers for the purpose of seeking long-term capital appreciation.
The portion of the Fund's assets not invested in Brazilian equity and debt
securities may be invested in securities deemed to be "Temporary Investments"
(as defined below under "Investment Objective and Policies"). There can be no
assurance that the Fund's investment objective will be achieved. See
"Investment Objective and Policies." BEA Associates anticipates that investment
of the net proceeds of the Offer, in accordance with the Fund's investment
objective and policies, will take up to six months from their receipt by the
Fund, depending on market conditions and the availability of appropriate
securities. The Fund intends to invest in Brazilian equity securities promptly
as investment opportunities are identified, but over a period of time in order
to minimize local market impact. See "Use of Proceeds." The Common Stock is
listed and traded on the New York Stock Exchange under the symbol "BZL." As of
May 30, 1996, the net assets of the Fund were approximately $72 million.
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<PAGE>
INVESTMENT ADVISER AND ADMINISTRATORS
BEA Associates, a U.S. investment counseling firm ("BEA Associates"),
serves as the Fund's investment adviser. BEA Associates emphasizes a global
investment strategy and, as of March 31, 1996, acted as adviser for assets in
excess of $28.5 billion, including as of that date approximately $2.5 billion of
assets invested in Latin American markets.
Bear Stearns Funds Management Inc., an affiliate of the Dealer Manager,
serves as the Fund's U.S. administrator (the "U.S. Administrator") and The First
National Bank of Boston, Sao Paulo ("Bank of Boston, Sao Paulo") serves as the
Fund's Brazilian administrator ("Brazilian Administrator"). The Fund has also
retained BEA Associates to provide certain administrative and shareholder
services to the Fund not provided by the Fund's administrators. See "Management
of the Fund."
ADVISORY, ADMINISTRATIVE AND CONSULTING FEES
The aggregate annual fees payable by the Fund for investment advice
(after fee waiver) equal 1.00% of the first U.S. $100 million of the Fund's
average weekly net assets and 0.70% of amounts over U.S. $100 million. The
advisory fees paid by the Fund are higher than those paid by most other U.S.
investment companies investing exclusively in the securities of U.S. issuers,
primarily because of the additional time and expense required of BEA Associates
when investing in a single country. Such investments entail additional time and
expense because available public information concerning Brazilian securities is
limited in comparison to that available for U.S. companies, and accounting
standards vary from U.S. accounting standards. See "Management of the Fund."
For administrative services in the United States, the Fund pays the U.S.
Administrator a fee at an annual rate of 0.10% of the first $100 million of the
Fund's average weekly net assets and 0.08% of amounts in excess of $100 million.
The Brazilian Administrator is paid a fee, out of the custody fee payable to
Brown Brothers Harriman & Co., the Fund's accounting agent and custodian, a
quarterly fee based on an annual rate of 0.12% of the average month-end assets
of the Fund held in Brazil. BEA Associates is reimbursed by the Fund for costs
incurred by BEA Associates on behalf of the Fund pursuant to its administrative
services agreement (up to U.S. $20,000 per annum).
Since the Fund's investment adviser's and administrators' fees are based
on the net assets of the Fund, the Fund's investment adviser and administrators
will benefit from an increase in the Fund's assets resulting from the Offer. In
addition, three directors who are "interested persons" (as such term is defined
under the 1940 Act) of the Fund because of their positions as directors and/or
officers of BEA Associates could benefit indirectly from the Offer because of
such directors' affiliations. See "The Offer--Certain Effects of the Offer."
RISK FACTORS AND SPECIAL CONSIDERATIONS
The following summarizes certain matters that should be considered, among
others, in connection with an exercise of Rights and an additional investment in
the Fund.
CERTAIN EFFECTS OF THE OFFER. Upon the completion of the Offer,
shareholders who do not fully exercise their Rights will own a smaller
proportional interest in the Fund than would be the case if the Offer had not
been made. In addition, an immediate dilution of the net asset value per share
will be experienced by all shareholders as a result of the Offer because the
Subscription Price will be less than the then current net asset value per share,
the Fund will bear the expenses of the Offer and the number of shares
outstanding after the
-6-
<PAGE>
Offer will have increased proportionately more than the increase in the size of
the Fund's net assets. Although it is not possible to state precisely the
amount of such a decrease in net asset value, because it is not known at this
time how many Shares will be subscribed for or what the Subscription Price will
be, such dilution might be substantial. See "Risk Factors and Special
Considerations."
ECONOMIC AND POLITICAL FACTORS. Like other investors in Brazilian
securities, the Fund is subject to the general economic and political conditions
in Brazil. The investment by the Fund in Brazilian equity securities, as well
as in corporate and governmental debt securities of Brazilian issuers (including
assignments of, and participations in, fixed and floating rate loans), involves
certain considerations not typically associated with investments in securities
of U.S. companies, including (a) controls on foreign investment and on the
Fund's ability to exchange Reals for U.S. dollars, (b) greater share price
volatility, substantially less trading liquidity and significantly smaller
market capitalization of securities markets, (c) currency devaluations and other
currency exchange rate fluctuations, (d) more substantial government involvement
in the economy, (e) significantly higher historical rates of inflation, (f) less
government supervision and regulation of the securities markets and participants
in those markets and (g) political uncertainty and other considerations. See
"Risk Factors and Special Considerations."
CURRENCY DEVALUATIONS AND FLUCTUATIONS; REPORTING STANDARDS. Because the
Fund generally does not seek to hedge against a decline in the value of Reals,
the Fund will be adversely affected by devaluations of Reals against the U.S.
dollar to the extent the Fund is invested in securities quoted or denominated in
Reals. In addition, accounting, auditing and financial reporting standards in
Brazil are different from U.S. standards. As a result, certain material
disclosures may not be made and less information may be available to the Fund
and other investors than would be the case if the Fund's investments were
restricted to securities of U.S. issuers. See "Risk Factors and Special
Considerations."
BRAZILIAN DEBT. The Fund may invest up to 25% of its assets in corporate
and government debt securities of Brazilian issuers, including sovereign debt,
for the purpose of seeking long-term capital appreciation. The issuers of the
debt or the governmental authorities that control the repayment of the debt may
be unable or unwilling to repay principal and/or interest when due in accordance
with the terms of such debt. Brazilian debt instruments in which the Fund may
invest are widely considered to have a credit quality below investment grade as
determined by U.S. rating agencies (and as low as securities rated D by Standard
& Poor's Ratings Group ("S&P") or C by Moody's Investors Service, Inc.
("Moody's"). As a result, Brazilian debt may be regarded as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations and involves major
risk exposure to adverse conditions. The Fund may not, however, invest more
than 5% of its assets in debt securities that are determined by BEA Associates
to be comparable to securities rated C or below by either S&P or Moody's.
Certain Brazilian debt instruments available for investment by the Fund are not
currently paying principal and/or interest. There is no liquid secondary market
for certain Brazilian debt securities, and the Fund anticipates that such
securities could be sold only to a limited number of dealers or institutional
investors. The lack of a liquid secondary market may also have an adverse
impact on the market price for such securities and may make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio and calculating its net asset value. In addition, the market
value of lower quality securities, such as certain Brazilian debt securities,
may be less sensitive to interest rate changes but more sensitive to adverse
economic changes than that of higher quality securities. See "Risk Factors and
Special Considerations."
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Fund may invest up to 25% of
its assets in corporate and governmental debt securities of Brazilian issuers,
including investments in loan assignments and participations. The Fund's
investments in loan participations in a lender's portion of a loan typically
will result in the Fund having a contractual relationship only with the lender,
not with the borrower. As a result, the Fund will assume the credit risk of
both the borrower and the lender selling the loan participation. Because there
is no liquid market for loan assignments or participations, the Fund may have
difficulty disposing of such securities. See "Risk Factors and Special
Considerations."
-7-
<PAGE>
MARKET VALUE AND NET ASSET VALUE. Shares of closed-end investment
companies frequently trade at a discount to net asset value. This
characteristic of shares of a closed-end fund is a risk separate and distinct
from the risk that the Fund's net asset value may decrease. The Fund cannot
predict whether its shares will trade at, below or above net asset value. Since
the commencement of the Fund's operations, the Fund's shares have traded in the
market for approximately half of that time at a discount to net asset value.
See "Net Asset Value" and "Common Stock."
RIGHTS UNDER BRAZILIAN LAW; CERTAIN TAX CONSIDERATIONS. It may be more
difficult for the Fund to obtain a judgment in a court in Brazil than in the
United States. Dividends paid on Brazilian securities held by the Fund are
subject to certain withholding taxes. See the SAI under "Taxation--Foreign
Taxes."
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 that Act in the proportion of its assets that may be invested in the
securities of a single issuer. The Fund, however, is subject to certain
Brazilian laws limiting investment in a single issuer and has complied with and
intends to continue to comply with the diversification requirements imposed by
the U.S. Internal Revenue Code of 1986 for qualification as a regulated
investment company. As a non-diversified investment company, the Fund may
invest a greater proportion of its assets in the securities of a smaller number
of issuers and, as a result, may be subject to greater risk with respect to
portfolio securities. See the SAI under "Investment Restrictions" and
"Taxation--United States Federal Income Taxes--The Fund and Its Investments."
CHARTER PROVISIONS. Certain provisions of the Fund's Articles of
Incorporation may have the effect of inhibiting the Fund's possible conversion
to open-end status and limiting the ability of other persons to acquire control
of the Fund's Board of Directors. In certain circumstances, these provisions
might also inhibit the ability of shareholders to sell their shares at a premium
over prevailing market prices. See "Common Stock."
-8-
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price
per Share)(1)(2).......................................... 3.625%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees (after waiver)(2)......................... 1.00%
Other Expenses(3)......................................... 0.76%
TOTAL ANNUAL EXPENSES............................................... 1.76%
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment assuming a 5%
annual return(4)...................... $53.49 $89.65 $128.20 $236.05
__________________
(1) The Dealer Manager and the other broker-dealers soliciting the
exercise of Rights will receive soliciting fees equal to 2.50% of the
Subscription Price per Share for each Share issued upon exercise of
the Rights and the Over-Subscription Privilege. The Fund has also
agreed to pay the Dealer Manager a fee for financial advisory and
marketing services in connection with the Offer equal to 1.125% of the
Subscription Price per Share for Shares issued upon exercise of the
Rights and the Over-Subscription Privilege. These fees will be borne
by the Fund and indirectly by all of the Fund's shareholders,
including those shareholders who do not exercise their Rights.
(2) Based on net assets of the Fund after giving effect to the anticipated
net proceeds of the Offer including proceeds from the issuance of up
to 25% of the Shares pursuant to the Over-Subscription Privilege. The
Management Fee payable to BEA Associates (after the waiver) is 1.00%
of the first $100 million of the Fund's average weekly net assets and
0.70% of the Funds average weekly net assets in excess of $100
million.
(3) Does not include expenses of the Fund incurred in connection with the
Offer, estimated at $396,250.
(4) The example reflects the Sales Load and other expenses of the Fund
incurred in connection with the Offer 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, BUT SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR RATE OF RETURN. THE ACTUAL
EXPENSES OF THE FUND MAY BE GREATER OR LESSER THAN THOSE SHOWN. The figures
provided under "Other Expenses" are based upon estimated amounts for the current
fiscal year and assume that all of the Rights are exercised and the Fund
increases the number of Shares subject to subscription by 25%. For more
complete descriptions of certain of the Fund's costs and expenses, see
"Management of the Fund" below and in the SAI.
-9-
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth selected financial data for a share of
Common Stock outstanding throughout each period presented. The per share
operating performance and ratios for each of the periods have been derived from
financial statements audited by Coopers & Lybrand L.L.P., the Fund's independent
accountants, as stated in their report which is incorporated by reference into
the SAI. The following information should be read in conjunction with the
Financial Statements and Notes thereto, which are incorporated by reference into
the SAI.
PER SHARE OPERATING PERFORMANCE
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD 4/10/92*
3/31/96 3/31/95 3/31/94 THROUGH 3/31/93
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period . . . . . . . . . . . . . . $13.02 $20.80 $11.83 $13.79**
Net Investment Income/(loss) . . . . . . . . . . . . . . . . . . 0.06 (0.12) (0.04) 0.06
Net Realized and Unrealized Gains or Losses on
Investments and Foreign Currency-Related Transactions. . . . . . 3.32 (3.80) 9.09 (1.99)
Net Increase/(Decrease) in Net Assets Resulting from
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.38 (3.92) 9.05 (1.93)
Less Distributions
Dividends (from net investment income) . . . . . . . . . . . . . -- -- (0.08) (0.03)
In excess of net investment income . . . . . . . . . . . . . . . -- (0.03) -- --
Distributions from net realized gain on investments and foreign
currency related transactions. . . . . . . . . . . . . . . . . . (2.22) (3.83) -- --
Total Distributions. . . . . . . . . . . . . . . . . . . . . . . (2.22) (3.86) (0.08) (0.03)
Net Asset Value, End of Period . . . . . . . . . . . . . . . . . $ 14.18 $13.02 $20.80 $11.83
Per Share Market Value, End of Period. . . . . . . . . . . . . . $13.875 $14.75 $19.00 $11.25
Total Investment Return(a). . . . . . . . . . . . . . . . . . . . 8.85% (6.79)% 69.55% (19.16)%
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD 4/10/92*
3/31/96 3/31/95 3/31/94 THROUGH 3/31/93
<S> <C> <C> <C> <C>
Net Assets, End of Period (000 omitted) . . . . . . . . . . . . $65,696 $60,156 $95,820 $54,493
Ratio of Expenses to Average Net Assets, net of fee waivers . . 1.76% 1.86%++ 2.05%++ 2.45%(b)
Ratio of Expenses to Average Net Assets, excluding fee waivers 2.11% 2.13% 2.05% 2.45%(b)
Ratio of Net Investment Income/(loss) to Average Net Assets . . 0.39% (0.62)% (0.28)% 0.61%(b)
Portfolio Turnover Rate . . . . . . . . . . . . . . . . . . . . 55% 69% 73% 50%(c)
</TABLE>
__________________
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and offering expenses of $0.16 per share.
+ Includes a $0.01 per share increase to the Fund's net asset value per share
resulting from the anti-dilutive impact of shares issued pursuant to the
Fund's automatic dividend reinvestment plan in 1996.
++ For the calendar year ending December 31, 1994, the Brazilian Congress
imposed a 0.25% withholding tax on financial transactions. If such tax had
not been imposed, the ratio of expenses to average net assets would have
been 1.73% for the year ended March 31, 1995 and 2.02% for the year ended
March 31, 1994, net of fee waivers and 2.00% for the year ended March 31,
1995 and 2.02% for the year ended March 31, 1994 excluding fee waivers.
(a) Total investment return at market value is based on the changes in market
price of a share during the period and assumes reinvestment of dividends
and distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment plan. Total investment return does not reflect brokerage
commissions or initial underwriting discounts and has not been annualized.
(b) Annualized.
(c) Not annualized.
-10-
<PAGE>
THE OFFER
PURPOSE OF THE OFFER
The Board of Directors of the Fund has determined that it would be in
the best interest of the Fund and its shareholders to increase the assets of the
Fund available for investment, thereby enabling the Fund to more fully take
advantage of available investment opportunities consistent with the Fund's
investment objective of long-term capital appreciation. In reaching its
decision, the Board of Directors was advised by BEA Associates that the
availability of new funds would provide the Fund with additional investment
flexibility as well as increase the Fund's ability to take advantage of what BEA
Associates believes to be timely opportunities in the Brazilian market as a
result of recent economic and political events and stock market developments.
In evaluating such investment opportunities, the Board considered among other
things the impact that Brazil's reform process would have on the country's stock
prices, the future prospects for Brazil's growth and the likelihood of future
privatizations.
The Board of Directors also considered that a well-subscribed rights
offering may reduce the Fund's expense ratio, which may be of long-term benefit
to shareholders. In addition, the Board of Directors considered that such a
rights offering could result in an improvement in the liquidity of the trading
market for shares of the Fund's Common Stock on the New York Stock Exchange,
where the shares are listed and traded. The Board of Directors also considered
the proposed terms of the Offer, including the expenses of the Offer, and its
dilutive effect, including the effect on non-exercising shareholders of the
Fund. After careful consideration, the Fund's Board of Directors unanimously
voted to approve the Offer.
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.
TERMS OF THE OFFER
The Fund is issuing to Record Date Shareholders Rights to subscribe
for Shares pursuant to the exercise of such Rights. Each Record Date
Shareholder is being issued one Right for each whole share of Common Stock owned
on the Record Date. The Rights entitle the shareholder to acquire at the
Subscription Price one Share for every three Rights held (one for three).
Fractional Shares will not be issued upon the exercise of Rights. Accordingly,
Shares may be purchased only pursuant to the exercise of Rights in integral
multiples of three. Rights may be exercised at any time during the Subscription
Period, which commences on , 1996 and ends at 5:00 p.m., New York
City time, on , 1996, unless extended by the Fund until 5:00 p.m.,
New York City time, on a date not later than , 1996. A Record Date
Shareholder's right to acquire one Share for every three Rights held during the
Subscription Period at the Subscription Price is hereinafter referred to as the
"Primary Subscription." The Rights are evidenced by Subscription Certificates,
which will be mailed to Record Date Shareholders, except as discussed below
under "Foreign Restrictions."
Any Record Date Shareholder who fully exercises all Rights issued to
such shareholder will be entitled to subscribe for additional Shares pursuant to
the Over-Subscription Privilege. Shares requested pursuant to the Over-
Subscription Privilege are subject to allotment and may be subject to increase,
which is more fully discussed below under "--Over-Subscription Privilege." For
purposes of determining the maximum number of Shares a Record Date Shareholder
may acquire pursuant to the Offer, shareholders whose shares are held of record
by Cede, the nominee for The Depository Trust Company, 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.
As fractional Shares will not be issued, Record Date Shareholders who
receive or have remaining fewer than three Rights will be unable to purchase
Shares upon the exercise of such Rights and will not be entitled to receive any
cash in lieu thereof. Such shareholders, however, may subscribe for Shares
-11-
<PAGE>
pursuant to the Over-Subscription Privilege provided such shareholders have
fully exercised the Rights issued to them. Shareholders will have no right to
rescind their subscriptions after receipt of their payment for Shares by the
Subscription Agent.
OVER-SUBSCRIPTION PRIVILEGE
To the extent Record Date Shareholders do not exercise all of the
Rights issued to them, the underlying Shares represented by such Rights will be
offered by means of the Over-Subscription Privilege to Record Date Shareholders
who have exercised all the Rights issued to them pursuant to the Primary
Subscription and who desire to acquire additional Shares. Only Record Date
Shareholders who exercise all such Rights may indicate on the Subscription
Certificate the number of additional Shares desired pursuant to the Over-
Subscription Privilege. If sufficient Shares remain as a result of unexercised
Rights, all over-subscriptions may be honored in full. If sufficient Shares are
not available to honor all requests for over-subscriptions, the Fund may, at its
discretion, issue shares of Common Stock up to an additional 25% of the Shares
available pursuant to the Offer (up to 386,167 Shares) in order to satisfy such
over-subscription requests. Regardless of whether the Fund issues such
additional Shares, to the extent Shares are not available to honor all over-
subscriptions, the available Shares will be allocated among those who over-
subscribe based on the number of Rights originally issued to them by the Fund,
so that the number of Shares issued to Record Date Shareholders who subscribe
pursuant to the Over-Subscription Privilege will generally be in proportion to
the number of shares owned by them in the Fund on the Record Date. The
allocation process may involve a series of allocations in order to assure that
the total number of Shares available for over-subscriptions is distributed on a
pro rata basis.
The Fund will not sell any Shares that are not subscribed for pursuant
to the Primary Subscription or the Over-Subscription Privilege.
SUBSCRIPTION PRICE
The Subscription Price for each Share to be issued pursuant to the
Rights will be __% of the lower of (i) the average of the last reported sales
price of a share of the Fund's Common Stock on the New York Stock Exchange on
the Pricing Date and on the four preceding business days thereof and (ii) the
net asset value per share as of the close of business on the Pricing Date. For
example, if the average of the last reported sales price on the New York Stock
Exchange on the Pricing Date and on the four preceding business days thereof of
a share of the Fund's Common Stock is $ , and the net asset value as of
the close of business on the Pricing Date is $ , the Subscription Price
will be $ (__% of $ ). If, however, the average of the last reported
sales price of a share on that exchange on the Pricing Date and on the four
preceding business days thereof is $ , and the net asset value as of the
close of business on the Pricing Date is $ , the Subscription Price will be
$ (__% of $ ). See "Common Stock."
The Fund announced the Offer after the close of trading on the New
York Stock Exchange on June 6, 1996. The last reported net asset value per
share of Common Stock at the close of business on June 6, 1996 and ,
1996 was $15.51 and $ , respectively, and the last reported sales price of
a share of the Fund's Common Stock on the New York Stock Exchange on those dates
was $13.5 and $ , respectively. On _________, 1996, the Common Stock was
trading at a discount to its net asset value.
NON-TRANSFERABILITY OF RIGHTS
The Rights are non-transferable and, therefore, may not be purchased
or sold. The Rights will not be admitted for trading on the New York Stock
Exchange or any other exchange. However, the Shares to be issued pursuant to
the Rights will be admitted for trading on the New York Stock Exchange.
-12-
<PAGE>
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on ,
1996, unless extended by the Fund until 5:00 p.m., New York City time, to a date
not later than , 1996. Rights will expire on the Expiration Date
and thereafter may not be exercised. Since the Expiration Date and the Pricing
Date will be the same date, Record Date Shareholders who decide to acquire
Shares during the Primary Subscription or pursuant to the Over-Subscription
Privilege will not know, when they make such decision, the purchase price for
such Shares. Any extension of the Offer will be followed as promptly as
practical by an announcement thereof. Without limiting the manner in which the
Fund may choose to make such announcement, the Fund will not, unless otherwise
required by law, have any obligation to publish, advertise or otherwise
communicate any such announcement other than by making a release to the Dow
Jones News Service or such other means of announcement as the Fund deems
appropriate.
SUBSCRIPTION AGENT
The Subscription Agent is The First National Bank of Boston ("Bank of
Boston"), 100 Federal Street, Boston, Massachusetts, which will receive, for its
administrative, processing, invoicing and other services as subscription agent,
a fee estimated to be $15,000, plus reimbursement for its out-of-pocket expenses
related to the Offer. The Subscription Agent is also the Fund's Transfer Agent,
Dividend-Paying Agent and Registrar with respect to the Common Stock. SIGNED
SUBSCRIPTION CERTIFICATES TOGETHER WITH PAYMENT OF THE ESTIMATED SUBSCRIPTION
PRICE MUST BE SENT TO BANK OF BOSTON by one of the methods described below. The
Fund will accept only Subscription Certificates actually received on a timely
basis at any of the addresses listed below.
(1) BY FIRST CLASS MAIL:
The First National Bank of Boston
Shareholder Services
P.O. Box 1889
Mail Stop 45-02-53
Boston, MA 02105
(2) BY HAND:
BancBoston Trust Company of New York
55 Broadway, 3rd Floor
New York, NY 10006
(3) BY OVERNIGHT COURIER:
The First National Bank of Boston
Corporate Agency & Reorganization
150 Royall Street
Mail Stop 46-02-53
Carton, MA 02021
-13-
<PAGE>
(4) BY FACSIMILE (TELECOPY):
FOR NOTICE OF GUARANTEED DELIVERY ONLY
(617) 774-4519, with the original
Subscription Certificate to be sent
by one of the three methods above.
Confirm facsimile by telephone at
(617) 774-4511.
DELIVERY TO AN ADDRESS OTHER THAN THOSE SET FORTH ABOVE DOES NOT
CONSTITUTE GOOD DELIVERY.
METHOD OF EXERCISE OF RIGHTS
Rights will be evidenced by Subscription Certificates that will be
mailed to Record Date Shareholders, or if shares are held by Cede or any other
depository or nominee, to Cede or such other depository or nominee except as
discussed under "Foreign Restrictions" below. Rights may be exercised by
completing and signing the Subscription Certificate and mailing it in the
envelope provided, or otherwise delivering the completed and signed Subscription
Certificate, together with payment for the Shares as described below under "--
Payment for Shares," to the Subscription Agent. Rights may also be exercised by
contacting your broker, banker or trust company, which can arrange, on your
behalf, to guarantee delivery of payment and of a properly completed and
executed Subscription Certificate. A fee may be charged for this service.
Fractional Shares will not be issued, and shareholders who receive, or who have
remaining, fewer than three Rights will not be able to purchase any Shares upon
the exercise of such Rights. Such shareholders may, however, subscribe for
Shares pursuant to the Over-Subscription Privilege provided such shareholders
have fully exercised the Rights issued to them. Completed Subscription
Certificates or Notices of Guaranteed Delivery must be received by the
Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration
Date at one of the offices of the Subscription Agent at the addresses set forth
above.
SHAREHOLDERS WHO ARE RECORD OWNERS. Shareholders who are record owners can
choose between either option set forth under "Payment for Shares" below. If
time is of the essence, option (2) will permit delivery of the completed
Subscription Certificate and payment after the Expiration Date.
INVESTORS WHOSE SHARES ARE HELD BY A NOMINEE. Shareholders whose shares
are held by a nominee, such as a broker or trustee, must contact that nominee to
exercise their Rights. In that case, the nominee will complete the Subscription
Certificate on behalf of the investor and arrange for proper payment by one of
the methods set forth under "Payment for Shares" below.
NOMINEES. Nominees who hold shares for the account of others should notify
the beneficial owners of such shares 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 described under "Payment for Shares" below.
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). The Rights to which those Subscription Certificates
relate will be held by the Subscription Agent for such Foreign Record Date
Shareholders' accounts until instructions are received to exercise the Rights.
If no instructions are received prior to the Expiration Date, such Rights will
expire.
-14-
<PAGE>
INFORMATION AGENT
Any questions or requests for assistance may be directed to the
Information Agent at its telephone number and address listed below:
The Information Agent for the Offer is:
Shareholder Communications Corporation
Toll Free: (800) ___-____, Extension ____
Shareholders may also contact their brokers or nominees for
information with respect to the Offer.
The Information Agent will receive a fee estimated to be $15,000 plus
reimbursement for its out-of-pocket expenses related to the Offer.
PAYMENT FOR SHARES
Shareholders who acquire Shares during the Primary Subscription or
pursuant to the Over-Subscription Privilege may choose between the following
methods of payment:
(1) A shareholder can send the completed Subscription Certificate
together with payment for the Shares acquired during the Primary
Subscription and for additional Shares subscribed for pursuant to the Over-
Subscription Privilege to the Subscription Agent, calculating the total
payment on the basis of an estimated Subscription Price of $ per
Share (the "Estimated Subscription Price"). To be accepted, such payment,
together with the properly executed and completed Subscription Certificate,
must be received by the Subscription Agent at one of the Subscription
Agent's offices at the addresses set forth above prior to 5:00 p.m., New
York City time, on the Expiration Date. A PAYMENT PURSUANT TO THIS METHOD
MUST BE IN UNITED STATES DOLLARS BY MONEY ORDER OR CHECK DRAWN ON A BANK
LOCATED IN THE UNITED STATES OF AMERICA, MUST BE PAYABLE TO THE BRAZILIAN
EQUITY 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 by facsimile (telecopy) or otherwise from a bank, trust company,
or New York Stock Exchange member guaranteeing delivery to Bank of Boston
of (i) payment of the full Subscription Price for the Shares subscribed for
during the Primary Subscription and any additional Shares subscribed for
pursuant to the Over-Subscription Privilege, and (ii) a properly completed
and executed Subscription Certificate. The Subscription Agent will not
honor a Notice of Guaranteed Delivery if a properly completed and executed
Subscription Certificate, together with payment, is not received by the
Subscription Agent by the close of business on the third business day after
the Expiration Date.
Within ten business days following the Pricing Date (the "Confirmation
Date"), a confirmation will be sent by the Subscription Agent to each Record
Date Shareholder (or, if the shareholder's shares are held by Cede or any other
depository or nominee, to Cede or such depository or nominee), showing (i) the
number of Shares acquired pursuant to the Primary Subscription, (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, and (iv) any additional
amount payable by such shareholder to the Fund or any excess to be refunded by
the Fund to such shareholder, in each case based on the Subscription Price as
determined on the Pricing Date. Any additional payment required from a
shareholder must be received by the Subscription Agent within ten business days
after the
-15-
<PAGE>
Confirmation Date. Any excess payment to be refunded by the Fund to a
shareholder will be mailed by the Subscription Agent to such shareholder as
promptly as possible. All payments by a shareholder must be in U.S. Dollars by
money order or check drawn on a bank located in the United States of America and
payable to THE BRAZILIAN EQUITY FUND, INC.
The Subscription Agent will deposit all checks received by it prior to
the final due date into a segregated interest bearing account (which interest
will accrue to the benefit of the Fund) pending distribution of the Shares.
Whichever of the two payment methods described above is used, issuance
and delivery of certificates for the Shares purchased are subject to collection
of checks and actual payment pursuant to any Notice of Guaranteed Delivery.
SHAREHOLDERS WILL HAVE NO RIGHT TO RESCIND THEIR SUBSCRIPTION AFTER
RECEIPT OF THEIR PAYMENT FOR SHARES BY THE SUBSCRIPTION AGENT.
If a shareholder who acquires Shares pursuant to the Primary
Subscription or the Over-Subscription Privilege does not make payment of any
additional amounts due, the Fund reserves the right to take any or all of the
following actions: (i) sell such subscribed and unpaid-for Shares to other
shareholders, (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 or remedies to which
it may be entitled, including, without limitation, set-offs against payments
actually received by it with respect to such subscribed Shares and/or to enforce
the relevant guaranty of payment.
All questions concerning the timeliness, validity, form and
eligibility of any exercise of Rights will be determined by the Fund, whose
determinations will be final and binding. The Fund in its sole discretion may
waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Subscriptions will not be deemed to have been received or
accepted until all irregularities have been waived or cured within such time as
the Fund determines in its sole discretion. The Fund will not be under any duty
to give notification of any defect or irregularity in connection with the
submission of Subscription Certificates or incur any liability for failure to
give such notification.
DELIVERY OF STOCK CERTIFICATES
Except as noted below in this paragraph, stock certificates for all
Shares acquired during the Primary Subscription and pursuant to the Over-
Subscription Privilege will be mailed promptly after the Confirmation Date and
after payment for the Shares subscribed for has cleared. Participants in the
Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") will have any
Shares acquired during the Primary Subscription or pursuant to the Over-
Subscription Privilege credited to their accounts in the Plan. Stock
certificates will not be issued for Shares credited to Plan accounts.
Shareholders whose shares of Common Stock are held of record by Cede or by any
other depository or nominee on their behalf or their broker-dealers' behalf will
have any Shares acquired during the Primary Subscription or pursuant to the
Over-Subscription Privilege credited to the account of Cede or such other
depository or nominee.
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, neither the receipt nor the exercise
of the Rights by Record Date Shareholders will result in taxable income to
holders of Common Stock, and no loss will be realized if the Rights expire
without exercise. A shareholder's holding period for a Share acquired upon
exercise of a Right begins with the date of exercise. Unless a Record Date
Shareholder makes the election described below, a shareholder's basis for
determining gain or loss upon the sale of a Share acquired upon the exercise of
a Right
-16-
<PAGE>
will be equal to the sum of the Subscription Price per Share and any servicing
fee charged to the shareholder by the shareholder's broker, bank or trust
company. A shareholder's gain or loss recognized upon a sale of a Share
acquired upon the exercise of a Right will be a capital gain or loss (assuming
the Share is held as a capital asset at the time of sale) and will be a long-
term capital gain or loss if the Share has been held at the time of sale for
more than one year.
The following portion of this discussion assumes that the fair market
value of the Rights will, upon the date of distribution, be less than 15% of the
fair market value of the shares of Common Stock outstanding on that date. A
Record Date Shareholder may elect to allocate his basis in those shares of the
Fund which he originally owned between such shares and the Rights issued in the
Offer. This allocation is based upon the relative fair market value of such
shares and the Rights as of the date of issuance of the Rights. Thus, if such
an election is made, the shareholder's basis in the shares originally owned will
be reduced by an amount equal to the basis allocated to the Rights. This
election must be made in a statement attached to the shareholder's federal
income tax return for the year in which the Offer occurs. However, if an
electing shareholder does not exercise the Rights, no loss will be recognized
and no portion of the shareholder's basis in the shares will be allocated to the
unexercised Rights. If an electing shareholder does exercise the Rights, the
basis of any Shares acquired through exercise of the Rights will be increased by
the basis allocated to such Rights. Accordingly, shareholders should consider
the advisability of making the election described above if the shareholder
intends to exercise the Rights.
The foregoing is a general summary of the significant federal income
tax consequences of the receipt and exercise of Rights by a Record Date
Shareholder. The discussion is based upon applicable provisions of the U.S.
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
regulations and other authorities currently in effect, and does not cover state
or local taxes. The Code and regulations are subject to change by legislative
or administrative action. Shareholders should consult their tax advisors
regarding specific questions as to federal, state or local taxes. See
"Taxation" in the SAI.
EMPLOYEE BENEFIT PLAN CONSIDERATIONS
Shareholders that hold their shares through employee benefit plans
that are subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (including corporate savings and 401(k) plans, Keogh Plans of
self-employed individuals and Individual Retirement Accounts (collectively,
"Benefit Plans")) should be aware of the complexity of the rules and regulations
governing Benefit Plans and the penalties for noncompliance, and should consult
their counsel and tax advisors regarding the consequences under ERISA and the
Code of their exercise of the Rights.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would be the case if the Offer had not been made. In addition, because the
Subscription Price per Share will be less than the then current net asset value
per share of the Fund's Common Stock, the Offer will result in a dilution of net
asset value per share for all shareholders, which will disproportionately affect
shareholders who do not exercise their Rights. Although it is not possible to
state precisely the amount of such decrease in net asset value because it is not
known at the date of this Prospectus how many Shares will be subscribed for, or
what the Subscription Price will be, such dilution might be substantial. For
example, assuming all Rights are exercised at the Estimated Subscription Price,
including up to an additional 25% of the Shares which may be issued to satisfy
over-subscriptions, the Fund's current net asset value of $_____ per share
would be reduced by approximately $ or %, taking into
account the expenses of the Offer.
It is expected that no dividends or other distributions will be
payable with respect to the Shares offered hereby until January 1997.
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<PAGE>
CERTAIN IMPACT ON FEES
The Fund's investment adviser and administrators will benefit from the
Offer because the investment advisory and administration fees are based on the
net assets of the Fund. See "Management of the Fund." It is not possible to
state precisely the amount of additional compensation the Fund's investment
adviser or administrators 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, assuming all Rights are exercised at the Estimated
Subscription Price, including up to an additional 25% of the Shares which may be
issued to satisfy over-subscriptions, the annual compensation to be received by
the Fund's investment adviser and administrators would be increased by
approximately $____ and $______ , respectively. Three of the Fund's directors
who voted to authorize the Offer are "interested persons" of the Fund within the
meaning of the 1940 Act because of their positions as directors and/or officers
of BEA Associates. These directors could benefit indirectly from the Offer
because of such directors' affiliations. The other five directors are not
"interested persons" of the Fund. See "Management of the Fund" in the SAI.
IMPORTANT DATES TO REMEMBER
EVENT DATE
----- ----
Record Date . . . . . . . . . . . . . . _____, 1996
Subscription Period . . . . . . . . . . ___, 1996 through ___, 1996*
Payment for Shares or
Notices of Guaranteed _____, 1996 *
Delivery Due . . . . . . . . . . . .
Expiration and Pricing Date . . . . . . _____, 1996 *
Payment for Guarantees of _____, 1996 *
Delivery Due . . . . . . . . . . . .
Confirmation to Participants . . . . . _____, 1996 *
Final Payment for Shares . . . . . . . _____, 1996 *
_____________________
* Unless the Offer is extended to a date not later than _____, 1996.
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THE FUND
The Fund, incorporated in Maryland on February 10, 1992, is a non-
diversified, closed-end management investment company registered under the 1940
Act. The Fund's Common Stock is traded on the New York Stock Exchange under the
symbol "BZL."
The Fund commenced operations on April 10, 1992 after an initial
public offering of 4,600,000 shares of the Common Stock, the net proceeds to the
Fund of which were approximately $63,434,000.
The Fund's investment objective is long-term capital appreciation.
The Fund seeks to achieve its objective by investing primarily in Brazilian
equity securities. It is the policy of the Fund, under normal market
conditions, to invest at least 65% of its total assets in equity securities of
Brazilian issuers. It is anticipated that at least 80% of the Fund's assets
normally will be invested in equity securities of Brazilian issuers. The Fund
may, however, invest up to 25% of its assets in corporate and governmental debt
securities of Brazilian issuers, and may hold securities deemed to be Temporary
Investments (as defined below).
As of March 31, 1996, approximately 90% of the Fund's assets were
invested in equity securities of Brazilian companies operating in the following
industries:
Industry % of Fund's Net Assets
-------- ----------------------
Electric Distribution 16.82%
Telecommunications 15.04%
Consumer Goods 12.79%
Holding Companies 8.88%
Food and Beverages 8.34%
Electric Generation 8.24%
Textiles 6.68%
Banking 4.76%
Retail 4.42%
Capital Goods 3.93%
The Fund's ten largest holdings at March 31, 1996 (percentage of net
assets) were:
- Companhia Energetica de Minas Gerais (10.6%) (Electric
Distribution)
- Centrais Eletricas Brasileiras S.A. (8.2%) (Electric
Generation)
- Telecomunicacaes de Sao Paulo S.A. (5.3%)
(Telecommunications)
- Investimentos Itau S.A. (5.0%) (Holding Companies)
- Banco Bradesco S.A. (4.8%) (Banking)
- Dixie Toga S.A. (4.7%) (Consumer Goods)
- Companhia Cervejaria Brahma (4.6%) (Food and Beverages)
- Refrigeracao Parana S.A. (4.5%) (Consumer Goods)
- Lojas Americanas S.A. (4.4%) (Retail)
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- Telecomunicacoes do Parana S.A. (4.0%) (Telecommunications)
Set forth in the Appendix to the SAI is certain information regarding
Brazil and the Brazilian securities markets.
USE OF PROCEEDS
Assuming all Shares offered pursuant to the Primary Subscription are
sold at the Estimated Subscription Price, the net proceeds of the Offer are
estimated to be $____________, after payment of the Dealer Manager's fees, the
soliciting fees and the estimated offering expenses. These expenses will be
borne by the Fund and will reduce the net asset value of the Common Stock. If
the Fund increases the number of Shares subject to the Offer by 25%, or 386,167
Shares, in order to satisfy over-subscription requests, the additional net
proceeds will be approximately $_______ . The Fund intends to invest in
Brazilian equity securities promptly as investment opportunities are identified,
but over a period of time in order to minimize local market impact. The Fund
expects that, subject to market conditions, substantially all of the net
proceeds of the Offer will be invested in accordance with the Fund's investment
objective within six months from the date of this Prospectus. Pending such
investment, the proceeds will be invested in certain short- and medium-term debt
instruments, as described under "Investment Objective and Policies--Temporary
Investments."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Investors should consider the following special considerations
associated with an exercise of Rights and an additional investment in the Fund.
CERTAIN EFFECTS OF THE OFFER
Upon the completion of the Offer, shareholders who do not fully
exercise their Rights will own a smaller proportional interest in the Fund than
would be the case if the Offer had not been made. In addition, an immediate
dilution of the net asset value per share will be experienced by all
shareholders as a result of the Offer because the Subscription Price will be
less than the then current net asset value per share, the Fund will bear the
expenses of the Offer and the number of shares outstanding after the Offer will
have increased proportionately more than the increase in the size of the Fund's
net assets. Although it is not possible to state precisely the amount of such a
decrease in value, because it is not known at this time how many Shares will be
subscribed for or what the Subscription Price will be, such dilution might be
substantial. For example, if the Subscription Price per Share is $______ ,
representing a price that is __% of an assumed net asset value per share of $__
, assuming that all Rights are exercised, including an additional 25% of the
Shares which may be issued to satisfy over-subscription requests, the Fund's net
asset value per share would be reduced by approximately $__ per share. If, on
the other hand, the Subscription Price represents a price that is less than __ %
of the Fund's then net asset value, which would be the case if the Subscription
Price is set at a time when the market price per share is lower than the net
asset value per share, the dilution would be greater. For example, if the
Subscription Price per Share is $___, representing a price which is only __% of
the net asset value per share, assuming that all Rights are exercised, including
an additional 25% of the Shares which may be issued to satisfy over-subscription
requests, the Fund's net asset value per share would be reduced by approximately
$____ per share. The foregoing examples assumed Subscription Prices of $___
and $_____ per Share, respectively. However, the actual Subscription Price may
be greater or less than such assumed Subscription Price. This dilution of net
asset value per share will disproportionately affect shareholders who do not
exercise their Rights.
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<PAGE>
ECONOMIC AND POLITICAL RISKS
The economy of Brazil may differ favorably or unfavorably from the
U.S. economy in such respects as general development, wealth distribution, rate
of inflation, volatility of the rate of growth of gross domestic product
("GDP"), capital reinvestment, resource self-sufficiency and balance of payments
position, among others. The government of Brazil has exercised and continues to
exercise substantial influence over many aspects of the private sector. The
Brazilian government owns or controls many companies, including some of the
largest in the country. As a result, government actions in the future could
have a significant effect on economic conditions in Brazil, which, in turn, may
adversely affect companies in the private sector, general market conditions and
prices and yields of securities in the Fund's portfolio. Expropriation,
confiscatory taxation, nationalization, political, economic or social
instability or other developments such as military coups, have occurred in the
past in Brazil and could adversely affect the assets of the Fund held in Brazil
should these conditions or events recur. There may also be greater difficulty
in respect of the Fund's ability to protect and enforce its rights against
governmental and private entities in Brazil.
INVESTMENT CONTROLS
Foreign investment in the securities of Brazilian issuers is
restricted or controlled to varying degrees. These restrictions or controls may
at times limit or preclude foreign investment in certain Brazilian issuers and
increase the costs and expenses of the Fund. Brazil requires governmental
approval prior to investments by foreign persons, and limits the amount of
investment by foreign persons in a particular company. Brazil also restricts
investment opportunities by foreigners in certain industries. The Fund makes
investments in Brazil pursuant to Annex IV to the Central Bank of Brazil's
Resolution 1289 of March 20, 1987, as amended. Under this regulation the Fund
will generally be unable to invest in unlisted equity securities in Brazil and
will be subject to certain withholding taxes. See the SAI under "Appendix--The
Investment Restrictions--Certain Brazilian Restrictions" and "Taxation--
Brazilian Taxes." The Fund does not believe that these restrictions will
adversely affect the Fund's ability to achieve its investment objective or its
performance. Brazil requires governmental approval for the repatriation of
investment income, capital and the proceeds of sales of securities by foreign
investors. Although such approvals are routinely given, there can be no
assurance that such approvals will be forthcoming in the future. In addition,
if there is a deterioration in Brazil's balance of payments or for other
reasons, the government of Brazil may impose temporary restrictions on foreign
capital remittances abroad. In 1990, the government froze bank deposits as part
of an economic stabilization plan, including the deposits of foreign investors
investing through government-approved programs. The Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. There can be no assurance that additional or
different restrictions or adverse policies applicable to the Fund could not be
imposed in the future, nor as to the duration or impact of such restrictions or
policies if imposed. If for any reason the Fund was unable to distribute
substantially all of its investment company taxable income (as defined for U.S.
tax purposes) within applicable time periods, the Fund would cease to qualify
for the favorable tax treatment afforded to regulated investment companies under
the Code. See "Taxation" in the SAI.
MARKET ILLIQUIDITY; VOLATILITY; SMALLER MARKET CAPITALIZATION
The securities markets of Brazil are substantially smaller, less
liquid and more volatile than the major securities markets in the United States.
At December 31, 1994, the aggregate market capitalization of listed equity
securities on the Sao Paulo exchange (the main Brazilian exchange) was
approximately U.S. $189 billion. By comparison, at December 31, 1995, the
market capitalization for the New York Stock Exchange was approximately U.S.
$6 trillion and the annual aggregate trading value for the year then ended was
approximately U.S. $3 trillion. A high proportion of the shares of many
Brazilian companies are closely held by a limited number of persons, which may
limit the number of shares available for investment by the Fund. A limited
number of issuers in Brazilian securities markets may represent a
disproportionately large percentage of market capitalization and trading value.
The limited liquidity of Brazilian securities markets may also affect the Fund's
ability to acquire or dispose of securities at the price and time it wishes to
do so. In addition, the
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<PAGE>
Brazilian securities markets are susceptible to being influenced by large
investors trading significant blocks of securities or by large dispositions of
securities resulting from the failure to meet margin calls when due.
In addition to its smaller size, lesser liquidity and greater market
volatility, Brazilian securities markets are less developed than U.S. securities
markets. Disclosure and regulatory standards are in many respects less
stringent than U.S. standards. Furthermore, there is a lower level of
monitoring and regulation of the markets and the activities of investors in such
markets, and enforcement of existing regulations has been extremely limited.
Consequently, the prices at which the Fund may acquire investments may be
affected by (i) other market participants' anticipation of the Fund's investing,
(ii) trading by persons with material non-public information and
(iii) securities transactions by brokers in anticipation of transactions by the
Fund in particular securities. Commissions and other transaction costs
associated with Brazilian securities exchanges are generally higher than in the
United States. See the Appendix to the SAI.
CURRENCY DEVALUATIONS AND FLUCTUATIONS
The Fund normally will invest principally in securities denominated in
Reals. Accordingly, a change in the value of the Real against the U.S. dollar
will result in a corresponding change in the U.S. dollar value of the Fund's
assets denominated in Reals. Such changes will also affect the Fund's income
and net asset value. The Fund computes its income on the date of its receipt by
the Fund at the exchange rate in effect with respect to Reals on that date. If
the value of the Real declines relative to the U.S. dollar between the date
income is received and the date the Fund makes distributions, the Fund may need
to liquidate portfolio securities to make distributions to shareholders required
to maintain its status as a regulated investment company for U.S. federal income
tax purposes. There can be no assurance that the Fund will be able to liquidate
securities in order to meet such distribution requirements. The Fund is
permitted to borrow money to make distributions required to maintain its status
as a regulated investment company for U.S. tax purposes. If the exchange rate
against the U.S. dollar of the Real declines between the time the Fund incurs
expenses in U.S. dollars and the time cash expenses are paid, the amount of
Reals required to be converted into U.S. dollars in order to pay expenses in
U.S. dollars will be greater than the equivalent amount in Reals of such
expenses at the time they are incurred. The Brazilian currency has experienced
steady devaluations relative to the U.S. dollar, and major adjustments have been
made at times. Historical exchange rates per U.S. dollar for the Real are set
forth, for the periods and dates indicated, in the table "Exchange Rates of the
Real per U.S. dollar" in the Appendix to the SAI.
CURRENCY HEDGING
BEA Associates generally does not seek to hedge against a decline in
the value of the Fund's non-dollar-denominated portfolio securities resulting
from currency devaluations or fluctuations. As a consequence, the Fund will be
subject to the risk of changes in the value of the Real in relation to the U.S.
dollar.
INFLATION
Brazil has experienced substantial, and in some periods extremely high
and volatile, rates of inflation for many years. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economy and securities markets of Brazil. In an attempt to
control inflation, wage and price controls have been imposed at times in Brazil.
In the past, various programs to reduce inflation were introduced, which were
not able to effect a sustained reduction of inflation. The current Brazilian
government is implementing another program to control inflation through a tight
budgetary policy and monetary reform. There has been opposition to this policy
and other aspects of the government's economic stabilization program. Although
this current plan has so far been successful in reducing the country's
inflation, there can be no assurance that the recent economic measures will be
any more successful than previous programs in reducing inflation in the long
term. For a further discussion of inflation in Brazil and the current
government's economic reforms, see the Appendix to the SAI.
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<PAGE>
REPORTING STANDARDS
Companies in Brazil are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. The items 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, for companies that keep accounting records in Reals, inflation
accounting rules in Brazil require, for both tax and accounting purposes, that
certain assets and liabilities be restated on the company's balance sheet and
income statement using an index established by the government in order to
express items in terms of currency of constant purchasing power. Consequently,
data concerning Brazilian securities may be materially affected by restatements
for inflation and may not accurately reflect the real condition of companies and
securities markets. There may also be substantially less publicly available
information about companies in Brazil and the Brazilian government than there is
about U.S. companies and the U.S. government.
BRAZILIAN DEBT
Among developing countries, Brazil is currently the second largest
debtor to commercial banks and foreign governments. At times Brazil has
declared moratoria on the payment of principal and/or interest on certain
external debt.
Trading in Brazilian debt involves a high degree of risk. The issuer
or governmental authorities that control the repayment of Brazilian debt may not
be able or willing to repay the principal and/or interest when due in accordance
with the terms of such debt. A debtor's willingness or ability to repay
principal and interest due in a timely manner may be affected by, among other
factors, its cash flow situation, and, in the case of a sovereign debtor, the
extent of its foreign reserves, the availability of sufficient foreign exchange
on the date a payment is due, the relative size of the debt service burden to
the economy as a whole, the sovereign debtor's policy towards the International
Monetary Fund (the "IMF") and the political constraints to which a sovereign
debtor may be subject. Sovereign debtors may default on their debt and may also
be dependent on expected disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest arrearages on their
debt. The commitment on the part of these governments, agencies and others to
make such disbursements may be conditioned on a sovereign debtor's
implementation of economic reforms and/or economic performance and the timely
service of such debtor's obligations. Failure to implement such reforms,
achieve such levels of economic performance or repay principal or interest when
due may result in the cancellation of such third parties' commitments to lend
funds to the sovereign debtor, which may further impair such debtor's ability or
willingness to timely service its debts.
Holders of sovereign debt, including the Fund, may be requested to
participate in the rescheduling of such debt and to extend further loans to
sovereign debtors. There is no bankruptcy proceeding by which sovereign debt on
which a sovereign entity has defaulted may be collected in whole or in part. In
addition, the risks attached to an investment in sovereign debt may be greater
for private holders of securitized sovereign debt than they are for participants
in syndicated bank loans because the lower level of creditor cooperation that
characterizes securitized transactions may reduce the ability of creditors to
obtain enforcement of their rights.
Investors should be aware that the Brazilian debt instruments in which
the Fund may invest may involve great risk and are deemed to be the equivalent
in terms of quality to securities rated below investment grade by Moody's and
S&P. Such securities are regarded as predominantly speculative with respect to
the issuer's capacity to pay interest and repay principal in accordance with the
terms of those obligations and involve major risk to adverse conditions. Some
of such debt, which may not be paying interest currently or may be in payment
default, may be comparable to securities rated D by S&P or C by Moody's. The
Fund may have difficulty disposing of certain Brazilian debt obligations because
there may be a thin trading market for such
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<PAGE>
securities. Because there is no liquid secondary market for many of these
securities, the Fund anticipates that such securities could be sold only to a
limited number of dealers or institutional investors. The lack of a liquid
secondary market may have an adverse impact on the market price of such
securities and the Fund's ability to dispose of particular issues when necessary
to meet the Fund's liquidity needs or in response to a specific economic event
such as a deterioration in the creditworthiness of the issuer. The lack of a
liquid secondary market for certain securities also may make it more difficult
for the Fund to obtain accurate market quotations for purposes of valuing the
Fund's portfolio and calculating its net asset value. The market value of lower
quality securities, such as certain Brazilian debt, is less sensitive to
interest rate changes but is more sensitive to adverse economic changes than
that of higher quality securities. The Fund may not, however, invest more than
5% of its assets in debt securities that are determined by BEA Associates to be
comparable to securities rated C or below by either S&P or Moody's.
LOAN PARTICIPATION AND ASSIGNMENTS
The Fund may invest up to 25% of its assets in corporate and
government debt securities of Brazilian issuers including Assignments of and
Participations in Loans, as defined below. In accordance with this limitation,
the Fund may invest in fixed and floating rate loans ("Loans") arranged through
private negotiations between a borrower and one or more financial institutions
("Lenders") represented in each case by one or more Lenders acting as agent
("Agent") of the several Lenders. The Agent is frequently the commercial bank
that originated the Loan on behalf of the several Lenders and was primarily
responsible for negotiating the loan agreement or agreements ("Loan Agreement")
relating to the Loan. In larger transactions, it is common to have several
Agents, although only one Agent typically has primary responsibility for
documentation and administration of the Loan.
The Fund also may invest in participations ("Participations") in Loans
and purchase assignments ("Assignments") of portions of Loans from third
parties. If the Fund decides to invest in Loans, the majority of its
investments will be in Assignments and Participation of new Loans. The Fund's
investment in Participations of a Loan typically will result in the Fund having
a contractual relationship only with the Lender, not with the borrower. The
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. In connection
with purchasing a Participation, the Fund generally will have no right to
enforce compliance by the borrower with the terms of the Loan Agreement, nor any
rights of set-off against the borrower, and the Fund may not directly benefit
from any collateral supporting the Loan in which it has purchased the
Participation. As a result, the Fund will assume the credit risk of both the
borrower and the Lender selling the Participation. In the event of the
insolvency of the Lender selling a Participation, the Fund may be treated as a
general creditor of the Lender, and may not benefit from any set-off between the
Lender and the borrower. The Fund will acquire Participations only if the
Lender interpositioned between the Fund and the borrower is deemed by BEA
Associates to be creditworthy. The Fund also may purchase Assignments from
Lenders under which it will succeed to all the rights and obligations under the
Loan Agreement of the assigning Lender and become a Lender under the Loan
Agreement with the same rights and obligations as the assigning Lender.
Assignments are, however, arranged through private negotiations between
potential assignees and potential assignors, and the rights and obligations
acquired by the purchaser of an Assignment may differ from, and be more limited
than, those held by the assigning Lender. The Fund may have difficulty
disposing of Assignments and Participations because to do so it will have to
assign such securities to a third party. Because there is no liquid market for
such securities, the Fund anticipates that such securities could be sold only to
a limited number of institutional investors. The lack of a liquid secondary
market may have an adverse impact on the value of such securities and the Fund's
ability to dispose of particular Assignments or Participation when necessary to
meet the Fund's liquidity needs or in response to a specific economic event such
as a deterioration in the creditworthiness of the borrower. The lack of a
liquid secondary market for Assignments and Participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
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<PAGE>
Loan Agreements may include various restrictive covenants designed to
limit the activities of the borrower in an effort to protect the right of the
Lenders to receive timely payments of interest on and repayment of principal of
the Loans. Restrictive covenants in Loan Agreements may include mandatory
prepayment provisions arising from excess cash flow and typically include
restrictions on dividend payments, specific mandatory minimum financial ratios,
limits on total debt and other financial tests. Breach of the covenants, if not
waived by the Lenders, is generally an event of default under the applicable
Loan Agreement and may give the Lenders the right to accelerate principal and
interest payments. BEA Associates will consider the terms of any restrictive
covenants, as well as the performance history of the Loans, in deciding whether
to invest in Loans for the Fund's portfolio.
OPERATING EXPENSES
The Fund's annual operating expenses, which are higher than those of
many investment companies of comparable size, are believed by the Fund's
management to be comparable to expenses of other closed-end management
investment companies that invest primarily in the securities of a single
country.
MARKET VALUE AND NET ASSET VALUE
Shares of closed-end investment companies frequently trade at a
discount to net asset value. This characteristic of shares of a closed-end fund
is a risk separate and distinct from the risk that the Fund's net asset value
will decrease. The risk of purchasing shares of a closed-end fund that might
trade at a discount is more pronounced for investors who wish to sell their
shares in a relatively short period of time because for those investors,
realization of a gain or loss on their investments is likely to be more
dependent upon the existence of a premium or discount than upon portfolio
performance. Since the commencement of the Fund's operations the Fund's shares
have traded in the market for approximately half of that time at a discount to
net asset value. The Fund's shares are not subject to redemption. Investors
desiring liquidity may, subject to applicable securities laws, trade their
shares in the Fund on any exchange where such shares are then listed at the then
current market value, which may differ from the then current net asset value.
If, at any time, shares of the Fund's Common Stock trade publicly for a
substantial period of time at a substantial discount from the Fund's then
current net asset value per share, the Board of Directors of the Fund will
consider, at its next regularly scheduled meeting, taking various actions
designed to reduce or eliminate the discount.
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 in the
proportion of its assets that may be invested in the obligations of a single
issuer. The Fund, however, is subject to certain Brazilian laws limiting
investments in a single issuer and intends to comply with the diversification
requirements imposed by the Code for qualification as a regulated investment
company. As a non-diversified investment company, the Fund may invest a greater
proportion of its assets in the obligations of a smaller number of issuers and,
as a result, may be subject to greater risk with respect to its portfolio
securities.
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<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The Fund's investment objective is long-term capital appreciation.
The fund seeks to achieve this objective by investing primarily in equity
securities of Brazilian issuers. The Fund's investment objective is a
fundamental policy and cannot be changed without the approval of the holders of
a majority of the Fund's outstanding voting securities. As used herein, a
"majority of the Fund's outstanding voting securities" means the lesser of (a)
67% of the shares represented at a meeting at which more than 50% of the
outstanding shares are represented or (b) more than 50% of the outstanding
shares. No assurance can be given that the Fund's investment objective will be
achieved. For a more detailed discussion of the Fund's investment objective and
policies, see "Investment Objective and Policies" in the SAI.
INVESTMENT POLICIES
It is the policy of the Fund, under normal market conditions, to
invest at least 65% of the Fund's total assets in equity securities of Brazilian
issuers. It is anticipated that at least 80% of the Fund's assets normally will
be invested in equity securities of Brazilian issuers. The Fund, however, will
not invest more than 25% of its assets in the securities of companies in the
same industry. Because of the restrictions of Annex IV to the Central Bank of
Brazil's Resolution 1289 of March 20, 1987, as amended, currently applicable to
the Fund, the Fund intends to invest only in listed securities when investing in
equity securities in Brazil. The equity securities in which the Fund will
invest will include common stock, preferred stock (including convertible
preferred stock), warrants and convertible debt securities. The Fund defines
Brazilian issuers to be
(a) companies organized in Brazil or for which the principal trading market for
their securities is in Brazil,
(b) companies financing operations in Brazil by means of equity securities
denominated in the Brazilian local currency, (c) companies that derive at least
50% of their revenues primarily from either goods or services produced in Brazil
or sales made in Brazil, (d) issuers of depositary shares for Brazilian equity
securities and
(e) the government of Brazil, its political subdivisions and their respective
agencies or instrumentalities or the Central Bank of Brazil.
The Fund's definition of Brazilian issuer includes companies that may
have characteristics and business relationships common to companies in a country
or countries other than Brazil. As a result, the value of the equity securities
of such companies may reflect economic and market forces applicable to other
countries, as well as to Brazil. The Fund believes, however, that investment in
such companies will be appropriate because the Fund will invest only in those
companies which, in its view, have sufficiently strong exposure to economic and
market forces in Brazil such that their value will tend to reflect developments
in Brazil to a greater extent than developments in another country or countries.
Annex IV to the Central Bank of Brazil's Resolution 1289 of March 20, 1987 may
be amended from time to time to provide a Managed Portfolio (as defined in such
Resolution), such as the Fund, greater or lesser flexibility in connection with
its investment activities in Brazil. The Fund may take advantage of any greater
flexibility afforded by these amendments in the discretion of BEA Associates.
The government of Brazil has been engaged in a program of selling part
or all of its interests in government-owned or -controlled enterprises
("privatizations"). BEA Associates believes that privatizations may offer
investors opportunities for significant capital appreciation and intends to
invest assets of the Fund in privatizations in appropriate circumstances. The
ability of foreign entities, such as the Fund, to participate in privatizations
is limited by Brazilian law, or the terms on which the Fund may be permitted to
participate may be less advantageous than those for local investors. There can
be no assurance that the Brazilian government will continue to sell companies it
currently owns or controls, that privatizations will be successful or that the
Fund will be able to participate in privatizations.
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<PAGE>
The Fund intends its portfolio, under normal market conditions, to
consist principally of Brazilian equity securities. The Fund may, however,
invest up to 25% of its assets in corporate and government debt securities of
Brazilian issuers when BEA Associates believes that it is appropriate to do so
in order to achieve capital appreciation. Brazilian equity securities in which
the Fund will invest will consist predominantly of common stock and preferred
stock, although the Fund may also invest to a limited extent in convertible
securities, options and warrants. Brazilian debt securities that the Fund may
acquire include bonds, notes and debentures of any maturity of the Brazilian
government and obligations of its political subdivisions, agencies,
instrumentalities and the central bank and of Brazilian banks and other
companies, determined by BEA Associates to be suitable investments for the Fund
(including repurchase agreements with respect to obligations of the Brazilian
government or the central bank and Assignments of, and Participation in, Loans).
BEA Associates may invest in securities of companies that it determines to be
suitable investments for the Fund regardless of such securities' ratings. The
Fund may not, however, invest more than 5% of its assets in debt securities that
are determined by BEA Associates to be comparable to securities rated C or below
by either S&P or Moody's. The Fund's holdings of lower-quality debt securities
will consist predominantly of its holdings of sovereign debt, much of which
trades at substantial discounts from face value and which may include sovereign
debt comparable to securities rated as low as D by S&P or C by Moody's. For a
description of S&P's and Moody's corporate bond ratings, see the Appendix to
this Prospectus.
The Fund will not invest more than 25% of its assets in the securities
of companies in the same industry. In selecting industries and companies for
investment by the Fund, BEA Associates will consider factors such as 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 and management. Certain sectors of the economy of Brazil
are closed to equity investments by foreign investors or the acquisition of
voting interests in companies in those sectors is limited (see the Appendix to
the SAI).
Brazil has adopted a debt conversion program, pursuant to which
investors may use external debt of Brazil, directly or indirectly, to make
investments in local companies. The Fund intends to acquire debt of Brazilian
issuers to hold and trade in appropriate circumstances, as well as to use it to
participate in the Brazilian debt conversion program. BEA Associates will
evaluate opportunities to enter into debt conversion transactions as they arise.
TEMPORARY INVESTMENTS
During periods in which BEA Associates believes changes in economic,
financial or political conditions make it advisable, the Fund may for temporary
defensive purposes reduce its holdings in other securities and invest in certain
short-term (less than twelve months to maturity) debt securities or hold cash.
The short-term debt securities in which the Fund may invest consist of (a)
obligations of the United States or foreign governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations
meeting the Fund's credit quality standards; and
(e) repurchase agreements with banks and broker-dealers with respect to such
securities. The Fund intends to invest only in short-term debt securities that
BEA Associates believes to be of high quality, i.e., rated in one of the two
highest rating categories by Moody's or S&P or determined to be equivalent in
credit quality.
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase agreement at not
less than their repurchase price. BEA Associates will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price.
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<PAGE>
Repurchase agreements may involve risks in the event of default or insolvency of
the seller, including possible delays or restrictions upon the Fund's ability to
dispose of the underlying securities.
CURRENCY TRANSACTIONS
BEA Associates generally does not seek to hedge against a decline in
value of the Fund's non-dollar-denominated portfolio securities resulting from a
currency devaluation or fluctuation. As a consequence, the Fund will be subject
to the risk of changes in the value of the Real, thereby affecting the value of
its portfolio assets, as well as the value of the amounts of interest, dividends
and net realized capital gains received or to be received in Reals that it
intends to remit out of Brazil. Therefore, the risk of currency devaluations
and fluctuations and the effect these may have on the Fund should be carefully
considered by investors in determining whether to purchase shares of the Fund.
The Fund reserves the right, upon 30 days' written notice to
shareholders, to conduct currency exchange transactions either on a spot (i.e.,
cash) basis or through entering into forward contracts to purchase or sell
currency should suitable hedging instruments become available on acceptable
terms.
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The business and affairs of the Fund are managed under the direction
of the Fund's Board of Directors, and the day to day operations of the Fund are
conducted through or under the direction of the officers of the Fund. Although
the Fund is a Maryland corporation, one of its directors is a resident of
Argentina. A substantial portion of such director's assets is located outside
of the United States; he has not appointed an agent for service of process in
the United States. Consequently, it may be difficult for investors to enforce,
in United States courts, judgments against such director obtained in such courts
predicated on the civil liability provisions of the United States securities
laws. In addition, there is doubt as to the enforceability in Argentine courts
of liabilities predicated solely upon the United States securities laws, whether
or not such liabilities are based upon judgments of courts in the United States.
For certain information regarding the directors and officers of the Fund, see
"Management of the Fund--Directors and Officers" in the SAI.
BEA ASSOCIATES
BEA Associates serves as the Fund's investment adviser pursuant to an
Advisory Agreement with the Fund (the "Advisory Agreement"). BEA Associates is
a general partnership organized under the laws of the State of New York and,
together, with its predecessor firms, has been engaged in the investment
advisory business for over 50 years. BEA Associates is located at One Citicorp
Center, 57th Floor, 153 East 53rd Street, New York, New York 10022. Credit
Suisse Capital Corporation ("CS Capital") is an 80% partner and CS Advisors
Corp., a New York corporation and a wholly owned subsidiary of CS Capital, is a
20% partner in BEA Associates. CS Capital is a wholly owned subsidiary of
Credit Suisse Investment Corporation, which is a wholly owned subsidiary of
Credit Suisse, the second largest Swiss bank, which in turn is a subsidiary of
CS Holding, a Swiss corporation. BEA Associates is registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
BEA Associates is a diversified asset manager, handling global equity,
balanced, fixed income and derivative securities accounts for private
individuals, as well as corporate pension and profit-sharing plans, state
pension funds, union funds, endowments and other charitable institutions. As of
March 31, 1996, BEA Associates managed in excess of $28.5 billion of assets.
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<PAGE>
BEA Associates has sole investment discretion for the Fund with
respect to the Fund's portfolio under the supervision of the Fund's Board of
Directors and in accordance with the Fund's stated policies. BEA Associates
will select investments for the Fund and will place purchase and sale orders on
behalf of the Fund. For its services, BEA Associates is paid a quarterly fee
computed at an annual rate of 1.35% of the first U.S. $100 million of the Fund's
average weekly net assets and 1.05% of amounts over U.S. $100 million.
BEA Associates and BEA Capital LLC, a company organized and controlled
by Mr. Emilio Bassini and a former officer of BEA, have entered into a
consulting agreement, dated as of December 12, 1995, pursuant to which BEA
Capital LLC will provide consulting services to BEA Associates with respect to
private equity investments held by clients of BEA Associates, including the
Fund, for a fee of $2 million per annum payable by BEA Associates. This
consulting agreement is terminable by either party on the last day of any
calendar year commencing on December 31, 1996; provided, that if BEA Associates
terminates this agreement as of December 31, 1996, BEA Associates is required to
pay BEA Capital LLC an additional $2 million as a termination fee.
Garantia Adminisdracao de Recursos S.A. ("Garantia") resigned as an
investment sub-adviser to the Fund on June 21, 1994. On August 15, 1994,
Patrimonio Planejamento Financiero Ltda. ("Patrimonio") also resigned as
investment sub-adviser to the Fund. Since such resignations, BEA Associates has
voluntarily waived that portion of its fees (0.35 of 1.00% of the Fund's average
weekly net assets) that would have been otherwise payable to Garantia and
Patrimonio.
PORTFOLIO MANAGEMENT
Richard Watt, who has been a Senior Vice President of BEA Associates
since 1995, is primarily responsible for management of the Fund's assets.
Mr. Watt has served the Fund in such capacity since August 1995. Prior to that
time, he was head of Emerging Markets Investments and Research at Gartmore
Investment Limited (November 1992 to June 1995). From 1987 until 1992, Mr. Watt
was a director of Kleinwort Benson International Investment. He is also
Director and Investment Officer of The Emerging Markets Telecommunications Fund,
Inc., The Emerging Markets Infrastructure Fund, Inc. and The Latin America
Equity Fund, Inc.
U.S. ADMINISTRATOR
Bear Stearns Funds Management Inc., a Delaware corporation and an
affiliate of the Dealer Manager, serves as the Fund's U.S. administrator
pursuant to an agreement with the Fund (the "U.S. Administration Agreement").
The U.S. Administrator's principal offices are located at 245 Park Avenue, New
York, New York. Under the U.S. Administration Agreement, the Fund pays the U.S.
Administrator a monthly fee that is computed weekly at an annual rate of 0.10%
of the first $100 million of the Fund's average weekly net assets and 0.08% of
amounts in excess of $100 million.
The U.S. Administrator provides office facilities and personnel
adequate to perform services for the Fund, including without limitation the
following: oversight of the determination and publication of the Fund's net
asset value in accordance with the Fund's policy as adopted from time to time by
the Board of Directors; oversee the maintenance by Brown Brothers Harriman & Co.
of the books and records of the Fund as required under the 1940 Act; assist in
preparation and filing of the Fund's U.S. federal, state and local income tax
returns; preparation of financial information for the Fund's proxy statements
and semiannual and annual reports to shareholders; and preparation of certain of
the Fund's reports to the Securities and Exchange Commission.
The Fund has retained BEA Associates to provide certain administrative
and shareholder services to the Fund that are not provided by the Fund's
administrators, subject to the supervision and direction of the Board of
Directors of the Fund pursuant to an Administrative Services Agreement with BEA
Associates (the "Administrative Services Agreement"). These services include
furnishing certain internal executive and
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<PAGE>
administrative services, responding to shareholder inquiries, acting as liaison
between the Fund and the Fund's various service providers, furnishing corporate
secretarial services, which include assisting in the preparation of materials
for meetings of the Board of Directors, coordinating the preparation of proxy
statements, annual, semi-annual and quarterly reports and filings with state
blue sky authorities, assisting in the preparation of tax returns and generally
assisting in monitoring and developing compliance procedures for the Fund. BEA
Associates will be reimbursed by the Fund for costs incurred by BEA Associates
on behalf of the Fund (up to $20,000 per annum). Costs incurred on behalf of
two or more funds for which BEA Associates provides administrative and
shareholder services will be apportioned among such funds according to their
respective net asset values. The Fund will also reimburse BEA Associates for
any out-of-pocket expenses in providing these services to the Fund, including
postage, telephone and telecommunications charges and duplicating costs.
BRAZILIAN ADMINISTRATOR
Under Brazilian law, the Fund is required to have a local manager in
Brazil. Bank of Boston, Sao Paulo serves as the Fund's Brazilian administrator,
performing those services required of a local manager in Brazil, pursuant to a
Brazilian Administration Agreement (the "Brazilian Administration Agreement")
with Brown Brothers Harriman & Co., the Fund's accounting agent and custodian.
Bank of Boston, Sao Paulo, a corporation located at Rua Libero Badaro, 487 Piso
11, Sao Paulo, Brazil, performs various services for the Fund, including (1)
furnishing local management services as required under Brazilian law, (2)
processing remittances of earnings and the repatriation of investment, (3)
paying applicable taxes imposed under Brazilian laws and regulation on the Fund,
(4) furnishing information as to the Fund's Brazilian portfolio and remittances,
(5) handling certain recordkeeping for the Fund's portfolio in Brazil and (6)
effecting the registration of the Fund's foreign capital with the Central Bank
of Brazil. For its services under the Brazilian Administration Agreement, Bank
of Boston, Sao Paulo is paid, out of the fee paid to Brown Brothers Harriman &
Co. a quarterly fee based on an annual rate of 0.12% of the average month-end
assets of the Fund held in Brazil.
ESTIMATED EXPENSES
Except as otherwise provided in the Administrative Services Agreement,
BEA Associates and the U.S. Administrator are each obligated to pay expenses
associated with providing the services contemplated by the agreements to which
they are parties, including compensation of and office space for their
respective officers and employees connected with investment and economic
research, trading and investment management and administration of the Fund, as
well as the fees of all directors of the Fund who are affiliated with those
companies or any of their affiliates. The Fund pays all other expenses incurred
in the operation of the Fund including, among other things, expenses for legal
and independent accountants' services, costs of printing proxies, stock
certificates and shareholder reports, charges of the custodians, any sub-
custodians and the transfer and dividend-paying agent, expenses in connection
with the Plan, Securities and Exchange Commission fees and fees of Brazilian
regulatory bodies, fees and expenses of unaffiliated directors, accounting and
pricing costs, membership fees in trade associations, fidelity bond coverage for
the Fund's officers and employees, directors' and officers' errors and omissions
insurance coverage, interest, brokerage costs and stock exchange fees, taxes,
stock exchange listing fees and expenses, expenses of qualifying the Fund's
shares for sale in various states and foreign jurisdictions, litigation and
other extraordinary or non-recurring expenses and other expenses properly
payable by the Fund.
PORTFOLIO TRANSACTIONS
The Fund may utilize CS First Boston Corporation and other affiliates
of Credit Suisse in connection with the purchase or sale of securities in
accordance with rules or exemptive orders adopted by the U.S. Securities and
Exchange Commission when BEA Associates believes that the charge for the
transaction does not exceed usual and customary levels. For a more detailed
discussion of the Fund's brokerage allocation practice, see the SAI under
"Portfolio Transactions."
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS; DIVIDEND
REINVESTMENT AND CASH PURCHASE PLAN
The Fund intends to distribute annually to shareholders substantially
all of its net investment income (its income other than its net realized long-
and short-term capital gains) and net realized short-term capital gains. The
Fund will determine annually whether to distribute any net realized long-term
capital gains in excess of net realized short-term capital losses (including any
capital loss carryovers), although it currently expects to distribute any such
gains.
All dividends and distributions, net of any applicable U.S.
withholding tax, are automatically reinvested in additional shares of the Fund
unless a shareholder has instructed Bank of Boston, as the Plan Agent (the "Plan
Agent"), otherwise in writing. A shareholder whose shares are held by a broker
or nominee that does not provide a dividend reinvestment program may be required
to have his shares registered in his own name to participate in the Plan. The
receipt of dividends and distributions in shares under the Plan will not relieve
participants of any income tax (including withholding tax) that may be payable
on such dividends or distributions.
Certain distributions of cash attributable to the dividends paid to
the Fund that are derived from securities of Brazilian issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes will be
borne by the Fund and allocated to all shareholders in proportion to their
interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering
the Plan. If the Board of Directors of the Fund declares 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. 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 valued at
net asset value or, if the net asset value is less than 95% of the market price
on the valuation date, then valued at 95% of the market price. If net asset
value per share on the valuation date exceeds the market price per share on that
date, the Plan Agent, as agent for the participants, will buy shares of Common
Stock on the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts. The valuation date generally is the dividend or
distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day. 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 New York Stock Exchange or elsewhere, for the participants' accounts 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.
There is no charge to participants for reinvesting dividends or
capital gains distributions payable in either shares or cash. However, each
participant will be charged by the Plan Agent 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 the
reinvestment of dividends or capital gains distributions payable only in cash.
All correspondence concerning the Plan should be directed to The First National
Bank of Boston, Investor Relations Department, P.O. Box 644, Mail Stop 45-02-09,
Boston, Massachusetts 02102-0644 or by telephone at 1-800-730-6001. For a more
complete description of the Plan, see "Dividend Reinvestment and Cash Purchase
Plan" in the SAI.
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<PAGE>
TAXATION
The Fund has qualified and intends to continue to qualify and elect to
be treated as a regulated investment company for each taxable year under the
Code. The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the
Fund will determine annually whether to distribute any such net realized long-
term capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers). The Fund currently expects to
distribute any excess annually to its shareholders. However, if the Fund
retains for investment an amount equal to its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers, it will
be subject to a corporate tax (currently at a rate of 35%) on the amount
retained. In that event, the Fund expects to designate such retained amounts as
undistributed capital gains in a notice to its shareholders who (a) will be
required to include in income for United States federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount,
(b) will be entitled to credit their proportionate shares of the 35% tax paid by
the Fund on the undistributed amount against their United States federal income
tax liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to increase their tax basis,
for United States federal income tax purposes, in their shares by an amount
equal to 65% of the amount of undistributed capital gains included in the
shareholder's income.
Shareholders will be notified annually by the Fund as to the United
States federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of
the Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year. For a more detailed discussion of tax matters affecting
the Fund and its shareholders, including a discussion of Brazilian taxes, see
"Taxation" in the SAI.
NET ASSET VALUE
Net asset value is calculated (a) no less frequently than weekly,
(b) on the last business day of each month and (c) at any other times determined
by the Fund's Board of Directors. All securities for which market quotations
are readily available are valued at the last sales price prior to the time of
determination, or, if no sales price is available at that time, at the closing
price quoted for the securities (but if bid and asked quotations are available,
at the mean between the last current bid and asked prices, rather than the
quoted closing price). For a more detailed description of the Fund's valuation
procedures, see "Net Asset Value" in the SAI.
The Common Stock trades on the New York Stock Exchange. Shares of
closed-end investment companies have often traded at a discount from net asset
value, but in some cases have traded above net asset value. Among the factors
which may be expected to affect whether shares of the Fund trade above or below
net asset value are portfolio investment results, the general performance of the
Brazilian stock and bond markets and supply and demand for shares of the Fund.
Since the commencement of the Fund's operations, the Fund's shares have traded
in the market for approximately half of that time at a discount to net asset
value.
The Fund's Bylaws provide that if, at any time, shares of the Fund's
Common Stock publicly trade for a substantial period of time at a substantial
discount from the Fund's then current net asset value per share, the Board of
Directors of the Fund will consider, at its next regularly scheduled meeting,
taking various actions designed to reduce or eliminate the discount. The
actions considered by the Board of Directors may include periodic repurchases of
shares. There can be no assurance that share repurchases will be made or that,
if made, they will reduce or eliminate the market discount. The Fund does not
currently contemplate repurchasing any of its shares. Should any such
repurchases be made in the future, it is expected that they would be made out of
available cash reserves rather than the proceeds of a sale of portfolio
securities and would
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<PAGE>
be made at prices at or below the current net asset value per share. Any such
repurchases would cause the Fund's total assets to decrease, which may have the
effect of increasing the Fund's expense ratio.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of
Common Stock, $.001 par value per share. All shares of Common Stock have equal
rights as to dividends and voting privileges and, when issued, will be fully
paid and nonassessable. 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.
Shareholders are entitled to one vote per share and do not have cumulative
voting rights.
Set forth below is information with respect to the Common Stock as of
May 31, 1996:
AMOUNT HELD BY AMOUNT
AMOUNT AUTHORIZED FUND FOR ITS OWN ACCOUNT OUTSTANDING
----------------- ------------------------ -----------
100,000,000 shares 0 Shares 4,634,005
The number of shares outstanding as of May 31, 1996, adjusted to give
effect to the issuance of all the Shares pursuant to the Offer, including up to
25% of the Shares available for issuance pursuant to the Over-Subscription
Privilege, would be 6,564,840.
The Fund's shares are listed and traded on the New York Stock
Exchange. The average weekly trading volume of the Common Stock on the New York
Stock Exchange during the year ended March 31, 1996 was 124,940 shares. The
following table sets forth for the quarters indicated the high and low closing
prices on the New York Stock Exchange per share of Common Stock and the net
asset value and the premium or discount from net asset value at which the Common
Stock was trading, expressed as a percentage of net asset value, at each of the
high and low closing prices provided.
<TABLE>
<CAPTION>
MARKET NET ASSET PREMIUM OR DISCOUNT AS %
PRICE (1) VALUE OF NAV (2)
Quarter Ended
------------- High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994 . . . . . . . . . . . . . . . . . . 21.125 14.750 18.82 13.90 12.25 6.12
September 30, 1994 . . . . . . . . . . . . . . . 27.000 18.500 27.29 16.63 (1.07) 11.24
December 31, 1994 . . . . . . . . . . . . . . . . 27.500 18.625 27.29 18.92 0.77 (1.56)
March 31, 1995 . . . . . . . . . . . . . . . . . 21.125 11.000 17.31 11.06 22.04 (0.54)
June 30, 1995 . . . . . . . . . . . . . . . . . . 17.625 13.625 15.87 14.10 11.06 (3.37)
September 30, 1995 . . . . . . . . . . . . . . . 16.625 14.625 14.64 14.10 13.56 3.72
December 31, 1995 . . . . . . . . . . . . . . . . 15.625 13.00 15.95 14.47 (2.04) (10.16)
March 31, 1996 . . . . . . . . . . . . . . . . . 17.00 12.125 12.85 13.76 32.30 (11.88)
June 30, 1996* 14.625 13.00 15.63 14.20 (6.43) (8.77)
</TABLE>
______________________
(1) As reported by the New York Stock Exchange.
(2) Based on the Fund's computations.
* Through May 31, 1996.
________________________
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<PAGE>
SPECIAL VOTING PROVISIONS
The Fund has provisions in its Articles of Incorporation and Bylaws
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 has been divided into three
classes with directors in each class having a term of up to 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.
In addition, conversion of the Fund from a closed-end to an open-end
investment company requires the affirmative vote of at least 75% of the
directors and of the holders of 75% of the shares of the Fund unless approved by
at least 75% of the Continuing Directors, as defined below, in which case a
majority of the votes entitled to be cast by shareholders of the Fund will be
required to approve such conversion. 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, in light of the limited depth of the
markets for certain securities in which the Fund may invest, there can be no
assurance that the Fund could realize the then current market value of the
portfolio securities the Fund would be required to liquidate to meet redemption
requests. Also, as a subsidiary of a bank holding company, BEA Associates may
be prohibited under applicable federal law from acting as the sponsor or
organizer of an open-end investment company.
The affirmative votes of at least 75% of the directors and the holders
of at least 75% of the shares of the Fund are required to authorize any of the
following transactions (transactions within clauses (i) through (iii) are
referred to as a "Business Combination"):
(i) merger, consolidation or share exchange of the Fund with or into
any other person;
(ii) issuance or transfer by the Fund (in one or a series of
transactions in any 12-month period) of any securities of the Fund to any
other person or entity for cash, securities or other property (or
combination thereof) having an aggregate fair market value of $1,000,000 or
more excluding sales of securities of the Fund in connection with a public
offering, issuances of securities of the Fund pursuant to a dividend
reinvestment plan adopted by the Fund and issuances of securities of the
Fund upon the exercise of any stock subscription rights distributed by the
Fund;
(iii) sale, lease, exchange, mortgage, pledge, transfer or other
disposition by the Fund (in one or a series of transactions in any 12-month
period) to or with any 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;
(iv) any proposal as to the voluntary liquidation or dissolution
of the Fund or any amendment to the Fund's Articles of Incorporation to
terminate its existence; and
(v) any shareholder proposal as to specific investment decisions made
or to be made with respect to the Fund's assets.
However, in the case of a Business Combination, a 75% shareholder vote will not
be required if the transaction is approved by a vote of at least 75% of the
Continuing Directors (as defined below) or if certain conditions regarding the
consideration paid by the person entering into, or proposing to enter into, a
Business Combination with the Fund and various other requirements are satisfied.
In such case, a majority of the votes entitled to be cast by shareholders of the
Fund will be required to approve such transaction if it is a transaction
described in clause (i) or if it is a transaction described in clause (iii) that
involves substantially all of the Fund's assets with respect to which
shareholder approval is required under Maryland law and no shareholder vote will
be required to approve such transaction if it is any other Business Combination.
In addition, a 75% shareholder vote will not be required with respect to a
transaction described in clause (iv) above if it is approved by a vote of at
least
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<PAGE>
75% of the Continuing Directors, in which case a majority of the votes entitled
to be cast by shareholders of the Fund will be required to approve such
transaction. The Fund's Bylaws contain provisions the effect of which is to
prevent matters, including nominations of directors, from being considered at
shareholders' meetings where the Fund has not received sufficient prior notice
of the matters.
Reference is made to the Articles of Incorporation and Bylaws of the
Fund on file with the Securities and Exchange 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. In the
opinion of the Board of Directors, however, these provisions offer several
possible advantages. They may require persons seeking control of the Fund to
negotiate with its management regarding the price to be paid for the shares
required to obtain such control, they promote continuity and stability and they
enhance the Fund's ability to pursue long-term strategies that are consistent
with its investment objectives. 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.
A "Continuing Director" is any member of the Board of Directors of the
Fund (a) who is not a person or affiliate of a person (other than an investment
company advised by the Fund's initial investment manager or any of its
affiliates) who enters or proposes to enter into a Business Combination with the
Fund (such person or affiliate, an "Interested Party") and (b) who has been a
member of the Board of Directors of the Fund for a period of at least 12 months,
or is a successor of a Continuing Director who is unaffiliated with an
Interested Party and is recommended to succeed a Continuing Director by a
majority of the Continuing Directors then on the Board of Directors of the Fund.
CUSTODIAN AND TRANSFER AND DIVIDEND-PAYING AGENT AND REGISTRAR
Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts
02109, acts as the accounting agent and custodian for the Fund's assets. Bank
of Boston acts as the Fund's dividend-paying agent, transfer agent and
registrar.
DISTRIBUTION ARRANGEMENTS
Bear, Stearns & Co. Inc., located at 245 Park Avenue, New York, New
York, will act as Dealer Manager for the Offer. Under the terms and subject to
the conditions contained in a Dealer Manager Agreement dated the date hereof,
the Dealer Manager will provide financial advisory and marketing services in
connection with the Offer and will solicit the exercise of Rights by Record Date
Shareholders. The Offer is not contingent upon any number of Rights being
exercised. The Fund has agreed to pay the Dealer Manager a fee for financial
advisory and marketing services equal to 1.125% of the Subscription Price per
Share issued upon exercise of the Rights and the Over-Subscription Privilege and
to pay broker-dealers, including the Dealer Manager, fees for their soliciting
efforts ("Soliciting Fees") of 2.50% of the Subscription Price per Share for
each Share issued upon exercise of the Rights and the Over-Subscription
Privilege. Soliciting Fees will be paid to the broker-dealer designated on the
applicable portion of the Subscription Certificates, or if no broker-dealer is
so designated, to the Dealer Manager.
The Fund has also agreed to reimburse the Dealer Manager up to
$100,000 for its reasonable expenses incurred in connection with the Offer.
The Fund and BEA Associates have agreed to indemnify the Dealer
Manager for losses arising out of certain liabilities including liabilities
under the Securities Act. The Fund has also agreed to contribute to such
losses. The Dealer Manager Agreement also provides that the Dealer Manager will
not be subject to any
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<PAGE>
liability to the Fund in rendering the services contemplated by the Agreement
except in instances involving the bad faith, willful misfeasance, or gross
negligence of the Dealer Manager or the reckless disregard by the Dealer Manager
of its obligations and duties under the Agreement.
The Fund has agreed not to offer or sell, or enter into any agreement
to sell, any equity or equity related securities of the Fund or securities
convertible into such securities for a period of 180 days after the date of the
Dealer Manager Agreement without the prior consent of the Dealer Manager except
for the shares of Common Stock issued upon the reinvestment of dividends or
distributions or pursuant to the cash purchase plan.
The U.S. Administrator is an affiliate of the Dealer Manager.
LEGAL MATTERS
With respect to matters of United States law, the validity of the
shares offered hereby will be passed on for the Fund by Willkie Farr &
Gallagher, New York, New York. Certain legal matters will be passed on for the
Dealer Manager by Skadden, Arps, Slate, Meagher & Flom, Chicago, Illinois.
Counsel for the Fund and the Dealer Manager will rely, as to matters of Maryland
law, on Venable, Baetjer and Howard, LLP, Baltimore, Maryland. Certain matters
of Brazilian law will be passed upon for the Fund and the Dealer Manager by
Tozzini, Freire, Teixeira e Silva, Sao Paulo, Brazil.
EXPERTS
The financial statements of the Fund as of March 31, 1996 have been
incorporated by reference into the SAI in reliance on the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. Coopers & Lybrand L.L.P. is located at 2400
Eleven Penn Center, Philadelphia, Pennsylvania 19103.
OFFICIAL DOCUMENTS
The tabular and other statistical information set forth in this
Prospectus and the SAI is, unless otherwise indicated, based upon or derived
from public official documents or information of the Brazilian government and
ministries, the Central Bank of Brazil, major stock exchanges or official
statistical agencies.
FURTHER INFORMATION
Further information concerning these securities and their issuer may
be found in the Registration Statement of which this Prospectus constitutes a
part on file with the Securities and Exchange Commission.
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<PAGE>
APPENDIX
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or exceptionally
stable margin and principal is secure. While the various protective
elements are likely to change, such changes as can be visualized are not
likely to impair the fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high-
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than
in Aaa Securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa Bonds that are rated Baa are considered as medium-grade obligations, (i.e.,
they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Moody's applies numerical modifiers (1, 2, and 3) with respect to the
bonds rated "Aa" through "B." The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa Bonds that are rated Caa are of poor standing. These issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca Bonds that are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest-rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
A-1
<PAGE>
STANDARD & POOR'S RATINGS GROUP
AAA Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB This is the lowest investment grade. Debt rated BBB has an adequate
capacity to pay interest and repay principal. It normally exhibits adequate
protection parameters, but adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay.
Speculative Grade
Debt rated BB, B, CCC, CC and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the lowest degree of speculation, and C the highest
degree of speculation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
exposures to adverse conditions. Debt rated D is in payment default.
In July 1994, Standard & Poor's initiated an "r" symbol to its ratings.
The "r" symbol is attached to derivative, hybrid and certain other obligations
that Standard & Poor's believes may experience high variability in expected
returns due to non-credit risks created by the terms of the obligation.
Modifiers
Standard & Poor's may apply plus (+) or minus (-) modifiers with respect to
bonds rated "AA" through "CCC." These modifiers show the bond's relative
standing within the major rating categories.
A-2
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
Page
----
Investment Objective And Policies. . . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management Of The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Dividend Reinvestment And Cash Purchase Plan . . . . . . . . . . . . . . . . .15
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
<PAGE>
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE FUND, THE FUND'S INVESTMENT ADVISER OR THE DEALER
MANAGER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY SHARES OF COMMON STOCK BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS
AS SET FORTH IN THE PROSPECTUS OR IN THE AFFAIRS OF THE FUND SINCE THE DATE
HEREOF.
_________________
THE BRAZILIAN EQUITY FUND, INC.
1,544,668 Shares of Common Stock
Issuable Upon Exercise of Rights
to Subscribe to Such Shares
-----------------
TABLE OF CONTENTS
Page
----
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fee Table. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Highlights
The Offer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors and Special Considerations. . . . . . . . . . . . . . . . . . . .
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan . . . . . . . . . . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Custodian and Transfer and Dividend-Paying
Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Official Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
______________
PROSPECTUS
______________
Bear, Stearns & Co. Inc.
______________
_______________
________, 1996
<PAGE>
SUBJECT TO COMPLETION DATED JUNE 7, 1996
THE BRAZILIAN EQUITY FUND, INC.
_______________________
STATEMENT OF ADDITIONAL INFORMATION
The Brazilian Equity Fund, Inc. (the "Fund") is a non-diversified,
closed-end management investment company that seeks long-term capital
appreciation by investing primarily in Brazilian equity securities. It is the
policy of the Fund, under normal market conditions, to invest at least 65% of
its total assets in equity securities of Brazilian issuers. It is anticipated
that at least 80% of the Fund's assets normally will be invested in equity
securities of Brazilian issuers.
This Statement of Additional Information ("SAI") is not a prospectus,
but should be read in conjunction with the Prospectus for the Fund dated
___________, 1996 (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
(800) ___-____, extension ___. This SAI incorporates by reference the entire
Prospectus.
_________________
TABLE OF CONTENTS
Page
----
Investment Objective And Policies. . . . . . . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Management Of The Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Dividend Reinvestment And Cash Purchase Plan . . . . . . . . . . . . . . . . .15
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
__________________
The Prospectus and this SAI omit certain of the information contained
in the registration statement filed with the Securities and Exchange Commission,
Washington, D.C. The registration statement may be obtained from the Securities
and Exchange Commission upon payment of the fee prescribed, or inspected at the
Securities and Exchange Commission's office at no charge.
___________________
This Statement of Additional Information is dated
____________, 1996.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION DOES NOT CONSTITUTE A
PROSPECTUS.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The Fund's investment objective is long-term capital appreciation.
The Fund seeks to achieve this objective by investing primarily in equity
securities of Brazilian issuers. The Fund's investment objective is a
fundamental policy and cannot be changed without the approval of the holders of
a majority of the Fund's outstanding voting securities, as such term is defined
under the Investment Company Act of 1940, as amended (the "1940 Act").
INVESTMENT POLICIES
It is the policy of the Fund, under normal market conditions, to
invest at least 65% of the Fund's total assets in equity securities of Brazilian
issuers. This policy and the investment limitations described below under the
caption "Investment Restrictions" are fundamental and may not be changed without
the approval of a majority of the Fund's outstanding voting securities, as such
term is defined in the 1940 Act. All other policies and percentage limitations
of the Fund as described below may be modified by the Board of Directors if, in
the reasonable exercise of the Board's business judgment, modification is
determined to be necessary or appropriate to carry out the Fund's investment
objective.
It is anticipated that at least 80% of the Fund's assets normally will
be invested in equity securities of Brazilian issuers. Because of the
restrictions of Annex IV to the Central Bank of Brazil's Resolution 1289 of
March 20, 1987, as amended, currently applicable to the Fund, the Fund intends
to invest only in listed securities when investing in equity securities in
Brazil. The Fund defines Brazilian issuers to be (a) companies organized in
Brazil or for which the principal trading market for their securities is in
Brazil, (b) companies financing operations in Brazil by means of equity
securities denominated in Brazilian local currency, (c) companies that derive at
least 50% of their revenues primarily from either goods or services produced in
Brazil or sales made in Brazil, (d) issuers of depositary shares for Brazilian
equity securities and (e) the government of Brazil, its political subdivisions
and their respective agencies or instrumentalities or the Central Bank of
Brazil.
The Fund's definition of Brazilian issuer includes companies that may
have characteristics and business relationships common to companies in a country
or countries other than Brazil. As a result, the value of the equity securities
of such companies may reflect economic and market forces applicable to other
countries, as well as to Brazil. The Fund believes, however, that investment in
such companies will be appropriate because the Fund will invest only in those
companies which, in its view, have sufficiently strong exposure to economic and
market forces in Brazil such that their value will tend to reflect developments
in Brazil to a greater extent than developments in another country or countries.
Annex IV to the Central Bank of Brazil's Resolution 1289 of March 20, 1987 may
be amended from time to time to provide a managed portfolio such as the Fund
greater or lesser flexibility in connection with its investment activities in
Brazil. The Fund may take advantage of any greater flexibility afforded by
these amendments in the discretion of BEA Associates.
The government of Brazil has been engaged in a program of selling part
or all of its interests in government owned or controlled enterprises
("privatizations"). BEA Associates believes that privatizations may offer
investors opportunities for significant capital appreciation and intends to
invest assets of the Fund in privatizations in appropriate circumstances. The
ability of foreign entities, such as the Fund, to participate in privatizations
is limited by Brazilian law, or the terms on which the
2
<PAGE>
Fund may be permitted to participate may be less advantageous than those for
local investors. There can be no assurance that the Brazilian government will
continue to sell companies it currently owns or controls, that privatizations
will be successful or that the Fund will be able to participate in
privatizations.
The Fund intends its portfolio, under normal market conditions, to
consist principally of Brazilian equity securities. The Fund may, however,
invest up to 25% of its assets in corporate and government debt securities of
Brazilian issuers when BEA Associates believes that it is appropriate to do so
in order to achieve capital appreciation. Brazilian equity securities in which
the Fund will invest will consist predominantly of common stock and preferred
stock, although the Fund may also invest to a limited extent in convertible
securities, options and warrants. Brazilian debt securities that the Fund may
acquire include bonds, notes and debentures of any maturity of the Brazilian
government and obligations of its political subdivisions, agencies,
instrumentalities and the Central Bank and of Brazilian banks and other
companies, determined by BEA Associates to be suitable investments for the Fund
(including repurchase agreements with respect to obligations of the Brazilian
government or the Central Bank and assignments of, and participation in, loans).
BEA Associates may invest in securities of companies that it determines to be
suitable investments for the Fund regardless of such securities' ratings. The
Fund may not, however, invest more than 5% of its assets in debt securities that
are determined by BEA Associates to be comparable to securities rated C or below
by either Standard & Poor's Ratings Group ("S&P") or Moody's Investor Services,
Inc. ("Moody's"). The Fund's holdings of lower-quality debt securities will
consist predominantly of its holdings of sovereign debt, much of which trades at
substantial discounts from face value and which may include sovereign debt
comparable to securities rated as low as D by S&P or C by Moody's. For a
description of S&P's and Moody's corporate bond ratings, see the Appendix to the
Prospectus.
As a result of legal restrictions or market practices or both, the
Fund, as a U.S. entity, may be precluded from purchasing shares in public
offerings by certain Brazilian companies. Additionally, under the 1940 Act, the
Fund is restricted in its ability to purchase any security of which BEA
Associates or any of its affiliate is a principal underwriter during the public
offering of such security.
The Fund will not invest more than 25% of its assets in the securities
of companies in the same industry. In selecting industries and companies for
investment by the Fund, BEA Associates will consider factors such as 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 and management. Certain sectors of the economy of Brazil
are closed to equity investments by foreign investors or the acquisition of
voting interests in companies in those sectors is limited (see the Appendix to
this SAI).
Brazil has adopted a debt conversion program, pursuant to which
investors may use external debt of Brazil, directly or indirectly, to make
investments in local companies. The program includes significant restrictions
on the application of the proceeds received in the conversion and on the
remittance of profits on the investment and of the invested capital. The Fund
intends to acquire debt of Brazilian issuers to hold and trade in appropriate
circumstances, as well as to use it to participate in the Brazilian debt
conversion program. BEA Associates will evaluate opportunities to enter into
debt conversion transactions as they arise.
The Fund may invest indirectly in securities of Brazilian issuers
through sponsored or unsponsored American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and
3
<PAGE>
other types of Depositary Receipts (which, together with ADRs and GDRs, are
hereinafter referred to as "Depositary Receipts"). Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. In addition, the issuers of the stock of
unsponsored Depositary Receipts are not obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the Depositary Receipts. ADRs
are Depositary Receipts typically issued by a United States bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. GDRs and other types of Depositary Receipts are typically issued
by foreign banks or trust companies, although they also may be issued by United
States banks or trust companies, and evidence ownership of underlying securities
issued by either a foreign or a United States corporation. Generally,
Depositary Receipts in registered form are designed for use in the United States
securities markets and Depositary Receipts in bearer form are designed for use
in securities markets outside the United States. For purposes of the Fund's
investment policies, the Fund's investments in ADRs, GDRs and other types of
Depositary Receipts will be deemed to be investments in the underlying
securities.
PORTFOLIO TURNOVER
The Fund does not expect to trade in securities for short-term gain.
It is anticipated that the Fund's annual portfolio turnover will not exceed
100%. Since the commencement of the Fund's operations, the Fund's annual
portfolio turnover rate has not exceeded 75%. For information regarding the
Fund's portfolio turnover rate, see "Financial Highlights" in the Prospectus.
This rate is calculated by dividing the lesser of sales or purchases of
portfolio securities for any given year by the average monthly value of the
Fund's portfolio securities for such year. For purposes of this calculation,
portfolio securities exclude purchase and sales of debt securities having a
maturity at the date of purchase of one year or less. The rate of portfolio
turnover will not be a limiting factor when BEA Associates deems it appropriate
to purchase or sell securities for the Fund. Portfolio turnover, however,
directly affects the amount of transaction costs that will be borne by the Fund.
In addition, the sale of securities held by the Fund for not more than one year
will give rise to short-term capital gain or loss for U.S. federal income tax
purposes. The U.S. federal income tax requirement that the Fund derive less
than 30% of its gross income from the sale or other disposition of stock or
securities held less than three months may limit the Fund's ability to dispose
of its securities. See "Taxation--United States Federal Income Taxes."
TEMPORARY INVESTMENTS
During periods in which BEA Associates believes changes in economic,
financial or political conditions make it advisable, the Fund may for temporary
defensive purposes reduce its holdings in other securities and invest in certain
short-term (less than twelve months to maturity) debt securities or hold cash.
The short-term debt securities in which the Fund may invest consist of (a)
obligations of the United States or foreign governments, their respective
agencies or instrumentalities; (b) bank deposits and bank obligations (including
certificates of deposit, time deposits and bankers' acceptances) of U.S. or
foreign banks denominated in any currency; (c) floating rate securities and
other instruments denominated in any currency issued by international
development agencies; (d) finance company and corporate commercial paper and
other short-term corporate debt obligations of U.S. and foreign corporations
meeting the Fund's credit quality standards; and (e) repurchase agreements with
banks and broker-dealers with respect to such securities. The Fund intends to
invest only in short-term debt securities that BEA Associates believes to be of
high quality, i.e., rated in one
4
<PAGE>
of the two highest rating categories by Moody's or S&P or determined to be
equivalent in credit quality.
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which a buyer of a security
simultaneously commits to resell the security to the seller at an agreed-upon
price and date. Under a repurchase agreement, the seller is required to
maintain the value of the securities subject to the repurchase agreement at not
less than their repurchase price. BEA Associates will monitor the value of such
securities daily to determine that the value equals or exceeds the repurchase
price. Repurchase agreements may involve risks in the event of default or
insolvency of the seller, including possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities.
CURRENCY TRANSACTIONS
BEA Associates generally does not seek to hedge against a decline in
value of the Fund's non-dollar-denominated portfolio securities resulting from a
currency devaluation or fluctuation. As a consequence, the Fund will be subject
to the risk of changes in value of the Real affecting the value of its portfolio
assets, as well as the value of the amounts of interest, dividends and net
realized capital gains received or to be received in Reals that it intends to
remit out of Brazil. Therefore, the risk of currency devaluations and
fluctuations and the effect these may have on the Fund should be carefully
considered by investors in determining whether to purchase shares of the Fund.
The Fund reserves the right, upon 30 days' written notice, to conduct
currency exchange transactions either on a spot (i.e., cash) basis or through
entering into forward contracts to purchase or sell currency should suitable
hedging instruments become available on acceptable terms.
INVESTMENT RESTRICTIONS
The Fund has adopted certain fundamental investment restrictions that
may not be changed without the prior approval of the holders of a majority of
the Fund's outstanding voting securities, as such term is defined under the 1940
Act. For purposes of the restrictions listed below, all percentage limitations
apply immediately after a purchase or initial investment, and any subsequent
change in any applicable percentage resulting from market fluctuations does not
require elimination of any security from the Fund's portfolio. Fund policies
that are not fundamental may be modified by the Board of Directors if, in the
reasonable exercise of the Board's business judgment, modification is determined
to be necessary or appropriate to carry out the Fund's investment objective.
Under its fundamental investment restrictions, the Fund may not:
1. Invest more than 25% of the total value of its assets in a
particular industry. This restriction does not apply to investments in
U.S. Government securities.
2. Issue senior securities, borrow money or pledge its assets,
except that the Fund may borrow from a lender (a) for temporary or
emergency purposes, (b) for such short-term credits as may be necessary for
the clearance or settlement of the transactions, (c) to finance repurchases
of its shares (see "Common Stock" in the Prospectus), in amounts not
exceeding 10% (taken at the lower of cost or current value) of its total
assets (not including the amount borrowed), or (d) to pay any dividends
required to be distributed in order for the Fund to maintain its
qualification as a regulated investment company under the U.S. Internal
5
<PAGE>
Revenue Code of 1986, as amended (the "Code") or otherwise to avoid
taxation under the Code. Additional investments will not be made when
borrowings exceed 5% of the Fund's assets. The Fund may pledge its assets
to secure borrowings.
3. Lend money to other persons except through the purchase of
debt obligations, loans or participation interests in loans and the
entering into of repurchase agreements consistent with the Fund's
investment objective and policies.
4. Make short sales of securities or maintain a short position
in any security.
5. Purchase securities on margin, except such short-term
credits as may be necessary or routine for the clearance or settlement of
transactions and the maintenance of margin with respect to forward
contracts or other hedging securities.
6. Underwrite securities of other issuers, except insofar as
the Fund may be deemed an underwriter under applicable securities laws in
selling portfolio securities.
7. Purchase or sell commodities or real estate, except that the
Fund may invest in securities secured by real estate or interests in real
estate or in securities issued by companies, including real estate
investment trusts, that invest in real estate or interests in real estate,
and may purchase and sell forward contracts on foreign currencies to the
extent permitted under applicable law.
8. Make investments for the purpose of exercising control over,
or management of, the issuers of any securities.
Except for the Fund's investment objective, the Fund's policy of
investing at least 65% of its assets in Brazilian equity securities and the
investment restrictions listed above, the other policies and percentage
limitations set forth in this Prospectus are not fundamental policies or
investment restrictions of the Fund and can be changed by the Board of
Directors.
In addition to the foregoing restrictions, the Fund is subject to
certain limitations on its activities in Brazil applicable to foreign
institutional investors. These limitations, which do not affect activities
undertaken outside Brazil, prohibit borrowing money, limit the types and amounts
of certain securities the Fund can hold and impose certain other limits. BEA
Associates does not believe application of these rules have, or will, adversely
affect the ability of the Fund to achieve its objective or its performance.
Under the 1940 Act, the Fund may neither invest more than 5% of its
total assets in the securities of any one investment fund, nor acquire more than
3% of the outstanding voting securities of any such fund. In addition, the Fund
may not invest more than 10% of its total assets in securities issued by all
investment funds. As a shareholder in any investment company, the Fund will
bear its ratable share of that investment company's expenses, and would remain
subject to payment of the Fund's advisory, sub-advisory and administrative fees
with respect to assets so invested. See "Taxation--United States Federal Income
Taxes--Passive Foreign Investment Companies."
6
<PAGE>
CERTAIN BRAZILIAN RESTRICTIONS
In Brazil, the Fund may only invest in securities issued by publicly-
held corporations that it acquires on the Brazilian stock exchanges, in over-
the-counter markets organized by the
Brazilian Securities Commission ("CVM") or by subscription of shares of
publicly-held corporations. Brazilian legislation defines securities as:
shares, participation certificates, debentures and their respective coupons,
subscriptions bonuses, certificates of deposit of securities, securities
subscription rights, securities subscription receipts, securities options, share
deposit certificates and commercial paper issued for public offering. The
Fund's investments must not be used to acquire control, directly or indirectly,
of Brazilian companies.
There is no requirement as to a minimum period upon which investments
shall be maintained in Brazil. For purposes of remittance of profits and
capital gains, as well as repatriation of capital, investments made by the Fund
are subject to registration with the Central Bank of Brazil which issues a
certificate of registration in the name of the Fund.
Funds of the Annex IV investment vehicles that are not directed to the
acquisition of securities must be directed exclusively to the acquisition of any
type of investments authorized by the CVM and by the Central Bank.
7
<PAGE>
MANAGEMENT OF THE FUND
DIRECTORS AND OFFICERS
The names of the directors and principal officers of the Fund are set
forth below, together with their positions and their principal occupations
during the past five years.
Name and Address Position with the Fund
---------------- ----------------------
Emilio Bassini*....................... Director, Chairman of the Board,
One Citicorp Center President and Chief Executive
153 East 53rd Street Officer
New York, New York 10022
Richard Watt*......................... Director, Senior Vice President
One Citicorp Center and Chief Investment Officer
153 East 53rd Street
New York, New York 10022
Daniel Sigg*.......................... Director and Senior Vice
One Citicorp Center President
153 East 53rd Street
New York, New York 10022
Dr. Enrique R. Arzac.................. Director
Columbia University
Graduate School of Business
New York, New York 10027
James J. Cattano...................... Director
80 Field Point Road
Greenwich CT 06380
Peter A. Gordon....................... Director
152 West 57th Street
New York, New York 10019
George W. Landau...................... Director
Two Grove Isle Drive
Coconut Grove, Florida 33133
Martin M. Torino...................... Director
Reconquista 365, 9th Fl.
Capital Federal 1003
Buenos Aires, Argentina
8
<PAGE>
Paul P. Stamler....................... Senior Vice President
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Michael A. Pignataro.................. Chief Financial Officer and
One Citicorp Center Secretary
153 East 53rd Street
New York, New York 10022
Rachel D. Manney...................... Vice President and Treasurer
One Citicorp Center
153 East 53rd Street
New York, New York 10022
_____________
* Messrs. Bassini, Sigg and Watt are "interested persons" of the Fund
within the meaning of the 1940 Act by virtue of their positions as
directors and/or officers of BEA Associates.
Emilio Bassini is a member of the Executive Committee and Executive
Director of BEA Associates (since 1985). Mr. Bassini is also Managing Principal
of Bassini, Playfair & Associates LLC (since December 1995). Mr. Bassini is
also a Director, Chairman of the Board, President and Chief Investment Officer
of The Latin America Investment Fund, Inc. and The Latin America Equity Fund,
Inc., a Director, President and Chief Investment Officer of The Chile Fund,
Inc., The Portugal Fund, Inc., The Emerging Markets Telecommunications Fund,
Inc., The First Israel Fund, Inc. and The Emerging Markets Infrastructure Fund,
Inc. and President and Secretary of The Indonesia Fund, Inc.
Richard Watt has been a Senior Vice President of BEA Associates since
August 1995. Prior to that time, he was head of Emerging Markets Investments
and Research at Gartmore Investment Limited (November 1992 to June 1995). From
1987 until 1992, Mr. Watt was a director of Kleinwort Benson International
Investment. He is also Director and Investment Officer of The Emerging Markets
Telecommunications Fund, Inc., The Emerging Markets Infrastructure Fund, Inc.
and The Latin America Equity Fund, Inc.
Daniel Sigg is a member of the Executive Committee, Chief Financial
Officer, and an Executive Director of BEA Associates (since May 1995). From
February 1992 to April 1995, Mr. Sigg was a member of the Executive Committee
and Managing Director of BEA Associates. He was Vice President of Marketing of
BEA from January 1991 to January 1992. Mr. Sigg has also been President of
Credit Suisse Advisors Corporation and President of Credit Suisse Capital
Corporation since December 1995. He was Director and Vice President of Credit
Suisse Capital Corporation from December 1990 to November 1994. From 1987 to
September 1990, Mr. Sigg was head of International Equity Sales and Trading at
Swiss American Securities. Mr. Sigg is also a Director and Senior Vice
President of The Latin America Investment Fund, Inc., The Latin America Equity
Fund, Inc., The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund,
Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel Fund,
Inc. and The Emerging Markets Infrastructure Fund, Inc. and a Director of BEA
Strategic Income Fund, Inc. and BEA Income Fund, Inc.
9
<PAGE>
Dr. Enrique R. Arzac is Professor of Finance and Director of the
Financial Management Program at the Graduate School of Business of Columbia
University (since 1971). He is also a Director of The Adam Express Company and
Petroleum and Resources Corp. Dr. Arzac is also a director of The Latin America
Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund,
Inc., The Indonesia Fund, Inc., The Chile Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc., The Emerging Markets
Infrastructure Fund, Inc., BEA Strategic Income Fund, Inc. and BEA Income Fund,
Inc.
Peter A. Gordon is a General Partner of Ethos Capital Management. He
was Managing Director at Salomon Brothers, Inc. from 1981 to June 1992. Mr.
Gordon is also a Director of TCS Fund, Inc., the Mills Corporation, The First
Israel Fund, Inc., The Emerging Markets Telecommunications Fund, Inc., The
Emerging Markets Infrastructure Fund, Inc., The Latin America Investment Fund,
Inc. and The Latin America Equity Fund, Inc. He is a Trustee of the
Contemporary Art Institute of New York and a Director of the American Friends of
Canada.
George W. Landau is Chairman of the Latin American Advisory Board of
the Coca-Cola Corporation and Senior Advisor of Coca-Cola International (since
1988). Ambassador Landau was President of the Americas Society and Council of
the Americas from July 1985 to October 1993. He was the United States
Ambassador to Venezuela (1982-1985), United States Ambassador to Chile (1977-
1982) and United States Ambassador to Paraguay (1972-1977). Ambassador Landau
is also a Director of The Chile Fund, Inc., The Latin America Investment Fund,
Inc., The Latin America Equity Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The Emerging Markets Infrastructure Fund, Inc.
and The First Israel Fund, Inc. He is also a Director of Emigrant Savings Bank
and GAM Funds, Inc.
James J. Cattano is President of Atlantic Fertilizer & Chemical
Company (an international trading company specializing in the sale of
agricultural commodities in Latin American markets) (since October 1991). He
was President of Diamond Fertilizer & Chemical Corporation, a subsidiary of
Norsk Hydro A.S. (a Norwegian agriculture, oil and gas, light metals and petro-
chemical company) from January 1984 to October 1991; Mr. Cattano is also a
Director of The Chile Fund, Inc., The Portugal Fund, Inc., The Latin America
Investment Fund, Inc., The Latin America Equity Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc.
Martin M. Torino is Executive Director of TAU S.A. (since November
1990); Director of Greenwich Investments (Buenos Aires) (investment banking,
1/91-present); President of San Lucas S.A. (agribusiness, 10/90-present);
President of DYAT S.A. (10/93-present); President of Dipoler S.A. (grain
processing, 10/89-present); and Member of the Coffee, Sugar & Cocoa Exchange,
Inc. (1985-present). Mr. Torino was a Vice President of Louis Dreyfus Sugar
Company, Inc. from 1984 to 1990. Mr. Torino is also a Director of The Portugal
Fund, Inc., The Latin America Investment Fund, Inc., The Latin America Equity
Fund, Inc., The Emerging Markets Telecommunications Fund, Inc. and The Emerging
Markets Infrastructure Fund, Inc.
Paul P. Stamler is a Senior Vice President of BEA Associates (since
June 1993). From April 1992 to May 1993, Mr. Stamler was self-employed as a
certified public accountant. From June 1988 to March 1992, Mr. Stamler was Vice
President of Bear, Stearns & Co. Inc. Mr. Stamler is also the Senior Vice
President of The Latin America Investment Fund, Inc., The Latin America Equity
Fund, Inc., The Portugal Fund, Inc., The Indonesia Fund, Inc., The Chile Fund,
Inc., The Emerging Markets Telecommunications Fund, Inc., The First Israel
Fund, Inc. and The Emerging
10
<PAGE>
Markets Infrastructure Fund, Inc. and Treasurer of BEA Income Fund, Inc. and BEA
Strategic Income Fund, Inc.
Michael A. Pignataro has been Vice President of BEA Associates since
December 1995. He was Assistant Vice President and Chief Administrative Officer
for Investment Companies of BEA from September 1989 to December 1995. Mr.
Pignataro is also the Chief Financial Officer and Secretary of The Latin America
Investment Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund,
Inc., The Chile Fund, Inc., The Emerging Markets Telecommunications Fund, Inc.,
The First Israel Fund, Inc. and The Emerging Markets Infrastructure Fund, Inc.
and Chief Financial Officer and Assistant Secretary of The Indonesia Fund, Inc.
and Secretary of BEA Income Fund, Inc. and BEA Strategic Income Fund, Inc.
Rachel D. Manney is an Assistant Vice President and Administrative
Officer for Investment Companies of BEA Associates (since April 1992). From
1989 to 1992, Ms. Manney was a Senior Associate at Coopers & Lybrand. Ms.
Manney is also Vice President and Treasurer of The Latin America Investment
Fund, Inc., The Latin America Equity Fund, Inc., The Portugal Fund, Inc., The
Indonesia Fund, Inc., The Chile Fund, Inc., The Emerging Markets
Telecommunications Fund, Inc., The First Israel Fund, Inc. and The Emerging
Markets Infrastructure Fund, Inc.
Mr. Torino is a resident of Argentina. A substantial portion of his
assets is located outside of the United States. Mr. Torino has not appointed an
agent for service of process in the United States.
The Fund pays each of its directors who is not a director, officer or
employee of BEA Associates or any affiliate thereof an annual fee of $5,000 plus
$500 for each Board of Directors meeting attended. In addition, the Fund will
reimburse those directors for travel and out-of-pocket expenses incurred in
connection with Board of Directors meetings. The aggregate remuneration paid to
all such unaffiliated directors by the Fund during the fiscal year ended March
31, 1996 was $34,000.
The following table shows certain compensation information for the
directors of the Fund for the fiscal year ended March 31, 1996. None of the
Fund's executive officers or directors who are also officers or directors of BEA
Associates received any compensation from the Fund for such period. The Fund
has no bonus, profit sharing, pension or retirement plans.
<TABLE>
<CAPTION>
Total Total Number
Pension or Compensation of Boards of
Retirement From Fund and BEA-Advised
Aggregate Benefits Accrued Estimated Annual Fund Complex Investment
Compensation as Part of Fund Benefits Upon Plaid to Companies
Name of Director from Fund Expenses Retirement Directors Served
----------------------------------- ------------ ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
James J. Cattano $7,000 0 0 $49,000 7
David C. Garlow+ 6,500 0 0 6,500 1
Peter A. Gordon 6,500 0 0 39,000 6
George W. Landau 7,000 0 0 49,000 0
Martin M. Torino 7,000 0 0 42,000 6
</TABLE>
__________
+ Mr. Garlow resigned as director effective May 1996.
11
<PAGE>
The Articles of Incorporation and Bylaws of the Fund provide that the Fund
will indemnify directors and officers and may indemnify employees or agents of
the Fund against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their positions with the Fund to the
fullest extent permitted by law. In addition, the Fund's Articles of
Incorporation provide that the Fund's directors and officers will not be liable
to shareholders for money damages, except in limited instances. However,
nothing in the Articles of Incorporation or the Bylaws of the Fund protects or
indemnifies a director, officer, employee or agent against any liability to
which such person would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such person's office. No insurance obtained by the Fund shall
protect or purport to protect officers or directors, the investment adviser or
any principal underwriter of the Fund against any liability to the Fund or its
shareholders to which they would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of their
obligations and duties.
The Board of Directors has been divided into three classes with directors
in each class having a term of up to three years. See "Common Stock--Special
Voting Provisions" in the Prospectus.
ADVISORY ARRANGEMENTS
BEA Associates act as the Fund's investment adviser pursuant to an Advisory
Agreement with the Fund (the "Advisory Agreement").
The Advisory Agreement provides that BEA Associates shall not be liable,
and shall be indemnified, for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which the Advisory
Agreement relates, except liability resulting from willful misfeasance, bad
faith or gross negligence on the part of BEA Associates in the performance of
its duties or from reckless disregard of its obligations and duties under the
Advisory Agreement.
Under the Advisory Agreement, BEA Associates may cause the Fund to pay an
investment sub-adviser directly in local currency for services rendered, which
will reduce the amount payable to BEA Associates by the Fund.
For the fiscal years ended March 31, 1996, March 31, 1995 and March 31,
1994, BEA Associates was paid for advisory services rendered to the Fund of
$921,310, $977,285 and $961,431, respectively. These advisory fees are
exclusive of the advisory fees paid to the sub-advisers to the Fund during that
period. Pursuant to the Advisory Agreement, BEA Associates caused the Fund to
pay the sub-advisers directly for services rendered to the Fund, thereby
reducing the amount payable to BEA Associates by the Fund.
BEA Associates and BEA Capital LLC, a company organized and controlled by
Mr. Bassini and a former officer of BEA, have entered into a consulting
agreement, dated as of December 12, 1995, pursuant to which BEA Capital LLC will
provide consulting services to BEA Associates with respect to private equity
investments held by clients of BEA Associates, including the Fund, for a fee of
$2 million per annum payable by BEA. This consulting agreement is terminable by
either party as of the last day of any calendar year commencing on December 31,
1996; provided, that if BEA Associates terminates this agreement as of December
31, 1996, BEA Associates is required to pay BEA Capital LLC an additional $2
million as a termination fee.
12
<PAGE>
On June 21, 1994, Garantia Administracao de Recursos S.A. ("Garantia")
resigned as an investment sub-adviser to the Fund. BEA Associates waived that
portion of its fees that would have been otherwise payable to Garantia. For the
fiscal period from April 1, 1994 to June 21, 1994, the fiscal year ended March
31, 1994 and the fiscal period from April 10, 1992 (commencement of the Fund's
operations) to March 31, 1993, Garantia was paid fees for advisory services
rendered to the Fund equal to $41,461, $178,043 and $116,329, respectively.
On August 15, 1994, Patrimonio Planejamento Financiero Ltda. ("Patrimonio")
resigned as an investment sub-adviser to the Fund. BEA Associates waived that
portion of its fees that would have been otherwise payable to Patrimonio. For
the fiscal period from April 1, 1994 to August 15, 1994, the fiscal year ended
March 31, 1994 and the fiscal period from April 10, 1992 (commencement of the
Fund's operations) to March 31, 1993, Patrimonio was paid fees for advisory
services rendered to the Fund equal to $29,872, $71,217 and $46,532,
respectively.
ADMINISTRATIVE ARRANGEMENT
Bear Stearns Funds Management Inc. (the "U.S. Administrator"), an affiliate
of the Dealer Manager, serves as the Fund's U.S. administrator pursuant to an
agreement with the Fund (the "U.S. Administration Agreement"). The First
National Bank of Boston, Sao Paulo ("Bank of Boston, Sao Paulo") serves as the
Fund's Brazilian administrator pursuant to a Brazilian Administration Agreement
(the "Brazilian Administration Agreement"). The Fund has also retained BEA
Associates to provide certain administrative and shareholder services to the
Fund that are not provided by the Fund's administrators.
DURATION AND TERMINATION; NON-EXCLUSIVE SERVICES
The Advisory Agreement became effective on March 6, 1992. Unless earlier
terminated as described below, the Advisory Agreement remains in effect if
approved annually (a) by the Board of Directors of the Fund or by the holders of
a majority of the Fund's outstanding voting securities (as defined in the 1940
Act) and (b) by a majority of the directors who are not parties to the Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party. The Advisory Agreement terminates on its assignment by any party and may
be terminated without penalty on 60 days' written notice at the option of the
Board of Directors of the Fund or by the vote of the majority of the holders of
the Fund's shares, or upon 90 days' written notice, by BEA Associates. In the
event of the termination of a sub-advisory agreement, BEA Associates is
responsible for furnishing the services required to be performed by the former
sub-adviser or arranging for a successor sub-adviser on terms and conditions
acceptable to the Fund and subject to the requirements of the 1940 Act.
The U.S. Administration Agreement is terminable upon 60 days' notice by
either party. The Brazilian Administration Agreement is terminable upon [60
days' notice by either Brown Brothers Harriman & Co. or Bank of Boston, Sao
Paulo]; however, Bank of Boston, Sao Paulo may be replaced only by an entity
authorized to act as a joint manager of a managed portfolio of bonds and
securities under Brazilian law.
The services of BEA Associates, the U.S. Administrator and Bank of Boston,
Sao Paulo are not deemed to be exclusive, and nothing in the relevant service
agreements will prevent any
13
<PAGE>
of them or their affiliates from providing similar services to other investment
companies and other clients (whether or not such clients' investment objectives
and policies are similar to those of the Fund) or from engaging in other
activities.
PORTFOLIO TRANSACTIONS
Decisions to buy and sell securities for the Fund are made by BEA
Associates, subject to the overall review of the Fund's Board of Directors.
Portfolio securities transactions for the Fund are placed on behalf of the Fund
by persons authorized by BEA Associates. BEA Associates manages other
investment companies and accounts (the "BEA Accounts") that invest in Brazilian
securities. Although investment decisions for the Fund are made independently
from those of the other BEA Accounts, investments of the type the Fund may make
may also be made on behalf of the BEA Accounts. When the Fund and one or more
of the BEA Accounts is prepared to invest in, or desires to dispose of, the same
security, available investments or opportunities for each will be allocated in a
manner believed by BEA Associates to be equitable to each. In some cases, this
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or disposed of by the Fund. The Fund may utilize
CS First Boston Corporation and other affiliates of Credit Suisse in connection
with the purchase or sale of securities in accordance with rules or exemptive
orders adopted by the Securities and Exchange Commission when BEA Associates
believes that the charge for the transaction does not exceed usual and customary
levels.
Transactions on U.S. and some foreign stock exchanges involve the payment
of negotiated brokerage commissions, which may vary among different brokers.
For information about brokerage commissions in Brazil, see the Appendix to this
SAI under "The Securities Markets." The cost of securities purchased from
underwriters includes an underwriter's commission or concession, and the prices
at which securities are purchased from and sold to dealers in the
over-the-counter markets include a dealer's mark-up or mark-down, which normally
is not disclosed. Fixed-income securities are generally traded on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security will likely include a profit to
the dealer.
In selecting brokers or dealers to execute portfolio transactions on behalf
of the Fund, BEA Associates will seek the best overall terms available. The
Advisory Agreement provides that, in assessing the best overall terms available
for any transaction, BEA Associates will consider the factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer, and
the reasonableness of the commission, if any, for the specific transaction and
on a continuing basis. In addition, the Advisory Agreement authorizes BEA
Associates, in selecting brokers or dealers to execute a particular transaction
and in evaluating the best overall terms available, to consider the brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or other accounts over
which BEA Associates exercises investment discretion. The fees payable under
the Advisory Agreement are not reduced as a result of BEA Associates' receiving
such brokerage and research services.
The Fund's Board of Directors will review periodically the commissions paid
by the Fund to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits inuring to the Fund.
14
<PAGE>
The aggregate amounts paid by the Fund in brokerage commissions for the
fiscal years ended March 31, 1996, March 31, 1995 and March 31, 1994 were
$328,603, $683,707 and $529,342, respectively. For the fiscal period ended
March 31, 1993, the Fund paid Garantia $403,517 in brokerage commissions. The
Fund paid Garantia $425,396 in brokerage commissions for the fiscal year ended
March 31, 1994, or 80.4% of the total brokerage commissions paid. Garantia
effected 81.0% of the total dollar amount of transactions involving brokerage
commissions during that period. The Fund paid Garantia $58,367 in brokerage
commissions for the fiscal period from April 1, 1994 to June 21, 1994. For the
fiscal period ended March 31, 1993, the Fund paid Patrimonio $81,260.25 in
brokerage commissions. The Fund paid Patrimonio $96,168 in brokerage
commissions for the fiscal year ended March 31, 1994, or 18.2% of the total
brokerage commissions paid. Patrimonio effected 17.1% of the total dollar
amount of transactions involving brokerage commissions during that period. The
Fund paid Patrimonia $34,741 in brokerage commissions for the fiscal period from
April 1, 1994 to August 15, 1994. The Fund paid $33,481.16 in brokerage
commissions to Banco Bradesco de Investimento S.A. ("Bradesco"), which had
served as economic consultant to the Fund from 1992 to March 1995, for the
fiscal period ended March 31, 1993. The Fund paid no brokerage commissions to
Bradesco for the fiscal year ended March 31, 1994.
The Fund has the benefit of an exemptive order of the Securities and
Exchange Commission issued under the 1940 Act authorizing the Fund and other
investment companies and offshore funds advised by BEA Associates to co-invest
in securities issued in privately-negotiated transactions, subject to the terms
and conditions of the order.
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
Pursuant to the Fund's Dividend Reinvestment and Cash Purchase Plan (the
"Plan"), each shareholder will be deemed to have elected, unless The First
National Bank of Boston ("Bank of Boston"), as the Plan Agent (the "Plan
Agent"), is otherwise instructed by the shareholder in writing, to have all
distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund. Shareholders who do not
participate in the Plan will receive all dividends and distributions in cash,
net of any applicable U.S. withholding tax, paid in dollars by check mailed
directly to the shareholder by Bank of Boston, as dividend-paying agent.
Shareholders who do not wish to have dividends and distributions automatically
reinvested should notify Bank of Boston, as the Plan Agent for The Brazilian
Equity Fund, Inc., Investor Relations Department, P.O. Box 644, Mail Stop 45-02-
09, Boston, Massachusetts 02102-0644 or by telephone at 1-800-730-6001.
Dividends and distributions with respect to shares registered in the name of a
broker-dealer or other nominee (i.e., in "street name") will be reinvested under
the Plan unless such service is not provided by the broker or nominee or the
shareholder elects to receive dividends and distributions in cash. A
shareholder whose shares are held by a broker or nominee that does not provide a
dividend reinvestment program may be required to have his shares registered in
his own name to participate in the Plan. Investors who own shares of the Fund's
Common Stock registered in street name should contact the broker or nominee for
details concerning participation in the Plan.
Certain distributions of cash attributable to the dividends paid to the
Fund that are derived from securities of Brazilian issuers are subject to taxes
payable by the Fund at the time amounts are remitted. Such taxes will be borne
by the Fund and allocated to all shareholders in proportion to their interests
in the Fund.
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The Plan Agent serves as agent for the shareholders in administering the
Plan. If the Board of Directors of the Fund declares 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. 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 valued at net asset value
or, if the net asset value is less than 95% of the market price on the valuation
date, then valued at 95% of the market price. If net asset value per share on
the valuation date exceeds the market price per share on that date, the Plan
Agent, as agent for the participants, will buy shares of Common Stock on the
open market, on the New York Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of shares, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of shares, resulting
in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund at net asset value. Additionally, if the
market price exceeds the net asset value of shares before the Plan Agent has
completed its purchases, the Plan Agent is permitted to cease purchasing shares
and the Fund may issue the remaining shares at a price equal to the greater of
(a) net asset value or (b) 95% of the then current market price. In a case
where the Plan Agent has terminated open market purchases and the Fund has
issued the remaining shares, the number of shares received by the participant in
respect of the cash dividend or distribution will be based on the weighted
average of prices paid for shares purchased in the open market and the price at
which the Fund issues the remaining shares. The valuation date is the dividend
or distribution payment date or, if that date is not a New York Stock Exchange
trading day, the next preceding trading day. 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 New York Stock Exchange or elsewhere, for the participants' accounts 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 funds
received from participants to purchase Fund shares in the open market on or
about February 15 and August 15 of each year. Any voluntary cash payments
received more than 30 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 10 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 the payment is to be invested. A
participant's tax basis in his shares acquired through this optional investment
right will equal his cash payments to the Plan, including any cash payments used
to pay brokerage commissions allocable to his acquired shares.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations 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 the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
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
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registered in the shareholder's name and held for the account of beneficial
owners who are to participate in the Plan.
There is no charge to participants for reinvesting dividends or capital
gains distributions payable in either stock or cash. The Plan Agent's fees for
the handling of reinvestment of such 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 be charged by the Plan Agent 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 the reinvestment of
dividends or capital gains distributions payable only in cash. 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 obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's Common Stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.
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 at
least 30 days before the semi-annual contribution date, in the case of voluntary
cash payments, or the record date for dividends or distributions. The Plan also
may be amended by the Fund or the Plan Agent, but (except when necessary or
appropriate to comply with applicable law, rules or policies of a regulatory
authority) only by at least 30 days' written notice to members of the Plan. All
correspondence concerning the Plan should be directed to the Plan Agent,
Investor Relations Department, P.O. Box 644, Mail Stop 45-02-09, Boston,
Massachusetts 02102-0644 or by telephone at 1-800-730-6001
TAXATION
The following is a summary of certain material United States federal income
tax considerations and Brazilian tax considerations, regarding the purchase,
ownership and disposition of shares in the Fund. Each prospective shareholder
is urged to consult his own tax adviser with respect to the specific federal,
state, local and foreign tax consequences of investing in the Fund. The summary
is based on the laws in effect on the date of this SAI, which are subject to
change.
UNITED STATES FEDERAL INCOME TAXES
THE FUND AND ITS INVESTMENTS
The Fund has qualified and intends to continue to qualify and elect to be
treated as a regulated investment company for each taxable year under the Code.
To so qualify, the Fund must, among other things: (a) derive at least 90% of
its gross income in each taxable year from dividends,
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interest, payments with respect to securities loans and gains from the sale or
other disposition of stock or securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; (b) derive less than 30% of its gross income in each
taxable year from the sale or other disposition of (i) stock or securities held
for less than three months, (ii) options, futures or forward contracts (other
than options, futures or forward contracts on foreign currencies) held for less
than three months and (iii) foreign currencies (or options, futures or forward
contracts on such foreign currencies) held for less than three months but only
if such currencies (or options, futures or forward contracts) are not directly
related to the Fund's principal business of investing in stock or securities (or
options or futures with respect to stock or securities); and (c) diversify its
holdings so that, at the end of each quarter of the Fund's taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash,
securities of other regulated investment companies, United States government
securities and other securities, with such other securities limited, in respect
of any one issuer, to an amount not greater than 5% of the Fund's 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 assets is invested in the securities
(other than United States government securities or securities of other regulated
investment companies) of any one issuer or any two or more issuers that the Fund
controls and are determined to be engaged in the same or similar trades or
businesses or related trades or businesses. The Fund expects that all of its
foreign currency gains will be directly related to its principal business of
investing in stocks and securities.
Though legislation that would repeal the 30% limitation on a regulated
investment company's ability to make short-term investments has been proposed in
Congress, it is unclear when, if ever, such legislation will be enacted or the
form of such legislation if enacted.
As a regulated investment company, the Fund will not be subject to United
States federal income tax on its net investment income (i.e., income other than
its net realized long- and short-term capital gains) and its net realized long-
and short-term capital gains, if any, that it distributes to its shareholders,
provided that an amount equal to at least 90% of its investment company taxable
income (i.e., 90% of its taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized short-term capital losses
(including any capital loss carryovers), plus or minus certain other adjustments
as specified in section 852 of the Code) for the taxable year is distributed,
but will be subject to tax at regular corporate rates on any income or gains
that it does not distribute. Furthermore, the Fund will be subject to a United
States corporate income tax with respect to such distributed amounts in any year
that it fails to qualify as a regulated investment company or fails to meet this
distribution requirement. Any dividend declared by the Fund in October,
November or December of any calendar year and payable to shareholders of record
on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and to have been paid by
the Fund not later than such December 31, provided that such dividend is
actually paid by the Fund during January of the following calendar year.
The Fund intends to distribute annually to its shareholders substantially
all of its investment company taxable income. The Board of Directors of the
Fund will determine annually whether to distribute any such net realized long-
term capital gains in excess of net realized short-term capital losses
(including any capital loss carryovers). The Fund currently expects to
distribute any excess annually to its shareholders. However, if the Fund
retains for investment an amount equal to its net long-term capital gains in
excess of its net short-term capital losses and capital loss carryovers, it will
be subject to a corporate tax (currently at a rate of 35%) on the amount
retained. In that event, the Fund expects to designate such retained amounts as
undistributed capital gains in a notice to its
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shareholders who (a) will be required to include in income for United States
federal income tax purposes, as long-term capital gains, their proportionate
shares of the undistributed amount, (b) will be entitled to credit their
proportionate shares of the 35% tax paid by the Fund on the undistributed amount
against their United States federal income tax liabilities, if any, and to claim
refunds to the extent their credits exceed their liabilities, if any, and (c)
will be entitled to increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of the amount of
undistributed capital gains included in the shareholder's income.
The Code imposes a 4% nondeductible excise tax on the Fund to the extent
the Fund does not distribute by the end of any calendar year at least 98% of its
net investment income for that year and 98% of the net amount of its capital
gains (both long-and short-term) for the one-year period ending, as a general
rule, on October 31 of that year. For this purpose, however, any income or gain
retained by the Fund that is subject to corporate income tax will be considered
to have been distributed by year-end. In addition, the minimum amounts that
must be distributed in any year to avoid the excise tax will be increased or
decreased to reflect any underdistribution or overdistribution, as the case may
be, from the previous year. The Fund anticipates that it will pay such
dividends and will make such distributions as are necessary in order to avoid
the application of this tax.
Exchange control regulations may restrict repatriations of investment
income and capital or the proceeds of securities sales by foreign investors such
as the Fund and may limit the Fund's ability to pay sufficient dividends and to
make sufficient distributions to satisfy the 90% and excise tax distribution
requirements.
The Fund will maintain accounts and calculate income in U.S. dollars. In
general, gains and losses on the disposition, or receipt of principal, of debt
securities denominated in a foreign currency that are attributable to
fluctuation in exchange rates between the date the debt security is acquired and
the date of disposition, or receipt of principal, gains and losses attributable
to fluctuations in exchange rates that occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities, and gains and losses from the disposition
of foreign currencies and foreign currency forward contracts will be treated as
ordinary income or loss. If the Fund acquires a debt security denominated in a
Latin American currency, such security may bear interest at a high nominal rate
that takes into account expected decreases in the value of the principal amount
of the security due to anticipated devaluations of the currency. In the case of
such debt securities, the Fund would be required to include the stated interest
in income as it accrues, but would generally realize an ordinary loss
attributable to devaluations of the currency with respect to principal only when
the security is disposed of or the principal amount is received.
The Fund's transactions in foreign currencies, forward contracts, options
and futures contracts (including options and futures contracts on foreign
currencies) will be subject to special provisions of the Code that, among other
things, may affect the character of gains and losses realized by the Fund (i.e.,
may affect whether gains or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund losses. These rules could
therefore affect the character, amount and timing of distributions to
shareholders. These provisions also (a) will require the Fund to mark-to-market
certain types of the positions in its portfolio (i.e., treat them as if they
were closed out) and (b) may cause the Fund to recognize income without
receiving cash with which to pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for avoiding income and
excise taxes. The Fund will monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in its books and records
when it acquires any foreign currency,
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forward contract, option, futures contract or hedged investment in order to
mitigate the effect of these rules and prevent disqualification of the Fund as a
regulated investment company.
PASSIVE FOREIGN INVESTMENT COMPANIES
If the Fund purchases shares in certain foreign investment entities, called
"passive foreign investment companies" (a "PFIC"), the Fund may be subject to
United States federal income tax on a portion of any "excess distribution" or
gain from the disposition of such shares even if such income 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. If the Fund were to invest in a PFIC
and elected to treat the PFIC as a "qualified electing fund" under the Code, in
lieu of the foregoing requirements, the Fund might 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 excise tax distribution requirements described
above.
Legislation has been proposed before the U.S. Congress that would unify
and, in certain cases, modify the anti-deferral rules contained in various
provisions of the Code, including the PFIC provisions, related to the taxation
of U.S. shareholders of foreign corporations. It is impossible to predict if or
when the legislation will become law and, if it is so enacted, what form it will
ultimately take.
On April 1, 1992, proposed regulations of the IRS were published providing
a mark-to-market election for regulated investment companies that would result
in the Fund being treated as if it had sold and repurchased all of its PFIC
stock at the end of each year. In this case, the Fund would recognize gains
(but not losses) and might be required to recognize income in excess of the
distributions it receives from each PFIC and the proceeds from dispositions of
PFIC stock. Although these regulations would be effective for taxable years
ending after promulgation of the regulations as final regulations, the IRS has
issued a notice indicating that final regulations will provide that regulated
investment companies may elect the mark-to-market election for tax years ending
after March 31, 1992 and before April 1, 1993. Whether and to what extent the
notice applies to taxable years of the fund is unclear.
DIVIDENDS AND DISTRIBUTIONS
Dividends of net investment income and distributions of net realized short-
term capital gains are taxable to a United States shareholder as ordinary
income, whether paid in cash or in shares. Distributions of net long-term
capital gains, if any, that the Fund designates as capital gains dividends are
taxable as long-term capital gains, whether paid in cash or in shares and
regardless of how long a shareholder has held shares of the Fund. Dividends and
distributions paid by the Fund (except for the portion thereof, if any,
attributable to dividends on stock of U.S. corporations received by the Fund)
will not qualify for the deduction for dividends received by corporations.
Distributions in excess of the Fund's current and accumulated earnings and
profits will, as to each shareholder, be treated as a tax-free return of
capital, to the extent of a shareholder's basis in his shares of the Fund, and
as a capital gain thereafter (if the shareholder holds his shares of the Fund as
capital assets).
Shareholders receiving dividends or distributions in the form of additional
shares pursuant to the Plan should be treated for United States federal income
tax purposes as receiving a
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distribution in the amount equal to the amount of money that the shareholders
receiving cash dividends or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a dividend or capital
gain distribution should be aware that, although the price of shares just
purchased at that time may reflect the amount of the forthcoming distribution,
those who purchase just prior to a distribution will receive a distribution
which nevertheless will be taxable to them.
If the Fund is the holder of record of any stock on the record date for any
dividends payable with respect to such stock, such dividends are included in the
Fund's gross income not as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to such dividends (i.e., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (b) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
SALES OF SHARES
Upon the sale or exchange of his shares, a shareholder will realize a
taxable gain or loss equal to the difference between the amount realized and his
basis in his shares. Such gain or loss will be treated as capital gain or loss,
if the shares are capital assets in the shareholder's hands, and will be long-
term capital gain or loss if the shares are held for more than one year and
short-term capital gain or loss if the shares are held for one year or less.
Any loss realized on a sale or exchange will be disallowed to the extent the
shares disposed of are replaced, including replacement through the reinvesting
of dividends and capital gains distributions in the Fund under the Plan, within
a 61-day period beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis of the shares acquired
will be increased to reflect the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the shareholder for six months
or less will be treated for United States income tax purposes as a long-term
capital loss to the extent of any distributions or deemed distributions of long-
term capital gains received by the shareholder with respect to such share.
FOREIGN TAXES
If the Fund qualifies as a regulated investment company, if certain
distribution requirements are satisfied and if more than 50% of the value of the
Fund's assets at the close of the taxable year consists of stocks or securities
of foreign corporations, the Fund may elect, for United States federal income
tax purposes, to treat any foreign income taxes paid by the Fund that can be
treated as income taxes under United States income tax principles as paid by its
shareholders (the "foreign tax passthrough election"). Dividends repatriated by
the Fund from Brazil in respect of stock market investments will be subject to a
15% withholding tax if the dividends are paid out of pre-1996 earnings. The
Fund expects to take the position that the 15% Brazilian withholding tax imposed
by Brazil on these dividends is a foreign income tax for United States federal
income tax purposes.
The Fund expects to qualify for and make the foreign tax passthrough
election in some, but not necessarily all, of its taxable years. For any year
that the Fund makes such an election, an amount equal to the Brazilian taxes
paid by the Fund will be included in the income of its shareholders and each
shareholder will be entitled (subject to certain limitations) to credit the
amount included in his income against such shareholder's United States tax
liabilities, if any, or to deduct such amount from such shareholder's United
States taxable income, if any. Shortly after any year for which it makes
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such an election, the Fund will report to its shareholders, in writing, the
amount per share of such foreign income taxes that must be included in each
shareholder's gross income and the amount which will be available for deduction
or credit. In general, a shareholder may elect each year whether to claim
deductions or credits for foreign taxes. However, no deductions for foreign
taxes may be claimed by noncorporate shareholders (including certain foreign
shareholders as described below) who do not itemize deductions. If a
shareholder elects to credit foreign taxes, the amount of credit that may be
claimed in any year may not exceed the same proportion of the United States tax
against which such credit is taken which the shareholder's taxable income from
foreign sources (but not in excess of the shareholder's entire taxable income)
bears to his entire taxable income. This limitation may be applied separately
to certain categories of income and the related foreign taxes.
BACKUP WITHHOLDING
The Fund may be required to withhold, for United States federal income tax
purposes, 31% of the dividends and distributions payable to shareholders 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. Corporate shareholders and
certain other shareholders are or may be exempt from backup withholding. Backup
withholding is not an additional tax and any amount withheld may be credited
against a shareholder's United States federal income tax liabilities.
Additional tax withholding requirements which apply with respect to foreign
investors are discussed below.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a foreign
investor (such as a nonresident alien individual, a foreign trust or estate, a
foreign corporation or a foreign partnership) depends, in part, on whether the
shareholder's income from the Fund is "effectively connected" with a United
States trade or business carried on by the shareholder.
If the foreign investor is not a resident alien and the income from the
Fund is not effectively connected with a United States trade or business carried
on by the foreign investor, distributions of net investment income and net
realized short-term capital gains will be subject to a 30% (or lower treaty
rate) United States withholding tax. Furthermore, foreign investors may be
subject to an increased United States tax on their income resulting from the
Fund's election (described above) to "pass-through" amounts of foreign taxes
paid by the Fund, but may not be able to claim a credit or deduction with
respect to the foreign taxes treated as having been paid by them. Distributions
to a non-resident alien of net realized long-term capital gains, amounts
retained by the Fund which are designated as undistributed capital gains, and
gains realized upon the sale of shares of the Fund generally will not be subject
to United States tax unless the foreign investor who is a nonresident alien
individual is physically present in the United States for more than 182 days
during the taxable year and, in the case of gain realized upon the sale of Fund
shares, unless (a) such gain is attributable to an office or fixed place of
business in the United States or (b) such nonresident alien individual has a tax
home in the United States and such gain is not attributable to an office or
fixed place of business located outside the United States. However, a
determination by the Fund not to distribute long-term capital gains will cause
the Fund to incur a U.S. federal tax liability with respect to retained long-
term capital gains, thereby reducing the amount of cash held by the Fund that is
available for investment, and the foreign investor may not be able to claim a
credit or deduction with respect to such taxes.
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In general, if a foreign investor is a resident alien or if dividends or
distributions from the Fund are effectively connected with a United States trade
or business carried on by the foreign investor, then dividends of net investment
income, distributions of net short-term and long-term capital gains, amounts
retained by the Fund that are designated as undistributed capital gains and any
gains realized upon the sale of shares of the Fund will be subject to United
States income tax at the rates applicable to United States citizens or domestic
corporations. If the income from the Fund is effectively connected with a
United States trade or business carried on by a foreign investor that is a
corporation, then such foreign investor may also be subject to the 30% (or lower
treaty rate) branch profits tax.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described in
this section. Shareholders may be required to provide appropriate documentation
to establish their entitlement to the benefits of such a treaty. Foreign
investors are advised to consult their own tax advisers with respect to (a)
whether their income from the Fund is or is not effectively connected with a
United States trade or business carried on by them, (b) whether they may claim
the benefits of an applicable tax treaty, and (c) any other tax consequences to
them of an investment in the Fund.
NOTICES
Shareholders will be notified annually by the Fund as to the United States
federal income tax status of the dividends, distributions and deemed
distributions made by the Fund to its shareholders. Furthermore, shareholders
will also receive, if appropriate, various written notices after the close of
the Fund's taxable year regarding the United States federal income tax status of
certain dividends, distributions and deemed distributions that were paid (or
that are treated as having been paid) by the Fund to its shareholders during the
preceding taxable year.
BRAZILIAN TAXES
The following discussion of Brazilian tax laws is based upon the advice of
Tozzini, Freire, Texeira e Silva, Brazilian counsel for the Fund.
The Fund's investments in Brazil are channeled through a portfolio of
shares and securities (the "Brazilian Portfolio") formed under the terms of
Annex IV to the Central Bank of Brazil's Resolution No. 1289 of March 20, 1987,
as subsequently amended and supplemented, and thus receives certain tax
benefits. The Fund will not be subject to income tax on redemption of funds and
capital gains earned with respect to its Annex IV investments. No withholding
tax is imposed on dividend income from stock market investments at the time the
dividend income is earned by the investor. The Fund's investment in Brazil will
be subject only to withholding taxes on income earned from such investment at a
rate of 10%.
Dividends paid by the Fund outside of Brazil and gains made from the sale
of shares of the Fund outside of Brazil are not subject to any Brazilian taxes.
OTHER TAXATION
Distributions also may be subject to additional state, local and foreign
taxes depending on each shareholder's particular situation.
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THE FOREGOING IS ONLY A SUMMARY OF CERTAIN MATERIAL TAX CONSEQUENCES
AFFECTING THE FUND AND ITS SHAREHOLDERS. SHAREHOLDERS ARE ADVISED TO CONSULT
THEIR OWN TAX ADVISERS WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES TO THEM
OF AN INVESTMENT IN THE FUND.
NET ASSET VALUE
Net asset value is calculated (a) no less frequently than weekly, (b) on
the last business day of each month and (c) at any other times determined by the
Fund's Board of Directors. Net asset value is calculated by dividing the value
of the Fund's net assets (the value of its assets less its liabilities,
exclusive of capital stock and surplus) by the total number of shares of Common
Stock outstanding. All securities for which market quotations are readily
available are valued at the last sales price prior to the time of determination,
or, if no sales price is available at that time, at the closing price quoted for
the securities (but if bid and asked quotations are available, at the mean
between the last current bid and asked prices, rather than the quoted closing
price). Forward contracts are valued at the current cost of covering or
offsetting the contracts. Securities that are traded over-the-counter are
valued, if bid and asked quotations are available, at the mean between the
current bid and asked prices. If bid and asked quotations are not available,
then over-the-counter securities are valued as determined in good faith by the
Board of Directors. Investments in short-term debt securities having a maturity
of 60 days or less are valued at amortized cost if their term to maturity from
the date of purchase was less than 60 days, or by amortizing their value on the
61st day prior to maturity if their term to maturity from the date of purchase
when acquired by the Fund was more than 60 days, unless this is determined by
the Board of Directors not to represent fair value. All other securities and
assets are taken at fair value as determined in good faith by the Board of
Directors, although the actual calculation may be done by others. In making a
determination of fair value, the Board of Directors will consider, among other
things, the fundamental analytical data relating to the securities, the nature
and duration of any restrictions relating to the securities and the market
forces influencing the price at which these securities may be purchased or sold.
The Board of Directors will also consider specific factors relating to a
particular security such as: nature or type of the security, financial
statements of the issuer of the security, cost of the security at the date of
purchase, size of the holding, liquidity and depth of the market in such
securities, information as to any transactions relating to the security and such
other information as the Directors shall deem relevant for purposes of
determining the fair value of the securities. The Board of Directors has
delegated to the Fund's management the function for periodic determination of
the value of such securities in accordance with guidelines and procedures
established and adopted by the Board. Such determinations by the Fund's
management are submitted to the Fund's valuation committee for its approval,
which committee is comprised of Mr. Bassini and two disinterested directors.
Actions taken by the valuation committee are then submitted to the full Board
for its review at its next regularly scheduled meeting.
In valuing the Fund's assets, quotations of foreign securities in a foreign
currency are converted to U.S. dollar equivalents at the then current currency
value. The Fund's obligation to pay any local tax on remittances from Brazil
will become a liability on the record date for a dividend payment and will have
the effect of reducing the Fund's net asset value.
COMMON STOCK
The authorized capital stock of the Fund is 100,000,000 shares of Common
Stock. The Fund has no present intention of offering additional shares other
than pursuant to the Offer, except
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that additional shares may be issued under the Plan. See "Dividend Reinvestment
and Cash Purchase Plan." Other offerings of shares, if made, will require
approval of the Fund's Board of Directors. Any additional offering will be
subject to the requirement of the 1940 Act that shares 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 the holders of a majority of the Fund's outstanding voting
securities, as such term is defined under the 1940 Act.
BENEFICIAL OWNER
There are no persons known to the Fund who may be deemed beneficial owners
of 5% or more of the shares of the Fund's Common Stock because they possessed or
shared voting or investment power with respect to shares of the Fund's Common
Stock. The officers and directors of the Fund, in the aggregate, own less than
1% of the outstanding shares of the Fund's Common Stock.
FINANCIAL STATEMENTS
The Fund's Annual Report for the fiscal year ended March 31, 1996 (the
"Report"), which either accompany this SAI or has previously been provided to
the person to whom this Prospectus is being sent, are incorporated herein by
reference with respect to all information other than the information set forth
in the Letter to Shareholders included therein. The Fund will furnish, without
charge, a copy of its Report upon request to Shareholder Relations at BEA
Associates, One Citicorp Center, 153 East 53rd Street, New York, New York 10022,
(800) 293-1232.
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APPENDIX
ECONOMIC AND SECURITIES MARKET DATA:
THE FEDERATIVE REPUBLIC OF BRAZIL
THE INFORMATION SET FORTH IN THIS APPENDIX HAS BEEN EXTRACTED FROM VARIOUS
GOVERNMENTAL AND PRIVATE PUBLICATIONS. THE FUND, ITS BOARD OF DIRECTORS AND THE
DEALER MANAGER MAKE NO REPRESENTATION AS TO THE ACCURACY OF THE INFORMATION, NOR
HAS THE FUND, ITS BOARD OF DIRECTORS OR THE DEALER MANAGER ATTEMPTED TO VERIFY
IT; FURTHERMORE, NO REPRESENTATION IS MADE THAT ANY CORRELATION EXISTS BETWEEN
BRAZIL OR ITS ECONOMY IN GENERAL AND THE PERFORMANCE OF THE FUND.
GENERAL
GEOGRAPHY AND DEMOGRAPHY
Brazil is the fifth largest country in the world, with a land area of
3,786,473 square miles. Brazil's population in 1993 is estimated by the Central
Bank of Brazil at approximately 152 million. The population is currently
growing at a rate of approximately 1.3% per year. The two most populous cities
are Sao Paulo and Rio de Janeiro, with populations of 16 and 10 million,
respectively. The capital of Brazil is Brasilia and the official language is
Portuguese.
GOVERNMENT
Brazil is a federative republic. A new constitution was enacted in October
1988 establishing a presidential form of government with three independent
branches: executive, legislative and judicial. A national plebiscite held in
April 1993 confirmed the presidential system as the preferred form of
government.
The executive power is vested in the President, who is elected by direct
vote for a term of four years and is not thereafter eligible for re-election.
The President has a broad range of powers including the right to appoint
ministers and key executives in selected administrative and political posts.
The legislative branch is composed of a National Congress consisting of 81
Senators elected for eight-year terms and 503 Deputies elected for four-year
terms. The judicial branch is headed by the Federal Supreme Court, which is the
court of final appeal for both federal and state courts.
At the State level, the executive power is exercised by Governors who are
elected for four-year terms. The legislative power is exercised by State
Deputies who are also elected for four-year terms, and the judicial power is
vested in state courts.
EXTERNAL AFFAIRS
Brazil has diplomatic and trade relations with almost every nation in the
world. It is a member of many international organizations, including the United
Nations and all of the United Nations' intergovernmental specialized agencies.
Brazil is also a member of the International Bank for Reconstruction and
Development (the "World Bank"), the International Development Association, the
International Finance Corporation and the International Monetary Fund (the
"IMF"). Brazil is also a
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party to the General Agreement on Tariffs and Trade (the "GATT") and a charter
member of the World Trade Organization (the "WTO").
At the regional level, Brazil participates in the Organization of American
States, the Inter-American Development Bank, as well as in the Latin American
Integration Association (the Asociacion Latinoamericana de Integracion or
ALADI). Relations with the rest of South America have emphasized cooperation in
trade and investment issues, most notably with the signing of the Treaty of
Asuncion on March 26, 1991, creating the Mercado Comun del Sur ("Mercosur"), the
Southern Common Market, composed of Brazil, Argentina, Paraguay and Uruguay.
The original treaty and subsequent complementary agreements provide for the
progressive establishment of a free trade area and customs union, as well as the
gradual integration of the members states' economies and an accompanying
harmonization of economic and fiscal policies.
On December 17, 1994, the Mercosur countries adopted the Protocol of Ouro
Preto (the "Protocol") which allows the free trade area to become a full customs
union. Effective January 1, 1995, trade tariffs on 90% of trade within the
Mercosur area were lifted and common external trade tariffs ("CET") ranging from
zero to 20%, with a 14% median, were adopted on about 85% of imports from
outside the union. Final lists of products, including cars and sugar, were
agreed to be exempted from the free trade and customs union rules and remain
temporarily under domestic tariffs. Brazil's recently growing current account
deficit led the government to significantly increase trade tariffs in April
1995. See "The External Sector--Exchange Policy."
The Protocol also sets forth a legal framework which, upon ratification by
the member states, will give Mercosur a legal status comparable to the European
Union. This framework includes rules to promote competition, ease customs
procedures and permit Mercosur representation of its members in international
trade negotiations. The Protocol also establishes Mercosur institutions having
authority to carry out the purpose of the Mercosur agreements. Among such
institutions, the council of the presidents and foreign and finance ministers of
the four members, headed by each country for six months on a rotating basis, is
the highest decision-making body. A trade commission has also been created to
arbitrate trade disputes among the four countries. Finally, the Mercosur
partners have agreed to consider before 2001 moving toward a full common market,
including free movement of goods and labor.
Mercosur has led to a significant increase in trade among the four
partners, and Chile and Bolivia are negotiating to join the organization as free
trade rather than customs union members. In addition, negotiations have begun
between Mercosur and the European Union for a free-trade agreement.
Brazil will also participate in the Free Trade Area of the Americas which
the leaders of all American countries (except Cuba) present at the Summit of the
Americas held on December 9 and 10, 1994 agreed to establish by 2005.
FINANCIAL SYSTEM
The National Monetary Council, which is composed of representatives of
government, business and financial interests, is the highest authority on
monetary and financial policy in Brazil. It is authorized to regulate credit
operations of every kind, to authorize and regulate currency issues, to
supervise the country's reserves of gold and foreign exchange, to determine
savings and investment policies and to regulate the securities and capital
markets, including the activities of both the Central
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Bank of Brazil and the Comissao de Valores Mobilirios (the "CVM"), the
Brazilian Securities Commission.
The Central Bank of Brazil, which is not operated independently from the
Brazilian government, is responsible for implementing the monetary and foreign
exchange policies adopted by the National Monetary Council and overseeing the
implementation of financial legislation. It is authorized, among other things,
to issue money, oversee the circulation of currency, control the level of credit
in the economy, monitor foreign investments and currency movements and
administer Brazil's domestic debt.
RECENT POLITICAL HISTORY
The Brazilian military ruled the country from 1964 to 1984. In 1985 a
series of political reforms were enacted, including the reintroduction of direct
Presidential elections and the convocation of a Constitutional Assembly. In
1988 a new Constitution was promulgated.
In 1989, Fernando Collor de Mello became the first President to be elected
by popular vote since 1960. President Collor's political support began to ebb
in June 1992, as Congress initiated an investigation on charges of corruption
involving the President. In December 1992, President Collor resigned in the
midst of his impeachment trial. He was subsequently found guilty of corruption
and thereafter prohibited by a Senate decision to run for political office for
eight years. In December 1994, the Supreme Court overturned all corruption
charges against former President Collor, which allows him to appeal the Senate
ban. Itamar Franco, the Vice-President under President Collor, who had become
acting President during the impeachment proceedings, assumed the Presidential
office, where he remained until Fernando Henrique Cardoso, winner of the
presidential elections held in October 1994, took office on January 1, 1995.
Fernando Henrique Cardoso's party, the Brazilian Social Democratic Party
("PSDB") made a strong performance in both national and state elections held in
November 1994. The PSDB won six out of 27 governorships, including those of the
three most important states. After winning support in early December 1994 from
the Brazilian Democratic Movement Party ("PMDB"), Brazil's biggest political
party, the PSDB and its allies now control slightly less than 70% of the seats
in Congress. Due to traditionally weak party loyalty, there is no assurance
that President Fernando Henrique Cardoso will be able to attract the support
necessary to implement the reforms which he has announced.
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ECONOMY
OVERVIEW
Although the Brazilian economy is the largest in Latin America, with a
strong export-oriented private sector, in recent years it has endured erratic
growth, largely due to large fiscal deficits and spiraling inflation. Real GDP
growth averaged 1.4% per annum from 1989 to 1994, as successive plans to cut
inflation hampered economic activity.
The following table sets out selected economic indicators for Brazil for
the periods indicated.
SELECTED ECONOMIC INDICATORS
1991 1992 1993 1994
----- ------- ------- -------
GDP (in U.S. $ billion) . . . . 433.3 446.6 482.3 528.3
Real GDP (%) . . . . . . . . . 0.3 (0.8) 4.2 5.8
Inflation CPI, end-of-year 493.8 1,156.0 2,828.7 1,238.0
(%)(1) . . . . . . . . . . . .
Trade balance (in U.S. $ 10.6 15.2 13.3 10.5
billion) . . . . . . . . . . .
Total foreign debt (in U.S. $ 123.9 135.9 145.7 148.3
billion) . . . . . . . . . . .
________________
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
RECENT DEVELOPMENTS
The recurrent threat of hyper-inflation in the latter half of the 1980s and
early 1990s prompted successive Brazilian governments to implement a series of
economic programs. From 1986 through 1991, these programs relied mainly on
price and wage controls in an attempt to decrease the level of indexation of the
economy. In addition, the government would also periodically tighten money
supply. These plans generally did not attempt to deal with Brazil's public
deficit problem.
In March 1990, President Collor's administration implemented an emergency
economic program (the "Collor Plan") which included a substantial withdrawal of
liquidity, as well as a wage-price freeze, higher taxes, planned cuts in
government spending and a privatization program. This program led to a
recession in 1990 but resulted in a drop in inflation and a sharp reduction in
the nominal public deficit. However, further progress was limited by the
government's inability to control spending both by state governments and public
companies, as well as other factors, including decreasing fiscal revenues caused
by the recession.
The Collor Plan plunged Brazil into its most severe recession since 1983
and, in 1990, real GDP declined 4.3%. A new set of economic measures in early
1991 was again based mainly on wage and price controls. The initial impact was
relatively favorable, but these measures caused only a temporary reduction in
inflation. A new economic team appointed in early May 1991 achieved more
centralized controls over public finances, initiated some long-delayed
structural adjustment measures, pursued further orthodox economic policies, and
accelerated negotiations with foreign creditors. Positive real economic growth
at low rates resumed in 1991 but turned into an overall decline in GDP of 0.8%
in 1992, partly because of the political turmoil surrounding President Collor's
resignation.
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In 1993, the government announced a new economic plan including cuts in the
budget, stronger measures to deal with tax evasion, the acceleration of the
privatization program and improvements in governmental control over federal and
state banks. Although inflation continued to rise throughout 1993, real GDP grew
4.2% in 1993, mainly due to a substantial growth of 7.4% in industrial output.
Since March 1994, the government has been implementing a new economic plan,
designed by Fernando Henrique Cardoso, then finance minister. The so-called
Real Stabilization Plan (the "Real Plan") emphasizes a comprehensive monetary
reform backed by tight budgetary policy.
A new price index (the URV or Real Unit of Value) was introduced to replace
most indexation indices and to allow overall relative prices in the economy to
adjust, thus reducing relative price dispersions. The URV index was converted
into a new stable currency unit (the "Real") as of July 1, 1994. Indexation of
wages, prices and contracts to the URV progressed throughout 1994, albeit at a
slower pace than initially expected. To strengthen the credibility of the new
plan, the Central Bank acted to maintain fixed parity between the URV and the
dollar. Indexation to the URV therefore resulted in an indirect "dollarisation"
of the economy. Backed by a balanced budget and strong inflows of foreign
capital, the introduction of the Real has been successful in cutting monthly
inflation (FIPE) from 49.1% in June 1994 before implementation of the Real Plan,
to a low of 0.23% in March 1996, with a forecast of 1.0% in April 1996.
The new government has faced difficulties due to political maneuvering in
the newly elected Congress which took office in early February 1995. In
January, President Fernando Henrique Cardoso vetoed a 30% increase of the
minimum wage voted by Congress, in order to maintain tight control over the
budget and inflation. The government took office in the midst of a serious
international financial crisis created by the Mexican devaluation of December
1994, which led to the devaluation of the Real in March. See "The External
Sector--Exchange Policy." The government managed, however, to pass legislation
providing for spending cuts and tax increases in an attempt to balance the
budget. New rules for public concessions allowing greater private sector
competition have also been enacted.
There is widespread agreement within the international financial community
as well as in Brazil that further political and economic reforms are needed to
maintain the current reduced inflation rate. Reforms needed include an overhaul
of Brazil's current tax and social security systems, as well as further
reductions of the government and nearly bankrupt state banking system.
President Fernando Henrique Cardoso has made proposals to reform Brazil's
constitution to open previously restricted industries, such as mining and
hydroelectricity, to foreign investment as well as oil production and
telecommunications to private sector competition. These proposals received
preliminary approval from the Chamber of Deputies in May 1995. The Government
has also announced proposals to reform Brazil's current social security system,
including health insurance and retirement benefits. An important step was taken
in March 1996 with the passage of a social security bill in the lower house of
the National Congress. However, critics have argued that the reforms are too
timid and that additional measures are necessary. Further reform proposals are
expected to be announced in the future, including a transfer of certain
responsibilities from the federal government to the state and the private
sector, further cuts in the government's spending obligations and a
comprehensive reform of Brazil's tax system.
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Most of these reforms require constitutional changes (which must be
approved by a three-fifths vote of each House of Congress in two separate
rounds), and may well face strong opposition in Congress and from local
politicians and other lobbies. There is no guarantee that these reforms will be
implemented by the government or that, if implemented, they will be successful.
RECENT DEVELOPMENTS IN THE BANKING INDUSTRY
One result of the greatly reduced rate of inflation has been that Brazilian
banks, which traditionally relied on wide interest-rate spreads under high
inflation for a large portion of their profits, have been faced with liquidity
problems. As a result, several banks have required capital injections,
including an injection of over U.S. $8 billion into the government-controlled
Banco do Brasil in March 1996.
In response to these liquidity problems, the government created the Program
of Incentives to the Restructuring and Strengthening of the National Financial
System ("Proer") in November 1995. Proer consists of special lines of credit
and fiscal incentives to be used by institutions to implement reorganizations
resulting in transfers of stock control. As a result of Proer, liquidity has
increased, leading to a decrease in interest rates. At the end of November
1995, the effective rate on federal securities was at 2.88% for the month, the
lowest rate since the Real was introduced.
GROSS DOMESTIC PRODUCT
The following table sets out the annual growth rates of Brazil's economic
sectors for the periods indicated.
ANNUAL GROWTH RATES OF BRAZIL'S ECONOMIC SECTORS
SECTOR 1991 1992 1993 1994 1995
(1)
Agriculture . . . . . . . . 2.8% 5.4% (1.0)% 8.1% N.A.
Industry . . . . . . . . . (2.6) (3.7) 7.4 7.6 3.9
Manufacturing . . . . . . . (2.4) (4.1) 7.9 7.9 4.0
Mining . . . . . . . . . . 0.9 0.8 0.6 4.7 2.9
Services . . . . . . . . . 1.6 (0.0) 3.5 4.1 N.A.
Gross Domestic Product . . 0.3 (0.8) 4.2 5.8 N.A.
__________________
(1) Period from January to October 1995 compared to same period of the previous
year.
N.A. = Not Available
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Vol. 32,
no. 1.
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In 1994, agriculture, industry and services represented 14.2%, 37.2% and
55.8% of Brazil's GDP, respectively.
MANUFACTURING. In recent years, the fastest growing segments of the
manufacturing sector have been the metallurgy, machinery, chemical, electrical
and transport equipment sectors, including high tension transformers, heavy
trucks and such farm equipment as tractors and harvesters. Capital goods
accounted for a major portion of 1994 growth of industrial output. The
production of automobiles reached record levels in 1994, at 1.58 million units,
and remained stable in 1995 at 1.53 million units. In the category of non-
durable goods, Brazil is also a large manufacturer of chemicals, food products
and textiles. Processed food (including sugar, instant coffee and orange juice)
has made an increasingly important contribution to the country's exports.
MINING. Brazil has one of the largest mineral reserves in the world. The
principal minerals produced are iron ore, manganese, bauxite, tin, gold,
diamonds and semi-precious stones. Iron ore reserves are believed to be
equivalent to a third of the world's total, and bauxite reserves are known to be
the largest in Latin America.
AGRICULTURE. Brazil is virtually self-sufficient in food except for wheat.
Brazil is the world's largest producer of coffee and the world's second largest
producer of sugar cane and soya. Brazil is also a major producer of tobacco,
cocoa and forestry products. In 1995 Brazil posted a record harvest of
approximately 80 million tons of grain, legumes and oil crops.
ENERGY. Brazil has substantially reduced its dependence on imported crude
oil as a source of energy. Hydroelectric power represents a large part of the
total electricity produced in the country. To reduce Brazil's imports of
foreign petroleum, Petrobrs, the national oil company, has made significant
investments in domestic oil exploration. The increase in domestic oil
production, the decline in Brazilian oil consumption, and a sharp decline in
international oil prices have helped to improve Brazil's balance of trade in
recent years. The demand for electrical energy has grown rapidly over the past
few years as a result of the expansion of the industrial and commercial sectors
of the economy and increased consumer demand.
PRICES
Brazil has historically experienced very high and variable rates of
inflation, which have had significant negative effects on the Brazilian economy.
An indexation system was created in 1964 to cope with this endemic inflationary
environment. Since 1986, Brazil has implemented six "inflation-fighting" plans.
A seventh plan, the Real Plan, is currently underway in an attempt to de-index
the economy. The Real Plan has been successful in reducing monthly inflation
(INPC) from 48.2% in June 1994, before its July inception, to approximately 1%
in April 1996. The appreciation of the Real against the dollar in the latter
half of 1994 and drops in the prices of important food products have helped to
keep inflation down. Despite the initial success of the Real Plan, pressures
for higher inflation still exist. The inflation rate reached 1.8% and 2.3% in
March and April 1995, respectively, mainly due to increases in industrial
prices, housing and clothing costs. On May 1, 1995, the government raised the
hourly minimum wage 42.9% to R$100 from R$70.
A major reason for the initial success of the Real Plan is that the
government managed to balance the 1994 budget. The drop in inflation resulting
from the Real Plan caused a notable improvement in the public sector balance.
In 1994, net federal government revenues increased by 11.5% with tax revenues
estimated at U.S. $63.2 billion. In 1995, however, the federal government
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had a budget deficit of nearly 5% of GDP. This is expected to fall to 3% in
1996. President Fernando Henrique Cardoso is considering overhauling the tax
system and reducing government spending to maintain tight control over budgetary
accounts.
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The following table shows selected information on price indices for the
periods indicated.
NATIONAL CONSUMER PRICE INDEX (END-OF-YEAR): AVERAGE % CHANGE
1991 . . . . . . . . . . . . . . . . . . . . . . 430%
1992 . . . . . . . . . . . . . . . . . . . . . . 981
1993 . . . . . . . . . . . . . . . . . . . . . . 1,936
1994(1)
Jan . . . . . . . . . . . . . . . . . . . . . . 41.32
Feb . . . . . . . . . . . . . . . . . . . . . . 40.57
Mar . . . . . . . . . . . . . . . . . . . . . . 43.08
Apr . . . . . . . . . . . . . . . . . . . . . . 42.86
May . . . . . . . . . . . . . . . . . . . . . . 42.73
Jun . . . . . . . . . . . . . . . . . . . . . . 48.24
Jul . . . . . . . . . . . . . . . . . . . . . . 7.75
Aug . . . . . . . . . . . . . . . . . . . . . . 1.85
Sep . . . . . . . . . . . . . . . . . . . . . . 1.40
Oct . . . . . . . . . . . . . . . . . . . . . . 2.82
Nov . . . . . . . . . . . . . . . . . . . . . . 2.96
Dec . . . . . . . . . . . . . . . . . . . . . . 1.70
1995(1)
Jan . . . . . . . . . . . . . . . . . . . . . . 1.44
Feb . . . . . . . . . . . . . . . . . . . . . . 1.01
Mar . . . . . . . . . . . . . . . . . . . . . . 1.62
Apr . . . . . . . . . . . . . . . . . . . . . . 2.49
May . . . . . . . . . . . . . . . . . . . . . . 2.10
Jun . . . . . . . . . . . . . . . . . . . . . . 2.18
Jul . . . . . . . . . . . . . . . . . . . . . . 2.46
Aug . . . . . . . . . . . . . . . . . . . . . . 1.02
Sep . . . . . . . . . . . . . . . . . . . . . . 1.17
Oct . . . . . . . . . . . . . . . . . . . . . . 1.40
Nov . . . . . . . . . . . . . . . . . . . . . . 1.51
(1) Monthly.
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
PRIVATIZATION AND DEREGULATION
The public sector grew rapidly during the 1970s and continues to play a
significant role in Brazil's economy. The government, directly and through
various state-owned enterprises, controls a
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major portion of activities in the extractive and basic industry sectors, while
supplying basic services such as education and health care.
Energy production, rail transport, oil prospecting, drilling and refining,
and telephone and telegraph communications are all directly or indirectly
controlled by the Brazilian government. In addition, the government controls
some companies that compete with private enterprises, such as Banco do Brasil,
the country's largest commercial bank, the principal iron-ore mining companies,
and several smaller companies in other sectors of the Brazilian economy.
The government has sought to reduce its participation in the nation's
economy. Important developments in this regard include the establishment of a
free foreign exchange market, the termination of price controls, a reduction of
administrative regulations surrounding foreign trade and capital flows and the
elimination of existing protectionist measures. The government is also acting
to partially deregulate certain segments of the economy, including energy
production and distribution (constitutional proposal maintaining governmental
monopoly over the petroleum industry but allowing the government to contract
with private sector companies), telecommunications (removal of governmental
monopoly) and transportation as well as water supply and treatment facilities.
For example, in May 1996, the lower house of the National Congress approved new
laws opening the telecommunications sector to private competition, beginning
with cellular telephones later this year.
An important element of the Collor administration was its drive to
privatize government-controlled companies as part of the overall restructuring
of the Brazilian economy. The privatization program was initiated in 1991 with
the sale of Usinas Siderurgicas de Minas Gerais ("Usiminas") followed by four
other companies, netting proceeds of approximately U.S. $2.1 billion for the
year 1991. In 1992, fifteen companies were privatized, including Copesul and
the steel manufacturers Acesita and Companhia Siderurgica Tubarao, generating
over U.S. $2.4 billion in revenues. In 1993, six state enterprises were sold,
the National Steel Company (Companhia Siderurgica Nacional, or CSN), Cosipa,
Atominas, Poliolefinas, Oxiteno and Ultrafertil, resulting in net proceeds of
approximately U.S. $3.0 billion. In 1994, nine state enterprises were sold,
including Embraer and Petroquimica Uniao, netting proceeds of approximately U.S.
$620 million. A total of 34 state enterprises had been privatized as of June
30, 1995. Sales of shares in the privatized companies have, for the most part,
been effected through auctions. By June 30, 1995, the government had collected
approximately U.S. $12 billion from its sales of state companies since 1991.
Brazil's privatization program for 1995 included major companies such as
Light (Rio de Janeiro's electricity distributor), Escelsa (Espirito Santo's
electricity distribution), Meridional Bank, RFFSA (Brazil's railway company) and
Copene (petrochemicals). The government expects total privatization proceeds of
U.S. $4.0 billion for the year 1995. President Fernando Henrique Cardoso has
made formal proposals to Congress to extend Brazil's privatization program to
telecommunications companies and oil and mining companies, including Companhia
Vale do Rio Doce, the world's largest iron ore exporter. In April 1995 the
government announced that it is considering privatizing Eletrobr's, the holding
company of Brazil's national power utility and its generation subsidiaries,
Furnas, Eletronorte, Eletrosul and Chesf, in addition to its distribution
subsidiaries Light and Escelsa which were already included in the privatization
program for 1995. In November 1995, additional privatizations were announced,
including the cargo railroad system West Network. Various projects in the state
of Rio Grande do Sul were also announced, including the opening of the capital
of the state Electricity Company and the Riograndence Telecommunications Company
and the privatizations of Amazens Gerais and Companhia Industrial de
Electroquimicos (Ciel). Rio de Janeiro also announced the privatization of at
least 14 transportation, sanitation, electricity and agricultural research
companies, and the abolishment or merger of several others. Brazilian labor
unions have opposed
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certain of the privatization measures proposed by the government, but the
government has to date been able to move forward with its program despite such
opposition.
THE EXTERNAL SECTOR
Brazil's external sector has been experiencing significant growth since
1991 as a result of the world economic recovery and a clear policy shift away
from traditional protectionism, as demonstrated by Brazil's leadership in the
Mercosur negotiation.
FOREIGN TRADE POLICY
Under Mercosur rules, most Brazilian imports and exports within the
Mercosur area are now free of custom duties. In addition to goods exempted from
free trade rules (cars and sugar), Brazil has opted out 29 products (mainly
agricultural). Domestic tariffs covering these products are scheduled to be
gradually lifted by the year 2000.
Brazil's imports from outside the Mercosur area are now subject to CETs
ranging from zero to 70%, with certain exceptions. In addition to goods
exempted from customs union rules (telecommunications equipment and capital
goods), Brazil has opted out 175 products, mainly chemical and petrochemical
products, dairy products and raw materials for the textile industry. Domestic
tariffs on these products are scheduled to decrease to CET levels by the year
2006.
BALANCE OF PAYMENTS
The following table sets forth Brazil's trade balance and current account
for the periods indicated.
BRAZIL'S TRADE BALANCE & CURRENT ACCOUNT
(U.S. $ BILLION)
1989 1990 1991 1992 1993 1994 1995(1)
---- ---- ---- ---- ---- ---- ----
Exports . . . . . . . 34.4 31.4 31.6 35.8 38.6 43.5 42.6
Imports . . . . . . . 18.3 20.7 21.0 20.6 25.3 33.1 45.7
Trade Balance . . . . 16.1 10.8 10.6 15.2 13.3 10.5 (3.1)
Current Account . . . (3.8) (1.4) 6.1 (0.6) (1.7)
____________________
(1) Preliminary (January through November 1995).
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
The trade balance registered a surplus of U.S. $10.5 billion in 1994,
compared to U.S. $13.3 billion in 1993. Exports totaled U.S. $43.5 billion in
1994, an increase of 12.4% over the previous year, while imports were U.S. $33.1
billion, an increase of 29.2% over the same period. Primary product exports
rose to U.S. $15.6 billion during
A-11
<PAGE>
the last quarter of 1994, as compared to U.S. $12.6 billion for the same period
of 1993. Manufactured product exports rose to U.S. $25.7 billion during the
last quarter of 1994 as compared to U.S. $25.9 billion for the same period of
1993. Though Brazil recorded a trade surplus of U.S. $328 million in August
1995, it is expected to record a deficit for the year.
The sharp growth in imports during 1994 and 1995 was influenced by the
increase in consumption which has resulted from the inception of the Real Plan,
as well as the reduction of tariffs and the elimination of non-tariff
restrictions. Imports from the United States, which is Brazil's principal
individual trading partner, surged to U.S. $7.7 billion during 1994. Other
major sources of imports to Brazil in 1994 were Argentina, Japan and Germany;
imports from each of these countries during that year were U.S. $3.6 billion,
U.S. $1.8 billion and U.S. $3.4 billion, respectively.
Factors including interest rates, petroleum prices and the trade policies
of Brazil and Brazil's trading partners have had a significant impact on
Brazil's balance of payments in recent years. The following table displays
certain information with respect to Brazil's balance of payments for the periods
indicated.
A-12
<PAGE>
<TABLE>
<CAPTION>
BALANCE OF PAYMENTS
(U.S. $ MILLION)
1989 1990 1991 1992 1993 1994 1995(1)
---- ---- ---- ---- ---- ---- -------------------------------
1ST 2ND 3RD
QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Trade balance . . . . . . 16,120 10,753 10,579 15,239 13,307 10,440 (2,336) (1,932) 812
Services balance . . . . (15,331) (15,369) (13,542) (11,339) (15,585) (14,743) (4,133) (5,461) (3,702)
Unilateral transfers . . 244 834 1,556 2,243 1,686 2,588 878 1,182 1,016
Current account . . . . . 1,033 (3,782) (1,407) 6,143 (592) (1,715) (5,591) (6,211) (1,874)
Capital . . . . . . . . . (3,648) (4,715) (4,148) 25,271 10,115 14,294 1,111 5,744 16,288
Direct Investment (net) . 125 0 170 2,972 6,170 8,131 (3,351) 1,623 4,231
Reinvestment . . . . . . 531 273 365 175 100 83 24 45 17
Financing . . . . . . . . 3,640 3,424 2,026 13,258 2,380 1,939 644 1,040 439
Amortizations . . . . . . (33,985) (8,665) (7,830) (8,572) (9,978) 50,411 (2,763) (3,189) (2,217)
Currency Loans . . . . . 25,972 (297) 964 17,577 11,659 53,802 6,603 6,524 13,866
Other Capital . . . . . . 69 550 157 (139) (216) 750 (46) (299) (48)
Errors and omissions . . (776) (328) 876 (1,386) (1,119) 360 (271) 37 1,390
Surplus or deficit . . . (3,391) (8,825) (4,679) 30,028 8,404 12,939 (4,751) (430) 15,804
Change in Reserves . . . 887 480.4 (369) 14,670 8,709 7,215 5,060 458 (15,538)
</TABLE>
____________________
(1) Through September 1995
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
A-13
<PAGE>
Brazil's export mix has evolved markedly in recent years, with manufactured
goods claiming an increasing share of total Brazilian exports. Manufactured
goods accounted for 45% of all Brazilian exports in 1980, rising to 54% in 1989
and over 60% in 1994.
TRADING PARTNERS
The following table sets forth certain information regarding Brazil's trade
balance by geographical area.
<TABLE>
<CAPTION>
TRADE BALANCE BY AREA (FOB)
(U.S. $ MILLION)
1989 1990 1991 1992 1993(1) 1994(1) 1995(2)
---- ---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EFTA(3). . . . . . . . . . . . . . . . . . . . . . . . (219) (333) (434) (459) (608) (686) (1,132)
LAIA(4). . . . . . . . . . . . . . . . . . . . . . . . (46) (405) 1,218 3,905 4,470 3,607 194
Canada . . . . . . . . . . . . . . . . . . . . . . . . 465 116 (47) (69) (191) (287) (501)
EC . . . . . . . . . . . . . . . . . . . . . . . . . . 6,764 5,620 5,171 6,168 4,276 3,221 (296)
Central and Eastern Europe . . . . . . . . . . . . . . 772 345 16 31 117 85 254
USA(5) . . . . . . . . . . . . . . . . . . . . . . . . 4,548 3,263 1,387 2,171 2,248 1,295 (2,524)
Japan. . . . . . . . . . . . . . . . . . . . . . . . . 1,232 1,103 1,344 1,184 771 778 425
OPEC(6). . . . . . . . . . . . . . . . . . . . . . . . (1,744) (2,633) (1,559) (1,509) (1,314) (1,586) (1,070)
Other. . . . . . . . . . . . . . . . . . . . . . . . . 4,348 3,677 3,483 3,817 3,538 (4,039) 1,529
Total (excluding OPEC) . . . . . . . . . . . . . . . . 17,864 13,386 12,138 16,748 14,621 12,052 (2,051)
Total (U.S. $ billions) . . . . . . . . . . . . . 16,120 10,753 10,579 15,239 13,307 10,466 (3,121)
</TABLE>
____________________
(1) Preliminary.
(2) Preliminary (January through October 1995).
(3) European Free Trade Association.
(4) Latin American Integration Association (excludes Ecuador and Venezuela
through 1991, but includes Venezuela as from 1992).
(5) Includes Puerto Rico.
(6) Includes Venezuela and Ecuador through 1991, but excludes Ecuador as
from 1992.
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
The growth in exports during 1994 was influenced by a 6.6% increase in the
level of exports to ALADI countries, especially Argentina. Exports to Argentina
grew by 13% in 1994, after having risen by 20.5% in 1993. Growth in exports to
Mercosur countries was 9.8% in 1994.
A-14
<PAGE>
EXCHANGE CONTROL
The purchase and sale of foreign currency in Brazil is subject to
governmental control. There are two exchange markets in Brazil that are subject
to Central Bank regulations, both of which operate at floating rates.
(a) COMMERCIAL EXCHANGE RATE MARKET: This market is reserved basically
for (i) trade related transactions, such as import and export transactions; (ii)
foreign currency investments in Brazil; (iii) foreign currency loans to
residents in Brazil; and (iv) certain other transactions involving remittances
abroad, which are subject to prior approval by the Brazilian monetary
authorities.
(b) FLOATING EXCHANGE RATE MARKET: This market was developed initially
for the tourism industry and was later expanded to allow certain other
transactions. The applicable regulations indicate the types of transactions for
which payments in foreign currency, to and from Brazil, qualify for foreign
exchange in this market.
The key distinction between these two markets is that, while both operate
at floating rates freely negotiated between the parties, the commercial exchange
rate market is generally restricted to foreign trade and transactions which
require the prior approval of the Brazilian monetary authorities. The floating
exchange rate market, in contrast, is generally open to transactions that do not
require any kind of prior approval by the Brazilian monetary authorities. The
commercial exchange rate market is substantially more liquid and less volatile
than the floating exchange rate market.
Authorized Brazilian financial institutions can buy and sell currency in
either market at freely negotiated rates. The Central Bank is not required to
intervene in this market but usually does so to control rate fluctuations. The
purchase of currency for repatriation of capital invested in the country and for
the payment of principal and interest of loans, notes, bonds and other debt
instruments issued abroad by Brazilian obligors is also made in the commercial
market. The obligors of such obligations may freely purchase the necessary
currency to make the required payments abroad by presenting to a bank authorized
to deal in foreign exchange the registration certificate issued by the Central
Bank in connection with such obligations before they are incurred.
EXCHANGE RATE
The following table sets forth, for the periods and dates indicated,
historical exchange rates per U.S. dollar for the Real.
EXCHANGE RATES OF THE REAL PER U.S. DOLLAR (1)
1988
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . 0.28
Average of period. . . . . . . . . . . . . . . . . . . . . . . . 0.10
1989
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . 4.13
Average of period. . . . . . . . . . . . . . . . . . . . . . . . 1.03
1990
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . 64.39
Average of period. . . . . . . . . . . . . . . . . . . . . . . . 24.84
A-15
<PAGE>
1991
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . 0.19
Average of period. . . . . . . . . . . . . . . . . . . . . . . . 0.15
1992
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 2.20
Average of Period. . . . . . . . . . . . . . . . . . . . . . . . 1.64
1993
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 0.05
Average of Period. . . . . . . . . . . . . . . . . . . . . . . . 0.03
1994
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 0.85
Average of Period. . . . . . . . . . . . . . . . . . . . . . . . 0.64
1995
March(2)
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.90
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.86
June(3)
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.92
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.91
September(4)
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.95
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.94
December(5)
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.97
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.96
1996
January
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.98
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.98
February
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . 0.98
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.98
March
End of Period. . . . . . . . . . . . . . . . . . . . . . . . . . 0.99
Average of Period. . . . . . . . . . . . . . . . . . . . . . . 0.99
____________________
(1) Reais per Million U.S. $ through 1990; per Thousand in 1991-92; per
U.S. $ thereafter.
(2) First quarter.
(3) Second quarter.
(4) Third quarter.
(5) Fourth quarter.
Source: International Monetary Fund, INTERNATIONAL FINANCIAL STATISTICS, May
1996.
EXCHANGE POLICY
As part of the Real Plan, since July 1, 1994, the Central Bank has allowed
the foreign exchange to float more freely, permitting the market to continuously
adjust to prevailing supply and demand pressures. The Central Bank committed
itself to sell dollars if the dollar rate rose up to R$1.00, thus preventing the
rate from going beyond that level.
A-16
<PAGE>
Initially conceived as a new instrument to curb exaggerated capital inflow
which could jeopardize the monetary policy, the exchange system became a true
band system in March 1995, after six months of continuous appreciation of the
Real. From the July 1, 1994 introduction of the Real through January 1995, the
Real appreciated by about 15% against the dollar, primarily because of large
inflows of foreign capital attracted by high interest rates and prospects for
future growth and economic reforms. The appreciation of the Real and the
country's opening to international trade have resulted in a deterioration of
Brazil's trade position since November 1994. Imports have surged significantly
because of strong economic growth, resulting in an accumulated trade deficit of
approximately U.S. $3.7 billion from November 1994 through March 1995.
On March 6, 1995, concerned with the risk that Brazil's increasing current
account deficit would trigger a Mexican-type crisis, the Central Bank of Brazil
introduced a new system of floating bands defended by interventions in which the
Real would trade against the Dollar. Confusion about Brazil's new exchange
policy and fears over a possible return to high inflation fueled sharp
speculative pressures against the Real amid general turmoil on the international
exchange markets. The Real fell to its new floor of 90 centavos to the Dollar,
from 86 centavos prior to March 6. After having spent in four days an estimated
U.S. $5.1 billion in foreign reserves to defend the Real, on March 10, 1995, the
Central Bank was forced to alter the new trading bands from 86 to 90 to 88 to 93
centavos to the Dollar and to temporarily raise monthly interest rates to 4.25%.
These measures helped to restore confidence in the Real which stabilized at 90
centavos to the Dollar, down 4.6% from its value prior to the March devaluation.
On June 22, 1995, the Central Bank of Brazil again altered the trading bands to
91 to 99 centavos to the Dollar with the objective of preserving foreign
currency reserves and narrowing the recent trade deficit. On July 3, 1995, the
bid and offer Dollar rates quoted by banks in New York closed at R$.9190 and
R$.9195, respectively. On January 29, 1996, the Central Bank announced an
additional adjustment, resulting in a band of 97 centavos to R$ 1.06 to the
Dollar. At the close of March 1996, the Real was trading at R$ 0.988 against
the Dollar.
Growing pessimism led to strong outflows of foreign capital in March 1995,
which worsened Brazil's current account deficit. In an attempt to tackle the
current account deficit, Brazil increased import tariffs on automobiles from 20%
to 32% in February 1995 and up to 70% on March 29, 1995. Import tariffs on
approximately 100 other products were also increased to 70%. In April 1995,
approximately 20 of such products had their tariffs reduced to a range between
40% and 63% to meet the tariff level established in GATT negotiations. Brazil
has announced that it would back an Argentine proposal to increase CETs on
imports from outside the Mercosur area, which is expected to be discussed at the
next Mercosur summit. In addition, the government decided to reduce a 9%
financial transactions ("IOF") tax on foreign investment in fixed income
securities to 5%, to suspend a 7% IOF tax on foreign fund raising issues and to
lift a 1% IOF tax imposed on foreign investments in the stock market which had
been enacted in October 1994.
EXTERNAL DEBT
Brazil's total external debt as of the years ended 1992, 1993 and 1994, and
as of June 1995, was approximately U.S. $136 billion, U.S. $146 billion, U.S.
$148 billion, and U.S. $157 billion, respectively. Most of the original debt
was incurred to finance capital projects prior to 1982. Most of the commercial
bank debt is denominated in U.S. dollars and bears interest at floating rates.
A-17
<PAGE>
The following table describes Brazil's net disbursements of external debt
for the covered periods.
<TABLE>
<CAPTION>
NET DISBURSEMENTS OF EXTERNAL DEBT(1)
(US$ million)
---- ---- ---- ---- ---------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ---------------------------------
1st 2nd 3rd
quarter quarter quarter
<S> <C> <C> <C> <C> <C> <C> <C>
1. Disbursements (medium- and 6,134 28,174 13,415 55,282 1,730 5,435 6,054
long-term debt)
Refinancing -- 18,683 1,190 42,476 298 0 13
Commercial banks -- 7,100 0 42,476 298 0 13
Brazilian banks -- -- -- 5,752 0 0 0
Foreign banks -- 7,100 -- 36,724 298 0 13
Government creditors -- 11,583 1,190 0 0 0 0
Other disbursements 6,134 9,491 12,338 12,806 1,432 5,435 6,041
2. Amortizations (medium- and 7,658 8,513 9,978 50,411 2,763 3,189 2,218
long-term debt)(2)
3. Short-term capital (net)(3) (492) 372 (219) 209 128 229 73
4. Net disbursements of external (2,016) 20,033 3,218 5,080 (905) 2,475 3,909
debt (1 - 2 + 3)
</TABLE>
____________________
(1) Provisional.
(2) Excludes amortizations related to debt reduction operations and
accumulated loan disbursements agreed with commercial creditor banks
(including debt equity conversion).
(3) Non-financial public sector short-term debt.
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
No. 1.
In July 1992 Brazil and its foreign commercial creditors reached a debt
service reduction agreement, in principle, under the auspices of the Brady
initiative, covering U.S. $44 billion of debt to the commercial banks. A term
sheet for the transaction was agreed to in September 1992 and was approved by
the Brazilian Senate and the required number of bank creditors. Under the term
sheet, lenders had the opportunity to exchange their eligible debt for a
combination of six options, two of which called for the issuance of instruments
that would be fully secured with respect to the principal and 12 months of
interest, and one which would require providing additional financing to Brazil.
Brazil concluded an agreement with 750 banks on April 15, 1994 to refinance
approximately U.S. $49 billion in debt. Under the Brady Plan, Brazil will repay
much of its remaining debt to the banks with special bonds, backed by the U.S.
Treasury bonds as collateral.
A-18
<PAGE>
FOREIGN INVESTMENT
Foreign investment in Brazilian securities is regulated by exchange control
laws and regulations of the National Monetary Council, the Central Bank of
Brazil and the CVM as well as by laws that restrict investment by foreigners in
particular sectors of the Brazilian economy, including the telecommunications,
oil, mining, newspaper and broadcast, insurance, transport and defense
industries. In some cases, these restrictions take the form of limitations on
ownership of voting stock by foreigners. The establishment of new financial
institutions owned by foreign investors and the increase in foreign
participation in existing Brazilian financial institutions have been suspended
since 1988. Several liberalization projects are, however, currently being
considered by Congress (opening of mining and hydroelectricity sectors to
foreign capital). For further discussion of recent measures to favor foreign
investment, see "The External Sector--Exchange Policy." Foreign portfolio
investment in the Brazilian securities markets is regulated by the National
Monetary Council, the Central Bank and the CVM. Foreigners may invest in
Brazilian securities through a variety of vehicles, including foreign capital
investment companies, foreign capital investment funds, foreign capital
securities portfolios, debt/equity conversion funds that were constituted prior
to 1991, managed portfolios and venture capital companies.
For a discussion of the regulatory framework applicable to the Fund's
investments in Brazil, see "Investment Restrictions--Certain Brazilian
Restriction" in the SAI.
THE SECURITIES MARKETS
Brazil has nine stock exchanges. Of these, the Bolsa de Valores de Sao
Paulo (the "Sao Paulo Exchange") and the Bolsa de Valores do Rio de Janeiro (the
"Rio Exchange") are the most important. Under current practice, once a company
is listed, its shares can trade on any of the Brazilian stock exchanges
(together, the "Brazilian Exchanges").
Most securities listed on the Sao Paulo Exchange are also listed on the Rio
Exchange, although prices of listed securities are determined independently on
each Brazilian Exchange. Although any of the outstanding shares of an exchange-
listed company may trade on a Brazilian 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
one or more Brazilian Exchanges may give an exaggerated view of the size of the
Brazilian equity securities market.
Most of the trading volume and most of the market capitalization of the
Brazilian Exchanges is represented by preferred stock rather than common stock.
Brazilian preferred stock is typically non-voting, generally has a preferential
payment right only upon liquidation and as a result is generally treated as an
equity investment. Since preferred stock does not carry voting rights, its
issuance permits a company's controlling persons to retain control through the
ownership of the company's ordinary shares (common stock). Whether or not the
preferred shareholders have a preference in relation to the common stockholders
to receive dividends is determined by the by-laws of each company. Pursuant to
Brazilian corporate law, holders of preferred stock are senior to common stock
holders with respect to the receipt of assets upon liquidation of a corporation.
A-19
<PAGE>
The table below presents recent value indicators for the Sao Paulo
Exchange.
MARKET CAPITALIZATION(1) TRADING VOLUME(2)
--------------------- --------------
(US$ billion) (US$ billion)
1988. . . . . . . . . . . 31.07 10.38
1989. . . . . . . . . . . 44.14 13.82
1990. . . . . . . . . . . 15.37 4.73
1991. . . . . . . . . . . 43.61 8.53
1992. . . . . . . . . . . 45.26 18.30
1993. . . . . . . . . . . 99.43 38.55
1994. . . . . . . . . . . 189.06 88.20
____________________
(1) Year-end total market value of listed domestic company shares.
(2) Year-end total volume traded of listed domestic company shares.
Source: Sao Paulo Exchange, REVISTA BOVESPA, January 1995.
As of March 31, 1995, the total market capitalization of the 545 companies
listed on the Sao Paulo Exchange was approximately U.S. $152 billion.
STOCK INDEXES
The Bovespa Stock Index (the "Sao Paulo Index") indicates average stock
price behavior on the Sao Paulo Exchange by representing the current value in
Brazilian currency of a hypothetical stock portfolio originally selected on
January 2, 1968. This portfolio consists of stocks representing an aggregate
value of 80% of the cash volume of stocks traded during an earlier 12-month
period. Since January 1995, 55 stocks comprise the index. As of February 1995,
total market capitalization of these companies was U.S. $98.4 billion. The
weight of each stock in the portfolio is directly related to its value in the
cash market, both in terms of number of transactions and their value in local
currency. Consequently, the movement of the index may not be representative of
the movement of the majority of issues listed on the Sao Paulo Exchange. The
composition of the Sao Paulo index is reviewed every four months.
The IBV Index (the "Rio Index") is a market value-weighted index of the Rio
Exchange. The market value of each stock is computed by multiplying the price
of such stock by the number of shares outstanding; the market value of the
component stocks are then added and the total divided by an adjusted base market
value initially set at 100 as of December 29, 1983. That sum, multiplied by
100, is the value of the Rio Index at any particular time. Currently,
approximately 50 stocks, which represent more than 90% of the trading volume on
the Rio Exchange, comprise the index. The weight of each stock in the index
depends on the percentage of the overall market capitalization represented by
the market value of the shares outstanding.
A-20
<PAGE>
The following table gives certain performance information regarding the Sao
Paulo Index. The Sao Paulo Index was divided by 10 on January 26, 1993, on
August 27, 1993, and again on February 10, 1994. The table has been adjusted to
reflect these divisions.
PERFORMANCE OF THE
SAO PAULO INDEX(1)
1994 TO PRESENT
END OF PERIOD LEVELS NOMINAL VARIATION
-------------------- -----------------
(POINTS) (MONTH)
1994
January . . . . . . . . . 7,405 97.24%
February. . . . . . . . . 10,538 42.30
March . . . . . . . . . . 15,155 43.81
April . . . . . . . . . . 17,084 12.72
May . . . . . . . . . . . 24,672 44.41
June. . . . . . . . . . . 36,231 46.85
July. . . . . . . . . . . 42,013 15.96
August. . . . . . . . . . 53,294 26.85
September . . . . . . . . 54,840 2.90
October . . . . . . . . . 47,979 (12.51)
November. . . . . . . . . 46,560 (2.96)
December. . . . . . . . . 43,539 (6.49)
1995
January . . . . . . . . . 38,850 (10.77)
February. . . . . . . . . 32,708 (15.81)
March . . . . . . . . . . 29,789 (8.90)
____________________
(1) 1968 = 0.000000001
Source: Sao Paulo Exchange, May 1995; REVISTA BOVESPA, January 1995.
DEBT SECURITIES
PRIMARY MARKET. Corporate bonds are sold through public offerings and
private placements. The market for outstanding convertible and non-convertible
bonds is small and illiquid compared to the market for corporate equities.
Corporate bonds typically have original maturities of one to three years. These
bonds are issued with either fixed or floating interest rates and usually with
principal pegged to an inflation index.
The Brazilian 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.
SECONDARY MARKET. Secondary transactions in bonds are generally made in
the over-the-counter market directly between market intermediaries (such as
investment banks and securities dealers) and investors, most of whom are
institutional. The secondary market for government debt has been
A-21
<PAGE>
relatively active and liquid as compared to the market for corporate debt
securities. Such bonds are also used in repurchase agreements.
The following table sets forth the amounts of public sector bonds held by
investors other than the Central Bank of Brazil at the end of each period shown.
<TABLE>
<CAPTION>
FEDERAL DOMESTIC SECURITIES DEBT(1)
(REAIS THOUSANDS)
YEAR OTNS LTNS LBCS LFTS BTNS BBCS NTNS TOTAL
- ---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1990 . . . . . . . . 0.2 250.2 11.1 505.6 37.4 -- -- 804.4
1991 . . . . . . . . 0.2 -- 265.4 2,752.6 188.4 721.6 564.9 4,493.2
1992 . . . . . . . . 0.8 -- 5,938.8 8,880.6 213.4 89,852 59,088.4 163,973.9
1993 . . . . . . . . 1.0 240,199 1.0 187,884 4,965 1,077,268 3,477,241 4,987,559
1994 . . . . . . . . -- 519,000 2,132,514 7,867,000 36,407 24,975,950 26,998,677 62,529,548
1995(2) . . . . . . . -- 14,557,000 24,961,000 18,746,000 49,000 27,274,000 23,460,000 109,047,000
</TABLE>
____________________
(1) Not including bonds in Central Bank portfolio.
(2) Preliminary (January through November 1995).
OTN = National treasury obligations.
LTN = National treasury bills.
LBC = Central Bank bills.
LFT = Treasury financing bills.
BTN = National treasury bonds.
BBC = Central Bank bonds.
NTN = National treasury notes.
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1.
External debt of Brazilian issuers commonly trades in the over-the-counter
market outside Brazil, typically in New York. While there is no data setting
forth the amount of trading in such securities, they are generally considered to
be actively traded. A number of Brazilian corporations have issued bonds that
are listed and traded on the Luxembourg Stock Exchange.
SECURITIES REGULATION
The Central Bank of Brazil licenses and oversees the operations of
Brazilian financial institutions, including investment banks, brokerage firms
and securities dealerships. In particular, the Central Bank of Brazil is
responsible for licensing brokerage firms. Once licensed with the Central Bank
of Brazil, a financial institution's activities in the Brazilian securities
markets are regulated by the CVM. The CVM, which is managed by appointees of
the President of Brazil who serve at the President's discretion, is responsible
for the regulation and supervision of the corporate securities markets and the
protection of investors in those markets.
All companies must register with the CVM before issuing and selling
securities to the public. Companies must update information about their
operations on an annual basis and, in addition, file interim and quarterly
reports with the CVM, though that information is not required to be distributed
to the companies' shareholders. Moreover, any fact or event that may materially
affect a company must be immediately reported by its management to the CVM and
is usually required to be immediately reported to the Brazilian Exchanges and
the public. Non-compliance with these registration and disclosure rules may
subject a company and its management to penalties provided by law.
A-22
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
(i) -- Schedule of Investments as of March 31, 1996*
(ii) -- Statement of Assets and Liabilities as of March
31, 1996*
(iii) -- Statement of Operations for the fiscal year ended
March 31, 1996*
(iv) -- Statement of Changes in Net Assets for the year
ended March 31, 1996*
(v) -- Selected Per Share Data and Ratios for the fiscal
year ended March 31, 1996*
(vi) -- Notes to Financial Statements*
(vii) -- Report of Independent Accountants*
_________________
* Incorporated by reference to the Fund's Annual Report for the year ended
March 31, 1996, filed on June 5, 1996.
(2) Exhibits
(a) -- Articles of Incorporation
(b) -- Amended and Restated By-laws
(c) -- Not applicable
(d)(1) -- Specimen certificate for Common Stock, par value
$.001 per share (incorporated by reference to
Amendment No. 1 to the Fund's Registration
Statement on Form N-2, Exhibit 4, filed on
March 5, 1992)*
(2) -- Form of Subscription Certificate**
(3) -- Form of Notice of Guaranteed Delivery**
(4) -- Form of DTC Participant Over-Subscription
Certificate Form**
(5) -- Form of Nominee Holder Over-Subscription
Certificate**
(6) -- Form of Beneficial Listing**
(7) -- Form of Subscription Agency Agreement**
(e) -- Dividend Reinvestment and Cash Purchase Plan
(incorporated by reference to Amendment No. 2 to
the Fund's Registration Statement on Form N-2,
Exhibit 10(A), filed on April 2, 1992)*
(f) -- Not applicable
(g)(1) -- Investment Advisory Agreement between the Fund and
BEA Associates ("BEA")
(g)(2) -- Fee Waiver Agreement between the Fund and BEA
Associates relating to Patrimonio
(g)(3) -- Fee Waiver Agreement between the Fund and BEA
Associates relating to Garantia
(h)(1) -- Form of Dealer Manager Agreement between the Fund,
BEA and Bear, Stearns & Co. Inc.**
(2) -- Form of Soliciting Dealer Agreement**
(i) -- Not applicable
(j)(1) -- Custodial Services Agreement between the Fund and
Brown Brothers Harriman & Co.**
C-1
<PAGE>
(k)(1) -- Transfer Agency Services Agreement between the
Fund and The First National Bank of Boston**
(2) -- Administration Agreement between the Fund and Bear
Stearns Funds Management Inc. (the "U.S.
Administrator")**
(3) -- Administrative Services Agreement between the Fund
and BEA
(l)(1) -- Opinion and consent of Willkie Farr & Gallagher**
(2) -- Opinion and consent of Venable, Baetjer and
Howard, LLP**
(m) -- Not applicable
(n)(1) -- Consent of Coopers & Lybrand, L.L.P.
(2) -- Opinion and consent of Tozzini, Freire, Teixeira e
Silva**
(o) -- Not applicable
(p) -- Purchase Agreement between the Fund and BEA
(q) -- Not applicable
(r) -- Financial Data Schedule
__________________
* This Registration Statement was filed under File Nos.
33-45647 and 811-6555
** To be filed by amendment
C-2
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
Not applicable
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred
in connection with the Offer described in this Registration Statement:
Registration fees. . . . . . . . . . . . . . . . . . . . . . . $ 9,447.78
New York Stock Exchange
listing fee. . . . . . . . . . . . . . . . . . . . . . . . . 7,000.00
-----------
Printing (other than stock
certificates). . . . . . . . . . . . . . . . . . . . . . . . 60,000.00
-----------
Engraving and printing
stock certificates . . . . . . . . . . . . . . . . . . . . . 5,000.00
-----------
Fees and expenses of
qualification under state securities laws
(including fees of counsel). . . . . . . . . . . . . . . . . 10,000.00
-----------
Accounting fees and expenses . . . . . . . . . . . . . . . . . 8,500.00
-----------
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . 100,000.00
-----------
Dealer Manager's expenses. . . . . . . . . . . . . . . . . . . 100,000.00
-----------
Information Agent's fees and expenses. . . . . . . . . . . . . 28,000.00
-----------
Subscription Agent's fees and expenses . . . . . . . . . . . . 25,000.00
-----------
NASD fees. . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300.00
-----------
Postage. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000.00
-----------
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . $396,247.78
-----------
-----------
Total
C-3
<PAGE>
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES
Common Stock, par value $.001 per share: 207 record holders as of
June 5, 1996.
ITEM 29. INDEMNIFICATION
Section 2-418 of the General Corporation Law of the State of Maryland,
Article VIII of the Fund's Articles of Incorporation, Article 5.2 of the Fund's
Bylaws, the Dealer Manager Agreement to be filed as Exhibit (h)(1) and the
Advisory Agreement filed as Exhibit (g)(1) provide for indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act"), may be permitted to directors,
officers and controlling persons of the Fund, pursuant to the foregoing
provisions or otherwise, the Fund has been advised that in the opinion of the
Securities and Exchange Commission (the "SEC") such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Fund of expenses incurred or paid by a director, officer or
controlling person of the Fund in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Registrant is fulfilling the requirement of this Item 30 to provide a
list of the officers and directors of its investment adviser, together with
information as to any other business, profession, vocation or employment of a
substantial nature engaged in by that entity or those of its officers and
directors during the past two years, by incorporating by reference the
information contained in the Form ADV filed with the SEC pursuant to the
Investment Advisers Act of 1940 by BEA Associates (SEC File No. 801-37170).
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The Brazilian Equity Fund, Inc.
c/o BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, NY 10022
(Registrant's Articles of Incorporation and By-Laws)
BEA Associates
One Citicorp Center, 57th Floor
153 East 53rd Street
New York, NY 10022
C-4
<PAGE>
(with respect to its services as investment adviser)
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, New York 10022
(with respect to its services as U.S. Administrator)
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
(with respect to its services as Custodian for the Fund's assets)
The First National Bank of Boston
P.O. Box 1865
Boston, MA 02105
(with respect to its services as dividend-paying agency, transfer
agent and registrar)
The First National Bank of Boston, Sao Paulo
Rua Libero Badaro, 487 Piso 11
Sao Paulo, Brazil
(with respect to its services as Brazilian Administrator)
ITEM 32. MANAGEMENT SERVICES
Not applicable.
ITEM 33. UNDERTAKINGS
(a) Registrant undertakes to suspend offering its shares until it
amends its prospectus contained herein if (1) subsequent to the effective date
of its Registration Statement, the net asset value per share declines more than
10 percent from its net asset value per share as of the effective date of this
Registration Statement, or (2) the net asset value per share increases to an
amount greater than its net proceeds as stated in the prospectus contained
herein.
(b) Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, 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 Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of the
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act,
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-5
<PAGE>
(c) Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) to reflect in the prospectus any facts or events
arising 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; or
(ii) 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
Act, 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, any Statement of Additional
Information.
C-6
<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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 7th day of June,
1996.
THE BRAZILIAN EQUITY FUND, INC.
By /s/ Emilio Bassini
------------------------
Emilio Bassini
President
Each person whose signature appears below hereby constitutes and
appoints Emilio Bassini and Michael A. Pignataro, and each of them, his true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and to file the same with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated.
SIGNATURE TITLE DATE
- --------- ------ ----
/s/ Emilio Bassini Director, Chairman June 7, 1996
- ------------------------- of the Board,
Emilio Bassini President and
Chief Executive
Officer
/s/ Richard Watt Director, Senior Vice June 7, 1996
- ------------------------- President and Chief
Richard Watt Investment Officer
/s/ Daniel Sigg Director and June 7, 1996
- ------------------------- Senior Vice President
Daniel Sigg
/s/ Enrique R. Arzac Director June 7, 1996
- -------------------------
Enrique R. Arzac
C-7
<PAGE>
Director
- -------------------------
John Bult
/s/ James J. Cattano Director June 7, 1996
- -------------------------
James J. Cattano
Director
- -------------------------
Peter A. Gordon
/s/ George W. Landau Director June 7, 1996
- -------------------------
George W. Landau
/s/ Martin M. Torino Director June 7, 1996
- -------------------------
Martin M. Torino
/s/ Michael A. Pignataro Chief June 7, 1996
- ------------------------- Financial Officer
Michael A. Pignataro and Secretary
C-8
<PAGE>
EXHIBIT INDEX
PAGE IN
SEQUENTIAL
NUMBERING
SYSTEM
------
(a) -- Articles of Incorporation. . . . . . . . . . . . . . . .
(b) -- Amended and Restated By-laws . . . . . . . . . . . . . .
(d)(2) -- Form of Subscription Certificate*. . . . . . . . . . . .
(d)(3) -- Form of Notice of Guaranteed Delivery* . . . . . . . . .
(d)(4) -- Form of DTC Participant Over-Subscription Certificate* .
(d)(5) -- Form of Nominee Holder Over-Subscription Certificate*. .
(d)(6) -- Form of Beneficial Listing*. . . . . . . . . . . . . . .
(d)(7) -- Form of Subscription Agency Agreement* . . . . . . . . .
(g)(1) -- Investment Advisory Agreement between the Fund and BEA
Associates. . . . . . . . . . . . . . . . . . . . . . .
(g)(2) -- Fee Waiver Agreement between the Fund and BEA Associates
relating to Patrimonio. . . . . . . . . . . . . . . . .
(g)(3) -- Fee Waiver Agreement between the Fund and BEA Associates
relating to Garantia. . . . . . . . . . . . . . . . . .
(h)(1) -- Form of Dealer Manager Agreement*. . . . . . . . . . . .
(h)(2) -- Form of Soliciting Dealer Agreement* . . . . . . . . . .
(j)(1) -- Custodial Service Agreement between the Fund and Brown
Brothers Harriman & Co* . . . . . . . . . . . . . . . .
(k)(1) -- Transfer Agency Services Agreement between the Fund and
The First National Bank of Boston* . . . . . . . . .
(2) -- Administration Agreement between the Fund and Bear
Stearns Funds Management Inc*. . . . . . . . . . . .
(3) -- Administrative Services Agreement between the Fund and
BEA Associates. . . . . . . . . . . . . . . . . . . . .
(l)(1) -- Opinion and Consent of Willkie Farr & Gallagher* . . . .
(l)(2) -- Opinion and consent of Venable, Baetjer and Howard,
L.L.P*. . . . . . . . . . . . . . . . . . . . . . . . .
(n)(1) -- Consent of Coopers & Lybrand, L.L.P. . . . . . . . . . .
(n)(2) -- Opinion and Consent of Tozzini, Freire, Teixeira e
Silva*. . . . . . . . . . . . . . . . . . . . . . . . .
(p) -- Purchase Agreement . . . . . . . . . . . . . . . . . . .
(r) -- Financial Data Schedule. . . . . . . . . . . . . . . . .
____________
* To be filed by amendment.
C-9
<PAGE>
ARTICLES OF INCORPORATION
OF
THE BRAZILIAN EQUITY FUND, INC.
________________________________
ARTICLE I.
THE UNDERSIGNED, Marie-Anne Clarke, whose post office address is c/o
Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New
York, New York 10022, being at least eighteen years of age, does hereby act
as an incorporator and form a corporation under and by virtue of the Maryland
General Corporation Law. ARTICLE II.
NAME
----
The name of the Corporation is THE BRAZILIAN EQUITY FUND, INC.
ARTICLE III.
PURPOSES AND POWERS
-------------------
The Corporation is formed to conduct and carry on the business of a
closed-end investment company registered under the Investment Company Act of
1940, as amended.
ARTICLE IV.
PRINCIPAL OFFICE AND RESIDENT AGENT
-----------------------------------
The post office address of the principal office of the Corporation
in the State of Maryland is c/o The Corporation Trust Company Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent
of the Corporation in the State of Maryland is The Corporation Trust Company
Incorporated. The post office address of the resident agent is 32 South
Street,Baltimore, Maryland 21202.
ARTICLE V.
CAPITAL STOCK
-------------
The total number of shares of capital stock that the Corporation
shall have authority to issue is one hundred million (100,000,000) shares, of
the par value of one tenth of one cent ($.001) per share and of the aggregate
par value of one hundred thousand dollars ($100,000), all of which one hundred
million (100,000,000) shares are designated Common Stock.
<PAGE>
(2) The Corporation may issue fractional shares. Any fractional
share shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. A fractional
share shall not, however, have the right to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation
and the Bylaws of the Corporation, as from time to time amended.
(4) No holder of stock of the Corporation by virtue of being such a
holder shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may issue
or sell other than a right that the Board of Directors in its discretion may
determine to grant.
(5) The Board of Directors shall have authority by resolution to
classify and reclassify any authorized but unissued shares of capital stock from
time to time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the capital
stock.
(6) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a greater
proportion of the votes of all classes or of any class of stock of the
Corporation, such action shall be effective and valid if taken or authorized by
the affirmative vote of a majority of the total number of votes entitled to be
cast thereon, except as otherwise provided in these Articles of Incorporation.
ARTICLE VI.
BOARD OF DIRECTORS
------------------
(1) The initial number of directors shall be three. The number of
directors of the Corporation may be changed by the Bylaws or by the Board of
Directors pursuant to the Bylaws. The number of Directors shall in no event be
greater than nine (9). The names of the directors who shall act until the first
annual meeting of shareholders or until their successors are duly chosen and
qualified are:
Emilio Bassini
Piers Playfair
Michael A. Pignataro
(2) Beginning with the first annual meeting of stockholders held
after the initial public offering of the shares
-2-
<PAGE>
of the Corporation (the "initial annual meeting"), the Board of Directors shall
be divided into three classes: Class I, Class II and Class III. The terms of
office of the classes of Directors elected at the initial annual meeting shall
expire at the times of the annual meetings of the stockholders as follows:
Class I on the next annual meeting, Class II on the second next annual meeting
and Class III on the third next annual meeting, or thereafter in each case when
their respective successors are elected and qualified. At each subsequent
annual election, the Directors chosen to succeed those whose terms are expiring
shall be identified as being of the same class as the Directors whom they
succeed, and shall be elected for a term expiring at the time of the third
succeeding annual meeting of stockholders, or thereafter in each case when their
respective successors are elected and qualified. The number of Directorships
shall be apportioned among the classes so as to maintain the classes as nearly
equal in number as possible.
(3) A Director may be removed with or without cause, but only by
action of the stockholders taken by the holders of at least seventy-five percent
(75%) of the votes entitled to be cast.
(4) In furtherance, and not in limitation, of the powers conferred by
the laws of the State of Maryland, the Board of Directors is expressly
authorized:
(i) To make, alter or repeal the Bylaws of the Corporation,
except as otherwise required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations the books
and accounts of the Corporation, or any of them other than the stock ledger,
shall be open to the inspection of the stockholders. No stockholder shall have
any right to inspect any account or book or document of the Corporation, except
as conferred by law or authorized by resolution of the Board of Directors.
(iii) Without the assent or vote of the stockholders, to
authorize the issuance from time to time of shares of the stock of any class of
the Corporation, whether now or hereafter authorized, and securities convertible
into shares of stock of the Corporation of any class or classes, whether now or
hereafter authorized, for such consideration as the Board of Directors may deem
advisable.
(iv) Without the assent or vote of the stockholders, to authorize
and issue obligations of the Corporation, secured and unsecured, as the Board of
Directors may determine, and to authorize and cause to be executed mortgages and
liens upon the real or personal property of the Corporation.
-3-
<PAGE>
(v) In addition to the powers and authorities granted herein and
by statute expressly conferred upon it, the Board of Directors is authorized to
exercise all powers and do all acts that may be exercised or done by the
Corporation pursuant to the provisions of the laws of the State of Maryland,
these Articles of Incorporation and the Bylaws of the Corporation.
(5) Any determination made in good faith by or pursuant to the
direction of the Board of Directors, with respect to the amount of assets,
obligations or liabilities of the Corporation, as to the amount of net income of
the Corporation from dividends and interest for any period or amounts at any
time legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time of or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
the reserves or charges have been created has been paid or discharged or is then
or thereafter required to be paid or discharged), as to the value of any
security owned by the Corporation or as to the determination of the net asset
value of shares of any class of the Corporation's capital stock, shall be final
and conclusive, and shall be binding upon the Corporation and all holders of its
capital stock, past, present and future, and shares of the capital stock of the
Corporation are issued and sold on the condition and understanding, evidenced by
the purchase of shares of capital stock or acceptance of share certificates,
that any and all such determinations shall be binding as aforesaid. No
provision of these Articles of Incorporation of the Corporation shall be
effective to (i) require a waiver of compliance with any provision of the
Securities Act of 1933, as amended, or the Investment Company Act of 1940, as
amended, or of any valid rule, regulation or order of the Securities and
Exchange Commission under those Acts or (ii) protect or purport to protect any
director or officer of the Corporation against any liability to the Corporation
or its security holders 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.
ARTICLE VII.
CERTAIN TRANSACTIONS
--------------------
(a) Except as otherwise provided in this Article VII, at least
seventy-five percent (75%) of the votes entitled to be cast by stockholders, in
addition to the affirmative vote of at least seventy-five percent (75%) of the
entire Board of Directors, shall be necessary to effect any of the following
actions:
-4-
<PAGE>
(i) any amendment to these Articles to make the Corporation's
Common Stock a "redeemable security" or to convert the corporation from a
"closed-end company" to an "open-end company" (as such terms are defined in the
Investment Company Act of 1940, as amended) or any amendment to Article III,
unless the Continuing Directors (as hereinafter defined) of the Corporation, by
a vote of at least seventy-five percent (75%) of such Directors, approve such
amendments in which case the affirmative vote of a majority of the votes
entitled to be cast by stockholders shall be required to approve such
transaction;
(ii) any stockholder proposal as to specific investment
decisions made or to be made with respect to the Corporation's assets;
(iii) any proposal as to the voluntary liquidation or
dissolution of the Corporation or any amendment to these Articles of
Incorporation to terminate the existence of the Corporation, unless the
Continuing Directors of the Corporation, by a vote of at least seventy-five
percent (75%) of such Directors, approve such proposals in which case the
affirmative vote of a majority of the votes entitled to be cast by stockholders
shall be required to approve such transaction; or
(iv) any Business Combination (as hereinafter defined) unless
either the condition in clause (A) below is satisfied, or all of the conditions
in clauses (B), (C), (D), (E) and (F) below are satisfied, in which case
paragraph (c) below shall apply.
(A) The Business Combination shall have been approved by a vote
of at least 75% of the Continuing Directors.
(B) The aggregate amount of cash and the Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of any class of outstanding Voting Stock (as hereinafter defined) in
such Business Combination shall be at least equal to the higher of the
following:
(x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by an Interested
Party (as hereinafter defined) for any shares of such Voting Stock acquired by
it (aa) within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the "Announcement
Date"), or (bb)(i) in the Threshold Transaction (as hereinafter defined), or
(ii) in any period between the Threshold Transaction and the consummation of the
Business Combination, whichever is higher; and
-5-
<PAGE>
(y) the net asset value per share of such Voting Stock on
the Announcement Date or on the date of the Threshold Transaction, whichever is
higher.
(C) The consideration to be received by holders of the
particular class of outstanding Voting Stock shall be in cash or in the same
form as the Interested Party has previously paid for shares of any class of
Voting Stock. If the Interested Party has paid for shares of any class of
Voting Stock with varying forms of consideration, the form of consideration for
such class of Voting Stock shall be either cash or the form used to acquire the
largest number of shares of such class of Voting Stock previously acquired by
it.
(D) After the occurrence of the Threshold Transaction, and prior
to the consummation of such Business Combination, such Interested Party shall
not have become the beneficial owner of any additional shares of Voting Stock
except by virtue of the Threshold Transaction.
(E) After the occurrence of the Threshold Transaction, such
Interested Party shall not have received the benefit, directly or indirectly
(except proportionately as a shareholder of the Corporation), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder (or any subsequent provisions replacing such
Acts, rules or regulations) shall be prepared and mailed by the Interested
Party, at such Interested Party's expense, to the shareholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to such Acts or subsequent provisions).
(b) For the purposes of this Article:
(i) "Business Combination" shall mean any of the transactions
described or referred to in any one or more of the following subparagraphs:
(A) any merger, consolidation or share exchange of the
Corporation with or into any other person;
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions in any 12
month period) to or with any other person of any assets of the Corporation
having an aggregate
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<PAGE>
Fair Market Value of $1,000,000 or more except for portfolio transactions of
the Corporation effected in the ordinary course of the Corporation's business;
(C) the issuance or transfer by the Corporation (in one
transaction or a series of transactions in any 12 month period) of any
securities of the Corporation to any other person in exchange for cash,
securities or other property (or a combination thereof) having an aggregate Fair
Market Value of $1,000,000 or more excluding (x) sales of any securities of the
Corporation in connection with a public offering thereof, (y) issuances of any
securities of the Corporation pursuant to a dividend reinvestment plan adopted
by the Corporation and (z) issuances of any securities of the Corporation upon
the exercise of any stock subscription rights distributed by the Corporation;
(ii) "Continuing Director" means any member of the Board of
Directors of the Corporation who is not an Interested Party or an Affiliate of
an Interested Party and has been a member of the Board of Directors for a period
of at least 12 months (or since the Corporation's commencement of operations, if
that period is less than 12 months), or is a successor of a Continuing Director
who is unaffiliated with an Interested Party and is recommended to succeed a
Continuing Director by a majority of the Continuing Directors then on the Board
of Directors.
(iii) "Interested Party" shall mean any person, other than an
investment company advised by the Corporation's initial investment manager or
any of its Affiliates, which enters, or proposes to enter, into a Business
Combination with the Corporation.
(iv) "Person" shall mean an individual, a corporation, a trust
or a partnership.
(v) "Voting Stock" shall mean capital stock of the Corporation
entitled to vote generally in the election of directors.
(vi) A person shall be a "beneficial owner" of any Voting Stock:
(A) which such person or any of its Affiliates or
Associates (as hereinafter defined) beneficially owns, directly or indirectly;
or
(B) which such person or any of its Affiliates or
Associates has the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or
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<PAGE>
(C) which is beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(vii) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934.
(viii) "Fair Market Value" means:
(A) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the relevant date of a share of
such stock on the New York Stock Exchange, or if such stock is not listed on
such Exchange, on the principal United States securities exchange registered
under the Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing sale price
(if such stock is a National Market System security) or the highest closing bid
quotation (if such stock is not a National Market System security) with respect
to a share of such stock during the 30-day period preceding the relevant date on
the National Association of Securities Dealers, Inc. Automated Quotation Systems
(NASDAQ) or any system then in use, or if no such quotations are available, the
fair market value on the relevant date of the share of such stock as determined
by at least 75% of the Continuing Directors in good faith, and
(B) in the case of property other than cash or stock, the
fair market value of such property on the relevant date as determined by at
least 75% of the Continuing Directors in good faith.
(ix) "Threshold Transaction" means the transaction by or as a
result of which an Interested Party first becomes the beneficial owner of Voting
Stock.
(x) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be received"
as used in subparagraph (a)(iv)(B) above shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock retained
by the holders of such shares.
(xi) Continuing Directors of the Corporation, acting by a vote
of at least 75%, shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary to
determine (a) the number of shares of Voting Stock beneficially owned by any
person, (b) whether a person is an Affiliate or Associate of another, (c)
whether the requirements of subparagraph (a)(iv) above have been met with
respect to any Business Combination, and
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<PAGE>
(d) whether the assets which are the subject of any Business Combination have,
or the consideration to be received for the issuance or transfer of securities
by the Corporation in any Business Combination has, an aggregate Fair Market
Value of $1,000,000 or more.
(c) If any Business Combination described in paragraph (b)(i)(A) or
(B) (if the transfer or other disposition constitutes a transfer of all or
substantially all of the assets of the Corporation with respect to which
stockholder approval is required under Maryland law) is approved by a vote of
75% of the Continuing Directors or all of the conditions in paragraph
(a)(iv)(B), (C), (D), (E) and (F) are satisfied, a majority of the votes
entitled to be cast by stockholders shall be required to approve such
transaction. If any other Business Combination is approved by a vote of 75% of
the Continuing Directors or all of the conditions in paragraph (a)(iv)(B), (C),
(D), (E) and (F) are satisfied, no stockholder vote shall be required to approve
such transaction unless otherwise provided in these Articles of Incorporation or
required by law.
ARTICLE VIII.
LIMITATIONS ON LIABILITY; INDEMNIFICATION
-----------------------------------------
(1) To the fullest extent that limitations on the liability of
directors and officers are permitted by the Maryland General Corporation Law, no
director or officer of the Corporation shall have any liability to the
Corporation or its stockholders for damages. This limitation on liability
applies to events occurring at the time a person serves as a director or officer
of the Corporation whether or not such person is a director or officer at the
time of any proceeding in which liability is asserted.
(2) Any person who was or is a party or is threatened to be made a
party in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is a current or former director or officer of the Corporation,
or is or was serving while a director or officer of the Corporation at the
request of the Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint venture, trust,
enterprise or employee benefit plan, shall be indemnified by the Corporation
against judgments, penalties, fines, excise taxes, settlements and reasonable
expenses (including attorneys' fees) actually incurred by such person in
connection with such action, suit or proceeding to the fullest extent
permissible under the Maryland General Corporation Law, the Securities Act of
1933 and the Investment Company Act of 1940, as such statutes are now or
hereafter in force. In addition, the Corporation shall also advance expenses to
its currently acting and its former directors
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<PAGE>
and officers to the fullest extent that indemnification of directors is
permitted by the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940. The Board of Directors may by Bylaw,
resolution or agreement make further provision for indemnification of directors,
officers, employees and agents to the fullest extent permitted by the Maryland
General Corporation Law.
(3) No provision of this Article shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its security holders 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.
(4) References to the Maryland General Corporation Law in this
Article are to that law as from time to time amended. No amendment to the
charter of the Corporation shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the amendment.
ARTICLE IX.
AMENDMENTS
----------
(1) The Corporation reserves the right from time to time to make any
amendment to its Articles of Incorporation, now or hereafter authorized by law,
including any amendment that alters the contract rights, as expressly set forth
in its Articles of Incorporation, of any outstanding stock.
(2) Notwithstanding Paragraph (1) of this Article or any other
provision of these Articles of Incorporation, no amendment to these Articles of
Incorporation shall amend, alter, change or repeal any of the provisions of
paragraphs (1), (2) or (3) of Article VI unless the amendment effecting such
amendment, alteration, change or repeal shall receive the affirmative vote of at
least seventy-five percent (75%) of the votes entitled to be cast by
stockholders and the affirmative vote of at least seventy-five percent (75%) of
the entire Board of Directors, unless the amendment shall have been approved by
at least 75% of the Continuing Directors, in which case the affirmative vote of
a majority of the votes entitled to be cast shall be sufficient to approve the
amendment, and no amendment to these Articles of Incorporation shall amend,
alter, change or repeal Articles VII or IX unless the amendment effecting such
amendment, alteration, change or repeal shall receive the affirmative vote of at
least seventy-five percent (75%) of the votes entitled to be cast by
stockholders and a vote of at least seventy-five percent (75%) of the entire
Board of Directors.
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<PAGE>
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
Dated the 10th day of February, 1992.
/s/ Marie-Anne Clarke
---------------------
Marie-Anne Clarke,
Incorporator
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<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
THE BRAZILIAN EQUITY FUND, INC.
BYLAW-ONE: NAME OF COMPANY, LOCATION OF OFFICES AND SEAL.
ARTICLE 1.1. NAME. The name of the Company is The Brazilian Equity
Fund, Inc.
ARTICLE 1.2. PRINCIPAL OFFICES. The principal office of the Company
in the State of Maryland shall be located in Baltimore, Maryland. The Company
may, in addition, establish and maintain such other offices and places of
business within or outside the State of Maryland as the Board of Directors may
from time to time determine.
ARTICLE 1.3. SEAL. The corporate seal of the Company shall be
circular in form and shall bear the name of the Company, the year of its
incorporation and the words "Corporate Seal, Maryland." The form of the seal
shall be subject to alteration by the Board of Directors and the seal may be
used by causing it or a facsimile to be impressed or affixed or printed or
otherwise reproduced. Any Officer or Director of the Company shall have
authority to affix the corporate seal of the Company to any document requiring
the same.
BYLAW-TWO: STOCKHOLDERS.
ARTICLE 2.1. PLACE OF MEETINGS. All meetings of the Stockholders
shall be held at such place within the United States, whether within or outside
the State of Maryland, as the Board of Directors shall determine, which shall be
stated in the
<PAGE>
notice of the meeting or in a duly executed waiver of notice thereof.
ARTICLE 2.2. ANNUAL MEETING. Commencing in 1993, the annual meeting
of the Stockholders of the Company shall be held at such place as the Board of
Directors shall select on such date, during the 31-day period ending four months
after the end of the Company's fiscal year, as may be fixed by the Board of
Directors each year, at which time the Stockholders shall elect Directors by
plurality vote, and transact such other business as may properly come before the
meeting. Any business of the Company may be transacted at the annual meeting
without being specially designated in the notice except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws.
ARTICLE 2.3. SPECIAL MEETINGS. Special meetings of the Stockholders
for any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by resolution of the Board of Directors
or by the President, and shall be called by the Secretary at the request of a
majority of the Board of Directors or at the request, in writing, of
Stockholders owning at least 25% of the votes entitled to be cast at the meeting
upon payment by such Stockholders to the Company of the reasonably estimated
cost of preparing and mailing a notice of the meeting (which estimated cost
shall be provided to such Stockholders by the Secretary of the Company).
Notwithstanding the foregoing, unless requested by Stockholders entitled to cast
a majority of the votes entitled to
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<PAGE>
be cast at the meeting, a special meeting of the Stockholders need not be called
at the request of Stockholders to consider any matter that is substantially the
same as a matter voted on at any special meeting of the Stockholders held during
the preceding 12 months. A written request shall state the purpose or purposes
of the proposed meeting.
ARTICLE 2.4. NOTICE. Written notice of every meeting of
Stockholders, stating the purpose or purposes for which the meeting is called,
the time when and the place where it is to be held, shall be served, either
personally or by mail, not less than ten nor more than ninety days before the
meeting, upon each Stockholder as of the record date fixed for the meeting who
is entitled to notice of or to vote at such meeting. If mailed (i) such notice
shall be directed to a Stockholder at his address as it shall appear on the
books of the Company (unless he shall have filed with the Transfer Agent of the
Company a written request that notices intended for him be mailed to some other
address, in which case it shall be mailed to the address designated in such
request) and (ii) such notice shall be deemed to have been given as of the date
when it is deposited in the United States mail with first-class postage thereon
prepaid.
ARTICLE 2.5. NOTICE OF STOCKHOLDER BUSINESS. At any annual or
special meeting of the Stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before an annual or special meeting, the business must be (i) specified in the
notice of
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<PAGE>
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought before
the meeting by a Stockholder.
For business to be properly brought before an annual or special
meeting by a Stockholder, the Stockholder must have given timely notice thereof
in writing to the Secretary of the Company. To be timely, any such notice must
be delivered to or mailed and received at the principal executive offices of the
Company not later than 60 days prior to the date of the meeting; provided,
however, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to Stockholders, any such notice by a
Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
annual or special meeting was given or such public disclosure was made.
Any such notice by a Stockholder shall set forth as to each matter the
Stockholder proposes to bring before the annual or special meeting (i) a brief
description of the business desired to be brought before the annual or special
meeting and the reasons for conducting such business at the annual or special
meeting, (ii) the name and address, as they appear on the Company's books, of
the Stockholder proposing such business, (iii) the class and number of shares of
the capital stock of the
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<PAGE>
Company which are beneficially owned by the Stockholder, and (iv) any material
interest of the Stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at any annual or special meeting except in accordance with
the procedures set forth in this Article 2.5. The chairman of the annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Article 2.5, and, if he should so determine, he
shall so declare to the meeting that any such business not properly brought
before the meeting shall not be considered or transacted.
ARTICLE 2.6. QUORUM. The holders of a majority of the stock issued
and outstanding and entitled to vote, present in person or represented by proxy,
shall be requisite and shall constitute a quorum at all meetings of the
Stockholders for the transaction of business except as otherwise provided by
statute, by the Articles of Incorporation or by these Bylaws. If a quorum shall
not be present or represented, the Stockholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, to a date not more than 120 days after the original record date, until
a quorum shall be present or represented. At such adjourned meeting, at which a
quorum shall be present or represented, any business
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<PAGE>
which might have been transacted at the original meeting may be transacted.
ARTICLE 2.7. VOTE OF THE MEETING. When a quorum is present or
represented at any meeting, the vote of the holders of a majority of the votes
cast shall decide any question brought before such meeting (except with respect
to election of directors which shall be by a plurality of votes cast), unless
the question is one upon which, by express provisions of applicable statutes, of
the Articles of Incorporation or of these Bylaws, a different vote is required,
in which case such express provisions shall govern and control the decision of
such question.
ARTICLE 2.8. VOTING RIGHTS OF STOCKHOLDERS. Each Stockholder of
record having the right to vote shall be entitled at every meeting of the
Stockholders of the Company to one vote for each share of stock having voting
power standing in the name of such Stockholder on the books of the Company on
the record date fixed in accordance with Article 6.5 of these Bylaws, with pro
rata voting rights for any fractional shares, and such votes may be cast either
in person or by written proxy.
ARTICLE 2.9. ORGANIZATION. At every meeting of the Stockholders, the
Chairman of the Board, or in his absence or inability to act, a chairman chosen
by the Stockholders, shall act as chairman of the meeting. The Secretary, or in
his absence or inability to act, a person appointed by the chairman of the
meeting, shall act as secretary of the meeting and keep the minutes of the
meeting.
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<PAGE>
ARTICLE 2.10. PROXIES. Every proxy must be executed in writing by
the Stockholder or by his duly authorized attorney-in-fact. No proxy shall be
valid after the expiration of eleven months from the date of its execution
unless it shall have specified therein its duration. Every proxy shall be
revocable at the pleasure of the person executing it or of his personal
representatives or assigns. Proxies shall be delivered prior to the meeting to
the Secretary of the Company or to the person acting as Secretary of the meeting
before being voted. A proxy with respect to stock held in the name of two or
more persons shall be valid if executed by one of them unless, at or prior to
exercise of such proxy, the Company receives a specific written notice to the
contrary from any one of them. A proxy purporting to be executed by or on
behalf of a Stockholder shall be deemed valid unless challenged at or prior to
its exercise.
ARTICLE 2.11. STOCK LEDGER AND LIST OF STOCKHOLDERS. It shall be the
duty of the Secretary or Assistant Secretary of the Company to cause an original
or duplicate stock ledger to be maintained at the office of the Company's
Transfer Agent.
ARTICLE 2.12. ACTION WITHOUT MEETING. Any action to be taken by
Stockholders may be taken without a meeting if (1) all Stockholders entitled to
vote on the matter consent to the action in writing, (2) all Stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (3) said consents and waivers are filed
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<PAGE>
with the records of the meetings of Stockholders. Such consent shall be treated
for all purposes as a vote at a meeting.
BYLAW-THREE: BOARD OF DIRECTORS.
ARTICLE 3.1. GENERAL POWERS. Except as otherwise provided in the
Articles of Incorporation, the business and affairs of the Company shall be
managed under the direction of the Board of Directors. All powers of the
Company may be exercised by or under authority of the Board of Directors except
as conferred on or reserved to the Stockholders by law, by the Articles of
Incorporation or by these Bylaws.
ARTICLE 3.2. BOARD OF THREE TO NINE DIRECTORS. The Board of
Directors shall consist of not less than three (3) nor more than nine (9)
Directors; PROVIDED that if there are less than three stockholders, the number
of Directors may be the same number as the number of stockholders but not less
than one. Directors need not be Stockholders. The majority of the entire Board
of Directors shall have power from time to time, and at any time when the
Stockholders as such are not assembled in a meeting, regular or special, to
increase or decrease the number of Directors. If the number of Directors is
increased, the additional Directors may be elected by a majority of the
Directors in office at the time of the increase. If such additional Directors
are not so elected by the Directors in office at the time they increase the
number of places on the Board, or if the additional Directors are elected by he
existing Directors prior to the first meeting of the Stockholders of the
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Company, then in either of such events the additional Directors shall be elected
or reelected by the Stockholders at their next annual meeting or at an earlier
special meeting called for that purpose.
Beginning with the first annual meeting of Stockholders held after the
initial public offering of the shares of the Company (the "initial annual
meeting"), the Board of Directors shall be divided into three classes: Class I,
Class II and Class III. The terms of office of the classes of Directors elected
at the initial annual meeting shall expire at the times of the annual meetings
of the Stockholders as follows: Class I on the next annual meeting, Class II on
the second next annual meeting and Class III on the third next annual meeting,
or thereafter in each case when their respective successors are elected and
qualified. At each subsequent annual election, the Directors chosen to succeed
those whose terms are expiring shall be identified as being of the same class as
the Directors whom they succeed, and shall be elected for a term expiring at the
time of the third succeeding annual meeting of Stockholders, or thereafter in
each case when their respective successors are elected and qualified. The
number of directorships shall be apportioned among the classes so as to maintain
the classes as nearly equal in number as possible.
ARTICLE 3.3. DIRECTOR NOMINATIONS.
(a) Only persons who are nominated in accordance with the procedures
set forth in this Article 3.3 shall be eligible
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<PAGE>
for election or re-election as Directors. Nominations of persons for election
or re-election to the Board of Directors of the Company may be made at a meeting
of Stockholders by or at the direction of the Board of Directors or by any
Stockholder of the Company who is entitled to vote for the election of such
nominee at the meeting and who complies with the notice procedures set forth in
this Article 3.3.
(b) Such nominations, other than those made by or at the direction of
the Board of Directors, shall be made pursuant to timely notice delivered in
writing to the Secretary of the Company. To be timely, any such notice by a
Stockholder must be delivered to or mailed and received at the principal
executive offices of the Company not later than 60 days prior to the meeting;
PROVIDED, HOWEVER, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to Stockholders, any such notice by
a Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each
person whom the Stockholder proposes to nominate for election or re-election as
a Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Company which are beneficially
owned by such person and (D) any other
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<PAGE>
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Directors pursuant to Regulation
14A under the Securities Exchange Act of 1934 or any successor regulation
thereto (including without limitation such person's written consent to being
named in the proxy statement as a nominee and to serving as a Director if
elected and whether any person intends to seek reimbursement from the Company of
the expenses of any solicitation of proxies should such person be elected a
Director of the Company); and (ii) as to the Stockholder giving the notice (A)
the name and address, as they appear on the Company's books, of such Stockholder
and (B) the class and number of shares of the capital stock of the Company which
are beneficially owned by such Stockholder. At the request of the Board of
Directors any person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary of the Company that information required
to be set forth in a Stockholder's notice of nomination which pertains to the
nominee.
(d) If a notice by a Stockholder is required to be given pursuant to
this Article 3.3, no person shall be entitled to receive reimbursement from the
Company of the expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Company. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the
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<PAGE>
procedures prescribed by the Bylaws, and, if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded for all
purposes.
ARTICLE 3.4. VACANCIES. Subject to the provisions of the Investment
Company Act of 1940, as amended, if the office of any Director or Directors
becomes vacant for any reason (other than an increase in the number of
Directors), the Directors in office, although less than a quorum, shall continue
to act and may choose a successor or successors, who shall hold office until the
next election of Directors, or any vacancy may be filled by the Stockholders at
any meeting thereof.
ARTICLE 3.5. REMOVAL. At any meeting of Stockholders duly called and
at which a quorum is present, the Stockholders may, by the affirmative vote of
the holders of at least three-fourths of the votes entitled to be cast thereon,
remove any Director or Directors from office, with or without cause, and may
elect a successor or successors to fill any resulting vacancies for the
unexpired term of the removed Director.
ARTICLE 3.6. RESIGNATION. A Director may resign at any time by
giving written notice of his resignation to the Board of Directors or the
Chairman of the Board or the Secretary of the Company. Any resignation shall
take effect at the time specified in it or, should the time when it is to become
effective not be specified in it, immediately upon its receipt. Acceptance of a
resignation shall not be necessary to make it effective unless the resignation
states otherwise.
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<PAGE>
ARTICLE 3.7. PLACE OF MEETINGS. The Directors may hold their
meetings at the principal office of the Company or at such other places, either
within or outside the State of Maryland, as they may from time to time
determine.
ARTICLE 3.8. REGULAR MEETINGS. Regular meetings of the Board may be
held at such date and time as shall from time to time be determined by
resolution of the Board.
ARTICLE 3.9. SPECIAL MEETINGS. Special meetings of the Board may be
called by order of the Chairman of the Board on one day's notice given to each
Director either in person or by mail, telephone, telegram, cable or wireless to
each Director at his residence or regular place of business. Special meetings
will be called by the Chairman or Vice Chairman, if any, of the Board or
Secretary in a like manner on the written request of a majority of the
Directors.
ARTICLE 3.10. QUORUM. At all meetings of the Board, the presence of
one-third of the entire Board of Directors (but not less than two Directors
unless the Board of Directors shall consist of only one Director in which event
that one Director shall constitute a quorum) shall be necessary to constitute a
quorum and sufficient for the transaction of business, and any act of a majority
present at a meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be specifically provided by statute, by the Articles of
Incorporation or by these Bylaws. If a quorum shall not be present at any
meeting of Directors, the Directors present
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<PAGE>
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
ARTICLE 3.11. ORGANIZATION. The Board of Directors shall designate
one of its members to serve as Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board. In the absence or inability of the
Chairman of the Board to act, another Director chosen by a majority of the
Directors present, shall act as chairman of the meeting and preside at the
meeting. The Secretary (or, in his absence or inability to act, any person
appointed by the chairman) shall act as secretary of the meeting and keep the
minutes of the meeting.
ARTICLE 3.12. INFORMAL ACTION BY DIRECTORS AND COMMITTEES. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may, except as otherwise required by
statute, be taken without a meeting if a written consent to such action is
signed by all members of the Board, or of such committee, as the case may be,
and filed with the minutes of the proceedings of the Board or committee.
Subject to the Investment Company Act of 1940, as amended, members of the Board
of Directors or a committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
ARTICLE 3.13. EXECUTIVE COMMITTEE. There may be an Executive
Committee of two or more Directors appointed by the
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Board who may meet at stated times or on notice to all by any of their own
number. The Executive Committee shall consult with and advise the Officers of
the Company in the management of its business and exercise such powers of the
Board of Directors as may be lawfully delegated by the Board of Directors.
Vacancies shall be filled by the Board of Directors at any regular or special
meeting. The Executive Committee shall keep regular minutes of its proceedings
and report the same to the Board when required.
ARTICLE 3.14. AUDIT COMMITTEE. There shall be an Audit Committee of
two or more Directors who are not "interested persons" of the Company (as
defined in the Investment Company Act of 1940, as amended) appointed by the
Board who may meet at stated times or on notice to all by any of their own
number. The Committee's duties shall include reviewing both the audit and other
work of the Company's independent accountants, recommending to the Board of
Directors the independent accountants to be retained, and reviewing generally
the maintenance and safekeeping of the Company's records and documents.
ARTICLE 3.15. OTHER COMMITTEES. The Board of Directors may appoint
other committees which shall in each case consist of such number of members (but
not less than two) and shall have and may exercise, to the extent permitted by
law, such powers as the Board may determine in the resolution appointing them.
A majority of all members of any such committee may determine its action, and
fix the time and place of its meetings,
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unless the Board of Directors shall otherwise provide. The Board of Directors
shall have power at any time to change the members and, to the extent permitted
by law, to change the powers of any such committee, to fill vacancies and to
discharge any such committee.
ARTICLE 3.16. COMPENSATION OF DIRECTORS. The Board may, by
resolution, determine what compensation and reimbursement of expenses of
attendance at meetings, if any, shall be paid to Directors in connection with
their service on the Board. Nothing herein contained shall be construed to
preclude any Director from serving the Company in any other capacity or from
receiving compensation therefor.
BYLAW-FOUR: OFFICERS.
ARTICLE 4.1. OFFICERS. The Officers of the Company shall be fixed by
the Board of Directors and shall include a President, Secretary and Treasurer.
Any two offices may be held by the same person except the offices of President
and Vice President. A person who holds more than one office in the Company may
not act in more than one capacity to execute, acknowledge or verify an
instrument required by law to be executed, acknowledged or verified by more than
one officer.
ARTICLE 4.2. APPOINTMENT OF OFFICERS. The Directors shall appoint
the Officers, who need not be members of the Board.
ARTICLE 4.3. ADDITIONAL OFFICERS. The Board may appoint such other
Officers and agents as it shall deem necessary
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who shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
ARTICLE 4.4. SALARIES OF OFFICERS. The salaries of all Officers of
the Company shall be fixed by the Board of Directors.
ARTICLE 4.5. TERM, REMOVAL, VACANCIES. The Officers of the Company
shall serve at the pleasure of the Board of Directors and hold office for one
year and until their successors are chosen and qualify in their stead. Any
Officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Directors. If the office of
any Officer becomes vacant for any reason, the vacancy shall be filled by the
Board of Directors.
ARTICLE 4.6. PRESIDENT. The President shall be the chief executive
officer of the Company, shall, subject to the supervision of the Board of
Directors, have general responsibility for the management of the business of the
Company and shall see that all orders and resolutions of the Board are carried
into effect.
ARTICLE 4.7. VICE PRESIDENT. Any Vice President shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President and shall perform such other duties as the Board of
Directors shall prescribe.
ARTICLE 4.8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books
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belonging to the Company and shall deposit all moneys and other valuable effects
in the name and to the credit of the Company in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the Company
as may be ordered by the Board, taking proper vouchers for such disbursements,
and shall render to the Chairman of the Board and Directors at the regular
meetings of the Board, or whenever they may require it, an account of the
financial condition of the Company.
Any Assistant Treasurer may perform such duties of the Treasurer as
the Treasurer or the Board of Directors may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
ARTICLE 4.9. SECRETARY. The Secretary shall attend meetings of the
Board and meetings of the Stockholders and record all votes and the minutes of
all proceedings in a book to be kept for that purpose, and shall perform like
duties for the Executive Committee of the Board when required. He shall give or
cause to be given notice of all meetings of Stockholders and special meetings of
the Board of Directors and shall perform such other duties as may be prescribed
by the Board of Directors. He shall keep in safe custody the seal of the
Company and affix it to any instrument when authorized by the Board of
Directors.
Any Assistant Secretary may perform such duties of the Secretary as
the Secretary or the Board of Directors may assign, and, in the absence of the
Secretary, may perform all the duties of the Secretary.
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ARTICLE 4.10. SUBORDINATE OFFICERS. The Board of Directors from time
to time may appoint such other officers or agents as it may deem advisable, each
of whom shall serve at the pleasure of the Board of Directors and have such
title, hold office for such period, have such authority and perform such duties
as the Board of Directors may determine. The Board of Directors from time to
time may delegate to one or more officers or agents the power to appoint any
such subordinate officers or agents and to prescribe their respective rights,
terms of office, authorities and duties.
ARTICLE 4.11. SURETY BONDS. The Board of Directors may require any
officer or agent of the Company to execute a bond (including, without
limitation, any bond required by the Investment Company Act of 1940, as amended,
and the rules and regulations of the Securities and Exchange Commission) to the
Company in such sum and with such surety or sureties as the Board of Directors
may determine, conditioned upon the faithful performance of his duties to the
Company, including responsibility for negligence and for the accounting of any
of the Company's property, funds or securities that may come into his hands.
BYLAW-FIVE: GENERAL PROVISIONS.
ARTICLE 5.1. WAIVER OF NOTICE. Whenever the Stockholders or the
Board of Directors are authorized by statute, the provisions of the Articles of
Incorporation or these Bylaws to take any action at any meeting after notice,
such notice may
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be waived, in writing, before or after the holding of the meeting, by the person
or persons entitled to such notice, or, in the case of a Stockholder, by his
duly authorized attorney-in-fact.
ARTICLE 5.2. INDEMNITY.
(a) The Company shall indemnify its directors to the fullest extent
that indemnification of directors is permitted by the Maryland General
Corporation Law. The Company shall indemnify its officers to the same extent as
its directors and to such further extent as is consistent with law. The Company
shall indemnify its directors and officers who, while serving as directors or
officers, also serve at the request of the Company as a director, officer,
partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan to
the fullest extent consistent with law. The indemnification and other rights
provided by this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. This Article shall not protect any such person
against any liability to the Company or any Stockholder thereof to which such
person 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 ("disabling conduct").
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(b) Any current or former director or officer of the Company seeking
indemnification within the scope of this Article shall be entitled to advances
from the Company for payment of the reasonable expenses incurred by him in
connection with the matter as to which he is seeking indemnification in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law. The person seeking indemnification shall provide to the
Company a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Company has been met and a written
undertaking to repay any such advance if it should ultimately be determined that
the standard of conduct has not been met. In addition, at least one of the
following additional conditions shall be met: (i) the person seeking
indemnification shall provide security in form and amount acceptable to the
Company for his undertaking; (ii) the Company is insured against losses arising
by reason of the advance; or (iii) a majority of a quorum of directors of the
Company who are neither "interested persons" as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall have determined, based on a review of facts readily
available to the Company at the time the advance is proposed to be made, that
there is reason to believe that the person seeking indemnification will
ultimately be found to be entitled to indemnification.
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(c) At the request of any person claiming indemnification under this
Article, the Board of Directors shall determine, or cause to be determined, in a
manner consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met. Indemnification shall be made
only following: (i) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (ii) in the absence of such a decision,
a reasonable determination, based upon a review of the facts, that the person to
be indemnified was not liable by reason of disabling conduct by (i) the vote of
a majority of a quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
(d) Employees and agents who are not officers or directors of the
Company may be indemnified, and reasonable expenses may be advanced to such
employees or agents, as may be provided by action of the Board of Directors or
by contract, subject to any limitations imposed by the Investment Company Act of
1940.
(e) The Board of Directors may make further provision consistent with
law for indemnification and advance of expenses to directors, officers,
employees and agents by resolution, agreement or otherwise. The indemnification
provided by this Article shall not be deemed exclusive of any other right, with
respect to indemnification or otherwise, to which those seeking
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indemnification may be entitled under any insurance or other agreement or
resolution of stockholders or disinterested directors or otherwise.
(f) References in this Article are to the Maryland General
Corporation Law and to the Investment Company Act of 1940, as from time to time
amended. No amendment of these Bylaws shall affect any right of any person
under this Article based on any event, omission or proceeding prior to the
amendment.
ARTICLE 5.3. INSURANCE. The Company may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Company or who, while a director, officer, employee or agent of the
Company, is or was serving at the request of the Company as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, other enterprise or employee benefit plan,
against any liability asserted against and incurred by such person in any such
capacity or arising out of such person's position; PROVIDED that no insurance
may be purchased by the Company on behalf of any person against any liability to
the Company or to its Stockholders 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.
ARTICLE 5.4. CHECKS. All checks or demands for money and notes of
the Company shall be signed by such officer or
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officers or such other person or persons as the Board of Directors may from time
to time designate.
ARTICLE 5.5. FISCAL YEAR. The fiscal year of the Company shall be
determined by resolution of the Board of Directors.
BYLAW-SIX: CERTIFICATES OF STOCK.
ARTICLE 6.1. CERTIFICATES OF STOCK. The interest of each Stockholder
of the Company shall be evidenced by certificates for shares of stock in such
form as the Board of Directors may from time to time prescribe. The
certificates shall be numbered and entered in the books of the Company as they
are issued. They shall exhibit the holder's name and the number of whole shares
and no certificate shall be valid unless it has been signed by the President,
Vice President or Chairman and the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary and bears the corporate seal. Such seal may
be a facsimile, engraved or printed. Where any such certificate is signed by a
Transfer Agent or by a Registrar, the signatures of any such officer may be
facsimile, engraved or printed. In case any of the officers of the Company
whose manual or facsimile signature appears on any stock certificate delivered
to a Transfer Agent of the Company shall cease to be such Officer prior to the
issuance of such certificate, the Transfer Agent may nevertheless countersign
and deliver such certificate as though the person signing the same or whose
facsimile signature appears thereon had not ceased to be such officer, unless
written
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instructions of the Company to the contrary are delivered to the Transfer Agent.
ARTICLE 6.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors, or the President together with the Treasurer or Secretary, may direct
a new certificate to be issued in place of any certificate theretofore issued by
the Company, alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed, or by his legal representative. When authorizing
such issue of a new certificate, the Board of Directors, or the President and
Treasurer or Secretary, may, in its or their discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or his legal representative, to advertise the same in
such manner as it or they shall require and/or give the Company a bond in such
sum and with such surety or sureties as it or they may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed for such newly issued
certificate.
ARTICLE 6.3. TRANSFER OF STOCK. Shares of the Company shall be
transferable on the books of the Company by the holder thereof in person or by
his duly authorized attorney or legal representative upon surrender and
cancellation of a certificate or certificates for the same number of shares of
the same class, duly endorsed or accompanied by proper evidence of succession,
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assignment or authority to transfer, with such proof of the authenticity of the
signature as the Company or its agents may reasonably require. The shares of
stock of the Company may be freely transferred, and the Board of Directors may,
from time to time, adopt rules and regulations with reference to the method of
transfer of the shares of stock of the Company.
ARTICLE 6.4. REGISTERED HOLDER. The Company shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof, except as
expressly provided by statute.
ARTICLE 6.5. RECORD DATE. The Board of Directors may fix a time not
less than 10 nor more than 90 days prior to the date of any meeting of
Stockholders or prior to the last day on which the consent or dissent of
Stockholders may be effectively expressed for any purpose without a meeting, as
the time as of which Stockholders entitled to notice of, and to vote at, such a
meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined; and all such persons who were
holders of record of voting stock at such time, and no other, shall be entitled
to notice of, and to vote at, such meeting or to express their consent or
dissent, as the case may be. If no record date has been fixed, the record date
for the determination of Stockholders
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entitled to notice of, or to vote at, a meeting of Stockholders shall be the
later of the close of business on the day on which notice of the meeting is
mailed or the thirtieth day before the meeting, or, if notice is waived by all
Stockholders, at the close of business on the tenth day next preceding the day
on which the meeting is held. The Board of Directors may also fix a time not
exceeding 90 days preceding the date fixed for the payment of any dividend or
the making of any distribution, or for the delivery of evidences of rights, or
evidences of interests arising out of any change, conversion or exchange of
capital stock, as a record time for the determination of the Stockholder
entitled to receive any such dividend, distribution, rights or interests.
ARTICLE 6.6. STOCK LEDGERS. The stock ledgers of the Company,
containing the names and addresses of the Stockholders and the number of shares
held by them respectively, shall be kept at the principal offices of the Company
or at the offices of the Transfer Agent of the Company or at such other location
as may be authorized by the Board of Directors from time to time.
ARTICLE 6.7. TRANSFER AGENTS AND REGISTRARS. The Board of Directors
may from time to time appoint or remove Transfer Agents and/or Registrars of
transfers (if any) of shares of stock of the Company, and it may appoint the
same person as both Transfer Agent and Registrar. Upon any such appointment
being made, all certificates representing shares of capital stock thereafter
issued shall be countersigned by one of such Transfer
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Agents or by one of such Registrars of transfers (if any) or by both and shall
not be valid unless so countersigned. If the same person shall be both Transfer
Agent and Registrar, only one countersignature by such person shall be required.
BYLAW-SEVEN: AMENDMENTS.
ARTICLE 7.1. GENERAL. Except as provided in the next succeeding
sentence and in the Articles of Incorporation, all Bylaws of the Company,
whether adopted by the Board of Directors or the Stockholders, shall be subject
to amendment, alteration or repeal, and new Bylaws may be made, by the
affirmative vote of a majority of either: (a) the holders of record of the
outstanding shares of stock of the Company entitled to vote, at any annual or
special meeting, the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration, repeal or new Bylaw; or (b) the
Directors, at any regular or special meeting, the notice or waiver of notice of
which shall have specified or summarized the proposed amendment, alteration,
repeal or new Bylaw. The provisions of Articles 2.5, 3.2, 3.3, 7.1 and 8.1 of
these Bylaws shall be subject to amendment, alteration or repeal by: (i) the
affirmative vote of the holders of record of 75% of the outstanding shares of
stock of the Company entitled to vote, at any annual or special meeting, the
notice or waiver of notice of which shall have specified or summarized the
proposed amendment, alteration or repeal or (ii) the Board of Directors
including the affirmative vote of 75% of the Continuing Directors (as such term
is defined in Article
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VII of the Company's Articles of Incorporation), at any regular or special
meeting, the notice or waiver of notice of which shall have specified or
summarized the proposed amendment, alteration or repeal.
BYLAW-EIGHT: SPECIAL PROVISIONS.
ARTICLE 8.1. ACTIONS RELATING TO DISCOUNT IN PRICE OF THE COMPANY'S
SHARES. In the event that at any time after the second anniversary of the
initial public offering of shares of the Company's Common Stock such shares
publicly trade for a substantial period of time at a substantial discount from
the Company's then current net asset value per share, the Board of Directors
shall consider, at its next regularly scheduled meeting, taking various actions
designed to eliminate the discount. The actions considered by the Board of
Directors may include periodic repurchases by the Company of its shares of
Common Stock or an amendment to the Company's Articles of Incorporation to make
the Company's Common Stock a "redeemable security" (as such term is defined in
the Investment Company Act of 1940), subject in all events to compliance with
all applicable provisions of the Company's Articles of Incorporation, these
Bylaws, the Maryland General Corporation Law and the Investment Company Act of
1940.
Dated: May 16, 1995
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INVESTMENT ADVISORY AGREEMENT
April 3, 1992
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Dear Sirs:
The Brazilian Equity Fund, Inc. (the "Company"), a corporation
organized under the laws of the state of Maryland, herewith confirms its
agreement with BEA Associates (the "Adviser"), a general partnership organized
under the laws of the state of New York, as follows:
1. INVESTMENT DESCRIPTION; APPOINTMENT
The Company desires to employ its capital by investing and
reinvesting in investments of the kind and in accordance with the limitations
specified in its Articles of Incorporation, as amended, and in its registration
Statement as from time to time in effect, and in such manner and to such extent
as may from time to time be approved by the Board of Directors of the Company.
Copies of the Company's Registration statement and Articles of Incorporation, as
amended, have been or will be submitted to the Adviser. The Company agrees to
provide copies of all amendments to the Company's Registration Statement and
Articles of Incorporation to the Adviser on an on-going basis. The Company
desires to employ and hereby appoints the Adviser to act as investment adviser
to the Company. The Adviser accepts the appointment and agrees to furnish the
services described herein for the compensation set forth below.
2. SERVICES AS INVESTMENT ADVISER
Subject to the supervision and direction of the Board of Directors of
the Company, the Adviser will (a) act in accordance with the Company's Articles
of Incorporation, the Investment Company Act of 1940 and the Investment Advisers
Act of 1940, as the same may from time to time be amended, (b) manage the
Company's assets in accordance with its investment objective and policies as
stated in the Company's Registration statement as from time to time in effect,
(c) make investment decisions and exercise voting rights in respect of portfolio
securities for the Company, (d) place purchase and sale orders on behalf of the
Company for all investments; (e) monitor and evaluate the services provided by
the Company's investment sub-advisers under
<PAGE>
the investment sub-advisory agreements and (f) supervise, monitor and evaluate
the services provided by the Company's Brazilian economic consultant under the
economic consulting agreement and the Company's Brazilian administrator under
the Brazilian administration agreement. In providing these services, the
Adviser will provide investment research and supervision of the Company's
investments and conduct a continual program of investment, evaluation and, if
appropriate, sale and reinvestment of the Company's assets. In addition, the
Adviser will furnish the Company with whatever statistical information the
Company may reasonably request with respect to the securities that the Company
may hold or contemplate purchasing.
3. BROKERAGE
In executing transactions for the Company and selecting brokers or
dealers, the Adviser will use its best efforts to seek the best overall terms
available. In assessing the best overall terms available for any Company
transaction, the Adviser will consider all factors it deems relevant including,
but not limited to, breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer and the reasonableness of any commission for the specific transaction and
on a continuing basis. In selecting brokers or dealers to execute a particular
transaction and in evaluating the best overall terms available, the Adviser may
consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1934) provided to the Company
and/or other accounts over which the Adviser or any affiliate exercises
investment discretion.
4. INFORMATION PROVIDED TO THE COMPANY
The Adviser will keep the Company informed of developments materially
affecting the Company, and will, on its own initiative, furnish the Company from
time to time with whatever information the Adviser believes is appropriate for
this purpose.
5. STANDARD OF CARE
The Adviser shall exercise its best judgment in rendering the services
described in paragraphs 2 and 3 above. The Adviser shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Company in
connection with the matters to which this agreement relates, provided that
nothing herein shall be deemed to protect or purport to protect the Adviser
against any liability to the Company or its shareholders to which the Adviser
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or from
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reckless disregard by it of its obligations and duties under this agreement
("disabling conduct"). The Company will indemnify the Adviser against, and hold
it harmless from, any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) not resulting from disabling
conduct by the Adviser. Indemnification shall be made only following: (i) a
final decision on the merits by a court or other body before whom the proceeding
was brought that the Adviser was not liable by reason of disabling conduct or
(ii) in the absence of such a decision, a reasonable determination, based upon a
review of the facts, that the Adviser was not liable by reason of disabling
conduct by (a) the vote of a majority of a quorum of directors of the Company
who are neither "interested persons" of the Company nor parties to the
proceeding ("disinterested non-party directors" or (b) an independent legal
counsel in a written opinion. The Adviser shall be entitled to advances from
the Company for payment of the reasonable expenses incurred by it in the
connection with the matter as to which it is seeking indemnification in the
manner and to the fullest extent permissible under the Maryland General
Corporation Law. The Adviser shall provide to the Company a written affirmation
of its good faith belief that the standard of conduct necessary for
indemnification by the Company has been met and a written undertaking to repay
any such advance if it should ultimately be determined that the standard of
conduct has not been met. In addition, at least one of the following additional
conditions shall be met: (a) the Adviser shall provide security in form and
amount acceptable to the Company for its undertaking; (b) the Company is insured
against losses arising by reason of the advance; or (c) a majority of a quorum
of disinterested non-party directors, or independent legal counsel, in a written
opinion, shall have determined, base don a review of facts readily available to
the Company at the time the advance is proposed to be made, that there is reason
to believe that the Adviser will ultimately be found to be entitled to
indemnification.
6. COMPENSATION
(a) In consideration of the services rendered pursuant to this
agreement, the Company will pay the Adviser after the end of the calendar
quarter during which the Closing Date (as defined below) occurs and after the
end of each calendar quarter thereafter a fee for the previous quarter computed
at an annual rate of 1.35% of the first US$ 100 million of the Fund's average
weekly net assets and 1.05% of amounts above US$ 100 million.
The Adviser (or, as provided below, the Company) shall pay to each of
the sub-investment advisers of the Company (the "Sub-Advisers") the fees payable
under each Investment Sub-Advisory Agreement relating to the Company dated of
even date herewith among the Company, the Adviser and each such Sub-
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Adviser. In the event that any one of the Investment Sub-Advisory Agreements is
terminated, the Adviser shall be responsible for furnishing to the Company the
services required to be performed by such Sub-Adviser under the respective
Investment Sub-Advisory Agreement or arranging for a successor sub-investment
adviser with respect of such investments on terms and conditions acceptable to
the Company and subject to the requirements of the Investment Company Act of
1940.
The Company agrees that, at the request of the Adviser, it will pay
the Sub-Advisers directly in local currency the amounts payable to each of the
Sub-Advisers for sub-advisory services, provided that he fee payable to the
Adviser hereunder shall be reduced to the extent of amounts so paid to the Sub-
Adviser. The fee payable to the Adviser for the period from the date of the
closing of the offering contemplated by the Company's initial registration
statement (the "Closing Date") to the end of the first calendar quarter during
which the Closing Date occurs shall be prorated according to the proportion that
such period bears to the full quarterly period.
(b) Upon any termination of this agreement before the end of a
quarter, the fee for such pat of that quarter shall be prorated according to the
proportion that such period bears to the full quarterly period and shall be
payable upon the date of termination of this Agreement. For the purpose of
determining fees payable to the Adviser, the value of the Company's net assets
shall be computed at the times and in the manner specified in the Company's
Registration Statement as from time to time in effect.
7. EXPENSES
The Adviser will bear all expenses in connection with the performance
of its services under this Agreement. The Company will bear certain other
expenses to be incurred in its operation, including: organizational expenses;
taxes, interest, brokerage costs and commissions and stock exchange fees; fees
of directors of the Company who are not officers, directors, or employees of the
Adviser, the Sub-Advisers, any U.S. or foreign administrator, the Company's
Brazilian economic adviser or any of their affiliates; Securities and Exchange
Commission fees; state Blue Sky qualification fees; charges of custodians, sub-
custodians and transfer and dividend disbursing agents; expenses in connection
with the Company's Dividend Reinvestment and Cash Purchase Plan; insurance
premiums; outside auditing, pricing and legal expenses; costs of maintenance of
the Company's existence; costs attributable to investor services, including,
without limitation, telephone and personnel expenses; costs of printing stock
certificates; costs of shareholders' reports and meetings of the shareholders of
the Company and of the officers or Board
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of Directors of the Company; membership fees in trade associations; stock
exchange listing fees and expenses; litigation and other extraordinary or non-
recurring expense.
8. SERVICES TO OTHER COMPANIES OR ACCOUNTS
The Company understands that the Adviser now acts, will continue to
act or may act in the future as investment adviser to fiduciary and other
managed accounts or as investment adviser to one or more other investment
companies, and the Company has no objection to the Adviser so acting, provided
that whenever the Company and one or more other accounts or investment companies
advised by the Adviser have available funds for investment, investments suitable
and appropriate for each will be allocated in accordance with procedures
believed to be equitable to each entity. Similarly, opportunities to sell
securities will be allocated in an equitable manner. The Company recognizes
that in some cases this procedure may adversely affect the size of the position
that may be acquired or disposed of for the Company. In addition, the Company
understands that the persons employed by the Adviser to assist in the
performance of the Adviser's duties hereunder will not devote their full time to
such service and nothing contained herein shall be deemed to limit or restrict
the right of the Adviser or any affiliate of the Adviser to engage in and devote
time and attention to other businesses or to render services of whatever kind or
nature.
9. TERM OF AGREEMENT
This Agreement shall become effective as of the date hereof and shall
continue for an initial two-year term and shall continue thereafter so long as
such continuance is specifically approved at least annually by (i) the Board of
Directors of the Company or (ii) a vote of a "majority" (as defined in the
Investment Company Act of 1940) of the Company's outstanding voting securities,
provided that in either event the continuance is also approved by a majority of
the Board of Directors who are not "interested persons" (as defined in said Act)
of any party to this agreement, by vote cast in person at a meeting called for
the purpose of voting on such approval. This Agreement is terminable, without
penalty, on 60 days' written notice, by the Board of Directors of the Company or
by vote of holders of a majority of the Company's shares, or upon 90 days'
written notice, by the Adviser. This Agreement will also terminate
automatically in the event of its assignment (as defined in said Act).
10. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
hereto.
-5-
<PAGE>
11. CHANGES IN PARTNERSHIP
The Adviser shall notify the Company of any change in the membership
of the Adviser within a reasonable time after such change.
12. GOVERNING LAW
This agreement shall be governed by and construed and enforced in
accordance with the laws of the state of New York without giving effect to the
conflicts of laws principles thereof.
13. COUNTERPARTS
This Agreement may be executed 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 original.
If the foregoing accurately sets forth our agreement, kindly indicate
your acceptance hereof by signing and returning the enclosed copy hereof.
Very truly yours,
THE BRAZILIAN EQUITY FUND, INC.
By: /s/ Emilio Bassini
---------------------
Name: Emilio Bassini
Title: President
Accepted:
BEA ASSOCIATES
By: /s/ Mark Arnold
------------------
Name: Mark Arnold
Title:
-6-
<PAGE>
BEA Associates
153 East 53rd Street
New York, New York 10022
August 15, 1994
The Brazilian Equity Fund, Inc.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
The Latin America Equity Fund, Inc.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
The Latin America Investment Fund, Inc.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Ladies and Gentlemen:
This letter is to confirm that in light of the resignation of Patrimonio
Planejamento Financeiro Ltda. ("Patrimonio"), the Brazilian investment sub-
adviser to each of the Funds, the undersigned hereby agrees to waive an amount
from its advisory fees equal to the sub-advisory fees that would have been
otherwise payable to Patrimonio pursuant to Patrimonio's investment sub-advisory
agreement. Such fee waiver shall remain in effect until such time as an
investment sub-advisory agreement shall have been entered into with another
investment sub-adviser with respect to Brazil or the Board of Directors of a
Fund shall otherwise approve.
Very truly yours,
BEA ASSOCIATES
By: /s/ Emilio Bassini
------------------
<PAGE>
BEA Associates
153 East 53rd Street
New York, New York 10022
June 21, 1994
The Brazilian Equity Fund, Inc.
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Ladies and Gentlemen:
This letter is to confirm that in light of the resignation of Garantia
Administracao de Recursos S.A. ("Garantia"), the Brazilian investment sub-
adviser to the Fund, the undersigned hereby agrees to waive an amount from its
advisory fees equal to the sub-advisory fees that would have been otherwise
payable to Garantia pursuant to Garantia's investment sub-advisory agreement.
Such fee waiver shall remain in effect until such time as an investment sub-
advisory agreement shall have been entered into with another investment sub-
adviser with respect to Brazil or the Board of Directors of a Fund shall
otherwise approve.
Very truly yours,
BEA ASSOCIATES
By: /s/ Emilio Basssini
-------------------
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made as of the 3rd day of April 1992, by and between THE
BRAZILIAN EQUITY FUND, INC., a Maryland corporation (the "Fund"), and BEA
Associates, a general partnership organized under the laws of the State of New
York.
W I T N E S S E T H :
WHEREAS, the Fund is registered as a closed-end, non-diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Fund wishes to retain BEA Associates to provide certain
administrative and shareholder services, and BEA Associates is willing to
furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Fund hereby appoints BEA Associates to provide
certain administrative and shareholder services to the Fund for the period and
on the terms set forth in this Agreement. BEA Associates accepts such
appointment and agrees to furnish the services herein set forth in return for
the compensation as provided in Paragraph 6 of this Agreement. BEA Associates
agrees to comply with all relevant provisions of the 1940 Act and applicable
rules and regulations thereunder.
<PAGE>
2. SERVICES ON A CONTINUING BASIS. Subject to the supervision and
direction of the Board of Directors of the Fund, BEA Associates undertakes to
perform the following administrative and shareholder services:
(a) Furnishing data processing services, clerical services, and
certain internal executive and administrative services; responding to
shareholder inquiries; and providing stationery and office supplies in
connection with the foregoing;
(b) Furnishing corporate secretarial services, including
assisting in the preparation of materials for Board of Directors meetings;
distributing those materials; and preparing minutes of meetings of the Fund's
Board of Directors and any Committees thereof and of the Fund's shareholders;
(c) Coordinated the preparation of reports to the Fund's
shareholders of record and the Securities and Exchange Commission (the "SEC")
including, but not limited to, proxy statements; annual, semi-annual and
quarterly reports to shareholders; annual and semi-annual reports on Form N-SAR;
and post-effective amendments to the Fund's Registration Statement on Form N-2
(the "Registration Statement");
(d) Preparing and filing any reports or other documents that may
be required by state Blue Sky authorities;
(e) Assisting in the preparation of the Fund's tax returns;
-2-
<PAGE>
(f) Assisting in monitoring and developing compliance procedures
for the Fund which will include, among other matters, procedures for monitoring
compliance with the Fund's investment objective, policies, restrictions, tax
matters and applicable laws and regulations; and
(g) Acting as liaison between the Fund and the Fund's
independent public accountants, counsel, custodian or custodians, administrator
and transfer and dividend-paying agent and registrar, and taking all reasonable
action in the performance of its obligations under this Agreement to assure that
all necessary information is made available to each of them.
In performing all services under this Agreement, BEA Associates shall
act in conformity with applicable law, the Fund's Articles of Incorporation and
By-Laws, and all amendments thereto, and the investment objective, investment
policies and other practices and policies set forth in the Fund's Registration
Statement, as such Registration Statement and practices and policies may be
amended from time to time.
3. BOOKS AND RECORDS. In connection with the services provided
under this Agreement, BEA Associates shall maintain books and records of the
Fund's reports or filings with its shareholders, the SEC and taxation
authorities, and other required reports and documents prepared, filed or
distributed on behalf of the Fund.
-3-
<PAGE>
The books and records pertaining to the Fund that are in the
possession of BEA Associates shall be the property of the Fund. Such books and
records shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws and rules and regulations. The Fund, or the Fund's
authorized representatives, shall have access to such books and records at all
times during BEA Associates' normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be provided by BEA
Associates to the Fund or the Fund's authorized representative at the Fund's
expense.
4. CONFIDENTIALITY. BEA Associates agrees on behalf of itself and
its employees to treat confidentially all records and other information relative
to the Fund and its prior, present or potential shareholders except, after prior
notification to and approval in writing by the Fund, which approval shall not be
unreasonably withheld and may not be withheld where BEA Associates may be
exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Fund.
5. RIGHT TO RECEIVE ADVICE.
(a) ADVICE OF FUND. If BEA Associates shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund directions or advice.
-4-
<PAGE>
(b) ADVICE OF COUNSEL. If BEA Associates shall be in doubt as
to any question of law involved in any action to be taken or omitted by BEA
Associates, it may request advice from counsel of its own choosing (who may be
counsel for the Fund or BEA Associates, at the option of BEA Associates). The
Fund shall be responsible for all legal fees incurred in obtaining such advice.
(c) CONFLICTING ADVICE. In case of conflict between directions
or advice received by BEA Associates pursuant to subsection (a) of this
paragraph and advice received by BEA Associates pursuant to subsection (b) of
this paragraph, BEA Associates shall be entitled to rely on and follow the
advice received pursuant to the latter provision alone.
(d) PROTECTION OF BEA ASSOCIATES. BEA Associates shall be
protected in any action or inaction which it takes in reliance on any directions
or advice received pursuant to subsections (a) or (b) of this paragraph which
BEA Associates, after receipt of any such directions or advice, in good faith
believes to be consistent with such directions or advice. However, nothing in
this paragraph shall be construed as imposing upon BEA Associates any obligation
(i) to seek such directions or advice or (ii) to act in accordance with such
directions or advice when received. Nothing in this subsection shall excuse BEA
Associates when an action or omission on the part of BEA Associates constitutes
willful misfeasance, bad faith, gross
-5-
<PAGE>
negligence or reckless disregard by BEA Associates of its duties under this
Agreement.
6. REIMBURSEMENT OF EXPENSES. In consideration of services rendered
pursuant to this Agreement, the Fund will reimburse BEA Associates for the
direct and allocable costs incurred by BEA Associates on behalf of the Fund,
including, but not limited to, salaries and benefits payable to BEA Associates
employee(s) who perform services for the Fund, provided, however, that BEA
Associates will not be reimbursed for any portion of its costs for office space
and equipment or other overhead expenses related to providing services under
this Agreement. Allocable costs incurred on behalf of two or more funds for
which BEA Associates provide administrative and shareholder services will be
apportioned among such funds according to their respective net asset values.
Such direct and allocable costs shall not exceed $20,000 per annum. The Fund
shall also reimburse BEA Associates for any out-of-pocket expenses, including,
but not limited to, postage, telephone and telecommunications charges and
duplicating costs incurred on behalf of the Fund in rendering services
hereunder. BEA Associates will cause to be prepared and distributed annually to
the Board of Directors of the Fund, or more frequently as the Board of Directors
may request, an itemized report setting forth the amount of each expense for
which BEA Associates was reimbursed by the Fund. BEA Associates will bill the
Fund as soon as practicable after the end of each calendar month for the
expenses it is entitled to have reimbursed.
-6-
<PAGE>
7. INDEMNIFICATION. The Fund agrees to indemnify and hold harmless
BEA Associates and its officers, directors, employees, partners and agents from
all taxes, charges, expenses, assessments, claims and liabilities (including,
without limitation, liabilities arising under federal securities laws and any
state and foreign securities and Blue Sky Laws, all as in effect from time to
time) and expenses, including (without limitation) attorneys' fees and
disbursements, arising directly or indirectly from any action or thing which BEA
Associates takes or does or omits to take or do pursuant to the terms of this
Agreement or otherwise at the request or on the direction of or in reliance on
the advice of the Fund, PROVIDED, that neither BEA Associates nor any of its
officers, directors, employees, partners or agents shall be indemnified against
any liability to the Fund or to its shareholders (or any expenses incident to
such liability) arising out of BEA Associates' own willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties and obligations
under this Agreement.
8. RESPONSIBILITY OF BEA ASSOCIATES. BEA Associates shall be under
no duty to take any action on behalf of the Fund, except as specifically set
forth herein or as may be specifically agreed to by BEA Associates in writing.
In the performance of its duties hereunder, BEA Associates shall be obligated to
exercise care and diligence and to act in good faith and to use its best efforts
within reasonable limits in performing services provided for under this
Agreement. Without limiting the generality of the foregoing or of any other
provision of this
-7-
<PAGE>
Agreement, BEA Associates in connection with its duties under this Agreement
shall not be under any duty or obligation to inquire into and shall not be
liable for or in respect of (a) the validity or invalidity or authority or lack
thereof of any notice or other instrument which conforms to the applicable
requirements of this Agreement, and which BEA Associates reasonably believes to
be genuine; or (b) delays or errors or loss of data occurring by reason of
circumstances beyond BEA Associates' control, including acts of civil or
military authority, national emergencies, labor difficulties, fire, mechanical
breakdown, flood or catastrophe, acts of God, insurrection, war, riots or
failure of the mails, transportation, communication or power supply.
9. DURATION AND TERMINATION. This Agreement shall continue until
termination by the Fund or BEA Associates on 60 days' written notice.
10. NOTICES. All notices and other communications hereunder
(collectively referred to as "Notice" or "Notices" in this Paragraph), shall be
in writing or by confirming telegram, cable, telex or facsimile sending device.
Notices shall be addressed (a) if to BEA Associates at BEA Associates' address,
153 E. 53rd Street, 58th Floor, New York, New York 10022; (b) if to the Fund,
c/o BEA Associates at the same address set forth in clause (a); or (c) if to
neither of the foregoing, at such other address as shall have been notified to
the sender of any such Notice or other communication. All postage, cable, telex
or
-8-
<PAGE>
facsimile sending device charges arising from the sending of a Notice hereunder
shall be paid by the sender.
11. FURTHER ACTIONS. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
thereof.
12. AMENDMENTS. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
13. COUNTERPARTS. This Agreement may be executed 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.
14. MISCELLANEOUS. This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby. This Agreement shall be
-9-
<PAGE>
binding and shall inure to the benefit of the parties hereto and their
respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on the day and year first above
written.
THE BRAZILIAN EQUITY FUND, INC.
By: /s/ Emilio Bassini
--------------------
Name: Emilio Bassini
Title: President
BEA ASSOCIATES
By: /s/ Mark Arnold
--------------------
Name: Mark Arnold
Title:
-10-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to the Prospectus constituting
part of this Registration Statement on Form N-2 under the Securities Act of
1933, as amended, of the Brazilian Equity Fund, Inc. (the "Fund"):
- The incorporation by reference of our report dated May 15, 1996
relating to the financial statements and financial highlights of the
Fund, which appears in the Fund's Annual Report dated March 31, 1996.
- The reference to our Firm under the headings "Financial Highlights"
and "Experts" in the Prospectus.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 6, 1996
<PAGE>
PURCHASE AGREEMENT
Purchase Agreement dated March 20, 1992 between The Brazilian Equity
Fund, Inc., a corporation organized under the laws of Maryland (the "Fund"), and
BEA Associates ("BEA"), a general partnership organized under the laws of New
York.
WHEREAS, the Fund is an investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund proposes to issue and sell shares of its common
stock, par value $.001 per share (the "Common Stock"), to the public pursuant to
a Registration Statement on Form N-2 (the "Registration Statement") filed with
the Securities and Exchange Commission; and
WHEREAS, Section 14(a) of the 1940 Act requires each registered
investment company to have a net worth of at least $100,000 before making a
public offering of its securities; and
NOW, THEREFORE, the Fund and BEA agree as follows:
1. The Fund offers to sell to BEA, and BEA agrees to purchase from
the Fund, 7,169 shares of Common Stock at a price of $13.95 per
share (the "Shares") on a date, to be specified by the Fund,
prior to the effective date of the Registration Statement.
2. BEA represents and warrants to the Fund that BEA is acquiring the
Shares for investment purposes only and that the Shares will be
sold only pursuant to a registration statement under the
Securities Act of 1933, as amended, or an applicable exemption
from those registration requirements.
3. BEA's right under this Purchase Agreement to purchase the Shares
is not assignable.
<PAGE>
IN WITNESS WHEREOF, the Fund and BEA have caused their duly authorized
officers to execute this Purchase Agreement as of the date first above written.
THE BRAZILIAN EQUITY FUND, INC.
By: /s/ Emilio Bassini
---------------------
Name: Emilio Bassini
Title: President
BEA ASSOCIATES
By: /s/ Emilio Bassini
---------------------
Name: Emilio Bassini
Title: Managing Director
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 60493133
<INVESTMENTS-AT-VALUE> 64956586
<RECEIVABLES> 12270
<ASSETS-OTHER> 46582
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66037375
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 341691
<TOTAL-LIABILITIES> 341691
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63940163
<SHARES-COMMON-STOCK> 4634005
<SHARES-COMMON-PRIOR> 4619271
<ACCUMULATED-NII-CURRENT> 135329
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2843283)
<OVERDISTRIBUTION-GAINS> 0
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<INTEREST-INCOME> 67406
<OTHER-INCOME> 0
<EXPENSES-NET> 1200589
<NET-INVESTMENT-INCOME> 268217
<REALIZED-GAINS-CURRENT> (2913782)
<APPREC-INCREASE-CURRENT> 18231683
<NET-CHANGE-FROM-OPS> 15586118
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 10254782
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 14734
<NET-CHANGE-IN-ASSETS> 5539556
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 10192393
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 921310
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<GROSS-EXPENSE> 1439859
<AVERAGE-NET-ASSETS> 68362940
<PER-SHARE-NAV-BEGIN> 13.02
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 3.32
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 2.22
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<PER-SHARE-NAV-END> 14.18
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
