<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 16, 1996
SECURITIES ACT FILE NO. 333-5475
INVESTMENT COMPANY ACT FILE NO. 811-6555
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM N-2
/X/ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ Pre-Effective Amendment No. 1
/ / Post-Effective Amendment No. __
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ Amendment No. 4
____________________
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
<TABLE>
<CAPTION>
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- ---------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES AMOUNT PROPOSED PROPOSED MAXIMUM
BEING REGISTERED BEING MAXIMUM AGGREGATE OFFERING AMOUNT OF
REGISTERED OFFERING PRICE PER PRICE REGISTRATION
UNIT(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par
value $.001 per share . . . . 1,930,835 $14.19 $27,398,548.65 $9,447.78
- ---------------------------------------------------------------------------------------------------------
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</TABLE>
(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) Previously paid.
____________________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT 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.
- --------------------------------------------------------------------------------
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<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
FORM N-2
CROSS-REFERENCE SHEET
PARTS A AND B OF PROSPECTUS
<TABLE>
<CAPTION>
ITEM NO. CAPTION LOCATION IN PROSPECTUS
- -------- ------- ----------------------
<S> <C> <C>
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; Custodian 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
</TABLE>
PART C - Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
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 July 17,
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 90% 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 July 11, 1996 was
$15.51 and $17.43, respectively, and the last reported sales price of a share of
the Fund's Common Stock on that exchange on those dates was $13.50 and $14.75,
respectively.
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON AUGUST 16, 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 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 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
call Shareholder Communications Corporation, the Fund's information agent for
the Offer at (800) 733-8481, extension 348.
(CONTINUED ON THE FOLLOWING PAGE)
------------------------
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.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED PROCEEDS
SUBSCRIPTION ESTIMATED TO
PRICE(1) SALES LOAD(2) THE FUND(3)(4)
<S> <C> <C> <C>
Per Share.................. $ 13.28 $ 0.48 $ 12.80
Total Maximum(5)........... $ 20,513,191 $ 741,441 $ 19,771,750
</TABLE>
(FOOTNOTES ON THE FOLLOWING PAGE)
-------------------
BEAR, STEARNS & CO. INC.
-------------------
THE DATE OF THIS PROSPECTUS IS JULY 17, 1996
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
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 July 17, 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 33 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.
-------------------
(FOOTNOTES FROM THE PREVIOUS PAGE)
(1) Estimated on the basis of 90% of the market price per share on July 11,
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 $25,641,489,
$926,801 and $24,714,688, respectively.
-------------------
Unless otherwise specified, all references in this Prospectus to "U.S.
dollars," "dollars," "US$" or "$" are to United States dollars.
Unless otherwise specified, all references to "Reais" are to the Real which
has been the legal tender currency of Brazil since July 1, 1994. On July 9,
1996, one US dollar equalled .99 Real.
2
<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 July 17, 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 July 17, 1996 and ends at 5:00 p.m., New York City time, on August
16, 1996 (the "Expiration Date"), unless extended by the Fund until 5:00 p.m.,
New York City time, on a date no later than August 23, 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 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."
3
<PAGE>
SUBSCRIPTION PRICE
The subscription price per Share (the "Subscription Price") will be 90% 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. See "The
Offer--Subscription Price."
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 The 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. If no instructions are received prior to the Expiration
Date, such Rights will expire.
IMPORTANT DATES TO REMEMBER
<TABLE>
<CAPTION>
EVENT DATE
- ------------------------------------------------------------------ -------------------------------------------
<S> <C>
Record Date....................................................... July 17, 1996
Subscription Period............................................... July 17, 1996 to August 16, 1996*
Payment for Shares or Notice of Guaranteed Delivery Due........... August 16, 1996*
Expiration and Pricing Date....................................... August 16, 1996*
Payment for Guarantees of Delivery Due............................ August 21, 1996*
Confirmation to Participants...................................... August 30, 1996*
Final Payment for Shares.......................................... September 16, 1996*
</TABLE>
- ---------
* Unless the Offer is extended to a date not later than August 23, 1996.
INFORMATION AGENT
The Information Agent for the Offer (the "Information Agent") is:
[LOGO]
Toll Free: (800) 733-8481, Extension 348
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
4
<PAGE>
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 July 11,
1996, the net assets of the Fund were approximately $81 million.
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
5
<PAGE>
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 Impact on
Fees."
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 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 Reais 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 Reais,
the Fund will be adversely affected by devaluations of Reais against the U.S.
dollar to the extent the Fund is invested in securities quoted or denominated in
Reais. 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
6
<PAGE>
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."
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 more than
half of that time at a discount to net asset value. See "Net Asset Value" and
"Common Stock."
RIGHTS UNDER BRAZILIAN LAW. It may be more difficult for the Fund to obtain
a judgment in a court in Brazil than in the United States.
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."
7
<PAGE>
FEE TABLE
The following table sets forth certain fees and expenses of the Fund.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of the Subscription Price per Share)(1)............ 3.625%
ANNUAL EXPENSES (as a percentage of net assets)
Management Fees (after waiver)(2).............................................. 1.00%
Other Expenses(3).............................................................. 0.67%
TOTAL ANNUAL EXPENSES.............................................................. 1.67%
</TABLE>
<TABLE>
<CAPTION>
1 3 5 10
EXAMPLE YEAR YEARS YEARS YEARS
- ------------------------------------------------------------------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
a 5% annual return(4)............................................... $52.61 $86.99 $123.70 $226.70
</TABLE>
- ---------
(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 Fund's
average weekly net assets in excess of $100 million.
(3) Based upon estimated amounts for the current fiscal year and on the 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. 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. For more complete descriptions of certain
of the Fund's costs and expenses, see "Management of the Fund" below and in the
SAI.
8
<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 Dividends and Distributions;
Dividends (from net investment income)........................ -- -- (0.08) (0.03)
In excess of net investment income............................ -- (0.03) -- --
Net realized gain on investments.............................. (2.22) (3.83) -- --
----------- ----------- ----------- -------
Total Dividends and 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)%
----------- ----------- ----------- -------
----------- ----------- ----------- -------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
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, without
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>
- ------------
<TABLE>
<S> <C>
* 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.
</TABLE>
9
<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
July 17, 1996 and ends at 5:00 p.m., New York City time, on August 16, 1996,
unless extended by the Fund until 5:00 p.m., New York City time, on a date not
later than August 23, 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
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.
10
<PAGE>
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 90% 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 $15.00, and the net asset value as of the close of
business on the Pricing Date is $15.50, the Subscription Price will be $13.50
(90% of $15.00). 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 $14.90, and the net asset value as of the close of business on
the Pricing Date is $14.80, the Subscription Price will be $13.32 (90% of
$14.80). 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 July 11, 1996 was
$15.51 and $17.43, 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 $13.50
and $14.75, respectively.
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.
EXPIRATION OF THE OFFER
The Offer will expire at 5:00 p.m., New York City time, on August 16, 1996,
unless extended by the Fund until 5:00 p.m., New York City time, to a date not
later than August 23, 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.
11
<PAGE>
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
Corporate Reorganization
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
Canton, MA 02021
(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
12
<PAGE>
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 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.
INFORMATION AGENT
Any questions or requests for assistance may be directed to the Information
Agent at its telephone number listed below:
THE INFORMATION AGENT FOR THE OFFER IS:
[LOGO]
Toll Free: (800) 733-8481, Extension 348
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 $10,000 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 $13.28 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.
13
<PAGE>
(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 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. No interest shall be paid by the Fund on any such excess
payment. 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
14
<PAGE>
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 United States 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. A shareholder's basis for
determining gain or loss upon the sale of a Share acquired upon the exercise of
a Right will be equal to the sum of the Subscription Price per Share, any
servicing fee charged to the shareholder by the shareholder's broker, bank or
trust company, and the shareholder's basis, if any, in the Rights exercised (as
discussed below). 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.
If the fair market value of the Rights on the date of distribution is less
than 15% of the fair market value of the shares of Common Stock with respect to
which they are issued, on that date the basis of a Right will be zero unless a
Record Date Shareholder elects 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 distribution 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. If the fair market
value of the Rights on the date of distribution is equal to or greater than 15%
of the fair market value of the shares of Common Stock with regard to which they
are issued, a Record Date Shareholder will allocate his basis in those shares of
the Fund which he originally owned between such shares and the Rights issued in
the offer based upon their relative fair market values on the date of the
distribution. However, if a 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 a shareholder exercises 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 material United States 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 United
States Internal Revenue Code of 1986, as amended (the "Code"), United States
Treasury regulations and other authorities currently in effect, and does not
cover state, local or foreign 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, local or
foreign 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.
15
<PAGE>
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 $17.43 per share would
be reduced by approximately $1.42 or 8.15%, 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.
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 (after fee waiver) and administrators would be increased by
approximately $228,000 and $52,000, 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
<TABLE>
<CAPTION>
EVENT DATE
- ------------------------------------------------------ -------------------------------------------------------
<S> <C>
Record Date........................................... July 17, 1996
Subscription Period................................... July 17, 1996 through August 16, 1996*
Payment for Shares or Notices of Guaranteed Delivery
Due.................................................. August 16, 1996*
Expiration and Pricing Date........................... August 16, 1996*
Payment for Guarantees of Delivery Due................ August 21, 1996*
Confirmation to Participants.......................... August 30, 1996*
Final Payment for Shares.............................. September 16, 1996*
</TABLE>
- ---------
* Unless the Offer is extended to a date not later than August 23, 1996.
16
<PAGE>
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 Common Stock, the net proceeds to the Fund of
which were approximately $63,430,000.
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 net assets were
invested in equity securities of Brazilian companies operating in the following
industries:
<TABLE>
<CAPTION>
% OF FUND'S NET
INDUSTRY ASSETS
- ------------------------------------------------------------- ---------------------
<S> <C>
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%
</TABLE>
The Fund's ten largest holdings at March 31, 1996 (percentage of net assets)
were:
<TABLE>
<S> <C>
- - Companhia Energetica de Minas Gerais (10.6%) (Electric Distribution)
- - Centrais Eletricas Brasileiras S.A. (8.2%) (Electric Generation)
- - Telecomunicacoes 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)
- - Telecomunicacoes do Parana S.A. (4.0%) (Telecommunications)
</TABLE>
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 $19,375,500, 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 $4,942,938. 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
17
<PAGE>
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 $15.69, representing a price
that is 90% of an assumed net asset value per share of $17.43, 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 $.74 per share. If, on the other hand,
the Subscription Price represents a price that is less than 90% 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 $13.28, representing a price which is only 76% 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 $1.42 per
share. The foregoing examples assume Subscription Prices of $15.69 and $13.28
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.
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 "Investment Restrictions--Certain Brazilian
Restrictions" and "Taxation--Brazilian Taxes." The Fund does not believe that
these restrictions will adversely affect
18
<PAGE>
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, 1995, the aggregate market capitalization of listed equity
securities on the Sao Paulo exchange (the main Brazilian exchange) was
approximately U.S. $148 billion, with an aggregate annual trading value for the
year then ended of approximately U.S. $69 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 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
Reais. 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 Reais. 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 Reais 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
Reais 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 Reais of such
expenses at the time they are incurred. The Brazilian currency has experienced
steady devaluations
19
<PAGE>
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.
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 Reais, inflation
accounting rules in Brazil have in the past required, 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. This restatement requirement was recently eliminated for Brazilian public
companies. Brazilian companies, however, are permitted to continue such
inflation accounting adjustments if they so elect. Consequently, data for
companies that continue to make such inflation accounting adjustments may not
accurately reflect the real condition of such companies. Furthermore, this lack
of standardization in the country's accounting practice will make meaningful
comparisons between Brazilian companies very difficult. 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
20
<PAGE>
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 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 PARTICIPATIONS 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 Participations 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
21
<PAGE>
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 Participations 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.
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 more than 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.
22
<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.
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
23
<PAGE>
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.
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
24
<PAGE>
be received in Reais 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.
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.
25
<PAGE>
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 (the "U.S. Administrator"), 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; oversight of the maintenance by Brown Brothers Harriman & Co. of the
books and records of the Fund as required under the 1940 Act; assistance 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 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
26
<PAGE>
remittances of earnings and the repatriation of investment, (3) paying
applicable taxes imposed under Brazilian laws and regulations 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."
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.
27
<PAGE>
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.
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 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.
28
<PAGE>
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 to 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 more than 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 be
made at prices at or below the then 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 July
11, 1996:
<TABLE>
<CAPTION>
AMOUNT HELD BY FUND
AMOUNT AUTHORIZED FOR ITS OWN ACCOUNT AMOUNT OUTSTANDING
- --------------------- -------------------- -------------------
<S> <C> <C>
100,000,000 shares 0 Shares 4,634,005
</TABLE>
The number of shares outstanding as of July 11, 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 sales prices on the
29
<PAGE>
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 sales prices provided.
<TABLE>
<CAPTION>
PREMIUM OR DISCOUNT
MARKET
PRICE(1) NET ASSET VALUE AS % 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 (1.06) 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 13.000 15.95 14.47 (2.04) (10.16)
March 31, 1996......................................... 17.000 12.125 12.85 13.76 32.30 (11.88)
June 30, 1996.......................................... 15.125 13.000 16.70 15.51 (9.43) (16.18)
</TABLE>
- ---------
(1) As reported by the New York Stock Exchange.
(2) Based on the Fund's computations.
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;
30
<PAGE>
(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 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
31
<PAGE>
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 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, subject to certain exceptions, 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.
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.
32
<PAGE>
TABLE OF CONTENTS
OF
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
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
</TABLE>
33
<PAGE>
APPENDIX
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
<TABLE>
<S> <C>
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.
</TABLE>
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.
<TABLE>
<S> <C>
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.
</TABLE>
STANDARD & POOR'S RATINGS GROUP
<TABLE>
<S> <C>
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.
</TABLE>
A-1
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
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>
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- -------------------------------------------
-------------------------------------------
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.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Fee Table...................................... 8
Financial Highlights........................... 9
The Offer...................................... 10
The Fund....................................... 17
Use of Proceeds................................ 17
Risk Factors and Special Considerations........ 18
Investment Objective and Policies.............. 23
Management of the Fund......................... 25
Portfolio Transactions......................... 27
Dividends and Distributions; Dividend
Reinvestment and Cash Purchase Plan.......... 27
Taxation....................................... 28
Net Asset Value................................ 29
Common Stock................................... 29
Custodian and Transfer and Dividend-Paying
Agent and Registrar.......................... 31
Distribution Arrangements...................... 31
Legal Matters.................................. 32
Experts........................................ 32
Official Documents............................. 32
Further Information............................ 32
Table of Contents of Statement of Additional
Information.................................. 33
Appendix....................................... A-1
</TABLE>
THE BRAZILIAN EQUITY FUND, INC.
1,544,668 SHARES OF
COMMON STOCK ISSUABLE UPON
EXERCISE OF RIGHTS TO SUBSCRIBE
TO SUCH SHARES
-------------------
P R O S P E C T U S
-------------------
BEAR, STEARNS & CO. INC.
------------
JULY 17, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
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 July
17, 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) 733-8481
extension 348. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-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
July 17, 1996.
<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 participations 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%. For each fiscal period from the commencement of the Fund's
operations through March 31, 1996, 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 Reais 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 the Prospectus and this Statement of Additional
Information 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 equity securities or other
floating rate 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 from 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. The application for
registration of any such investment with the Central Bank of Brazil must be
submitted within a period of 30 days from the date of execution of the relevant
exchange contract. Pursuant to Resolution No. 2275 dated April 30, 1996 of the
Central Bank of Brazil, non-compliance with the registration obligation is
subject to a fine in the amount of $50,000.
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. Annex IV
investors are prohibited from leasing, lending, pledging or encumbering the
securities or rights pertaining to securities comprising their portfolios.
Furthermore, funds registered under Annex IV may not be invested in derivatives
transactions involving securities, interest rates or exchange rates that are
administered by securities or commodities exchanges. Purchases and sales of
securities or rights pertaining to securities on margin are not restricted.
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, Address and Age Position with the Fund
- --------------------- ----------------------
Emilio Bassini (46)* . . . . . . . . . . Director, Chairman of the Board,
One Citicorp Center President and Chief Executive
153 East 53rd Street Officer
New York, New York 10022
Richard Watt (37)* . . . . . . . . . . . Director, Senior Vice President and
One Citicorp Center Chief Investment Officer
153 East 53rd Street
New York, New York 10022
Daniel Sigg (40)*. . . . . . . . . . . . Director and Senior Vice President
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Dr. Enrique R. Arzac (54). . . . . . . . Director
Columbia University
Graduate School of Business
New York, New York 10027
James J. Cattano (52). . . . . . . . . . Director
80 Field Point Road
Greenwich CT 06830
Peter A. Gordon (53) . . . . . . . . . . Director
c/o BEA Associates
153 East 53rd Street
New York, New York 10022
George W. Landau (76). . . . . . . . . . Director
Two Grove Isle Drive
Coconut Grove, Florida 33133
Martin M. Torino (46). . . . . . . . . . Director
Reconquista 365, 9th Fl.
Capital Federal 1003
Buenos Aires, Argentina
8
<PAGE>
Paul P. Stamler (35) . . . . . . . . . . Senior Vice President
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Michael A. Pignataro (36). . . . . . . . Chief Financial Officer and
One Citicorp Center Secretary
153 East 53rd Street
New York, New York 10022
Rachel D. Manney (29). . . . . . . . . . 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 been President of Credit
Suisse Advisors Corporation since December 1995 and President of Credit Suisse
Capital Corporation since December 1994. He was Director and Vice President of
Credit Suisse Capital Corporation from December 1990 to November 1994. From
1987 to December 1990, Mr. Sigg was Vice President and 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 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 former 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. Dr. Arzac was
appointed as a Director effective February 13, 1996 and therefore received no
compensation for the fiscal year ended March 31, 1996.
<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 Paid 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 7
Martin M. Torino 7,000 0 0 42,000 6
</TABLE>
__________
+ Mr. Garlow resigned as a 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
12
<PAGE>
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.
On June 21, 1994, Garantia Administracao de Recursos S.A. ("Garantia")
resigned as an investment sub-adviser to the Fund. Since June 21, 1994, BEA
Associates has 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 Financeiro Ltda.
("Patrimonio") resigned as an investment sub-adviser to the Fund. Since August
15, 1994, BEA Associates has 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 "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 with Brown Brothers Harriman & Co., the Fund's accounting agent and
custodian (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 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.
13
<PAGE>
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 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.
14
<PAGE>
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.
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 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 Patrimonio $34,741 in brokerage commissions for the fiscal period from
April 1, 1994 to August 15, 1994. The Fund paid $33,481 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 and March 31, 1995.
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
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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. 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.
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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 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 the 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
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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, 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.
Although 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 the sum 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) and its net
tax-exempt income for the taxable year is distributed, but will be subject to
tax at regular corporate rates on any taxable 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 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
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all or a portion 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.
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.
If, in any taxable year, the Fund fails to qualify as a regulated
investment company under the Code, the Fund would be taxed in the same manner as
an ordinary corporation and distributions to its shareholders would not be
deductible by the Fund in computing its taxable income. In addition, in the
event of a failure to qualify, the Fund's distributions, to the extent derived
from the Fund's current or accumulated earnings and profits would constitute
dividends (eligible for the corporate dividends-received deduction) which are
taxable to shareholders as ordinary income, even though those distributions
might otherwise (at least in part) have been treated in the shareholders' hands
as long-term capital gains. If the Fund fails to qualify as a regulated
investment company in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a regulated investment
company. In addition, if the Fund failed to qualify as a regulated investment
company for a period greater than one taxable year, the Fund may be required to
recognize any net built-in gains (the excess of the aggregate gains, including
items of income, over aggregate losses that would have been realized if it had
been liquidated) in order to qualify as a regulated investment company in a
subsequent year.
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
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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, 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. Any tax paid by the Fund as a result
of its ownership of shares in a PFIC will not give rise to any deduction or
credit to the Fund or any shareholder. 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. In order to make this election, the Fund would be required to obtain
certain annual information from the passive foreign investment companies in
which it invests, which may be difficult or not possible to obtain.
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 Internal Revenue Service (the
"IRS") were published providing a mark-to-market election for certain 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 (as ordinary income) 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
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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. The Fund
could potentially ameliorate the adverse tax consequences with respect to its
ownership of shares in a PFICs, but in any particular year may be required to
recognize income in excess of the distributions it receives from PFICs and its
proceeds from dispositions of PFIC company stock.
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 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,
such dividend or distribution may nevertheless 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.
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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 federal 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").
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 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.
The foregoing is only a general description of the foreign tax credit under
current law. Because application of the credit depends on the particular
circumstances of each shareholder, shareholders are advised to consult their own
tax advisers.
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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 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.
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
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<PAGE>
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. 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. No withholding tax is imposed on dividend income paid out of post-
1995 earnings 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.
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.
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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 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.
25
<PAGE>
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 accompanies this SAI or has previously been provided to
the person to whom this Prospectus is being sent, is 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.
26
<PAGE>
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 1994 was estimated by the
Central Bank of Brazil at approximately 154 million. The population is
currently growing at a rate of approximately 1.9% per year. The two most
populous cities are Sao Paulo and Rio de Janeiro, with populations of 17
million and 11 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 513 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 growing current account deficit
led the government to significantly increase trade tariffs in April 1995. See
"The External Sector--Exchange Policy." Mercosur has led to a significant
increase in trade among its initial members. Brazil's trade with other Mercosur
partners reached U.S. $13.1 billion in 1995, as compared to U.S. $10.6 billion
in 1994.
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.
On June 25, 1996, the Mercosur partners reached an agreement with Chile
pursuant to which Chile will join the organization as a free trade rather than a
customs union member (associate membership). Effective October 1, 1996, all
parties to such agreement will lower trade tariffs among them to an average of
6% on most imports before gradually reducing them to zero by 2004. Bolivia is
negotiating to join the organization with a status similar to that of Chile.
Negotiations are also under way with Venezuela.
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.
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FINANCIAL SYSTEM
The National Monetary Council, which is chaired by the Minister of Finance
and includes the Minister of Planning and the President of the Central Bank, 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
Bank of Brazil and the Comissao de Valores Mobiliarios (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 convocation of a
Constitutional Assembly. In 1988 a new Constitution was promulgated
reintroducing direct presidential election.
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, primarily 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.
<TABLE>
<CAPTION>
SELECTED ECONOMIC INDICATORS
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
GDP (in U.S. $ billion) 433.3 446.6 482.3 528.3 N.A.
Real GDP (%) 0.3 (0.8) 4.2 5.8 4.1
Inflation CPI, end-of-year (%)(1) 493.8 1,156.0 2,828.7 1,238.0 22
Trade balance (in U.S. $ billion) 10.6 15.2 13.3 10.5 (3.2)
Total foreign debt (in U.S. $ billion) 123.9 135.9 145.7 148.3 N.A.
</TABLE>
__________________
(1) Consumer Price Index
N.A. = Not Available
Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume 32,
no. 1; Ministry of Finance of Brazil, THE REAL PLAN AND THE BRAZILIAN
ECONOMY TWO YEARS LATER, July 1996.
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
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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.
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 strong inflows of foreign capital and high interest
rates, the introduction of the Real has been successful in cutting monthly
inflation (IPC) from 48.24% in June 1994 before implementation of the Real Plan,
to a low of .93% in April 1996, with a government forecast of 12-13% for the
year 1996 (average rate).
The new government has faced difficulties due to political maneuvering in
Congress. 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 1995. See "The External Sector--
Exchange Policy." The government managed, however, to pass legislation
providing for spending cuts and tax increases in an attempt to reduce the budget
deficit. New rules for public concessions allowing greater private sector
competition have also been enacted.
President Fernando Henrique Cardoso has been successful in obtaining
legislative approval of various reforms of Brazil's constitution that open
previously restricted industries, such as oil and gas production,
hydroelectricity and shipping, to foreign investment, and telecommunications to
private sector competition. In addition, constitutional provisions restricting
tax and other benefits to businesses controlled by Brazilian nationals have been
lifted.
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 and lower the level of domestic
interest rates. 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.
The Government has 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
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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.
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 assurance 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 faced liquidity problems.
As a result, the Central Bank of Brazil was forced to rescue several troubled
banks through direct acquistion (Banco Nacional) or 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.
Confidence in the industry has also been hurt by mounting criticism over
the accuracy of the financial information provided by Brazil's banks.
GROSS DOMESTIC PRODUCT
The following table sets out the annual growth rates of Brazil's economic
sectors for the periods indicated.
<TABLE>
<CAPTION>
ANNUAL GROWTH RATES OF BRAZIL'S ECONOMIC SECTORS
SECTOR 1991 1992 1993 1994 1995(1)
------ ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C>
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.
</TABLE>
__________________
(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.
In 1994, agriculture, industry and services represented 14.2%, 37.2% and
55.8% of Brazil's GDP, respectively. The government is forecasting 3.4% growth
in 1996, compared with 4.1% in 1995. Growth was lower than expected in 1995 due
to high interest rates and a large budget deficit.
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The combination of high interest rates, budget deficits and the uncertainty
created by the difficulties faced by Brazil's banking industry could result in
lower than expected economic growth in 1996.
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. Consumer goods
accounted for a major portion of 1995 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, Petrobras, 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 1.6%
in April 1996. The government expects inflation (average rate) to total 12.13%
for the year 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 2.5% and
1.6% in July and December 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
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11.5% with tax revenues estimated at U.S. $63.2 billion. In 1995, however, the
federal government had a budget deficit of nearly 5% of GDP and the continuing
success of the Real plan was obtained through maintaining high interest and
exchange rates. The budget deficit is expected by the government 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)
First Six months 1994 . . . . . . . . . . . . . . . . . 759.15
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
Dec . . . . . . . . . . . . . . . . . . . . . . . . . . 1.65
1996(1)
Jan . . . . . . . . . . . . . . . . . . . . . . . . . . 1.46
Feb . . . . . . . . . . . . . . . . . . . . . . . . . . 0.71
Mar . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29
Apr . . . . . . . . . . . . . . . . . . . . . . . . . . 0.93
____________________
(1) Monthly after June 30, 1994 (introduction of the Real Plan).
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 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.
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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 (measures 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 three other companies. In 1992, fourteen companies
were privatized, including Copesul and the steel manufacturers Acesita and
Companhia Siderurgica Tubarao. In 1993, six state enterprises were sold, the
National Steel Company (Companhia Siderurgica Nacional, or CSN), Cosipa,
Acominas, Poliolefinas, Oxiteno and Ultrafertil. In 1994, nine state
enterprises were sold, including Embraer and Petroquimica Uniao. In 1995,
eight state enterprises were sold, including Escelsa (Espirito Santo's
electricity distribution) and Copene (petrochemicals). Since 1991, 43 state
enterprises have been privatized in the first phase of Brazil's privatization
program, netting total proceeds for the government of approximately U.S. $14
billion. Sales of shares in the privatized companies have, for the most part,
been effected through auctions.
Brazil's privatization program for 1996 included major companies such as
Light (Rio de Janeiro's electricity distributor), Meridional Bank, RFFSA
(Brazil's railway company) and Koppol and Polipropileno (petrochemicals). The
government is considering extending Brazil's privatization program to
telecommunications companies (Telebras and its operating companies), oil and
mining companies, including Companhia Vale do Rio Doce, the world's largest iron
ore exporter and power utilities (Eletrobras and its generation subsidiaries,
Furnas, Eletronorte, Eletrosul and Chesf). 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 Riograndense Telecommunications Company and
the privatizations of Armazens Gerais and Companhia Industrial de Eletroquimicos
(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 certain of the privatization measures proposed by the government, but
the government has to date been able to move forward with its program, albeit at
a slower pace than expected.
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.
A-10
<PAGE>
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)
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Exports. . . . . . . . . 31.4 31.6 35.8 38.6 43.5 46.5
Imports. . . . . . . . . 20.7 21.0 20.6 25.3 33.1 49.7
Trade Balance. . . . . . 10.8 10.6 15.2 13.3 10.5 (3.2)
Current Account. . . . . (3.8) (1.4) 6.1 (0.6) (1.7) N.A.
____________________
N.A. = Not Available
* Source: Central Bank of Brazil, BOLETIM DO BANCO CENTRAL DO BRASIL, Volume
32, no. 1; Ministry of Finance of Brazil, THE REAL PLAN AND THE
BRAZILIAN ECONOMY TWO YEARS LATER, July 1996.
The trade balance registered a deficit of U.S. $3.2 billion in 1995,
compared to a surplus of U.S. $10.5 billion in 1994. Exports totaled U.S. $46.5
billion in 1995, an increase of 6.8% over the previous year, while imports were
U.S. $49.7 billion, an increase of 50% over the same period. Primary product
exports earned U.S. $10.1 billion during the period January through November
1995, as compared to U.S. $10.2 billion for the same period of 1994. Industrial
product exports rose to U.S. $31.7 billion through November 1995 as compared to
U.S. $29 billion for the same period of 1994. Growth of imports appears to have
slowed down in recent months. From January to April 1996, foreign trade showed
a deficit of U.S. $237 million, as compared with the U.S. $2.8 billion deficit
recorded during the same period in 1995.
The sharp growth in imports during 1994 and 1995 was influenced by the
increase in consumption which has resulted from the implementation of the Real
Plan, as well as the reduction of tariffs and the elimination of non-tariff
restrictions.
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-11
<PAGE>
<TABLE>
<CAPTION>
BALANCE OF PAYMENTS
(U.S. $ MILLION)
1989 1990 1991 1992 1993 1994 1995(1)
---- ---- ---- ---- ---- ---- ----------------------------------------
1ST QUARTER 2ND QUARTER 3RD 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-12
<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)
1990 1991 1992 1993(1) 1994(1) 1995(2)
---- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
EFTA(3). . . . . . . . . . . . . . . . . (333) (434) (459) (608) (686) (1,132)
LAIA(4). . . . . . . . . . . . . . . . . (405) 1,218 3,905 4,470 3,607 194
Canada . . . . . . . . . . . . . . . . . 116 (47) (69) (191) (287) (501)
EC . . . . . . . . . . . . . . . . . . . 5,620 5,171 6,168 4,276 3,221 (296)
Central and Eastern Europe . . . . . . . 345 16 31 117 85 254
USA(5) . . . . . . . . . . . . . . . . . 3,263 1,387 2,171 2,248 1,295 (2,524)
Japan. . . . . . . . . . . . . . . . . . 1,103 1,344 1,184 771 778 425
OPEC(6). . . . . . . . . . . . . . . . . (2,633) (1,559) (1,509) (1,314) (1,586) (1,070)
Other. . . . . . . . . . . . . . . . . . 3,677 3,483 3,817 3,538 (4,039) 1,529
Total (excluding OPEC) . . . . . . . . . 13,386 12,138 16,748 14,621 12,052 (2,051)
Total (U.S. $ billions). . . . . . 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 (ALADI) (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 imports during 1995 was influenced by significant increases
in the level of imports from the United States, the European Community and the
ALADI countries, especially Argentina. Growth in exports in 1995 resulted
principally from purchases by Asian countries, members of the European Community
and ALADI Countries, especially Chile. Exports to Chile grew by 23% from
January 1994 through November 1995, as compared to the same period in the
previous year. Growth in exports to Mercosur countries was 5% from January
through November 1995, as compared to the same period in the previous year.
Brazil's trade with the other Mercosur countries reached U.S. $13.1 billion in
1995, compared to U.S. $10.6 billion in 1994.
A-13
<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)
1990
End of period. . . . . . . . . . . . . . . . . . . . . 64.38
Average of period. . . . . . . . . . . . . . . . . . . 24.84
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. . . . . . . . . . . . . . . . . . . . . 0.49
Average of Period. . . . . . . . . . . . . . . . . . . 0.32
A-14
<PAGE>
1994
End of Period. . . . . . . . . . . . . . . . . . . . . 0.85
Average of Period. . . . . . . . . . . . . . . . . . . 0.64
1995
End of Period. . . . . . . . . . . . . . . . . . . . . 0.97
Average of Period. . . . . . . . . . . . . . . . . . . 0.92
1996
First Quarter
End of Period . . . . . . . . . . . . . . . . . . . . 0.99
Average of Period . . . . . . . . . . . . . . . . . . 0.98
May
End of period . . . . . . . . . . . . . . . . . . . . 1.00
Average of period . . . . . . . . . . . . . . . . . . 0.99
____________________
(1) Reais per Million U.S. $ in 1990; per Thousand in 1991-92; per U.S. $
thereafter.
Source: International Monetary Fund, INTERNATIONAL FINANCIAL STATISTICS,
July 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 initially
committed itself to sell dollars if the dollar rate rose up to R$1.00, thus
preventing the rate from going beyond that level.
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. $3.2 billion in 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. $5.1 billion in foreign reserves to defend the Real, on March 10, 1995, the
Central Bank was forced to alter the new trading bands from 86 to 90 to 88 to 93
centavos to the Dollar and to temporarily raise monthly interest rates to 4.25%.
These measures helped to restore confidence in the Real which stabilized at 90
centavos to the Dollar, down 4.6% from its value prior to the March devaluation.
Growing pessimism led to strong outflows of foreign capital in March 1995,
which worsened Brazil's current account deficit. In an attempt to tackle the
current account deficit, Brazil increased
A-15
<PAGE>
import tariffs on automobiles from 20% to 32% in February 1995 and up to 70% on
March 29, 1995. Import tariffs on approximately 100 other products were also
increased to 70%. In April 1995, approximately 20 of such products had their
tariffs reduced to a range between 40% and 63% to meet the tariff level
established in GATT negotiations.
On June 22, 1995, the Central Bank of Brazil again altered the trading
bands to 91 to 99 centavos to the Dollar with the objective of preserving
foreign currency reserves and narrowing the recent trade deficit. On January
29, 1996, the Central Bank announced an additional adjustment, resulting in a
band of 97 centavos to R$ 1.06 to the Dollar. In February 1996, the government
imposed restrictions on the inflow of foreign capital after a sharp increase in
investment in the first few weeks of the year, including a 5% tax on foreign
money invested in special privatization funds. On July 9, 1996, the selling
Dollar Rate quoted by banks in New York for interbank transactions was R$ 0.995.
The international financial community has expressed concerns that the Real right
be overvalued, which, coupled with Brazil's high interest rates, budget deficits
and slower than expected reform process, could prompt operators to force a
devaluation of the Real. There is no assurance that the Central Bank of Brazil
could resist such market pressures or that the government of Brazil will
implement the reforms needed to ensure the success of the Real plan.
In November 1995, the Real was accepted for trading on the Chicago
Commodities Exchange in futures contracts and futures options, thus making it
possible for international operators to hedge currency and interest rate risks
in operations with Brazil.
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.
In July 1996, Brazil disbursed U.S. $1.4 billion in foreign reserves to pay
part of the principal and interest on its foreign debt to the Paris club
creditors that had become due in June and July. U.S. $465 million was allocated
to the payment of the principal and U.S. $574.5 was allocated to the payment of
interest.
A-16
<PAGE>
The following table describes Brazil's net disbursements of external debt
for the covered periods.
NET DISBURSEMENTS OF EXTERNAL DEBT(1)
(US$ million)
<TABLE>
<CAPTION>
---- ---- ---- ---- -------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- -------------------------
1st 2nd 3rd
quarter quarter quarter
<S> <C> <C> <C> <C> <C> <C> <C>
1. Disbursements (medium- 6,134 28,174 13,415 55,282 1,730 5,435 6,054
and long- term debt)
Refinancing -- 18,683 1,190 42,476 298 0 13
Commercial banks -- 7,100 0 42,476 298 0 13
Brazilian bank -- -- -- 5,752 0 0 0
Foreign bank -- 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- 7,658 8,513 9,978 50,411 2,763 3,189 2,218
and long- term debt)(2)
3. Short-term capital (net)(3) (492) 372 (219) 209 128 229 73
4. Net disbursements of (2,016) 20,033 3,218 5,080 (905) 2,475 3,909
external 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. In 1995, Brazil was again able to borrow from
world financial markets, in two issues. The first was an issue of 80 billion
Yen-
A-17
<PAGE>
denominated two-year bonds, which took place in May 1995. One month later,
Brazil launched a one billion Deutschmark-denominated three-year bond offering.
In March 1996, Brazil completed another issue of 30 billion Yen-denominated
five-year bonds.
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, newspaper and broadcast, transport and defense industries. In some cases,
these restrictions take the form of limitations on ownership of voting stock by
foreigners. Several liberalization steps have, however, been taken by the
government and further projects are currently being considered by Congress. For
further discussion of recent measures to favor foreign investment, see "The
Economy--Privatization and Deregulation." Foreign portfolio investment in the
Brazilian securities markets is regulated by the National Monetary Council, the
Central Bank and the CVM. Non-residents may only invest in securities issued by
Brazilian publicly-held corporations. According to Brazilian laws, restricted
securities are: shares, participation certificates and debentures, their
respective coupons and underwriting bonuses; securities deposit certificates;
securities underwriting rights; securities underwriting receipts; securities
options; share deposit certificates; and commercial papers issued for public
offering. Annex IV investors may only acquire variable income securities (i) in
a Brazilian stock exchange, (ii) on an organized over-the-counter market duly
registered before the CVM or (iii) by means of subscription from publicly-held
corporations.
Funds registered for investment under Annex IV that are not allocated to
the acquisition of securities must be directed exclusively to the acquisition of
investments expressly and jointly authorized by the Central Bank of Brazil and
the Brazilian Securities Commission.
For a discussion of the regulatory framework applicable to the Fund's
investments in Brazil, see "Investment Restrictions--Certain Brazilian
Restrictions" 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
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<PAGE>
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.
The table below presents recent value indicators for the Sao Paulo
Exchange.
MARKET CAPITALIZATION(1) TRADING VOLUME(2)
--------------------- --------------
(US$ billion) (US$ billion)
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
1995. . . . . . . . . . . 147.56 69.45
1996* . . . . . . . . . . 191.23 42.57
____________________
(1) Year-end total market value of listed domestic company shares.
(2) Year-end total volume traded of listed domestic company shares.
As of June, 1996
Source: Sao Paulo Exchange, July 1996.
As of June 30, 1996, the total market capitalization of the companies listed
on the Sao Paulo Exchange was approximately U.S. $191 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 have comprised the index. As of June 30,
1996, total market capitalization of these companies was approximately U.S. $126
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
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<PAGE>
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.
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)
1990 TO PRESENT
END OF PERIOD LEVELS NOMINAL VARIATION
-------------------- -----------------
(POINTS) (ANNUAL)
--------
1990 . . . . . . . . . . . . . 0.25156 308.27
1991 . . . . . . . . . . . . . 6.0776 2,315.96
1992 . . . . . . . . . . . . . 67.805 1,015.65
1993 . . . . . . . . . . . . . 3754.5 5,437.20
1994 . . . . . . . . . . . . . 43,539 1,059.65
1995 . . . . . . . . . . . . . 42,990 (1.26)
1996(2)
January. . . . . . . . . . . 51.515 19.83
February . . . . . . . . . . 49.577 (3.76)
March. . . . . . . . . . . . 49.549 (0.05)
April. . . . . . . . . . . . 51.641 4.22
May. . . . . . . . . . . . . 57.279 10.91
June . . . . . . . . . . . . 60.438 5.51
____________________
(1) 1968 = 0.000000001
(2) Monthly
Source: Sao Paulo Exchange, July 1996.
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 relatively
active and liquid as compared to the market for corporate debt securities. Such
bonds are also used in repurchase agreements.
A-20
<PAGE>
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> <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-21
<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
(5) -- Form of Nominee Holder Over-Subscription
Certificate
(6) -- Form of Beneficial Listing
(7) -- Form of Subscription Agent Agreement
(e) -- Dividend Reinvestment and Cash Purchase Plan
(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.
(k)(1) -- Transfer Agency Services Agreement between the
Fund and The First National Bank of Boston
C-1
<PAGE>
(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**
(4) -- Credit Agreement among the Fund, The First
National Bank of Boston and certain other funds
(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
** Previously filed.
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:
<TABLE>
<CAPTION>
<S> <C>
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,000.00
------------
Subscription Agent's fees
and expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000.00
------------
NASD fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,300.00
------------
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000.00
------------
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,002.22
------------
Total $ 396,250.00
------------
------------
</TABLE>
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: 206 record holders as of
July 11, 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 and Accounting Agent
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 agent, 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:
(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.
C-5
<PAGE>
(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.
(c) 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 15th day of July,
1996.
THE BRAZILIAN EQUITY FUND, INC.
By /s/ Richard Watt
---------------------
Richard Watt
Senior Vice President
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
- --------- ----- ----
* Director, Chairman July 15, 1996
- ------------------------ of the Board,
Emilio Bassini President and
Chief Executive
Officer
/s/ Richard Watt Director, Senior Vice July 15, 1996
- ------------------------ President and Chief
Richard Watt Investment Officer
* Director and July 15, 1996
- ------------------------ Senior Vice President
Daniel Sigg
* Director July 15, 1996
- ------------------------
Enrique R. Arzac
C-7
<PAGE>
Director
- ------------------------
John Bult
* Director July 15, 1996
- ------------------------
James J. Cattano
Director
- ------------------------
Peter A. Gordon
* Director July 15, 1996
- ------------------------
George W. Landau
* Director July 15, 1996
- ------------------------
Martin M. Torino
/s/ Michael A. Pignataro Chief July 15, 1996
- ------------------------- Financial Officer
Michael A. Pignataro and Secretary
*/s/ Michael A. Pignataro
- -------------------------
Michael A. Pignataro as
Attorney-In-Fact
C-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE IN
SEQUENTIAL
NUMBERING
SYSTEM
----------
<S> <C>
(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 Agent Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) -- Dividend Reinvestment and Cash Purchase Plan. . . . . . . . . . . . . . . . . . . . . . . . . .
(h)(1) -- Form of Dealer Manager Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(h)(2) -- Form of Soliciting Dealer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(j)(1) -- Custodial Services 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.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) -- Credit Agreement among the Fund, The First National Bank
of Boston and certain other funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(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. . . . . . . . . . . . . . . . . . . .
</TABLE>
C-9
<PAGE>
EXHIBIT 99.d(2)
FORM OF SUBSCRIPTION CERTIFICATE
THIS OFFER EXPIRES AT 5:00 P.M. NEW YORK CITY TIME ON AUGUST 16, 1996*
THE BRAZILIAN EQUITY FUND, INC.
SUBSCRIPTION RIGHTS FOR COMMON STOCK
SUBSCRIPTION CERTIFICATE
Dear Shareholder:
As the registered owner of this Subscription Certificate, you are entitled
to exercise the Rights issued to you as of July 17, 1996, the Record Date for
the Fund's rights offering, to subscribe for the number of shares of Common
Stock of The Brazilian Equity Fund, Inc. shown on this Certificate pursuant to
the Primary Subscription upon the terms and conditions and at the Subscription
Price for each share of Common Stock as specified in the Fund's Prospectus dated
July 17, 1996 (the "Prospectus"). The terms and conditions of the rights
offering (the "Offer") set forth in the Prospectus are incorporated herein by
reference. In accordance with the Over-Subscription Privilege described in the
Prospectus, Record Date shareholders are entitled to subscribe for additional
shares if such holder's Primary Subscription Rights have been fully exercised.
If there are not sufficient shares to satisfy all over-subscriptions, the
available shares will be allocated in proportion to the number of shares you own
on the Record Date. As described in the Prospectus, the Fund may in its
discretion issue up to an additional 25% of the shares subject to the Offer to
satisfy over-subscriptions.
SAMPLE CALCULATION
- --------------------------------------------------------------------------------
FULL PRIMARY SUBSCRIPTION ENTITLEMENT
(one share for every three Rights)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
No. of whole shares 100 DIVIDED BY 3 = 33 new shares
owned on the Record ------------------------- ---------------
Date (equals no. of Rights (ignore
issued) fractions)
</TABLE>
- --------------------------------------------------------------------------------
METHOD OF EXERCISE RIGHTS
IN ORDER TO EXERCISE YOUR RIGHTS, YOU MUST EITHER (i) COMPLETE THE SECTIONS
ON THE BACK OF THIS SUBSCRIPTION CERTIFICATE AND RETURN IT TOGETHER WITH
PAYMENT, OR (ii) PRESENT A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY TO
THE SUBSCRIPTION AGENT, THE FIRST NATIONAL BANK OF BOSTON, BEFORE 5:00 P.M. ON
THE EXPIRATION DATE*
<TABLE>
<S> <C> <C>
BY FIRST CLASS MAIL: BY HAND: BY OVERNIGHT COURIER:
The First National Bank of BancBoston Trust Company The First National Bank of Boston
Boston of New York Corporate Agency & Reorganization
Shareholder Services 55 Broadway, 3rd Floor 150 Royall Street
P.O. Box 1889 New York, NY 10006 Mail Stop 46-02-53
Mail Stop 45-02-53 Canton, MA 02021
Boston, MA 02105
</TABLE>
Full payment of the Estimated Subscription Price of $13.28 per share for all
shares subscribed for pursuant to both the Primary Subscription and
Over-Subscription Privilege must accompany this Subscription Certificate and
must be made payable in United States dollars by money order or check drawn on a
bank located in the United States payable to THE BRAZILIAN EQUITY FUND, INC.
Alternatively, if a Notice of Guaranteed Delivery is used, a properly completed
Subscription Certificate, together with payment in full, as described, must be
received by the Subscription Agent by no later than the close of business on the
third business day after the Expiration Date. See page 13 of the Prospectus.
Stock certificates for the shares subscribed to pursuant to the Primary
Subscription and Over-Subscription Privilege will be delivered as soon as
practicable after the Expiration Date. Any refund in connection with your
subscription will be delivered as soon as practicable after the Expiration Date.
THIS SUBSCRIPTION RIGHT IS NON-TRANSFERABLE
THE BRAZILIAN EQUITY FUND, INC.
By: _______________________________________
- ----------------------------------------
* Unless the Offer is extended.
<PAGE>
Subscription Certificate #:
--------------------------------
Number of Primary Subscription Rights:
--------------------------------
Number of Shares Available for Primary Subscription:
--------------------------------
PLEASE PRINT ALL INFORMATION CLEARLY AND LEGIBLY
SECTION 1: DETAILS OF SUBSCRIPTION:
IF YOU WISH TO SUBSCRIBE FOR YOUR FULL ENTITLEMENT:
<TABLE>
<S> <C> <C> <C>
A: I apply for ALL of my entitlement of new
shares pursuant to the Primary Subscription X $13.28 * = $
(no. of new shares)
B: I apply for new shares pursuant to the
Over-Subscription Privilege+ X $13.28 * = $
(no. of additional shares)
AMOUNT ENCLOSED $
</TABLE>
+ YOU CAN ONLY OVER-SUBSCRIBE IF YOU HAVE FULLY EXERCISED YOUR PRIMARY
SUBSCRIPTION RIGHTS.
IF YOU DO NOT WISH TO APPLY FOR YOUR FULL ENTITLEMENT:
C: I apply for
- -------------------------------- X $13.28* = $__________________________________
(no. of new shares) (AMOUNT ENCLOSED)
SECTION 2: TO SUBSCRIBE:
I acknowledge that I have received the Prospectus for the Offer, and I
hereby irrevocably subscribe for the number of new shares indicated above on the
terms and conditions set forth in the Prospectus. I UNDERSTAND AND AGREE THAT I
WILL BE OBLIGATED TO PAY ANY ADDITIONAL AMOUNT TO THE FUND IF THE SUBSCRIPTION
PRICE AS DETERMINED ON THE PRICING DATE IS IN EXCESS OF THE $13.28 ESTIMATED
SUBSCRIPTION PRICE PER SHARE.
I hereby agree that if I fail to pay in full for the shares for which I have
subscribed, the Fund may exercise any of the remedies provided for in the
Prospectus.
Signature of Subscriber(s)______________________________________________________
____________________________________________________________
Please give your telephone # ( ) _____________________________________________
If you wish to have your shares and refund check (if any) delivered to an
address other than that listed on this Certificate you must have your signature
guaranteed by a member of the New York Stock Exchange or a bank or trust
company. Please provide the delivery address below and note if it is a permanent
change.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 3: DESIGNATION OF BROKER-DEALER:
The following broker-dealer is hereby designated as having been instrumental
in the exercise of the Subscription Rights:
FIRM: __________________________________________________________________________
REPRESENTATIVE NAME: ___________________________________________________________
REPRESENTATIVE NUMBER: _________________________________________________________
* NOTE: $13.28 per share is an estimated subscription price only. The final
Subscription Price will be determined on August 16, 1996, the Pricing Date
(which is also the Expiration Date) and could be higher or lower depending on
changes in the net asset value and share price of the Common Stock.
2
<PAGE>
EXHIBIT 99.d (3)
NOTICE OF GUARANTEED DELIVERY FOR SHARES OF COMMON
STOCK OF THE BRAZILIAN EQUITY FUND, INC.
SUBSCRIBED FOR PURSUANT TO THE PRIMARY SUBSCRIPTION
AND THE OVER-SUBSCRIPTION PRIVILEGE
THE BRAZILIAN EQUITY FUND, INC. RIGHTS OFFERING
As set forth in the Fund's Prospectus dated July 17, 1996 (the "Prospectus")
under "The Offer-Payment for Shares," this form or one substantially equivalent
hereto may be used as a means of effecting subscription and payment for shares
of Common Stock of The Brazilian Equity Fund, Inc. subscribed for by exercise of
Rights pursuant to the Primary Subscription and the Over-Subscription Privilege.
Such form may be delivered by hand or sent by facsimile transmission, overnight
courier or mail to the Subscription Agent and must be received prior to 5:00
p.m. New York City time on August 16, 1996 (the "Expiration Date")*. The terms
and conditions of the Offer set forth in the Prospectus are incorporated by
reference herein. Capitalized terms not defined here have the meanings
attributed to them in the Prospectus.
THE SUBSCRIPTION AGENT IS:
THE FIRST NATIONAL BANK OF BOSTON
<TABLE>
<S> <C>
BY FIRST CLASS MAIL: BY HAND:
The First National Bank of Boston BancBoston Trust Company of New York
Shareholder Services 55 Broadway, 3rd Floor
P.O. Box 1889 New York, NY 10006
Mail Stop 45-02-53
Boston, MA 02105
BY OVERNIGHT COURIER: BY FACSIMILE TELECOPY:
The First National Bank of Boston 1-617-774-4519, with the original
Corporate Agency & Reorganization Subscription Certificate to be sent by
150 Royall Street one of the methods above. Confirm
Mail Stop 45-02-53 facsimile by telephone at
Canton, MA 02021 1-617-774-4511
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA A TELECOPY OR FACSIMILE NUMBER, OTHER THAN AS SET FORTH
ABOVE, DOES NOT CONSTITUTE A VALID DELIVERY.
The New York Stock Exchange member firm or bank or trust company which
completes this form must communicate the guarantee and the number of shares
subscribed for under both the Primary Subscription and the Over-Subscription
Privilege to the Subscription Agent and must deliver this Notice of Guaranteed
Delivery guaranteeing delivery of (i) payment in full for all subscribed shares
and (ii) a properly completed and executed Subscription Certificate to the
Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration
Date.* The Subscription Certificate and full payment must then be delivered by
the close of business on the third business day after the Expiration Date* to
the Subscription Agent. Failure to do so will result in a forfeiture of the
Rights.
(CONTINUED ON OTHER SIDE)
- -----------------------------
* Unless extended by the Fund.
<PAGE>
GUARANTEE
The undersigned, a member firm of the New York Stock Exchange or a bank or
trust company guarantees delivery of payment to the Subscription Agent by the
close of business (5:00 p.m., New York City time) on the third business day
after the Expiration Date (August 16, 1996, unless extended) of (i) a properly
completed and executed Subscription Certificate and (ii) payment of the full
Subscription Price for shares subscribed for on Primary Subscription and
pursuant to the Over-Subscription Privilege, if applicable, as subscription for
such shares is indicated herein or in the Subscription Certificate.
Number of Primary Subscription Shares
for Which You are Guaranteeing
Delivery of Rights and Payment:
- ---------------------------------------------------
Number of Over-Subscription
Shares for Which You are
Guaranteeing Delivery of Payment:
- ---------------------------------------------------
Number of Rights to be Delivered:
- ---------------------------------------------------
Total Subscription Price
Payment to be delivered:
- ---------------------------------------------------
Method of Delivery of Rights (circle one) A. Through The Depository Trust
Company ("DTC")*
B. Direct to the Subscription Agent
Please note that if you are guaranteeing for Over-Subscription Shares, and
are a DTC participant, you must also execute and forward to The First National
Bank of Boston a Nominee Holder Over-Subscription Certification.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Name of Firm Authorized Signature
- --------------------------------------------- ---------------------------------------------
Address Title
- --------------------------------------------- ---------------------------------------------
Zip Code Name (Please Type or Print)
- ---------------------------------------------
Name of Registered Holder (If Applicable)
- --------------------------------------------- ---------------------------------------------
Telephone Number Date
</TABLE>
* IF THE RIGHTS ARE TO BE DELIVERED THROUGH DTC, A REPRESENTATIVE OF THE
SUBSCRIPTION AGENT WILL PHONE YOU WITH A PROTECT IDENTIFICATION NUMBER, WHICH
NEEDS TO BE COMMUNICATED BY YOU TO DTC.
2
<PAGE>
EXHIBIT 99.d (4)
THE BRAZILIAN EQUITY FUND, INC.
RIGHTS OFFERING
DTC PARTICIPANT OVER-SUBSCRIPTION CERTIFICATE
THIS FORM IS TO BE USED ONLY BY THE DEPOSITORY TRUST COMPANY PARTICIPANTS TO
EXERCISE THE OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO
WHICH THE PRIMARY SUBSCRIPTION WAS EXERCISED AND DELIVERED THROUGH THE
FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF
OVER-SUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE
SUBSCRIPTION CERTIFICATE.
------------------------
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED JULY 17, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE
INFORMATION AGENT AND THE SUBSCRIPTION AGENT.
------------------------
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH
A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 16, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED.
------------------------
1. The undersigned hereby certifies to the Fund and the Subscription Agent
that it is a participant in The Depository Trust Company ("DTC") and that it has
either (i) exercised the Primary Subscription in respect of Rights and delivered
such exercised Rights to the Subscription Agent by means of transfer to the DTC
account of the Subscription Agent or (ii) delivered to the Subscription Agent a
Notice of Guaranteed Delivery in respect of the exercise of Rights pursuant to
the Primary Subscription (the "Primary Subscription Rights") and will deliver
the Rights called for in such Notice of Guaranteed Delivery to the Subscription
Agent by means of transfer to such DTC account of the Subscription Agent. The
undersigned hereby certifies to the Fund and the Subscription Agent that it
owned shares of Common Stock on the Record Date.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to the
Fund and the Subscription Agent that such Over-Subscription Privilege is being
exercised for the account or accounts of persons (which may include the
undersigned) on whose behalf all Primary Subscription Rights have been
exercised.
3. The undersigned understands that (i) payment of the Estimated
Subscription Price of $13.28 per share for each share of Common Stock subscribed
for pursuant to the Over-Subscription Privilege must be received by the
Subscription Agent before 5.00 p.m., New York City time, on the Expiration Date
(unless extended) or (ii) if a Notice of Guaranteed Delivery is used as referred
to above, payment in full must be made by the close of business on the third
business day after the Expiration Date. $13.28 is an estimated subscription
price only. The Subscription Price to be determined on August 16, 1996, the
Pricing Date (unless extended), could be higher or lower depending on the
movement in net asset value and share price of the Fund's Common Stock. Payment
of any additional amounts must be made by September 16, 1996 (unless the Offer
is extended). The undersigned represents that such payment, in the aggregate
amount of $ either
(check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above
or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent;
(CONTINUED ON OTHER SIDE)
<PAGE>
and, in the case of funds not delivered pursuant to a Notice of Guaranteed
Delivery, is or was delivered in the manner set forth below (check appropriate
box and complete the following information):
/ / uncertified check
/ / certified check
/ / bank draft
...............................................................................
Primary Subscription Confirmation Number
...............................................................................
DTC Participant Number
...............................................................................
Name of DTC Participant
Registration into which shares of Common Stock, interest and/or refund checks
should be issued:
Name: .................................................................
.................................................................
Address: .......................................................................
.................................................................
.................................................................
Certified TIN: .................................................................
By:.............................................................................
Name:
Title:
Contact Name: ..................................................................
Phone Number: ..................................................................
Date: ...................................................................., 1996
PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION OF
RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER-
SUBSCRIPTION SHARES REQUESTED BY EACH OWNER.
2
<PAGE>
EXHIBIT 99.2(d)(5)
THE BRAZILIAN EQUITY FUND, INC.
RIGHTS OFFERING
NOMINEE HOLDER OVER-SUBSCRIPTION CERTIFICATION
PLEASE COMPLETE ALL APPLICABLE INFORMATION
<TABLE>
<S> <C> <C>
BY FIRST CLASS MAIL BY HAND BY OVERNIGHT COURIER
To: The First National Bank To: BancBoston Trust Company To: The First National Bank
of Boston of New York of Boston
Shareholder Services 55 Broadway, 3rd Floor Corporate Agency &
P.O. Box 1889 New York, NY 10006 Reorganization
Mail Stop 45-02-53 150 Royall Street
Boston, MA 02105 Mail Stop 45-02-53
Canton, MA 02021
</TABLE>
THIS FORM IS TO BE USED ONLY BY NOMINEE HOLDERS TO EXERCISE THE
OVER-SUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE
PRIMARY SUBSCRIPTION WAS EXERCISED IN FULL AND DELIVERED THROUGH THE FACILITIES
OF A COMMON DEPOSITORY. ALL OTHER EXERCISES OF OVER-SUBSCRIPTION PRIVILEGES MUST
BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION CERTIFICATES.
THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE FUND'S
PROSPECTUS DATED JULY 17, 1996 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY
REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE
INFORMATION AGENT AND THE SUBSCRIPTION AGENT.
VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL OR WITH
A PROPERLY COMPLETED NOTICE OF GUARANTEED DELIVERY BY 5:00 P.M., NEW YORK CITY
TIME, ON AUGUST 16, 1996 (THE "EXPIRATION DATE"), UNLESS EXTENDED BY THE FUND.
1. The undersigned hereby certifies to the Subscription Agent that it is a
participant in [Name of Depository] (the "Depository") and that it
has either (i) exercised the Primary Subscription in respect of Rights and
delivered such exercised Rights to the Subscription Agent by means of transfer
to the Depository Account of the Fund or (ii) delivered to the Subscription
Agent a Notice of Guaranteed Delivery in respect of the exercise of the Primary
Subscription Privilege and will deliver the Rights called for in such Notice of
Guaranteed Delivery to the Subscription Agent by means of transfer to such
Depository Account of the Fund.
2. The undersigned hereby exercises the Over-Subscription Privilege to
purchase, to the extent available, shares of Common Stock and certifies to the
Subscription Agent that such Over-Subscription Privilege is being exercised for
the account or accounts of persons (which may include the undersigned) on whose
behalf all Primary Subscription Rights have been exercised.*
3. The undersigned understands that payment of the Estimated Subscription
Price of $ per share for each share of Common Stock subscribed for pursuant
to the Over-Subscription Privilege must be received by the Subscription Agent
before 5:00 p.m., New York City time, on the Expiration Date, unless a Notice of
Guaranteed Delivery is used, in which case, payment in full must be received by
the Subscription Agent not later than the close of business on the third
business day after the Expiration Date and represents that such payment, in the
aggregate amount of $ either
<PAGE>
(check appropriate box):
/ / has been or is being delivered to the Subscription Agent pursuant to the
Notice of Guaranteed Delivery referred to above
or
/ / is being delivered to the Subscription Agent herewith
or
/ / has been delivered separately to the Subscription Agent; and, in the case
of funds not delivered pursuant to a Notice of Guaranteed Delivery, is or
was delivered in the manner set forth below (check appropriate box and
complete the following information):
/ / uncertified check
/ / certified check
/ / bank draft
- ------------------------------------------ ----------------------------------
Primary Subscription Confirmation Number Name of Nominee Holder
- ------------------------------------------ ----------------------------------
Depository Participant Number Address
Contact Name: ____________________________ __________________________________
City State Zip Code
Phone Number: ____________________________ By: ______________________________
Name: __________________________
Dated: , 1996 Title: _________________________
* PLEASE ATTACH A BENEFICIAL OWNER LISTING CONTAINING THE RECORD DATE POSITION
OF RIGHTS OWNED, THE NUMBER OF PRIMARY SHARES SUBSCRIBED AND THE NUMBER OF OVER-
SUBSCRIPTION SHARES, IF APPLICABLE, REQUESTED BY EACH SUCH OWNER.
2
<PAGE>
EXHIBIT 99.d (6)
BENEFICIAL OWNER LISTING CERTIFICATION
The undersigned, a bank, broker or other nominee holder of Rights ("Rights")
to purchase shares of Common Stock, $0.001 par value ("Common Stock"), of The
Brazilian Equity Fund, Inc. (the "Fund") pursuant to the Rights Offering (the
"Offer") described and provided for in the Fund's Prospectus dated July 17, 1996
(the "Prospectus"), hereby certifies to the Fund and to The First National Bank
of Boston, as Subscription Agent for such Offer, that for each numbered line
filled in below, the undersigned has exercised, on behalf of the beneficial
owner thereof (which may be the undersigned), the number of Rights specified on
such line pursuant to the Primary Subscription (as defined in the Prospectus)
and such beneficial owner wishes to subscribe for the purchase of additional
shares of Common Stock pursuant to the Over-Subscription Privilege (as defined
in the Prospectus), in the amount set forth in the third column of such line.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF RIGHTS EXERCISED REQUESTED PURSUANT TO THE
NUMBER OF RECORD DATE SHARES OWNED PURSUANT TO PRIMARY SUBSCRIPTION OVER-SUBSCRIPTION PRIVILEGE
<S> <C> <C>
1) ----------------------------------- -------------------------------------- --------------------------------------
2) ----------------------------------- -------------------------------------- --------------------------------------
3) ----------------------------------- -------------------------------------- --------------------------------------
4) ----------------------------------- -------------------------------------- --------------------------------------
5) ----------------------------------- -------------------------------------- --------------------------------------
6) ----------------------------------- -------------------------------------- --------------------------------------
7) ----------------------------------- -------------------------------------- --------------------------------------
8) ----------------------------------- -------------------------------------- --------------------------------------
9) ----------------------------------- -------------------------------------- --------------------------------------
10) ---------------------------------- -------------------------------------- --------------------------------------
</TABLE>
______________________________________
Name of Nominee Holder
By: __________________________________
Name: _____________________________
Title: ____________________________
Dated: _________________________, 1996
Provide the following information, if
applicable:
______________________________________ Name of Broker: ________________________
Depository Trust Corporation ("DTC")
Participant Number
______________________________________ Address: _______________________________
DTC Primary Subscription
Confirmation Number(s)
<PAGE>
SUBSCRIPTION AGENT AGREEMENT
This Subscription Agent Agreement (the "Agreement") is made as of July 17,
1996 between The Brazilian Equity Fund, Inc. (the "Fund") and The First National
Bank of Boston, as subscription agent (the "Agent"). All terms not defined
herein shall have the meaning given in the prospectus (the "Prospectus")
included in the (Registration Statement on Form N-2 (File No. 33-5475; 811-6555)
filed by the Fund with the Securities and Exchange Commission on June 7, 1996,
as amended by any amendment filed with respect thereto (the "Registration
Statement").
WHEREAS, the Fund proposes to make subscription offer by issuing
certificates or other evidences of subscription rights, in the form designated
by the Fund (the "Subscription Certificates") to shareholders of record (the
"Shareholders") of its Common Stock, par value $.001 per share ("Common Stock"),
as of a record date specified by the Fund (the "Record Date"), pursuant to which
each Shareholder will have certain rights (the "Rights") to subscribe for shares
of Common Stock, as described in and upon such terms as are set forth in the
Prospectus, a final copy of which has been or, upon availability will promptly
be, delivered to the Agent; and
WHEREAS, the Fund wishes the Agent to perform certain acts on behalf of the
Fund, and the Agent is willing to so act, in connection with the distribution of
the Subscription Certificates and the issuance and exercise of the Rights to
subscribe therein set forth, all upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
agreements set forth herein, the parties agree as follows:
1. APPOINTMENT. The fund hereby appoints the Agent to act as subscription
agent in connection with the distribution of Subscription Certificates and the
issuance and exercise of the Rights and the Over-Subscription Privilege (as
hereinafter defined) in accordance with the terms set forth in this Agreement
and the Agent hereby accepts such appointment.
2. FORM AND EXECUTION OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall be irrevocable and non-transferable.
The Agent shall, in its capacity as Transfer Agent of the Fund, maintain a
register of Subscription Certificates and the holders of record thereof (each of
whom shall be deemed a "Shareholder" hereunder for purposes of determining the
rights of holders of Subscription Certificates). Each Subscription Certificate
shall, subject to the provisions thereof, entitle the Shareholder in whose name
it is recorded to the following:
(1) With respect to Record Date Shareholders only, the right to acquire
during the Subscription Period, as defined in the Prospectus, at the
Subscription Price, as defined in the Prospectus, a number of shares of
Common Stock equal to one share of Common Stock for every three Rights (the
"Primary Subscription Right"); and
(2) With respect to Record Date Shareholders only, the right to
subscribe for additional shares of Common Stock, subject to the availability
of such shares and to the allotment of such shares as may be available among
Record Date Shareholders who exercise Over-Subscription Rights on the basis
specified in the Prospectus; provided, however, that such Record Date
Shareholder has exercised all Primary Subscription Rights issued to him or
her (the "Over-Subscription Privilege").
3. RIGHTS AND ISSUANCE OF SUBSCRIPTION CERTIFICATES.
(a) Each Subscription Certificate shall evidence the Rights of the
Shareholder therein named to purchase Common Stock upon the terms and conditions
therein and herein set forth.
(b) Upon the written advice of the Fund, signed by any of its duly
authorized officers, as to the Record Date, the Agent shall, from a list of the
Fund Shareholders as of the Record Date to be prepared by the Agent in its
capacity as Transfer Agent of the Fund, prepare and record Subscription
Certificates in the names of the Shareholders, setting forth the number of
Rights to subscribe for the Fund's Common Stock calculated on the basis of one
Right for each share of Common Stock recorded
<PAGE>
on the books in the name of each such Shareholder as of the Record Date. Each
Subscription Certificate shall be dated as of the Record Date. Upon the written
advice, signed as aforesaid, as to the effective date of the Registration
Statement, the Agent shall promptly deliver the Subscription Certificates,
together with a copy of the Prospectus, instruction letter and any other
document as the Fund deems necessary or appropriate, to all Shareholders with
record addresses in the United States (including its territories and possessions
and the District of Columbia). Delivery shall be by first class mail (without
registration or insurance), except for those Shareholders having a registered
address outside the United States, which delivery method shall be as specified
in paragraph (c) below. No Subscription Certificate shall be valid for any
purpose unless so executed.
(c) The Agent will mail a copy of the Prospectus, instruction letter, a
special notice and other documents as the Fund deems necessary or appropriate,
if any, but not Subscription Certificates to Record Date Shareholders whose
record addresses are outside the United States (including its territories and
possessions and the District of Columbia ) ("Foreign Record Date Shareholders")
by air mail (without insurance or registration) provided that delivery shall be
made by first class mail (without insurance or registration ) to Shareholders
having APO or FPO addresses. The Rights to which such Subscription Certificates
relate will be held by the Agent for such Foreign Record Date Shareholders'
accounts until instructions are received to exercise, sell or transfer the
Rights.
4. EXERCISE.
(a) Record Date Shareholders may acquire shares of Common Stock on Primary
Subscription and pursuant to the Over-Subscription Privilege by delivery to the
Agent as specified in the Prospectus of (i) the Subscription Certificate with
respect thereto, duly executed by such Shareholder in accordance with and as
provided by the terms and conditions of the Subscription Certificate, together
with (ii) the estimated purchase price of $13.28 for each share of Common Stock
subscribed for by exercise of such Rights and the Over-Subscription Privilege,
in U.S. dollars by money order or check drawn on a bank in the United States, in
each case payable to the order of the Fund.
(b) Rights may be exercised at any time after the date of issuance of the
Subscription Certificates with respect thereto but no later than 5:00 P.M. New
York time on such date as the Fund shall designate to the Agent in writing (the
"Expiration Date"). For the purpose of determining the time of the exercise of
any Rights, delivery of any material to the Agent shall be deemed to occur when
such materials are received at the Corporate Reorganization Division of the
Agent specified in the Prospectus.
(c) Notwithstanding the provisions of Section 4 (a) and 4 (b) regarding
delivery of an executed Subscription Certificate to the Agent prior to 5:00 P.M.
New York time on the Expiration Date, if prior to such time the Agent receives a
Notice of Guaranteed Delivery by facsimile (telecopy) or otherwise from a bank,
a trust company or a New York Stock Exchange member guaranteeing delivery of (i)
payment of the full Subscription Price for the shares of Common Stock subscribed
for on Primary Subscription and any additional shares of Common Stock subscribed
for pursuant to the Over-Subscription Privilege, and (ii) a properly completed
and executed Subscription Certificate, then such exercise of Primary
Subscription Rights and Over-Subscription Rights shall be regarded as timely,
subject, however, to receipt of the duly executed Subscription Certificate and
full payment for the Common Stock by the Agent within three business days after
the Expiration Date.
(d) Within ten business days following the Expiration Date (the
"Confirmation Date"), the Agent shall send a confirmation to each Record Date
Shareholder (or, if shares of Common Stock on the Record Date are held by Cede &
Co. Inc. or any other depository or nominee, to Cede & Co. Inc. or such other
depository or nominee), showing (i) the number of shares of common stock
acquired pursuant to the Primary Subscription Right, (ii) the number of shares
of common stock, if any, acquired pursuant to the Over-Subscription Privilege,
(iii) the per share and total purchase price for
2
<PAGE>
the shares of common stock subscribed for, and (iv) any additional amount
payable by such Shareholder to the Fund or any excess to be refunded by the Fund
to such Shareholder ("Excess Payment"), in each case based on the Subscription
Price as determined on the Expiration Date. Any excess payment to be refunded by
the Fund to a Record Date Shareholder shall be mailed by the Agent to the
Shareholder within fifteen business days after the Expiration Date.
5. VALIDITY OF SUBSCRIPTIONS. Irregular subscriptions not otherwise
covered by specific instructions herein shall be submitted to an appropriate
officer of the Fund and handled in accordance with his or her instructions. Such
instructions will be documented by the Agent indicating the instructing officer
and the date thereof.
6. OVER-SUBSCRIPTION. If, after allocation of shares of Common Stock to
Record Date Shareholders, there remain unexercised Rights, then the Agent shall
allot the shares issuable upon exercise of such unexercised Rights (the
"Remaining Shares") to shareholders who have exercised all the Rights initially
issued to them and who wish to acquire more than the number of shares for which
the Rights issued to them are exercisable. Shares subscribed for pursuant to the
Over-Subscription Privilege will be allocated in the amounts of such
over-subscriptions. If the number of shares for which the Over-Subscription
Privilege has been exercised is greater than the Remaining Shares, the Agent
shall allocate the Remaining Shares to the Shareholders exercising
Over-Subscription Privilege 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 of Common Stock owned by them on the Record
Date. The percentage of Remaining Shares each over-subscribing Record Date
Shareholder may acquire will be rounded up or down to result in delivery of
whole shares of Common Stock. The Agent shall advise the Fund immediately upon
the completion of the allocation set forth above as to the total number of
shares subscribed and distributable.
7. DELIVERY OF CERTIFICATES. The Agent will deliver (i) certificates
representing those shares of Common Stock purchased pursuant to exercise of
Primary Subscription Rights as soon as practicable after the corresponding
Rights have been validly exercised and full payment for such shares has been
received and cleared and (ii) certificates representing those shares purchased
pursuant to the exercise of the Over-Subscription Privilege as soon as
practicable after the Expiration Date and after all allocations have been
effected, but in no event shall share certificates be delivered fifteen business
days after the Expiration Date.
8. HOLDING PROCEEDS OF RIGHTS OFFERING IN ESCROW.
(a) All proceeds received by the Agent from Shareholders in respect of the
exercise of Rights shall be held by the Agent, on behalf of the Fund, in a
segregated, interest-bearing escrow account (the "Escrow Account"). Pending
disbursement in the manner described in Section 8(b) below above, funds held in
the Escrow Account shall be invested by the Agent at the direction of the Fund.
(b) The Agent shall deliver all proceeds received in respect of the exercise
of Rights (including interest earned thereon if such proceeds are delivered
after the beginning of the calendar month immediately following the month during
which the offering expires) to the Fund as promptly as practicable, but in no
event later than fifteen business days after the Expiration Date. Proceeds held
in respect of Excess Payments (including interest earned thereon) shall belong
to the Fund after any refunds to Shareholders as set forth in Section 4(d)
above.
9. REPORTS.
(a) Daily, during the period commencing on July 17, 1996, until termination
of the Subscription Period, the Agent will report by telephone or telecopier (by
5:30 p.m., New York time), confirmed by letter, to an Officer of the Fund, data
regarding Rights exercised, the total number of shares of
3
<PAGE>
Common Stock subscribed for, and payments received therefor, bringing forward
the figures from the previous day's report in each case so as to show the
cumulative totals and any such other information as may be mutually determined
by the Fund and the Agent.
10. LOSS OR MUTILATION. If any Subscription Certificate is lost, stolen,
mutilated or destroyed, the Agent may, on such terms which will indemnify and
protect the Fund and the Agent as the Agent may in its discretion impose (which
shall, in the case of a mutilated Subscription Certificate include the surrender
and cancellation thereof), issue a new Subscription Certificate of like
denomination in substitution for the Subscription Certificate so lost, stolen,
mutilated or destroyed.
11. COMPENSATION FOR SERVICES. The Fund agrees to pay to the Agent
compensation for its services as such in accordance with its Fee Schedule to act
as Agent, dated and set forth hereto as Exhibit A. The Fund further
agrees that it will reimburse the Agent for its reasonable and documented
out-of-pocket expenses incurred in the performance of its duties as such.
12. INSTRUCTIONS AND INDEMNIFICATION. The Agent undertakes the duties
andobligations imposed by this Agreement upon the following terms and
conditions:
(a) The Agent shall be entitled to rely upon any instructions or
directions furnished to it by an appropriate officer of the Fund, whether in
conformity with the provisions of this Agreement or constituting a
modification hereof or a supplement hereto. Without limiting the generality
of the foregoing or any other provision of this Agreement, the Agent, in
connection with its duties hereunder, shall not be under any duty or
obligation to inquire into the validity or invalidity or authority or lack
thereof of any instruction or direction from an officer of the Fund which
conforms to the applicable requirements of this Agreement and which the
Agent reasonably believes to be genuine and shall not be liable for any
delays, errors or loss of data occurring by reason of circumstances beyond
the Agent's control.
(b) The Fund will indemnify the Agent and its nominees against, and hold
it harmless from, all liability and expense which may arise out of or in
connection with the services described in this Agreement or the instructions
or directions furnished to the Agent relating to this Agreement by an
appropriate officer of the Fund, except for any liability or expense which
shall arise out of the negligence, bad faith or willful misconduct of the
Agent or such nominees.
13. CHANGES IN SUBSCRIPTION CERTIFICATE. The Agent may, without the
consent or concurrence of the Shareholders in whose names Subscription
Certificates are registered, by supplemental agreement or otherwise, concur with
the Fund in making any changes or corrections in a Subscription Certificate that
it shall have been advised by counsel (who may be counsel for the Fund) is
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or clerical omission or mistake or manifest error therein or herein
contained, and which shall not be inconsistent with the provision of the
Subscription Certificate except insofar as any such change may confer additional
rights upon the Shareholders.
14. ASSIGNMENT, DELEGATION.
(a) Neither this Agreement nor any rights or obligations hereunder may be
assigned or delegated by either party without the written consent of the other
party.
(b) This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns. Nothing in this
Agreement is intended or shall be construed to confer upon any other person any
right, remedy or claim or to impose upon any other person any duty, liability or
obligation.
15. GOVERNING LAW. The validity, interpretation and performance of this
Agreement shall be governed by the law of the State of New York.
4
<PAGE>
16. SEVERABILITY. The parties hereto agree that if any of the provisions
contained in this Agreement shall be determined invalid, unlawful or
unenforceable to any extent, such provisions shall be deemed modified to the
extent necessary to render such provisions enforceable. The parties hereto
further agree that this Agreement shall be deemed severable, and the invalidity,
unlawfulness or unenforceability of any term or provision thereof shall not
affect the validity, legality or enforceability of this Agreement or of any term
or provision hereof.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
18. CAPTIONS. The captions and descriptive headings herein are for the
convenience of the parties only. They do not in any way modify, amplify, alter
or give full notice of the provisions hereof.
19. FACSIMILE SIGNATURES. Any facsimile signature of any party hereto
shall constitute a legal, valid and binding execution hereof by such party.
20. FURTHER ACTIONS. Each party agrees to perform such further acts and
execute such further documents as are necessary to effect the purposes of this
Agreement.
21. ADDITIONAL PROVISIONS. Except as specifically modified by this
Agreement, the Agent's rights and responsibilities set forth in the Agreement
for Stock Transfer Services between the Fund and the Agent are hereby ratified
and confirmed and continue in effect.
<TABLE>
<S> <C>
THE FIRST NATIONAL BANK OF BOSTON THE BRAZILIAN EQUITY FUND, INC.
- -------------------------------------------- --------------------------------------------
Signature Signature
- -------------------------------------------- --------------------------------------------
Title Title
</TABLE>
5
<PAGE>
DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN
TERMS AND CONDITIONS
1. Each shareholder ("Shareholder") holding shares of common stock in
The Brazilian Equity Fund, Inc. (the "Fund") will automatically be a participant
in the Dividend Reinvestment and Cash Purchase Plan (the "Plan"), unless The
First National Bank of Boston, 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, paid in cash. Shareholders who do not wish to
participate in the Plan will receive all distributions in cash paid by check
mailed directly to the Shareholder by the Plan Agent. The Plan Agent will act
as agent for individual Shareholders and will open an account for each
Shareholder under the Plan in the same name as her or his present shares of
common stock are registered.
2. Whenever the directors of the Fund declare a capital gains
distribution or an income dividend payable in shares of common stock or cash,
participating Shareholders will take such distribution or dividend entirely in
shares of common stock and the Plan Agent shall automatically receive such
shares of common stock, including fractions, for the Shareholder's account,
except in the circumstances described in paragraph 3 below.
3. Whenever the market price per share of common stock equals or
exceeds net asset value per share on the date the event
<PAGE>
described in paragraph 2 above occurs, participants will be issued shares of
common stock at net asset value or, if the net asset value is less than 95% of
the market price on the date the shares of common stock are valued, then
participants will be issued shares valued at 95% of the market price. If net
asset value per share of the common stock at such time exceeds the market price
of common stock on the date such shares are valued, 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 remaining
shares. If the Fund should declare an income
-2-
<PAGE>
dividend or capital gains distribution payable only in cash, the Plan Agent
will, as purchasing agent for the participants, buy shares of common stock in
the open market, on the New York Stock Exchange (the "Exchange") or elsewhere,
for the participants' accounts on, or shortly after, the payment date. To the
extent the Plan Agent is unable to do so and, before the Plan Agent has
completed its purchases, the market price exceeds the net asset value of the
common stock, the average per share purchase price paid by the Plan Agent may
exceed the net asset value of the common stock, resulting in the acquisition of
fewer shares of common stock than if the dividend or capital gains distribution
had been paid in common stock issued by the Fund. The Plan Agent will apply all
cash received as a dividend or capital gains distribution to purchase shares of
common stock on the open market as soon as practicable after the payment date of
such dividend or capital gains distribution, but in no event later than 30 days
after such date, except where necessary to comply with applicable provisions of
the federal securities laws.
4. Participants in the Plan may make additional cash payments to the
Plan Agent, semi-annually, in any amount from $100 to $3,000, for investment in
shares of common stock. The Plan Agent will use all funds received from
participants to purchase 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
-3-
<PAGE>
payments. Voluntary cash payments should be received by the Plan Agent
approximately ten days before February 15 or August 15, as the case may be.
A participant may withdraw a voluntary cash payment by written notice, if the
notice is received by the Plan Agent not less than 48 hours before the
payment is to be invested.
5. For all purpose of the Plan: (a) the market price of Fund shares
of common stock on a particular date shall be the last sales price on the
Exchange on the close of the previous trading day or, if there is no sale on the
Exchange on that date, then the mean between the closing bid and asked
quotations for such stock on the Exchange on such date, (b) the date shares of
common stock are valued is the dividend or distribution payment date or, if that
date is not an Exchange trading day, the next preceding trading day and (c) net
asset value per share of common stock on a particular date shall be as
determined by or on behalf of the Fund.
6. The open-market purchases provided for above may be made on any
securities exchange where the shares of common stock of the Fund are traded, in
the over-the-counter market or in negotiated transactions, and may be on such
terms as to price, delivery and otherwise as the Plan Agent shall determine.
Funds held by the Plan Agent uninvested will not bear interest, and it is
understood that, in any event, the Plan Agent shall have no liability in
connection with any inability to purchase shares of common stock within 30 days
after the initial date of such
-4-
<PAGE>
purchase as herein provided, or with the timing of any purchases effected.
The Plan Agent shall have no responsibility as to the value of the shares of
common stock of the fund acquired for the Shareholder's account.
7. The Plan Agent will hold shares of common stock acquired pursuant
to the Plan in noncertificated form in the participant's name. The Plan Agent
will forward to the Shareholder any proxy solicitation material and will vote
any shares of common stock so held for the Shareholder only in accordance with
the proxy returned by her or him to the Fund. In the case of Shareholders, such
as banks, brokers or nominees, that hold shares for others who are the
beneficial owners, the Plan Agent will administer the Plan on the basis of the
number of shares certified from time to time by such Shareholders as
representing the total amount registered in the name of such Shareholders and
held for the account of beneficial owners who participate in the Plan. Upon the
Shareholder's written request, the Plan Agent will deliver to her or him,
without charge, a certificate or certificates for the full shares of common
stock.
8. The Plan Agent will confirm in writing, each acquisition made for
the account of a Shareholder as soon as practicable but not later than 60 days
after the date thereof. Although the Shareholder may from time to time have an
undivided fractional interest (computed to three decimal places) in a share of
common stock of the Fund, no certificates for a fractional share will be issued.
However, dividends and distributions on
-5-
<PAGE>
fractional shares of common stock will be credited to the Shareholder's
account. In the event of termination of a Shareholder's account under the
Plan, the Plan Agent will adjust for any such undivided fractional interest
in cash at the market value of the shares of common stock at the time of
termination.
9. Any stock dividends or split shares distributed by the Fund on
shares of common stock held by the Plan Agent for the Shareholder will be
credited to the Shareholder's account. In the event that the Fund makes
available to the Shareholder rights to purchase additional shares of common
stock or other securities, the Plan Agent will sell such rights and apply the
proceeds of the sale to the purchase of additional shares of common stock of the
Fund for the account of such Shareholder.
10. The Shareholder will be charged a pro rata share of brokerage
commissions on all open market purchases.
11. The Shareholder may terminate her or his account under the Plan
by notifying the Plan Agent in writing. Such termination will be effective
immediately if notice is received by the Plan Agent not less than 10 days prior
to any dividend or distribution record date; otherwise such termination will be
effective, with respect to any subsequent dividend or distributions, on the
first trading day after the dividend or distribution paid for such record date
shall have been credited to the Shareholder's account. The Plan may be
terminated by the Plan Agent or the Fund as applied to any voluntary cash
payments
-6-
<PAGE>
made and any dividend or distributions paid subsequent to notice of the
terminations in writing mailed to the Shareholders at least 30 days prior to
the relevant semi-annual voluntary payment date or to any record date for the
payment of any dividend or distribution by the Fund. Upon any termination
the Plan Agent will cause a certificate or certificates for the full shares
held for the shareholder under the Plan and cash adjustment for any fraction
to be delivered to her or him.
12. These terms and conditions may be amended or supplemented by the
Plan Agent or the Fund at any time or times but, except when necessary or
appropriate to comply with applicable law or the rules or policies of the
Securities and Exchange Commission or any other regulatory authority, only by
mailing to the Shareholders appropriate written notice at least 30 days prior to
the effective date thereof. The amendment or supplement shall be deemed to be
accepted by the Shareholder unless, prior to the effective date thereof, the
Plan Agent receives written notice of the termination of the Shareholder account
under the Plan. Any such amendment may include an appointment by the Plan Agent
in its place and stead of a successor Plan Agent under these terms and
conditions, with full power and authority to perform all or any of the acts to
be performed by the Plan Agent under these terms and conditions. Upon any such
appointment of a Plan Agent for the purpose of receiving dividends and
distributions, the Fund will be authorized to pay to such successor Plan Agent,
for Shareholders' accounts, all dividends and distributions payable on the share
of
-7-
<PAGE>
common stock held in the Shareholders' name or under the Plan for retention
or application by such successor Plan Agent as provided in these terms and
conditions.
13. The Plan Agent shall at all times act in good faith and agree to
use its best efforts within reasonable limits to ensure the accuracy of all
services performed under this Plan and to comply with applicable law, but
assumes no responsibility and shall not be liable for loss or damage due to
errors unless such error is caused by its negligence, bad faith or willful
misconduct or that of its employees.
-8-
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
1,544,668 Shares of Common Stock
Issuable Upon Exercise of Non-Transferable Rights
to Subscribe for Such Shares of Common Stock
DEALER MANAGER AGREEMENT
New York, New York
July 17, 1996
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Each of The Brazilian Equity Fund, Inc., a Maryland corporation (the
"Company"), and BEA Associates, a New York general partnership (the "Investment
Adviser"), confirms its agreement with and appointment of Bear, Stearns & Co.
Inc. to act as dealer manager (the "Dealer Manager") in connection with the
issuance by the Company to the holders of record at the close of business on
July 17, 1996, or such other date as is established as the record date for such
purpose (each a "Holder" and collectively the "Holders"), of 4,634,004 non-
transferable rights entitling such Holders to subscribe for 1,544,668 shares
(each a "Share" and collectively the "Shares") of common stock, par value
$0.001 per share (the "Common Stock"), of the Company (the "Offer"). Pursuant
to the terms of the Offer, the Company is issuing each Holder one non-
transferable right (each a "Right" and collectively the "Rights") for each share
of Common Stock held by such Holder on the record date (the "Record Date") set
forth in the Prospectus (as defined herein). Such Rights entitle Holders to
acquire during the subscription period (the "Subscription Period") set forth in
the Prospectus, at the price (the "Subscription Price") set forth in such
Prospectus, one Share for each three Rights exercised on the terms and
conditions set forth in such Prospectus. No fractional shares will be issued.
Any Holder who fully exercises all Rights initially issued to such Holder will
be
<PAGE>
entitled to subscribe for, subject to allotment, additional Shares (the "Over-
Subscription Privilege"). Pursuant to the Over-Subscription Privilege, the
Company may, at its discretion, increase the number of Shares subject to
subscription by up to 25%, or 386,167 Shares, for an aggregate total of
1,930,835 Shares.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form N-2 (File Nos. 333-5475 and 811-
6555) and a related preliminary prospectus and preliminary statement of
additional information for the registration of the Shares under the Securities
Act of 1933, as amended (the "Securities Act"), the Investment Company Act of
1940, as amended (the "Investment Company Act"), and the rules and regulations
of the Commission under the Securities Act and the Investment Company Act (the
"Rules and Regulations"), and has filed such amendments to such registration
statement on Form N-2, if any, and such amended preliminary prospectuses and
preliminary statements of additional information as may have been required to
the date hereof. If the registration statement has not become effective, a
further amendment to such registration statement, including forms of a final
prospectus and final statement of additional information necessary to permit
such registration statement to become effective will promptly be filed by the
Company with the Commission. If the registration statement has become effective
and any prospectus or statement of additional information constituting a part
thereof omits certain information at the time of effectiveness pursuant to Rule
430A of the Rules and Regulations, a final prospectus and final statement of
additional information containing such omitted information will promptly be
filed by the Company with the Commission in accordance with Rule 497(h) of the
Rules and Regulations. The term "Registration Statement" means the registration
statement, as amended (if applicable), at the time it becomes or became
effective, including financial statements and all exhibits and all documents, if
any, incorporated therein by reference, and any information deemed to be
included by Rule 430A. The term "Prospectus" means the final prospectus and
final statement of additional information in the forms filed with the Commission
pursuant to Rule 497(c), (h) or (j) of the Rules and Regulations, as the case
may be, as from time to time amended or supplemented pursuant to the Securities
Act. The Prospectus and letters to beneficial owners of the shares of Common
Stock of the Company, forms used to exercise rights, any letters from the
Company to securities dealers, commercial banks
<PAGE>
and other nominees and any newspaper announcements, press releases and other
offering materials and information that the Company may use or approve or
authorize in writing for use in connection with the Offer, are collectively
referred to hereinafter as the "Offering Materials".
1. REPRESENTATIONS AND WARRANTIES.
(a) Each of the Company and the Investment Adviser represents and
warrants to, and agrees with, the Dealer Manager as of the date hereof, as of
the date of the commencement of the Offer (such later date being hereinafter
referred to as the "Representation Date") and as of the Expiration Date (as
defined below) that:
(i) The Company meets the requirements for use of Form N-2 under the
Securities Act and the Investment Company Act and the Rules and
Regulations. At the time the Registration Statement becomes effective, the
Registration Statement will contain all statements required to be stated
therein in accordance with and will comply in all material respects with
the requirements of the Securities Act, the Investment Company Act and the
Rules and Regulations and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. From
the time the Registration Statement becomes effective through the
expiration date of the Offer set forth in the Prospectus (the "Expiration
Date"), the Prospectus and the other Offering Materials will not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that the representations and warranties in
this subsection shall not apply to statements in or omissions from the
Registration Statement, Prospectus or other Offering Materials made in
reliance upon and in conformity with information furnished to the Company
in writing by the Dealer Manager expressly for use in the Registration
Statement, Prospectus or other Offering Materials.
<PAGE>
(ii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Maryland,
has full power and authority (corporate and other) to conduct its business
as described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign corporation in each jurisdiction
wherein it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure to be so
qualified would not result in a material adverse effect upon the business,
properties, financial position or results of operations of the Company (a
"Material Adverse Effect"). The Company has no subsidiaries.
(iii) The Company is registered with the Commission under the
Investment Company Act as a closed-end, non-diversified management
investment company; no order of suspension or revocation of such
registration has been issued or proceedings therefor initiated or
threatened by the Commission; all required action has been taken under the
Securities Act and the Investment Company Act to make the public offering
and consummate the issuance of the Rights and the issuance and sale of the
Shares by the Company upon exercise of the Rights, and the provisions of
the Company's charter and by-laws comply as to form in all material
respects with the requirements of the Investment Company Act.
(iv) Coopers & Lybrand L.L.P., the accountants who certified the
financial statements of the Company set forth or incorporated by reference
in the Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act, the Investment Company Act
and the Rules and Regulations.
(v) The financial statements of the Company set forth or incorporated
by reference in the Registration Statement and the Prospectus present
fairly in all material respects the financial condition of the Company as
of the dates or for the periods indicated in conformity with generally
accepted accounting principles applied on a consistent basis; and the
information set forth in the Prospectus under the headings "Fee Table"
<PAGE>
and "Financial Highlights" presents fairly in all material respects the
information stated therein.
(vi) The Company has an authorized capitalization as set forth in the
Prospectus; the outstanding shares of Common Stock have been duly
authorized and are validly issued, fully paid and non-assessable and
conform in all material respects to the description thereof in the
Prospectus under the heading "Common Stock"; the Rights have been duly
authorized by all requisite action on the part of the Company for issuance
pursuant to the Offer; the Shares have been or, with respect to the Shares
to be issued with respect to the Over-Subscription Privilege, will be duly
authorized by all requisite action on the part of the Company for issuance
and sale pursuant to the terms of the Offer and, when issued and delivered
by the Company pursuant to the terms of the Offer against payment of the
consideration set forth in the Prospectus, will be validly issued, fully
paid and non-assessable; the Shares and the Rights conform in all material
respects to all statements relating thereto contained in the Registration
Statement, the Prospectus and the other Offering Materials; and the
issuance of each of the Rights and the Shares is not subject to any
preemptive rights.
(vii) Except as set forth in the Prospectus, subsequent to the
respective dates as of which information is given in the Registration
Statement and the Prospectus, (A) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any
transactions, other than in the ordinary course of business, that are
material to the Company, (B) there has not been any material change in the
capital stock or long-term debt of the Company, or any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or other), business, prospects, net worth or
results of operations of the Company and (C) there has been no dividends or
distributions paid or declared in respect of the Company's capital stock.
(viii) There is no pending or, to the knowledge of the Company or the
Investment Adviser, threatened
<PAGE>
action, suit or proceeding affecting the Company or to which the Company is
a party before or by any court or governmental agency, authority or body or
any arbitrator, whether foreign or domestic, which might result in a
Material Adverse Effect.
(ix) There are no contracts or other documents of the Company
required to be described in the Registration Statement or the Prospectus,
or to be filed or incorporated by reference as exhibits which are not
described or filed or incorporated by reference therein as permitted by the
Securities Act, the Investment Company Act or the Rules and Regulations.
(x) Each of this agreement (the "Agreement"), the Subscription Agency
Agreement (the "Subscription Agency Agreement") dated as of July [17], 1996
between the Company and The First National Bank of Boston (the
"Subscription Agent"), the Information Agent Agreement (the "Information
Agent Agreement") dated as of July [17], 1996 between the Company and
Shareholders Communication Corporation (the "Information Agent"), the
Advisory Agreement (the "Advisory Agreement") dated as of April 3, 1992
between the Company and the Investment Adviser, the Fee Waiver Agreement
relating to Patrimonio (the "Patrimonio Agreement") dated as of August 15,
1994 between the Company and the Investment Adviser, the Fee Waiver
Agreement relating to Garantia (the "Garantia Agreement") dated as of June
21, 1994 between the Company and the Investment Adviser, the Administration
Agreement (the "Administration Agreement") dated as of August 7, 1995
between the Company and Bear Stearns Fund Management Inc., the
Administrative Services Agreement (the "Administrative Services Agreement")
dated as of April 3, 1992 between the Company and the Investment Adviser,
the Custodian Agreement (the "Custodian Agreement") dated as of June 14,
1995 between the Company and Brown Brothers Harriman & Co., the Agreement
for Stock Transfer Services (the "Transfer Agent Agreement") between the
Company and The First National Bank of Boston dated as of September 1, 1995
and the Second Amended and Restated Credit Agreement (the "Credit
Agreement") dated as of April 1, 1996 among the Company and others and The
First National Bank of Boston (the Subscription Agency Agreement,
Information Agent
<PAGE>
Agreement, the Advisory Agreement, the Patrimonio Agreement, the Garantia
Agreement, the Administration Agreement, the Administrative Services
Agreement, the Custodian Agreement, the Transfer Agent Agreement and the
Credit Agreement are collectively referred to herein as the "Company
Agreements") has been duly authorized, executed and delivered by the
Company; each of this Agreement and the Company Agreements complies with
all applicable provisions of the Investment Company Act; and, assuming due
authorization, execution and delivery by the other parties thereto, each of
the Company Agreements constitutes a legal, valid, binding and enforceable
obligation of the Company, subject to the qualification that the
enforceability of the Company's obligations thereunder may be limited by
bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights, and to
general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law) and subject to the
qualification that the right to indemnity thereunder may be limited by
federal or state laws.
(xi) Neither the issuance of the Rights, nor the issuance and sale of
the Shares, nor the performance and consummation by the Company of any
other of the transactions contemplated in this Agreement and the Company
Agreements nor the consummation of the transactions contemplated in the
Registration Statement will result in a breach or violation of, or
constitute a default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any properties or assets of the Company
under the charter or by-laws of the Company, or the terms and provisions of
any agreement, indenture, mortgage, lease or other instrument to which the
Company is a party or by which it may be bound or to which any of the
property or assets of the Company is subject, nor will such action result
in any violation of any order, law, rule or regulation of any court or
governmental agency or body, whether foreign or domestic, having
jurisdiction over the Company or any of its properties.
(xii) No consent, approval, authorization, notification or order of,
or any filing with, any court
<PAGE>
or governmental agency or body, whether foreign or domestic, is required
for the consummation by the Company of the transactions contemplated by
this Agreement or the Registration Statement, except such as have been
obtained, or if the registration statement filed with respect to the Shares
is not effective under the Securities Act as of the time of execution
hereof, such as may be required (and shall be obtained as provided in this
Agreement) under the Securities Act, Investment Company Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and state securities
laws.
(xiii) The Company owns or possesses all material governmental
licenses, permits, consents, orders, approvals or other authorizations,
whether foreign or domestic, to enable the Company to continue to carry on
its business and to invest in securities as contemplated in the Prospectus.
(xiv) The Common Stock has been duly listed on the New York Stock
Exchange and prior to their issuance the Shares will have been duly
approved for listing, subject to official notice of issuance, on the New
York Stock Exchange.
(xv) The Company (A) has not taken, directly or indirectly, any
action designed to cause or to result in, or that has constituted or which
might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the
issuance of the Rights or the sale or resale of the Shares, (B) has not
since the filing of the Registration Statement sold, bid for or purchased,
or paid anyone any compensation for soliciting purchases of, shares of
Common Stock of the Company and (C) will not, until the later of the
expiration of the Rights or the completion of the distribution (within the
meaning of Rule 10b-6 under the Exchange Act) of the Shares, sell, bid for
or purchase, pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company (except
for the solicitation of the exercise of Rights and the Over Subscription
Privilege pursuant to this Agreement); PROVIDED THAT any action in
connection with the
<PAGE>
Company's dividend reinvestment and cash purchase plan will not be deemed
to be within the terms of this Section 1(a)(xv).
(xvi) The Company intends to direct the investment of the proceeds of
the offering described in the Registration Statement and the Prospectus in
such a manner as to continue to comply, with the requirements of Subchapter
M of the Internal Revenue Code of 1986, as amended ("Subchapter M of the
Code"), and has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code.
(xvii) There are no material restrictions, limitations or regulations
with respect to the ability of the Company to invest its assets as
described in the Prospectus other than as described therein.
(b) The Investment Adviser represents and warrants to, and agrees
with, the Dealer Manager as of the date hereof, as of the Representation Date
and as of the Expiration Date that:
(i) The Investment Adviser has been duly organized and is validly
existing as a general partnership under the laws of the State of New York,
has full power and authority to own its properties and conduct its business
as described in the Registration Statement and the Prospectus, and is duly
qualified to do business as a foreign entity in each jurisdiction wherein
it owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so qualified
does not involve a material adverse risk to its business, properties,
financial position or results of operations of the Investment Adviser (an
"Adviser Material Adverse Effect").
(ii) The Investment Adviser is duly registered as an investment
adviser under the Advisers Act and is not prohibited by the Advisers Act or
the Investment Company Act, or the rules and regulations under such Acts,
from acting as an investment adviser for the Company as contemplated in the
Prospectus and the Advisory Agreement.
<PAGE>
(iii) Each of this Agreement, the Advisory Agreement and any other
Company Agreement to which the Investment Adviser is a party has been duly
authorized, executed and delivered by the Investment Adviser and complies
with all applicable provisions of the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), and the Investment Company Act, and the rules
and regulations under such Acts, and is, assuming due authorization,
execution and delivery by the other parties thereto, a legal, valid,
binding and enforceable obligation of the Investment Adviser, subject as to
enforcement to bankruptcy, insolvency, reorganization, moratorium and other
laws of general applicability relating to or affecting creditors' rights,
and to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(iv) Neither the performance by the Investment Adviser of its
obligations under this Agreement, the Advisory Agreement or any other
Company Agreement to which the Investment Adviser is a party nor the
consummation of the transactions contemplated therein or in the
Registration Statement nor the fulfillment of the terms thereof will result
in a breach or violation of, or constitute a default under, or result in
the creation or imposition of any lien, charge or encumbrance upon any
properties or assets of the Investment Adviser under the partnership
agreement of the Investment Adviser, or the terms and provisions of any
material agreement, indenture, mortgage, lease or other instrument to which
the Investment Adviser is a party or by which it may be bound or to which
any of the property or assets of the Investment Adviser is subject, nor
will such action result in any violation of any order, law, rule or
regulation of any court or governmental agency or body, whether foreign or
domestic, having jurisdiction over the Investment Adviser or any of its
properties.
(v) There is no pending or, to the knowledge of the Investment
Adviser, threatened action, suit or proceeding to which the Investment
Adviser is a party before or by any court or governmental agency, authority
or body or any arbitrator, whether foreign or domestic, which might result
in a Material Adverse Effect or upon
<PAGE>
the ability of the Investment Adviser to perform its obligations under the
Advisory Agreement.
(vi) No consent, approval, authorization, notification or order of,
or any filing with, any court or governmental agency or body, whether
foreign or domestic, is required for the consummation by the Investment
Adviser of the transactions contemplated by this Agreement.
(vii) The Investment Adviser owns or possesses all material
governmental licenses, permits, consents, orders, approvals or other
authorizations, whether foreign or domestic, to enable the Investment
Adviser to carry on its business and to continue to direct investments in
securities as contemplated in the Prospectus.
(viii) The Investment Adviser (a) has not taken, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the issuance of the Rights or the sale or resale of the
Shares, (b) has not since the filing of the Registration Statement sold,
bid for or purchased, or paid anyone any compensation for soliciting
purchases of, shares of Common Stock of the Company and (c) will not, until
the later of the expiration of the Rights or the completion of the
distribution (within the meaning of Rule 10b-6 under the Exchange Act) of
the Shares, sell, bid for or purchase, pay or agree to pay any person any
compensation for soliciting another to purchase any other securities of the
Company (except for the solicitation of the exercise of Rights and the Over
Subscription Privilege pursuant to this Agreement); PROVIDED THAT any
action in connection with the Company's dividend reinvestment and cash
purchase plan will not be deemed to be within the terms of this Section
1(b)(viii).
(ix) The description of the Investment Adviser in the Registration
Statement and the Prospectus complies with the requirements of the
Securities Act, the Investment Company Act, and the Rules and Regulation
and
<PAGE>
does not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(c) Any certificate required by this Agreement that is signed by any
officer of the Company or the Investment Adviser and delivered to the Dealer
Manager or counsel for the Dealer Manager shall be deemed a representation and
warranty by the Company or the Investment Adviser, as the case may be, to the
Dealer Manager, as to the matters covered thereby.
2. AGREEMENT TO ACT AS DEALER MANAGER.
(a) On the basis of the representations and warranties contained
herein, and subject to the terms and conditions of the Offer:
(i) The Company hereby appoints the Dealer Manager and other
soliciting dealers entering into a Soliciting Dealer Agreement, in the form
attached hereto as Exhibit A, with the Dealer Manager (the "Soliciting
Dealers"), to solicit, in accordance with the Securities Act, the
Investment Company Act and the Exchange Act, and their customary practice,
the exercise of the Rights and the Over Subscription Privilege, subject to
the terms and conditions of this Agreement, the procedures described in the
Registration Statement, the Prospectus and, where applicable, the terms and
conditions of such Soliciting Dealer Agreement; and
(ii) The Company agrees to furnish, or cause to be furnished, to the
Dealer Manager, lists, or copies of those lists, showing the names and
addresses of, and number of shares of Common Stock held by, Holders as of
the Record Date, and the Dealer Manager agrees to use such information only
in connection with the Offer, and not to furnish the information to any
other person except for securities brokers and dealers that have been
requested by the Dealer Manager to solicit the exercise of Rights and the
Over Subscription Privilege.
(b) The Dealer Manager agrees to provide to the Company, in addition
to the services described in paragraph (a) of
<PAGE>
this Section 2, financial advisory and marketing services in connection with the
Offer. No advisory fee, other than the fees provided for in Section 3 of this
Agreement and the reimbursement of the Dealer Manager's out-of-pocket expenses
as described in Section 5 of this Agreement, will be payable by the Company to
the Dealer Manager in connection with the financial advisory and marketing
services provided by the Dealer Manager pursuant to this Section 2(b).
(c) The Company and the Dealer Manager agree that the Dealer Manager
is an independent contractor with respect to the solicitation of the exercise of
Rights and the Over Subscription Privilege and the performance of financial
advisory and marketing services for the Company contemplated by this Agreement.
(d) In rendering the services contemplated by this Agreement, the
Dealer Manager will not be subject to any liability to the Company, the
Investment Adviser or any of their affiliates, for any act or omission on the
part of any soliciting broker or dealer (except with respect to the Dealer
Manager acting in such capacity) or any other person, and the Dealer Manager
will not be liable for acts or omissions in performing its obligations under
this Agreement, except as otherwise set forth in Section 7 hereto and except for
any losses, claims, damages, liabilities and expenses that are finally
judicially determined to have resulted primarily from the bad faith, willful
misconduct or gross negligence of the Dealer Manager or by reason of the
reckless disregard of the obligations and duties of the Dealer Manager under
this Agreement.
3. DEALER MANAGER AND SOLICITATION FEES. In full payment for the
financial advisory and marketing services rendered and to be rendered hereunder
by the Dealer Manager, the Company agrees to pay the Dealer Manager a fee (the
"Dealer Manager Fee"), equal to 1.125% of the aggregate Subscription Price for
the Shares issued pursuant to the exercise of Rights and the Over Subscription
Privilege. The Company also agrees to pay Soliciting Dealers and the Dealer
Manager, in full payment for their soliciting efforts, fees (the "Solicitation
Fees") (such Solicitation Fees paid to the Dealer Manager are in addition to the
Dealer Manager Fee) equal to 2.50% of the Subscription Price per Share for each
Share issued pursuant to the exercise of Rights and the Over Subscription
Privilege. The Company agrees to pay the Solicitation Fees to the broker-dealer
designated on the
<PAGE>
applicable portion of the form used by the Holder to exercise Rights and the
Over Subscription Privilege, and if no broker-dealer is so designated or a
broker-dealer is otherwise not entitled to receive compensation pursuant to the
terms of the Soliciting Dealer Agreement, then to pay the Dealer Manager the
Solicitation Fee for such exercise of Rights and the Over Subscription
Privilege. Payment to the Dealer Manager by the Company will be in the form of
a wire transfer of same day funds to an account or accounts identified by the
Dealer Manager. Such payment will be made on each date on which the Company
issues Shares. Payment to a Soliciting Dealer will be made by the Company
directly to such Soliciting Dealer by check to an address identified by such
Soliciting Dealer. Such payments shall be made by the tenth business day
following the day on which final payment for the Shares is due as set forth in
the Prospectus.
4. OTHER AGREEMENTS.
(a) The Company covenants with the Dealer Manager as follows:
(i) The Company will use its best efforts to cause the Registration
Statement to become effective under the Securities Act, and will advise the
Dealer Manager promptly as to the time at which the Registration Statement
and any amendments thereto (including any post-effective amendment) becomes
so effective.
(ii) The Company will notify the Dealer Manager immediately, and
confirm the notice in writing, (A) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective
amendment), (B) of the receipt of any comments from the Commission, (C) of
any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, (D) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (E) of the suspension of
the qualification of the Shares or the Rights for offering or sale in any
jurisdiction. The Company will make every reasonable effort to prevent the
issuance of any stop order described in subsection (D) hereunder
<PAGE>
and, if any such stop order is issued, to obtain the lifting thereof at the
earliest possible moment.
(iii) The Company will give the Dealer Manager notice of its
intention to file any amendment to the Registration Statement (including
any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for
use by the Dealer Manager in connection with the Offer, which differs from
the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is
required to be filed pursuant to Rule 497(c) or Rule 497(h) of the Rules
and Regulations), whether pursuant to the Investment Company Act, the
Securities Act, or otherwise, and will furnish the Dealer Manager with
copies of any such amendment or supplement a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file
any such amendment or supplement to which the Dealer Manager or counsel for
the Dealer Manager shall reasonably object.
(iv) The Company will, without charge, deliver to the Dealer Manager,
as soon as practicable, the number of copies of the Registration Statement
as originally filed and of each amendment thereto as it may reasonably
request, in each case with the exhibits filed therewith.
(v) The Company will, without charge, furnish to the Dealer Manager,
from time to time during the period when the Prospectus is required to be
delivered under the Securities Act, such number of copies of the Prospectus
(as amended or supplemented) as the Dealer Manager may reasonably request
for the purposes contemplated by the Securities Act or the Rules and
Regulations thereunder.
(vi) If any event shall occur as a result of which it is necessary,
in the reasonable opinion of counsel for the Dealer Manager, to amend or
supplement the Registration Statement or the Prospectus in order to make
the Prospectus not misleading in the light of the circumstances existing at
the time it is delivered to a Holder, the Company will forthwith amend or
supplement
<PAGE>
the Prospectus by preparing and filing with the Commission (and furnishing
to the Dealer Manager a reasonable number of copies of) an amendment or
amendments of the Registration Statement or an amendment or amendments of
or a supplement or supplements to, the Prospectus (in form and substance
satisfactory to counsel for the Dealer Manager), at the Company's expense,
which will amend or supplement the Registration Statement or the Prospectus
so that the Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a Holder,
not misleading.
(vii) The Company will endeavor, in cooperation with the Dealer
Manager and its counsel, to assist such counsel to qualify the Rights and
the Shares for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the Dealer
Manager may designate and maintain such qualifications in effect for the
duration of the Offer; PROVIDED, HOWEVER, that the Company will not be
obligated to qualify in any jurisdiction in which the Company would be
required to (x) file any general consent to service of process, (y) qualify
as a foreign corporation or as a dealer in securities in any jurisdiction
in which it is not now so qualified or (z) be subject to taxation in such
jurisdiction. The Company will file such statements and reports as may be
required by the laws of each jurisdiction in which the Rights and the
Shares have been qualified as above provided.
(viii) The Company will make generally available to its security
holders as soon as practicable, but no later than 60 days after the close
of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the Rules and Regulations of the
Securities Act) covering a twelve-month period beginning not later than the
first day of the Company's fiscal quarter next following the "effective"
date (as defined in said Rule 158) of the Registration Statement.
<PAGE>
(ix) For a period of 180 days from the date of this Agreement, the
Company will not, without the prior consent of the Dealer Manager, offer or
sell, or enter into any agreement to sell, any equity or equity-related
securities of the Company or securities convertible into such securities,
other than the Rights and the Shares or Common Stock issued pursuant to
reinvestment of dividends or distributions in accordance with the dividend
investment plan, pursuant to the cash purchase plan or pursuant to any
distribution of dividends or capital gains payable in Common Stock declared
by the Company [or pursuant to a Common Stock split declared by the
Company].
(x) The Company will apply the net proceeds from the Offer as set
forth under "Use of Proceeds" in the Prospectus.
(xi) The Company will use its best efforts to cause the Shares to be
duly authorized for listing by the New York Stock Exchange prior to the
time the Shares are issued.
(xii) The Company will use its best efforts to maintain its
qualification as a regulated investment company under Subchapter M of the
Code.
(xiii) The Company will advise or cause the Subscription Agent to
advise the Dealer Manager and each Soliciting Dealer from day to day during
the period of, and promptly after the termination of, the Offer, as to the
names and addresses of all Holders exercising Rights, the total number of
Rights exercised and the number of Shares, including Shares requested
pursuant to the Over Subscription Privilege, related thereto by each Holder
during the immediately preceding day, indicating the total number of Rights
verified to be in proper form for exercise, rejected for exercise and being
processed and, for the Dealer Manager and each Soliciting Dealer, the
number of Rights exercised and the number of Shares, including Shares
requested pursuant to the Over Subscription Privilege, related thereto on
subscription certificates indicating the Dealer Manager or such Soliciting
Dealer, as the case may be, as the broker-dealer with respect thereto, and
as to such other
<PAGE>
information as the Dealer Manager may reasonably request; and will notify
the Dealer Manager and each Soliciting Dealer, not later than 5:00 P.M.,
New York City time, on the first business day following the Expiration
Date, of the total number of Rights exercised and the number of Shares,
including Shares requested pursuant to the Over Subscription Privilege,
related thereto, the total number of Rights verified to be in proper form
for exercise, rejected for exercise and being processed and, for the Dealer
Manager and each Soliciting Dealer, the number of Rights exercised and the
number of Shares, including Shares requested pursuant to the Over
Subscription Privilege, related thereto on subscription certificates
indicating the Dealer Manager or such Soliciting Dealer, as the case may
be, as the broker-dealer with respect thereto, and as to such other
information as the Dealer Manager may reasonably request.
(b) The Company and the Investment Adviser will not take, directly or
indirectly, any action designed to cause or to result in, or that has
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the issuance of the Rights or the sale or resale of the Shares;
PROVIDED that any action in connection with the Company's dividend reinvestment
plan and cash purchase will not be deemed to be within the meaning of this
Section 4(b).
5. PAYMENT OF EXPENSES.
(a) The Company will pay all expenses incident to the performance of
its obligations under this Agreement, including, but not limited to, expenses
relating to (i) the printing and filing of the Registration Statement as
originally filed and of each amendment thereto, (ii) the preparation, issuance
and delivery of the certificates for the Shares and subscription certificates
relating to the Rights, (iii) the fees and disbursements of the Company's
counsel (including the fees and disbursements of local counsel) and accountants,
(iv) the qualification of the Rights and the Shares under securities laws in
accordance with the provisions of Section 4(a)(vii) of this Agreement, including
filing fees and the preparation of the Blue Sky Survey by counsel to the Dealer
Manager, (v) the printing or other production and delivery to the Dealer Manager
of copies of
<PAGE>
the Registration Statement as originally filed and of each amendment thereto and
of the Prospectus and any amendments or supplements thereto, (vi) the printing
and other production and delivery of copies of the Blue Sky Survey, (vii) the
fees and expenses incurred with respect to filing with the National Association
of Securities Dealers, Inc., (viii) the fees and expenses incurred in connection
with the listing of the Shares on the New York Stock Exchange, (ix) the printing
or other production, mailing and delivery expenses incurred in connection with
Offering Materials and (x) the fees and expenses incurred with respect to the
Subscription Agent and Information Agent.
(b) In addition to any fees that may be payable to the Dealer Manager
under this Agreement, the Company agrees to reimburse the Dealer Manager upon
request made from time to time for its reasonable expenses incurred in
connection with its activities under this Agreement, including the reasonable
fees and disbursements of its legal counsel (excluding Blue Sky fees and
expenses which are paid directly by the Company), in an amount up to $100,000.
(c) If this Agreement is terminated by the Dealer Manager in
accordance with the provisions of Section 6 or Section 9(a)(i), 9(a)(ii) or
9(a)(iii), the Company agrees to reimburse the Dealer Manager for all of its
reasonable out-of-pocket expenses incurred in connection with its performance
hereunder, including the reasonable fees and disbursements of counsel for the
Dealer Manager. In the event the transactions contemplated hereunder are not
consummated, the Company agrees to pay all of the costs and expenses set forth
in paragraphs (a) and (b) of this Section 5 which the Company would have paid if
such transactions had been consummated.
6. CONDITIONS OF THE DEALER MANAGER'S OBLIGATIONS. The obligations
of the Dealer Manager hereunder are subject to the accuracy of the respective
representations and warranties of the Company and the Investment Adviser
contained herein, to the performance by the Company and the Investment Adviser
of their respective obligations hereunder, and to the following further
conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M., New York City time, on the Representation Date, or at such later
time and date as may be approved by the Dealer Manager; the Prospectus and any
amendment
<PAGE>
or supplement thereto shall have been filed with the Commission in the manner
and within the time period required by Rule 497(c), (e) or (h), as the case may
be, under the Securities Act; no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and no
proceedings for that purpose shall have been instituted or threatened or, to the
knowledge of the Company, the Investment Adviser or the Dealer Manager, shall be
contemplated by the Commission; and the Company shall have complied with any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise).
(b) On the Representation Date and the Expiration Date, the Dealer
Manager shall have received:
(1) The favorable opinions, dated the Representation Date and the
Expiration Date, of Willkie Farr & Gallagher, counsel for the Company, in
form and substance satisfactory to counsel for the Dealer Manager, to the
effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, has full power and authority (corporate and other) to
conduct its business as described in the Registration Statement and
Prospectus, except that counsel need express no opinion as to
securities or "blue sky" laws of any state, and is duly qualified to
do business as a foreign corporation in each jurisdiction wherein it
owns or leases real property or in which the conduct of its business
requires such qualification, except where the failure to be so
qualified would not result in a Material Adverse Affect.
(ii) The Company is registered with the Commission under the
Investment Company Act as a closed-end, non-diversified management
investment company; to the knowledge of such counsel, no order of
suspension or revocation of such registration has been issued or
proceedings therefor initiated or threatened by the Commission, all
required action has been taken under the Securities Act and the
Investment Company Act to make the public
<PAGE>
offering and consummate the issuance of the Rights and the issuance
and sale of the Shares by the Company upon exercise of the Rights, and
the provisions of the Company's charter and by-laws comply as to form
in all material respects with the requirements of the Investment
Company Act.
(iii) The Company has an authorized capitalization as set forth
in the Prospectus; the outstanding shares of Common Stock have been
duly authorized and are validly issued, fully paid and non-assessable
and conform in all material respects to the description thereof in the
Prospectus under the heading "Common Stock"; the Rights have been duly
authorized by all requisite action on the part of the Company for
issuance pursuant to the Offer; the Shares have been or, with respect
to the Shares to be issued pursuant to the Over-Subscription
Privilege, will be duly authorized by all requisite action on the part
of the Company for issuance and sale pursuant to the terms of the
Offer and, when issued and delivered by the Company pursuant to the
terms of the Offer against payment of the consideration set forth in
the Prospectus, will be validly issued, fully paid and non-assessable;
the Shares and the Rights conform in all material respects to all
statements relating thereto contained in the Registration Statement
and the Prospectus; and, to the knowledge of such counsel, the
issuance of each of the Rights and the Shares is not subject to any
preemptive rights.
(iv) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding affecting the Company or to
which the Company is a party before or by any court or governmental
agency, authority or body or any arbitrator, whether foreign or
domestic, which might result in any Material Adverse Effect.
(v) There are no contracts or other documents of the Company
required to be described in the Registration Statement or the
Prospectus, or to be filed or incorporated by reference as exhibits
which are not described or filed or incorporated by
<PAGE>
reference therein as permitted by the Securities Act, the Investment
Company Act or the Rules and Regulations.
(vi) Each of this Agreement and the Company Agreements has been
duly authorized, executed and delivered by the Company; each of this
Agreement and the Company Agreements complies with all applicable
provisions of the Investment Company Act and the Advisers Act; and,
assuming due authorization, execution and delivery by the other
parties thereto, each of the Company Agreements constitutes a legal,
valid, binding and enforceable obligation of the Company, subject to
the qualification that the enforceability of the Company's obligations
thereunder may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law) and subject to the qualification that the right to
indemnity may be limited by federal or state laws.
(vii) Neither the issuance of the Rights, nor the issuance and
sale of the Shares, nor the performance and consummation by the
Company of any other of the transactions contemplated in this
Agreement and the Company Agreements, or any sub-custodial
arrangements entered into pursuant to the Custodian Agreement, nor the
consummation of the transactions contemplated in the Registration
Statement will result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company
under the charter or by-laws of the Company, or, to the knowledge of
such counsel, the terms and provisions of any agreement, indenture,
mortgage, lease or other instrument to which the Company is a party or
by which it may be bound or to which any of the property or assets of
the Company is subject, nor, to the knowledge of such counsel, will
such action result in any violation
<PAGE>
of any order, law, rule or regulation of any court or governmental
agency or body under the laws of New York, federal law or, to the best
of such counsel's knowledge, the laws of any other jurisdiction in the
United States having jurisdiction over the Company or any of its
properties.
(viii) No consent, approval, authorization, notification or
order of, or any filing with, any court or governmental agency or body
is required under the laws of New York, federal law or, to the best of
such counsel's knowledge, the laws of any other jurisdiction in the
United States for the consummation by the Company of the transactions
contemplated by this Agreement or the Registration Statement, except
(A) such as have been obtained and (B) such as may be required under
the blue sky laws of any jurisdiction in connection with the
transactions contemplated hereby.
(ix) The Common Stock has been duly listed on the New York Stock
Exchange and the Shares have been duly approved for listing, subject
to official notice of issuance, on the New York Stock Exchange.
(x) The Registration Statement has become effective under the
Securities Act; any required filing of the Prospectus or any
supplement thereto pursuant to Rule 497(c), (e), (h) or (j) required
to be made to the date hereof has been made in the manner and within
the time period required by Rule 497(c), (e) (h) or (j), as the case
may be; to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued, and no
proceedings for that purpose have been instituted or threatened; and
the Registration Statement, the Prospectus and each amendment thereof
or supplement thereto (other than the financial statements and the
notes thereto and the schedules and other financial and statistical
data contained therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
applicable requirements
<PAGE>
of the Securities Act and the Investment Company Act and the Rules and
Regulations.
(xi) The statements in the Prospectus under the heading
"Taxation--United States Federal Income Taxes" fairly summarize the
matters therein described.
In rendering such opinion, such counsel may rely (A) as to matters set forth in
subsections (i), (iii), (iv), (vi), (vii) and (viii) of this Section 6(b)(1)
involving the application of the laws of Maryland to the extent they deem proper
and specified in such opinion, upon the opinion of Venable, Baetjer and Howard
LLP or upon the opinion of other counsel of good standing whom such counsel
believes to be reliable and who are satisfactory to counsel for the Dealer
Manager and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Company and its independent accountants, no facts have come to their attention
which cause them to believe that the Registration Statement, on the date it
became effective, contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements contained therein not misleading or that the Prospectus, as of
its date and on the Representation Date or the Expiration Date, as the case may
be, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(2) The favorable opinions, dated the Representation Date and the
Expiration Date, of Venable, Baetjer and Howard, LLP, special Maryland
counsel to the Company, in form and substance satisfactory to counsel for
the Dealer Manager, to the effect that:
<PAGE>
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, and has full power and authority to conduct its business
in the State of Maryland as described in the Registration Statement
and Prospectus, except that counsel need express no opinion as to
securities or "blue sky" laws of the State of Maryland.
(ii) The Company has an authorized capitalization as set forth
in the Prospectus; the outstanding shares of Common Stock of the
Company have been duly authorized and are validly issued and are fully
paid and nonassessable and, with respect to statements pertaining to
Maryland law thereto, the shares conform in all material respects to
the description thereof in the Prospectus under the heading "Common
Stock"; the Rights have been duly authorized by all requisite action
on the part of the Company for issuance pursuant to the Offer; the
Shares have been duly authorized or, with respect to the Shares to be
issued pursuant to the Over-Subscription Privilege, will be by all
requisite action on the part of the Company for issuance and sale
pursuant to the terms of the Offer and, when issued and delivered by
the Company pursuant to the terms of the Offer against payment of the
consideration set forth in the Prospectus, will be validly issued,
fully paid and nonassessable; the Shares and the Rights conform in all
material respects to all statements with respect to Maryland law
relating thereto contained in the Registration Statement and the
Prospectus; and the issuance of each of the Rights and the Shares is
not subject to any preemptive rights under the Company's charter or
bylaws or under Maryland law or, to our knowledge, otherwise.
(iii) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding affecting the Company or to
which the Company is a party before or by any court or governmental
agency, authority or body or any arbitrator in the State of Maryland
which might
<PAGE>
result in any material adverse change in the condition (financial or
other), business, prospects, net worth or results of operations of the
Company, or which might materially and adversely affect the properties
or assets thereof.
(iv) Each of this Agreement and the Company Agreements has been
duly authorized, executed and delivered by the Company; and assuming
due authorization, execution and delivery by the other parties
thereto, each of the Company Agreements constitutes a legal, valid,
binding and enforceable obligation of the Company, subject to the
qualification that the enforceability of the Company's obligations
thereunder may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights, and to general principles of equity
(regardless of whether enforceability is considered in a proceeding in
equity or at law).
(v) Neither the issuance of the Rights, nor the issuance and
sale of the Shares, nor the performance and consummation by the
Company of any other of the transactions contemplated in this
Agreement and the Company Agreements, or any sub-custodial
arrangements entered into pursuant to the Custodian Agreement, nor the
consummation of the transactions contemplated in the Registration
Statement will result in a breach or violation of, or constitute a
default under, or result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company
under the charter or by-laws of the Company, or the terms and
provisions of any agreement, indenture, mortgage, lease or other
instrument to which the Company is a party or by which it may be bound
or to which any of the property or assets of the Company is subject,
nor will such action result in any violation of any order, law, rule
or regulation of any Maryland court or Maryland governmental agency or
body.
<PAGE>
(vi) No consent, approval, authorization, notification or order
of, or any filing with, any Maryland court or Maryland governmental
agency or body is required under the Maryland General Corporation Law
for the consummation by the Company of the transactions contemplated
by this Agreement or the Registration Statement in connection with the
issuance of the Rights and the sale of the Shares by the Company,
except (A) such as have been obtained and (B) such as may be required
under the securities and "Blue Sky" laws of the State of Maryland in
connection with the transactions contemplated hereby.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and public officials.
(3) The favorable opinions, dated the Representation Date and the
Expiration Date, of Tozzini, Freire, Teixeira e Silva, special Brazilian
counsel for the Fund, in form and substance satisfactory to counsel for the
Dealer Manager, to the effect that:
(i) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding affecting the Company or to
which the Company is a party before or by any court or governmental
agency, authority or body or any arbitrator in Brazil which might
result in any material adverse change in the condition (financial or
other), business, prospects, net worth or results of operations of the
Company, or which might materially and adversely affect the properties
or assets thereof.
(ii) No consent, approval, authorization, notification or order
of, or any filing with, any court or governmental agency or body in
Brazil is required for the consummation by the Company of the
transactions contemplated by this Agreement or the Registration
Statement, except such as have been obtained.
<PAGE>
(iii) The information contained in the Registration Statement
and Prospectus as of their respective dates and as of the date hereof,
to the extent it relates to matters of Brazilian securities regulation
and other Brazilian law or legal conclusions based thereon, fairly
summarizes in all material respects Brazilian securities regulation
and other Brazilian law or legal conclusions based thereon material to
the Company and the operation of its business as described in such
Registration Statement and Prospectus; such counsel has no reason to
believe that the information in the Registration Statement and
Prospectus as of their respective dates and as of the date hereof
regarding Brazil and Brazilian disclosure contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading.
(iv) The statements in the Prospectus under the heading
"Taxation--Brazilian Taxes" fairly summarize the matters therein
described.
(4) The favorable opinions, dated the Representation Date and the
Expiration Date, of ____________, counsel for the Investment Adviser, in
form and substance satisfactory to counsel for the Dealer Manager, to the
effect that:
(i) The Investment Adviser is validly existing as a general
partnership under the laws of the State of New York, with partnership
power and authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, and is
duly qualified to do business as a foreign entity in each jurisdiction
wherein it owns or leases real property or in which the conduct of its
business requires such qualification, except where the failure to be
so qualified does not involve an Adviser Material Adverse Effect.
(ii) The Investment Adviser is duly registered as an investment
adviser under the
<PAGE>
Advisers Act and is not prohibited by the Advisers Act or the
Investment Company Act, or the rules and regulations under such Acts,
from acting as an investment adviser for the Company as contemplated
in the Prospectus and the Advisory Agreement.
(iii) Each of this Agreement, the Advisory Agreement and any
other Company Agreement to which the Investment Adviser is a party has
been duly authorized, executed and delivered by the Investment Adviser
and complies with all applicable provisions of the Advisers Act, the
Investment Company Act and the rules and regulations under such Acts,
and is, assuming due authorization, execution and delivery by the
other parties thereto, a legal, valid, binding and enforceable
obligation of the Investment Adviser, subject as to enforcement to
bankruptcy, insolvency, reorganization, moratorium and other laws of
general applicability relating to or affecting creditors' rights, and
to general principles of equity (regardless of whether enforceability
is considered in a proceeding in equity or at law).
(iv) Neither the performance by the Investment Adviser of its
obligations under this Agreement, the Advisory Agreement or any other
Company Agreement to which the Investment Adviser is a party nor the
consummation of the transactions contemplated therein or in the
Registration Statement nor the fulfillment of the terms thereof will
result in a breach or violation of, or constitute a default under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any properties or assets of the Investment Adviser
under the partnership agreement of the Investment Adviser, or, to the
knowledge of such counsel, the terms and provisions of any agreement,
indenture, mortgage, lease or other instrument to which the Investment
Adviser is a party or by which it may be bound or to which any of the
property or assets of the Investment Adviser is subject, or any order,
law, rule or regulation of any court or governmental agency or body,
whether foreign or domestic, having jurisdiction
<PAGE>
over the Investment Adviser or any of its properties.
(v) To the knowledge of such counsel, there is no pending or
threatened action, suit or proceeding to which the Investment Adviser
is a party before or by any court or governmental agency, authority or
body or any arbitrator, whether foreign or domestic, which might
result in a Material Adverse Effect or upon the ability of the
Investment Adviser to perform its obligations under the Advisory
Agreement.
(vi) No consent, approval, authorization, notification or order
of, or any filing with, any court or governmental agency or body,
whether foreign or domestic, is required for the consummation by the
Investment Adviser of the transactions contemplated by this Agreement,
the Advisory Agreement or any other Company Agreement to which the
Investment Adviser is a party.
(vii) The Investment Adviser owns or possesses any governmental
licenses, permits, consents, orders, approvals or other
authorizations, whether foreign or domestic, to enable the Investment
Adviser to carry on its business and to continue to direct investments
in securities as contemplated in the Prospectus.
(viii) The description of the Investment Adviser in the
Registration Statement and the Prospectus complies with the
requirements of the Securities Act, the Investment Company Act, and
the Rules and Regulation and does not contain any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
(ix) There are no material restrictions, limitations or
regulations with respect to the ability of the Company to invest its
assets as
<PAGE>
described in the Prospectus other than as may be described therein.
In rendering such opinion, such counsel may rely as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible officers of the
Investment Adviser and public officials.
Such counsel shall also have stated that, while they have not
themselves checked the accuracy and completeness of or otherwise verified, and
are not passing upon and assume no responsibility for the accuracy or
completeness of, the statements contained in the Registration Statement or the
Prospectus, in the course of their review and discussion of the contents of the
Registration Statement and Prospectus with certain officers and employees of the
Investment Adviser and its independent accountants, no facts have come to their
attention which cause them to believe that the Registration Statement, on the
date it became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements contained therein not misleading or that the Prospectus, as
of its date and on the Representation Date or the Expiration Date, as the case
may be, contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) The Dealer Manager shall have received from Skadden, Arps, Slate,
Meagher & Flom, counsel for the Dealer Manager, such opinion or opinions, dated
the Representation Date and the Expiration Date, with respect to the Offer, the
Registration Statement, the Prospectus and other related matters as the Dealer
Manager may reasonably require, and the Company shall have furnished to such
counsel such documents as they reasonably request for the purpose of enabling
them to pass upon such matters.
(d) The Company shall have furnished to the Dealer Manager
certificates of the Company, signed by the Chairman of the Board, the President
or a Vice President of the Company, dated the Representation Date and the
Expiration Date, to the effect that the signers of such certificate have
examined the Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that, to the best of their knowledge:
<PAGE>
(i) The representations and warranties of the Company in this
Agreement are true and correct in all material respects on and as of the
Representation Date or the Expiration Date, as the case may be, with the
same effect as if made on the Representation Date or the Expiration Date,
as the case may be, and the Company has complied with all the agreements
and satisfied all the conditions in this Agreement on its part to be
performed or satisfied at or prior to the Representation Date or the
Expiration Date, as the case may be.
(ii) No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's knowledge, threatened.
(iii) Since the date of the most recent balance sheet included or
incorporated by reference in the Prospectus, there has been no material
adverse change in the condition (financial or other), earnings, business or
properties of the Company, whether or not arising from transactions in the
ordinary course of business, except as set forth in or contemplated in the
Prospectus.
(e) The Investment Adviser shall have furnished to the Dealer Manager
certificates, signed by a Managing Director, dated the Representation Date and
the Expiration Date, to the effect that the signer of such certificate has read
the Registration Statement, the Prospectus, any supplement to the Prospectus and
this Agreement and, to the best knowledge of such signer, the representations
and warranties of the Investment Adviser in this Agreement are true and correct
in all material respects on and as of the Representation Date or the Expiration
Date, as the case may be, with the same effect as if made on the Representation
Date or the Expiration Date, as the case may be.
(f) Coopers & Lybrand L.L.P. shall have furnished to the Dealer
Manager letters, dated the Representation Date and the Expiration Date, in form
and substance satisfactory to the Dealer Manager, and stating in effect that:
<PAGE>
(i) They are independent accountants with respect to the Company
within the meaning of the Securities Act and the applicable Rules and
Regulations.
(ii) In their opinion, the audited financial statements examined by
them and included or incorporated by reference in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Securities Act and the Investment Company
Act and the respective Rules and Regulations with respect to registration
statements on Form N-2.
(iii) They have performed specified procedures, not constituting an
audit, including a reading of the latest available interim financial
information of the Company, a reading of the minute books of the Company,
inquiries of officials of the Company responsible for financial or
accounting matters and such other inquiries and procedures which shall be
specified in such letter, and on the basis of such inquiries and procedures
nothing came to their attention that caused them to believe that at the
date of the latest available financial information read by such
accountants, or at a subsequent specified date not more than five business
days prior to the Representation Date or the Expiration Date, as the case
may be, there was any change in the capital stock, net assets or long term
debt of the Company as compared with amounts shown in the most recent
statement of assets and liabilities included or incorporated by reference
in the Registration Statement, except as the Registration Statement
discloses has occurred or may occur or as disclosed in their letter.
(iv) In addition to the procedures referred to in clause (iii) above,
they have performed other specified procedures, not constituting an audit,
with respect to certain amounts, percentages, numerical data and financial
information appearing in the Registration Statement, which have previously
been specified by the Dealer Manager and which shall be specified in such
letter, and have compared such items with, and have found such items to be
in agreement with, the accounting and financial records of the Company.
<PAGE>
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall not have
been (i) any change or decrease specified in the letter or letters referred to
in paragraph (f) of this Section 6, or (ii) any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company, the effect of which, in any case referred to in clause (i) or (ii)
above, is, in the reasonable judgment of the Dealer Manager, so material and
adverse as to make it impractical or inadvisable to proceed with the Offer as
contemplated by the Registration Statement and the Prospectus.
(h) Prior to the Representation Date, the Company shall have
furnished to the Dealer Manager such further information, certificates and
documents as the Dealer Manager may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled in all material respects when and as provided in this Agreement,
or if any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects satisfactory in form and
substance to the Dealer Manager and its counsel, this Agreement and all
obligations of the Dealer Manager hereunder may be canceled at, or at any time
prior to, the Representation Date by the Dealer Manager. Notice of such
cancellation shall be given to the Company in writing or by telephone or
telegraph confirmed in writing.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Each of the Company and the Investment Adviser, jointly and
severally, will indemnify and hold harmless the Dealer Manager, the directors,
officers, employees and agents of the Dealer Manager and each person, if any,
who controls the Dealer Manager within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act against any and all losses,
claims, damages and liabilities, joint or several (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted), to
which they, or any of them, may become subject under the Securities Act, the
Exchange Act, the Investment Company Act, the Advisers Act or other statutory
law or regulation, at common law or otherwise, whether foreign or domestic,
insofar as such losses, claims, damages or
<PAGE>
liabilities arise out of or are based on any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement, the
Prospectus or the Offering Materials, and any amendment or supplement thereto,
or the omission or alleged omission to state in any or all such documents a
material fact required to be stated therein or necessary to make the statements
in it not misleading (in the case of the Prospectus, in light of the
circumstances under which such statements were made), provided that neither the
Company nor the Investment Adviser will be liable to the extent that such loss,
claim, damage or liability arises from an untrue statement or omission or
alleged untrue statement or omission (1) made in reliance on and in conformity
with information furnished in writing to the Company by the Dealer Manager
expressly for use in the document, or (2) if a copy of the Prospectus was not
sent or given to such person at or before the written confirmation of the sale
to such person in any case where such delivery is required by the Securities
Act. This indemnity agreement will be in addition to any liability that the
Company or the Investment Adviser might otherwise have.
(b) The Dealer Manager will indemnify and hold harmless the Company,
the Investment Adviser, each director and officer of the Company who signs the
Registration Statement and each person, if any, who controls the Company or the
Investment Adviser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, to the same extent as the foregoing indemnity
from the Company or the Investment Adviser to the Dealer Manager, but only
insofar as losses, claims, damages or liabilities arise out of or are based on
any untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information furnished in writing to the
Company by the Dealer Manager expressly for use in preparation of the documents
in which the statement or omission is made or alleged to be made. This
indemnity agreement will be in addition to any liability that the Dealer Manager
might otherwise have.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission to notify such indemnifying party will not,
except to the extent set forth below, relieve it from liability that it may have
to any indemnified
<PAGE>
party. No indemnification provided for in Section 7(a) or (b) hereof shall be
available to any party who shall fail to give notice as provided in this Section
7(c) if the party to whom notice was not given was unaware of the proceeding to
which such notice would have related and was prejudiced by the failure to give
such notice, but the omission to notify such indemnifying party of such action
shall not relieve it from any liability that it may have to any indemnified
party for contribution or otherwise on account of the provisions in Section 7(a)
or (b). If any such action is brought against any indemnified party and it
notifies the indemnifying party of its commencement, the indemnifying party will
be entitled to participate in, and, to the extent that it elects by delivering
written notice to the indemnified party promptly after receiving notice of the
commencement of the action from the indemnified party, jointly with any other
indemnifying party similarly notified, to assume the defense of the action, with
counsel reasonably satisfactory to the indemnified party, and, after notice from
the indemnifying party to the indemnified party of its election to assume the
defense, the indemnifying party will not be liable to the indemnified party for
any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its counsel in any such action, but the fees and expenses of such counsel
will be at the expense of such indemnified party unless (1) the employment of
counsel by the indemnified party has been authorized in writing by the
indemnifying party, (2) the indemnified party has reasonably concluded that
there may be legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party
(in which case the indemnifying party will not have the right to direct the
defense of such action on behalf of the indemnified party) or (3) the
indemnifying party has not in fact employed counsel to assume the defense of
such action within a reasonable time after receiving notice of the commencement
of the action, in each of which cases the reasonable fees and expenses of
counsel will be at the expense of the indemnifying party or parties. All such
fees and expenses will be reimbursed promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent or, in connection with any proceeding or
related proceeding in the same jurisdiction, for the fees and expenses of more
than one separate counsel for all indemnified parties except to the extent
provided herein.
<PAGE>
(d) In no case shall the indemnification provided in this Section 7
be available to protect any person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of its or his obligations or duties
hereunder, or by reason of its or his reckless disregard of its or his
obligations and duties hereunder.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 7 is
applicable in accordance with its terms but for any reason is held to be
unavailable from the Company, the Investment Adviser or the Dealer Manager, the
Company, the Investment Adviser and the Dealer Manager will contribute to the
total losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action or any claims asserted, but after deducting
any contribution received by the Company, the Investment Adviser or from persons
other than the Dealer Manager, such as persons who control the Company or the
Investment Adviser within the meaning of the Securities Act or the Exchange Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company, the
Investment Adviser or the Dealer Manager may be subject in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other hand
from the offering of the Shares or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on the
one hand and the indemnified party on the other hand in connection with the
statements or omissions or alleged statements or omissions that resulted in the
losses, claims, damages or liabilities, joint or several (including any
investigation, legal or other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), for which contribution is sought. The relative benefits
received by the Company or the Investment Adviser (treated jointly for this
purpose as one person) on the one hand and the Dealer Manager on the other hand
shall be deemed to be in the same proportion as the total proceeds from the
offering (before deducting expenses) received by the Company bear to the total
fees received by the Dealer Manager. The relative fault of the parties shall be
<PAGE>
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Investment
Adviser or the Dealer Manager, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission and any other equitable considerations appropriate in the
circumstances. Notwithstanding any other provisions of this Section 7, (1) the
Dealer Manager will not be responsible for any amount in excess of the fees paid
by the Company pursuant to Section 3 hereof and (2) no person found guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section, any
person who controls a party to this Agreement within the meaning of the
Securities Act will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement and each director
of the Company will have the same rights to contribution as the Company, subject
in each case to clause (i) of the first sentence of this Subsection 7(e). Any
party entitled to contribution will, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7, notify such party or parties from
whom contribution may be sought, but the omission so to notify will not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have otherwise than under this Section 7. No party
will be liable for contribution with respect to any action or claim settled
without its written consent.
(f) The Company and the Investment Adviser agree to indemnify each
Soliciting Dealer and controlling persons to the same extent and subject to the
same conditions and to the same agreements, including with respect to
contribution, provided for in subsections (a), (b), (c), (d) and (e) of this
Section 7.
(g) The Company and the Investment Adviser acknowledge that the
statements under the caption "Distribution Arrangements" in the Prospectus
constitute the only information furnished in writing to the Company by the
Dealer Manager expressly for use in such document, and the Dealer Manager
confirms that such statements are correct.
<PAGE>
8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective agreements, representations, warranties, indemnities and other
statements of the Company or its officers, of the Investment Adviser and of the
Dealer Manager set forth in or made pursuant to this Agreement shall survive the
Expiration Date and will remain in full force and effect, regardless of any
investigation made by or on behalf of Dealer Manager, the Company or the
Investment Adviser or any of the officers, directors or controlling persons
referred to in Section 7 hereof, and will survive delivery of and payment for
the Shares pursuant to the Offer. The provisions of Sections 5 and 7 hereof
shall survive the termination or cancellation of this Agreement.
9. TERMINATION OF AGREEMENT. (a) This Agreement shall be subject to
termination in the absolute discretion of the Dealer Manager, by notice given to
the Company prior to the expiration of the Offer, if prior to such time (i)
financial, political, economic, currency, banking or social conditions in the
United States or Brazil shall have undergone any material change the effect of
which on the financial markets makes it, in the Dealer Manager's reasonable
judgment, impracticable or inadvisable to proceed with the Offer, (ii) there has
occurred any outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United States or
Brazil is such as to make it, in the Dealer Manager's reasonable judgment,
impracticable or inadvisable to proceed with the Offer, (iii) trading in the
shares of Common Stock shall have been suspended by the Commission or the New
York Stock Exchange, (iv) trading in securities generally on the New York Stock
Exchange shall have been suspended or limited or (v) a banking moratorium shall
have been declared either by Federal or New York State authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 5.
10. NOTICES. All communications hereunder will be in writing and
effective only on receipt, and, if sent to the Dealer Manager, will be mailed,
delivered or telegraphed and confirmed to Bear, Stearns & Co. Inc., Attn.:
Graham Powis, 245 Park Avenue, New York, New York 10167; or if sent to the
Company or the Investment Adviser will be mailed, or delivered or telegraphed
and confirmed to them at: The Brazilian Equity Fund, Inc., c/o BEA Associates,
One Citicorp Center, 153 East 53rd
<PAGE>
Street, 58th Floor, New York, New York 10022 or BEA Associates, One Citicorp
Center, 153 East 53rd Street, 58th Floor, New York, New York 10022,
respectively.
11. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and will inure
to the benefit of the officers and directors and controlling persons referred to
in Section 7 hereof, and no other person will have any right or obligation
hereunder.
12. APPLICABLE LAW. This Agreement will be governed by and construed
in accordance with the laws of the State of New York without reference to choice
of law principles thereof.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among the Company,
the Investment Adviser and the Dealer Manager.
Very truly yours,
The Brazilian Equity Fund, Inc.
By:
----------------------------
Name:
-----------------------
Title:
----------------------
BEA Associates
By:
----------------------------
Name:
-----------------------
Title:
----------------------
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
Bear, Stearns & Co. Inc.
By:
---------------------
Name:
----------------
Title:
---------------
<PAGE>
THE BRAZILIAN EQUITY FUND, INC.
Rights Offering for Shares of Common Stock
SOLICITING DEALER AGREEMENT
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
August 16, 1996.(1)
To Securities Dealers and Brokers:
The Brazilian Equity Fund, Inc. (the "Company") is issuing to its
shareholders of record ("Record Date Shareholders") as of the close of business
on July 17, 1996 (the "Record Date") non-transferable rights ("Rights") to
subscribe for an aggregate of up to 1,930,835 shares (the "Shares") of common
stock, par value $0.001 per share (the "Common Stock"), of the Company upon the
terms and subject to the conditions set forth in the Company's Prospectus (the
"Prospectus") dated July 17, 1996 (the "Offer"). Each such Record Date
Shareholder is being issued one Right for each full share of Common Stock owned
on the Record Date. The Rights entitle the Record Date Shareholder, during the
Subscription Period (as hereinafter defined) to acquire at the Subscription
Price (as hereinafter defined), one Share for each three Rights held in the
primary subscription. No fractional Shares will be issued. The Subscription
Price will be 90% of the lower of (i) the average of the last reported sales
prices of a share of the Company's Common Stock on the New York Stock Exchange
on the date of the expiration of the Offer (the "Pricing Date") and the four
preceding business days and (ii) the net asset value per share as of the Pricing
Date. The Subscription Period will commence on July 17, 1996 and end on the
Expiration Date. (With respect to the Offer, the term "Expiration Date" means
5:00 p.m., New York City time, on August 16, 1996, unless and until the Company
shall, in its sole discretion, have extended the period for which the Offer is
open, in which event the
- ---------------
(1) Unless extended to a date no later than August 23, 1995.
<PAGE>
term "Expiration Date" with respect to the Offer will mean the latest time and
date on which the Offer, as so extended by the Company, will expire.) Any
Record Date Shareholder who fully exercises all Rights issued to such
shareholder is entitled to subscribe for Shares which were not otherwise
subscribed for by others on primary subscription (the "Over-Subscription
Privilege"). Shares acquired pursuant to the Over-Subscription Privilege are
subject to allotment, as more fully discussed in the Prospectus.
For the duration of the Offer, the Company has agreed to pay
Solicitation Fees to any qualified broker or dealer executing a Soliciting
Dealer Agreement who solicits the exercise of Rights and the Over Subscription
Privilege in connection with the Offer and who complies with the procedures
described below (a "Soliciting Dealer"). Upon timely delivery to The First
National Bank of Boston, the Company's Subscription Agent for the Offer, of
payment for Shares purchased pursuant to the exercise of Rights and the Over
Subscription Privilege and of properly completed and executed documentation as
set forth in this Soliciting Dealer Agreement, a Soliciting Dealer will be
entitled to receive Solicitation Fees equal to 2.50% of the Subscription Price
per Share so purchased; provided, however, that no payment shall be due with
respect to the issuance of any Shares until payment therefor is actually
received. A qualified broker or dealer is a broker or dealer which is a member
of a registered national securities exchange in the United States or the
National Association of Securities Dealers, Inc. ("NASD") or any foreign broker
or dealer not eligible for membership who agrees to conform to the Rules of Fair
Practice of the NASD, including Sections 8, 24, 25 and 36 thereof, in making
solicitations in the United States to the same extent as if it were a member
thereof.
The Company has agreed to pay the Solicitation Fees payable to the
undersigned Soliciting Dealer and to indemnify such Soliciting Dealer on the
terms set forth in the Dealer Manager Agreement, dated July 17, 1996, among
Bear, Stearns & Co. Inc. as the Dealer Manager, the Company and others (the
"Dealer Manager Agreement"). Solicitation and other activities by Soliciting
Dealers may be undertaken only in accordance with the applicable
<PAGE>
rules and regulations of the Securities and Exchange Commission and only in
those states and other jurisdictions where such solicitations and other
activities may lawfully be undertaken and in accordance with the laws thereof.
Compensation will not be paid for solicitations in any state or other
jurisdiction in which the opinion of counsel to the Company or counsel to the
Dealer Manager, such compensation may not lawfully be paid. No Soliciting
Dealer shall be paid Solicitation Fees with respect to Shares purchased pursuant
to an exercise of Rights or the Over Subscription Privilege for its own account
or for the account of any affiliate of the Soliciting Dealer, except that the
Dealer Manager shall receive the Solicitation Fees with respect to Shares
purchased pursuant to an exercise of Rights or the Over Subscription Privilege
for its own account provided that such Shares are offered and sold by the Dealer
Manager to its clients. No Soliciting Dealer or any other person is authorized
by the Company or the Dealer Manager to give any information or make any
representations in connection with the Offer other than those contained in the
Prospectus and other authorized solicitation material furnished by the Company
through the Dealer Manager. No Soliciting Dealer is authorized to act as agent
of the Company or the Dealer Manager in any connection or transaction. In
addition, nothing herein contained shall constitute the Soliciting Dealers
partners with the Dealer Manager or with one another, or agents of the Dealer
Manager or of the Company, or create any association between such parties, or
shall render the Dealer Manager or the Company liable for the obligations of any
Soliciting Dealer. The Dealer Manager shall be under no liability to make any
payment to any Soliciting Dealer, and shall be subject to no other liabilities
to any Soliciting Dealer, and no obligations of any sort shall be implied.
In order for a Soliciting Dealer to receive Solicitation Fees,
__________________ must have received from such Soliciting Dealer no later than
5:00 p.m., New York City time, on the Expiration Date, either (i) a properly
completed and duly executed Subscription Certificate with respect to Shares
purchased pursuant to the exercise of Rights or the Over Subscription Privilege
and full payment for such Shares; or (ii) a Notice of
<PAGE>
Guaranteed Delivery guaranteeing delivery to the Subscription Agent by close of
business on the third business day after the Expiration Date, of (a) full
payment for such Shares with respect to Shares purchased pursuant to the
exercise of Rights and the Over-Subscription Privilege and (b) a properly
completed and duly executed Subscription Certificate with respect to such
Shares. Solicitation Fees will only be paid after receipt by ____________ of a
properly completed and duly executed Soliciting Dealer Agreement (or a facsimile
thereof). In the case of a Notice of Guaranteed Delivery, Solicitation Fees
will only be paid after delivery in accordance with such Notice of Guaranteed
Delivery has been effected. Solicitation Fees will be paid by the Company to
the Soliciting Dealer by check to an address designated by the Soliciting Dealer
below by the tenth business day after final payment for the Shares is due as set
forth in the Prospectus.
All questions as to the form, validity and eligibility (including time
of receipt) of this Soliciting Dealer Agreement will be determined by the
Company, in its sole discretion, which determination shall be final and binding.
Unless waived, any irregularities in connection with a Soliciting Dealer
Agreement or delivery thereof must be cured within such time as the Company
shall determine. None of the Company, the Dealer Manager, Subscription Agent,
the Information Agent for the Offer (Shareholder Communications Corporation) or
any other person will be under any duty to give notification of any defects or
irregularities in any Soliciting Dealer Agreement or incur any liability for
failure to give such notification.
The acceptance of Solicitation Fees from the Company by the
undersigned Soliciting Dealer shall constitute a representation by such
Soliciting Dealer to the Company that: (i) it has received and reviewed the
Prospectus; (ii) in soliciting purchases of Shares pursuant to the exercise of
the Rights and the Over Subscription Privilege, it has complied with the
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the applicable rules and regulations thereunder, any applicable
securities laws of any state or jurisdiction where such
<PAGE>
solicitations may lawfully be made, and the applicable rules and regulations of
any self-regulatory organization or registered national securities exchange;
(iii) in soliciting purchases of Shares pursuant to the exercise of the Rights
and the Over Subscription Privilege, it has not published, circulated or used
any soliciting materials other than the Prospectus and any other authorized
solicitation material furnished by the Company through the Dealer Manager; (iv)
it has not purported to act as agent of the Company or the Dealer Manager in any
connection or transaction relating to the Offer; (v) the information contained
in this Soliciting Dealer Agreement is, to its best knowledge, true and
complete; (vi) it is not affiliated with the Company; (vii) it will not accept
Solicitation Fees paid by the Company pursuant to the terms hereof with respect
to Shares purchased by the Soliciting Dealer pursuant to an exercise of Rights
and the Over Subscription Privilege for its own account; (viii) it will not
remit, directly or indirectly, any part of Solicitation Fees paid by the Company
pursuant to the terms hereof to any beneficial owner of Shares purchased
pursuant to the Offer; and (ix) it has agreed to the amount of the Solicitation
Fees and the terms and conditions set forth herein with respect to receiving
such Solicitation Fees. By returning a Soliciting Dealer Agreement and
accepting Solicitation Fees, a Soliciting Dealer will be deemed to have agreed
to indemnify the Company and the Dealer Manager against losses, claims, damages
and liabilities to which the Company may become subject as a result of the
breach of such Soliciting Dealer's representations made herein and described
above. In making the foregoing representations, Soliciting Dealers are reminded
of the possible applicability of Rule 10b-6 under the Exchange Act if they have
bought, sold, dealt in or traded in any Shares for their own account since the
commencement of the Offer.
Solicitation Fees due to eligible Soliciting Dealers will be paid
promptly after consummation of the Offer. Upon expiration of the Offer, no
Solicitation Fees will be payable to Soliciting Dealers with respect to Shares
purchased thereafter.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Dealer
<PAGE>
Manager Agreement or, if not defined therein, in the Prospectus.
This Soliciting Dealer Agreement will be governed by the laws of the
State of New York without reference to the choice of law principles thereof.
Please execute this Soliciting Dealer Agreement below accepting the
terms and conditions hereof and confirming that you are a member firm of a
registered national securities exchange or of the NASD or a foreign broker or
dealer not eligible for membership who has conformed to the Rules of Fair
Practice of the NASD, including Sections 8, 24, 25 and 36 thereof, in making
solicitations of the type being undertaken pursuant to the Offer in the United
States to the same extent as if you were a member thereof, and certifying that
you have solicited the purchase of the Shares pursuant to exercise of the Rights
and the Over Subscription Privilege, all as described above, in accordance with
the terms and conditions set forth in this Soliciting Dealer Agreement. Please
forward two executed copies of this Soliciting Dealer Agreement to [TO COME]. A
signed copy of this Soliciting Dealer Agreement will be promptly returned to the
Soliciting Dealer at the address set forth below.
Very truly yours,
Bear, Stearns & Co. Inc.
By:
Name:
Title:
PLEASE COMPLETE THE INFORMATION BELOW:
ACCEPTED AND CONFIRMED BY SOLICITING DEALER
<PAGE>
Printed Firm Name Address
Authorized Signature Area Code and Telephone Number
Name and Title Area Code and Facsimile Number
Dated:
Payment of the Solicitation Fee shall
be mailed by check to the following address:
________________________
________________________
________________________
<PAGE>
AGREEMENT BETWEEN
BROWN BROTHERS HARRIMAN & CO.
AND
EACH OF THE INVESTMENT COMPANIES
LISTED ON APPENDIX C HERETO
<PAGE>
TABLE OF CONTENTS
1. Employment of Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Powers and Duties of the Custodian with respect to Property of each
Fund held by the Custodian. . . . . . . . . . . . . . . . . . . . . . . . 1
2.1. Safekeeping. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Manner of Holding Securities . . . . . . . . . . . . . . . . . . 2
2.3. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4. Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5. Exchanges. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.6. Sales of Securities. . . . . . . . . . . . . . . . . . . . . . . 4
2.7. Depositary Receipts. . . . . . . . . . . . . . . . . . . . . . . 5
2.8. Exercise of Rights; Tender Offers. . . . . . . . . . . . . . . . 6
2.9. Stock Dividends, Rights, Etc. . . . . . . . . . . . . . . . . . 6
2.10. Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.11. Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.12. Demand Deposit Bank Accounts. . . . . . . . . . . . . . . . . . 8
2.13. Interest Bearing Call or Time Deposits. . . . . . . . . . . . .10
2.14. Futures Contracts . . . . . . . . . . . . . . . . . . . . . . .11
2.15. Foreign Exchange Transactions . . . . . . . . . . . . . . . . .12
2.16. Stock Loans . . . . . . . . . . . . . . . . . . . . . . . . . .13
2.17. Collections . . . . . . . . . . . . . . . . . . . . . . . . . .14
2.18. Dividends, Distributions and Redemptions. . . . . . . . . . . .15
2.19. Proxies, Notices, Etc. . . . . . . . . . . . . . . . . . . . .15
2.20. Nondiscretionary Details. . . . . . . . . . . . . . . . . . . .16
2.21. Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
2.22. Deposit of Fund Assets in Securities Systems. . . . . . . . . .16
2.23. Other Transfers . . . . . . . . . . . . . . . . . . . . . . . .19
2.24. Investment Limitations. . . . . . . . . . . . . . . . . . . . .19
2.25. Custodian Advances. . . . . . . . . . . . . . . . . . . . . . .20
2.26. Restricted Securities . . . . . . . . . . . . . . . . . . . . .21
2.27. Proper Instructions . . . . . . . . . . . . . . . . . . . . . .22
2.28. Segregated Account. . . . . . . . . . . . . . . . . . . . . . .23
3. Powers and Duties of the Custodian with Respect to the
Appointment of Subcustodians . . . . . . . . . . . . . . . . . . . . .24
4. Assistance by the Custodian as to Certain Matters. . . . . . . . . . .30
5. Powers and Duties of the Custodian with Respect to Records . . . . . .30
5.1. Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.2. Access to Records. . . . . . . . . . . . . . . . . . . . . . . .31
5.3. Calculation of Net Asset Value . . . . . . . . . . . . . . . . .31
(i)
<PAGE>
6. Standard of Care and Related Matters . . . . . . . . . . . . . . . . .36
6.1. Liability of the Custodian with Respect to Proper Instructions;
Evidence of Authority; Etc. . . . . . . . . . . . . . . . . . .36
6.2. Liability of the Custodian with Respect to Use of Securities
Systems and Foreign Depositories. . . . . . . . . . . . . . . .37
6.3. Standard of Care; Liability; Indemnification . . . . . . . . . .38
6.4. Reimbursement of Disbursements, Etc. . . . . . . . . . . . . . .40
6.5. Security for Obligations to Custodian. . . . . . . . . . . . . .40
6.6. Appointment of Agents. . . . . . . . . . . . . . . . . . . . . .41
6.7. Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . .41
7. Compensation of the Custodian. . . . . . . . . . . . . . . . . . . . .41
8. Termination of Agreement as to One or More Funds; Successor
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
9. Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
10. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
11. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
12. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
14. Obligations Several. . . . . . . . . . . . . . . . . . . . . . . . . .45
(ii)
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made this 14th day of June, 1995, between each of the Investment
Companies listed on Appendix C hereto, as the same may be amended from time to
time (each a "Fund" and collectively the "Funds") and Brown Brothers Harriman &
Co. (the "Custodian");
WITNESSETH: That in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT OF CUSTODIAN: Each Fund hereby employs and appoints
the Custodian as a custodian for the term and subject to the provisions of this
Agreement. The Custodian shall not be under any duty or obligation to require a
Fund to deliver to it any securities or funds owned by the Fund and shall have
no responsibility or liability for or on account of securities or funds not so
delivered. Each Fund will deposit with the Custodian copies of the Declaration
of Trust or Certificate of Incorporation and By-Laws (or comparable documents)
of the Fund and all amendments thereto, and copies of such votes and other
proceedings of the Fund as may be necessary for or convenient to the Custodian
in the performance of its duties.
2. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF
EACH FUND HELD BY THE CUSTODIAN: Except for securities and funds held by any
Subcustodians appointed pursuant to the provisions of Section 3 hereof or held
by any Foreign Depositories (as said term is defined in Section 3) utilized by a
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<PAGE>
Subcustodian which powers and duties are set forth in Subsection Agreements,
substantially in the form set forth in Exhibit 1, which each Fund shall from
time to time review and approve as provided in Section 3 hereto, the Custodian
shall have and perform the following powers and duties:
2.1. SAFEKEEPING - To keep safely the securities and other assets of
each Fund that have been delivered to the Custodian and, on behalf of each Fund,
from time to time to receive delivery of securities for safekeeping.
2.2. MANNER OF HOLDING SECURITIES - To hold securities of each Fund
(1) by physical possession of the share certificates or other instruments
representing such securities in registered or bearer form, or (2) in book-entry
form by a Securities System (as said term is defined in Section 2.22) or a
Foreign Depository.
2.3. REGISTRATION - To hold registered securities of each Fund, with
or without any indication of fiduciary capacity, provided that securities are
held in an account of the Custodian containing only assets of the Fund or only
assets held as fiduciary or custodian for customers; provided that the records
of the Custodian shall at all times reflect the Fund or other customer for which
such securities and other property are held in such accounts and the respective
interest therein.
2.4. PURCHASES - Upon receipt of proper instructions, as defined
in Section 2.27, insofar as funds are available or as funds are otherwise
provided by the Custodian at its discretion pursuant to Section 2.25 (Advances)
below for the purpose, to pay
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<PAGE>
for and receive securities purchased for the account of a Fund, payment being
made only upon receipt of the securities (1) by the Custodian, or (2) by a
clearing corporation of a national securities exchange of which the Custodian is
a member, or (3) by a Securities System or a Foreign Depository. HOWEVER,
NOTWITHSTANDING THE FOREGOING, (i) in the case of repurchase agreements entered
into by a Fund, the Custodian (as well as an Agent) may release funds to a
Securities System, a Foreign Depository or a Subcustodian prior to the receipt
of advice from the Securities System, Foreign Depository or Subcustodian that
the securities underlying such repurchase agreement have been transferred by
book entry into the Account (as defined in Section 2.22) of the Custodian (or
such Agent) maintained with such Securities System or to the Foreign Depository
or Subcustodian, so long as such payment instructions to the Securities System,
Foreign Depository or Subcustodian include a requirement that delivery is only
against payment for securities, (ii) in the case of foreign exchange contracts,
options, time deposits, call account deposits, currency deposits, and other
deposits, contracts or options pursuant to Sections 2.10, 2.12, 2.13, 2.l4 and
2.15, the Custodian may make payment therefor without receiving an instrument
evidencing said deposit, contract or option so long as such payment instructions
detail specific securities to be acquired, and (iii) the Custodian may make
payment for securities prior to receipt thereof in accordance with (A)
governmental regulations, (B) rules of Securities Systems, Foreign Depositories
or other U.S. or foreign clearing
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<PAGE>
agencies, (C) generally accepted trade practice in the applicable local market,
(D) the terms of the instrument representing the security, or (E) proper
instructions.
2.5. EXCHANGES - Upon receipt of proper instructions, to exchange
securities held by it for the account of a Fund for other securities in
connection with any reorganization, recapitalization, split-up of shares, change
of par value, conversion or other event relating to the securities or the issuer
of such securities and to deposit any such securities in accordance with the
terms of any reorganization or protective plan. Without proper instructions,
the Custodian may surrender securities in temporary form for definitive
securities, may surrender securities for transfer into an account as permitted
in Section 2.3, and may surrender securities for a different number of
certificates or instruments representing the same number of shares or same
principal amount of indebtedness, provided the securities to be issued are to be
delivered to the Custodian.
2.6. SALES OF SECURITIES - Upon receipt of proper instructions, to
make delivery of securities which have been sold for the account of a Fund, but
only against payment therefor (1) in cash, by a certified check, bank cashier's
check, bank credit, or bank wire transfer, or (2) by credit to the account of
the Custodian with a clearing corporation of a national securities exchange of
which the Custodian is a member, or (3) by credit to the account of the
Custodian or an Agent of the Custodian with a Securities System or a Foreign
Depository. HOWEVER, NOTWITHSTANDING THE FOREGOING, (i) in the case of delivery
of
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<PAGE>
physical certificates or instruments representing securities, the Custodian may
make delivery to the broker buying the securities, against receipt therefor, for
examination in accordance with "street delivery" custom, provided that the
payment therefor is to be made to the Custodian (which payment may be made by a
broker's check) or that such securities are to be returned to the Custodian, and
(ii) the Custodian may make settlement of securities sold, including with
respect to the form of payment, in accordance with (A) governmental regulations,
(B) rules of Securities Systems, Foreign Depositories or other U.S. or
foreign clearing agencies, (C) generally accepted trade practice in the
applicable local market, (D) the terms of the instrument representing the
security, or (E) proper instructions.
2.7. DEPOSITARY RECEIPTS - Upon receipt of proper instructions, to
instruct a Subcustodian or an Agent to surrender securities to the depositary
used by an issuer of American Depositary Receipts or International Depositary
Receipts (hereinafter collectively referred to as "ADRs") for such securities
against a written receipt therefor adequately describing such securities and
written evidence satisfactory to the Subcustodian or Agent that the depositary
has acknowledged receipt of instructions to issue with respect to such
securities ADRs in the name of the Custodian, or a nominee of the Custodian, for
delivery to the Custodian in Boston, Massachusetts, or at such other place as
the Custodian may from time to time designate.
-5-
<PAGE>
Upon receipt of proper instructions, to surrender ADRs to the issuer
thereof against a written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian that the issuer
of the ADRs has acknowledged receipt of instructions to cause its depositary to
deliver the securities underlying such ADRs to a Subcustodian or an Agent.
2.8. EXERCISE OF RIGHTS; TENDER OFFERS - Upon timely receipt of
proper instructions, to deliver to the issuer or trustee thereof, or to the
agent of either, warrants, puts, calls, rights or similar securities for the
purpose of being exercised or sold, provided that the new securities and cash,
if any, acquired by such action are to be delivered to the Custodian, and, upon
receipt of proper instructions, to deposit securities upon invitations for
tenders of securities, provided that the consideration is to be paid or
delivered, or the tendered securities are to be returned, to the Custodian.
2.9. STOCK DIVIDENDS, RIGHTS, ETC. - To receive and collect all
stock dividends, rights and other items of like nature; and to deal with the
same pursuant to proper instructions relative thereto.
2.10. OPTIONS - Upon receipt of proper instructions or upon receipt
of instructions given pursuant to any agreement relating to an option or as
otherwise provided in any such agreement to (i) receive and retain, to the
extent provided to the Custodian, confirmations or other documents evidencing
the purchase, sale or writing of an option of any type on or in
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<PAGE>
respect of a security, securities index or similar form of property by a Fund;
(ii) deposit and maintain in a segregated account, either physically or by book-
entry in a Securities System or Foreign Depository or with a broker, dealer or
other entity, securities, cash or other assets in connection with options
transactions entered into by each Fund; (iii) transfer securities, cash or other
assets to a Securities System, Foreign Depository, broker, dealer or other
entity, as margin (including variation margin) or other security for a Fund's
obligations in respect of any option; and (iv) pay, release and/or transfer such
securities, cash or other assets in accordance with a notice or other
communication evidencing the expiration, termination or exercise of or default
under any such option furnished by The Options Clearing Corporation, by the
securities or options exchange on which such option is traded or by such broker,
dealer or other entity as may be responsible for handling such options
transaction or have authority to give such notice or communication. The
Custodian shall not be responsible for the sufficiency of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements or the performance of the other terms of any agreement relating to
an option. Notwithstanding the foregoing, options on futures contracts and
options to purchase and sell foreign currencies shall be governed by Sections
2.14 and 2.15.
2.11. BORROWINGS - Upon receipt of proper instructions, to deliver
securities of a Fund to lenders or their agents as collateral for borrowings
effected by the Fund,
-7-
<PAGE>
provided that such borrowed money is payable to or upon the Custodian's order as
Custodian for the Fund.
2.12. DEMAND DEPOSIT BANK ACCOUNTS - To open and operate an account
or accounts in the name of each Fund, subject only to draft or order by each
Fund, and to hold in such account or accounts deposits accepted on the
Custodian's books denominated in U.S. and foreign currency, received for the
account of the Fund. The obligation of the Custodian for deposits accepted on
the Custodian's books shall be as follows: (a) the Custodian's obligations for
deposits accepted on the its books and denominated in U.S. currency shall be
that of a U.S. bank for a similar deposit and (b) the Custodian's obligations
for deposits accepted on its books and denominated in any foreign currency shall
be that of a U.S. bank for a similar deposit, provided that such foreign
currency deposits shall have the benefit of and be subject to the provisions of
the last paragraph of Section 6.3 hereof, and accordingly in the event and to
the extent the Custodian shall be unable to obtain payment due to a Sovereign
Risk or other factor described in the first sentence of said last paragraph of
Section 6.3 from any bank, trust company or similar institution with which the
Custodian has in turn deposited funds denominated in a foreign currency by
reason of the Custodian's foreign currency deposit obligation to a Fund, the
Custodian's obligation to pay the Fund in respect of such foreign currency
obligation shall similarly be deferred or relieved until and to the extent the
Custodian is able to obtain payment in respect of the Custodian's foreign
deposit from such
-8-
<PAGE>
bank, trust company or similar institution and accordingly shall not be payable
on demand in U.S. currency.
If and when authorized by proper instructions, the Custodian may open
and operate an additional account(s) in such other banks, trust companies or
similar institutions as may be designated by the Fund in such instructions (any
such bank, trust company or similar institution so designated by the Fund being
referred to hereafter as a "Banking Institution"), and may hold in such account
or accounts deposits of the Fund denominated in U.S. or foreign currency,
provided that such account(s) (hereinafter collectively referred to as "demand
deposit bank accounts") shall be in the name of the Custodian or a nominee of
the Custodian for the account of the Fund or for the account of the Custodian's
customers generally and shall be subject only to the Custodian's draft or order;
provided that any such demand deposit bank account shall contain only assets
held by the Custodian as a fiduciary or custodian for the Fund and/or other
customers and that the records of the Custodian shall indicate at all times the
Fund and/or other customers for which such funds are held in such account and
the respective interests therein. Such demand deposit accounts may be opened
with Banking Institutions in the United States and in other countries and may be
denominated in either U. S. Dollars or other currencies as a Fund may determine.
The records for each such account will be maintained by the Custodian but the
deposits in any such account shall not constitute a deposit liability of the
Custodian. All such deposits, including with Subcustodians, shall be deemed to
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<PAGE>
be portfolio securities of a Fund and accordingly the responsibility of the
Custodian therefor shall be the same as and no greater than the Custodian's
responsibility in respect of other portfolio securities of the Fund. The
authorization by a Fund to appoint a Subcustodian as such shall also constitute
a proper instruction to open a demand deposit bank account subject to the
provisions of this paragraph with such Subcustodian.
2.13. INTEREST BEARING CALL OR TIME DEPOSITS - To place interest
bearing fixed term and call deposits with such banks and in such amounts as a
Fund may authorize pursuant to proper instructions. Such deposits may be placed
with the Custodian or with Subcustodians or other Banking Institutions as a Fund
may determine, in the name of the Custodian or a nominee of the Custodian for
the account of the Fund or the account of the Custodian's customers generally
and subject only to the Custodian's draft or order; provided that any such
deposit shall be held in an account containing only assets held by the Custodian
as a fiduciary or custodian for the Fund and/or other customers and that the
records of the Custodian shall indicate at all times the Fund and/or other
customers for which such funds are held in such account and the respective
interests therein. Deposits may be denominated in U. S. Dollars or other
currencies and need not be evidenced by the issuance or delivery of a
certificate to the Custodian, provided that the Custodian shall include in its
records with respect to the assets of a Fund appropriate notation as to the
amount and currency of each such deposit, the accepting Banking Institution and
other appropriate
-10-
<PAGE>
details, and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to the Custodian by the Banking
Institution. Funds, other than those accepted on the Custodian's books as a
deposit, but including those placed with Subcustodians, shall be deemed
portfolio securities of the Fund and the responsibilities of the Custodian
therefor shall be the same as those for demand deposit bank accounts placed with
other banks, as described in the second paragraph of Section 2.12 of this
Agreement. The responsibility of the Custodian for funds accepted on the
Custodian's books as a deposit shall be that of a U. S. bank for a similar
deposit.
2.14. FUTURES CONTRACTS. Upon receipt of proper instructions or upon
receipt of instructions given pursuant to any agreement relating to a futures
contract or an option thereon or as otherwise provided in any such agreement, to
(i) receive and retain, to the extent provided to the Custodian, confirmations
or other documents evidencing the purchase or sale of a futures contract or an
option on a futures contract by a Fund; (ii) deposit and maintain in a
segregated account, either physically or by book-entry in a Securities System or
Foreign Depository, for the benefit of any futures commission merchant, or pay
to such futures commission merchant, securities, cash or other assets designated
by a Fund as initial, maintenance or variation "margin" deposits intended to
secure the Fund's performance of its obligations under any futures contract
purchased or sold or any option on a futures contract written, purchased or sold
by the Fund, in accordance with the provisions
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<PAGE>
of any agreement relating thereto or the rules of the Commodity Futures Trading
Commission and/or any contract market or any similar organization on which such
contract or option is traded; and (iii) pay, release and/or transfer securities,
cash or other assets into or out of such margin accounts only in accordance with
any such agreement or rules. The Custodian shall not be responsible for the
sufficiency of assets held in any segregated account established in compliance
with applicable margin maintenance requirements or the performance of the other
terms of any agreement relating to a futures contract or an option thereon.
2.15. FOREIGN EXCHANGE TRANSACTIONS - Pursuant to proper
instructions, to settle foreign exchange contracts or options to purchase and
sell foreign currencies for spot and future delivery on behalf and for the
account of a Fund with such currency brokers or Banking Institutions, including
Subcustodians, as the Fund may direct pursuant to proper instructions. The
Custodian shall be responsible for the transmission of cash and instructions to
and from the currency broker or Banking Institution with which the contract or
option is made, the safekeeping of all certificates and other documents and
agreements evidencing or relating to such foreign exchange transactions as the
Custodian may receive and the maintenance of proper records as set forth in
Section 5.1. In connection with such transactions, the Custodian is authorized
to make free outgoing payments of cash in the form of U. S. Dollars or foreign
currency without receiving confirmation of a foreign exchange
-12-
<PAGE>
contract or option or confirmation that the countervalue currency completing the
foreign exchange contract has been delivered or received or that the option has
been delivered or received. Each Fund accepts full responsibility for its use
of third-party foreign exchange dealers and for execution of said foreign
exchange contracts and options and understands that the Fund shall be
responsible for any and all costs and interest charges which may be incurred by
the Fund or the Custodian as a result of the failure or delay of third parties
to deliver foreign exchange.
Alternatively, such transactions may be undertaken by the Custodian as
principal, if instructed by a Fund.
Foreign exchange contracts and options, other than those executed with
the Custodian as principal, but including those executed with Subcustodians,
shall be deemed to be portfolio securities of a Fund and the responsibility of
the Custodian therefor shall be the same as and no greater than the Custodian's
responsibility in respect of other portfolio securities of the Fund. The
responsibility of the Custodian with respect to foreign exchange contracts and
options executed with the Custodian as principal shall be that of a U. S. bank
with respect to a similar contract or option.
2.16. STOCK LOANS - Upon receipt of proper instructions, to deliver
securities of a Fund, in connection with loans of securities by the Fund, to the
borrower thereof prior to receipt of the collateral, if any, for such borrowing,
provided that for stock loans secured by cash collateral the Custodian's
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instructions to any Securities System holding such securities require that the
Securities System may deliver the securities to the borrower thereof only upon
receipt of the collateral for such borrowing.
2.17. COLLECTIONS - (i) To collect and receive all income, payments
of principal and other payments with respect to the securities held hereunder,
and in connection therewith to deliver the certificates or other instruments
representing the securities to the issuer thereof or its agent when securities
are called, redeemed, retired or otherwise become payable; PROVIDED, THAT the
payment is to be made in such form and manner and at such time, which may be
after delivery by the Custodian of the instrument representing the security, as
is in accordance with the terms of the instrument representing the security, or
such proper instructions as the Custodian may receive, or governmental
regulations, the rules of Securities Systems, Foreign Depositories or other U.S.
or foreign securities depositories and clearing agencies or, with respect to
securities referred to in clause (iii) of the last sentence of Section 2.4, in
accordance with generally accepted trade practice; (ii) to execute ownership and
other certificates and affidavits for all federal and state tax purposes in
connection with receipt of income, principal or other payments with respect to
securities of a Fund or in connection with transfer of securities; and (iii)
pursuant to proper instructions to take such other actions with respect to
collection or receipt of funds or transfer of securities which
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involve an investment decision. The custodian shall give notice of assets of
the Fund not received when due.
2.18. DIVIDENDS, DISTRIBUTIONS AND REDEMPTIONS - Upon receipt of
proper instructions from a Fund, or upon receipt of instructions from the Fund's
shareholder servicing agent or agent with comparable duties (the "Shareholder
Servicing Agent") (given by such person or persons and in such manner on behalf
of the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities to the Shareholder Servicing Agent
or otherwise apply funds or securities, insofar as available, for the payment of
dividends or other distributions to Fund shareholders. Upon receipt of proper
instructions from a Fund, or upon receipt of instructions from the Shareholder
Servicing Agent (given by such person or persons and in such manner on behalf of
the Shareholder Servicing Agent as the Fund shall have authorized), the
Custodian shall release funds or securities, insofar as available, to the
Shareholder Servicing Agent or as such Agent shall otherwise instruct for
payment to Fund shareholders who have delivered to such Agent a request for
repurchase or redemption of their shares of the Fund.
2.19. PROXIES, NOTICES, ETC. - Promptly to deliver or mail to each
Fund all forms of proxies and all notices of meetings and any other notices or
announcements affecting or relating to securities owned by the Fund that are
received by the Custodian, and upon receipt of proper instructions, to execute
and deliver or cause its nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the
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Custodian nor its nominee shall vote upon any of such securities or execute any
proxy to vote thereon or give any consent or take any other action with respect
thereto (except as otherwise herein provided) unless ordered to do so by proper
instructions.
2.20. NONDISCRETIONARY DETAILS - Without the necessity of express
authorization from a Fund, (1) to attend to all nondiscretionary details in
connection with the sale, exchange, substitution, purchase, transfer or other
dealings with securities, funds or other property of the Fund held by the
Custodian except as otherwise directed from time to time by the Directors or
Trustees of the Fund, and (2) to make payments to itself or others for minor
expenses of handling securities or other similar items relating to the
Custodian's duties under this Agreement, provided that all such payments shall
be accounted for to the Fund.
2.21. BILLS - Upon receipt of proper instructions, to pay or cause
to be paid, insofar as funds are available for the purpose, bills, statements
and other obligations of the Fund (including but not limited to interest
charges, taxes, management fees, compensation to officers, directors and
employees of the Fund, and other operating expenses of the Fund).
2.22. DEPOSIT OF FUND ASSETS IN SECURITIES SYSTEMS - The Custodian
may deposit and/or maintain securities owned by a Fund in (i) The Depository
Trust Company, (ii) the Participants Trust Company, (iii) any book-entry system
as provided in Subpart O of Treasury Circular No. 300, 31 CFR 306, Subpart B of
31 CFR Part 350, or the book-entry regulations of federal agencies
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substantially in the form of Subpart O, or (iv) any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository and
whose use the Fund has previously approved in writing (each of the foregoing
being referred to in this Agreement as a "Securities System"). Utilization of a
Securities System shall be in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any, and
subject to the following provisions:
1) The Custodian may deposit and/or maintain Fund securities, either
directly or through one or more Agents appointed by the Custodian (provided that
any such agent shall be qualified to act as a custodian of the Fund pursuant to
the Investment Company Act of 1940 and the rules and regulations thereunder), in
a Securities System provided that such securities are represented in an account
("Account") of the Custodian or such Agent in the Securities System which shall
not include any assets of the Custodian or Agent other than assets held as a
fiduciary, custodian, or otherwise for customers;
2) The records of the Custodian with respect to securities of each Fund
which are maintained in a Securities System shall identify by book-entry those
securities belonging to the Fund;
3) The Custodian shall pay for securities purchased for the account of a
Fund upon (i) receipt of advice from the Securities System that such securities
have been transferred to the Account, and (ii) the making of an entry on the
records of
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the Custodian to reflect such payment and transfer for the account of a Fund.
The Custodian shall transfer securities sold for the account of a Fund upon (i)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Account, and (ii) the making of an entry on the
records of the Custodian to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities System of transfers of
securities for the account of a Fund shall identify the Fund, be maintained for
the Fund by the Custodian or an Agent as referred to above, and be provided to
the Fund at its request. The Custodian shall furnish to each Fund confirmation
of each transfer to or from the account of the Fund in the form of a written
advice or notice and shall furnish to each Fund copies of daily transaction
sheets reflecting each day's transactions in the Securities System for the
account of the Fund on the next business day;
4) The Custodian shall provide each Fund with any report obtained by the
Custodian or any Agent as referred to above on the Securities System's
accounting system, internal accounting control and procedures for safeguarding
securities deposited in the Securities System; and the Custodian and such Agents
shall send to each Fund such reports on their own systems of internal accounting
control as any Fund may reasonably request from time to time.
5) At the written request of a Fund, the Custodian will terminate the
use of any Securities System on behalf of the Fund as promptly as practicable.
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2.23. OTHER TRANSFERS - To deliver securities, funds and other
property of a Fund to a Subcustodian or another custodian as necessary to effect
transactions authorized by proper instructions and upon receipt of proper
instructions, to deliver securities, funds and other property of the Fund to a
Subcustodian or another custodian of the Fund; and, upon receipt of proper
instructions, to make such other disposition of securities, funds or other
property of the Fund in a manner other than or for purposes other than as
enumerated elsewhere in this Agreement, provided that the instructions relating
to such disposition shall state the amount of securities to be delivered and the
name of the person or persons to whom delivery is to be made.
2.24. INVESTMENT LIMITATIONS - In performing its duties generally,
and more particularly in connection with the purchase, sale and exchange of
securities made by or for a Fund, the Custodian may assume unless and until
notified in writing to the contrary that proper instructions received by it are
not in conflict with or in any way contrary to any provisions of the Fund's
Declaration of Trust or Certificate of Incorporation or By-Laws (or comparable
documents) or votes or proceedings of the shareholders or Trustees or Directors
of the Fund. Subject to the provisions of Section 6, the Custodian shall in no
event be liable to a Fund and shall be indemnified by the Fund for any violation
which occurs in the course of carrying out instructions given by the Fund of any
investment limitations to which the Fund is subject or other limitations with
respect to the Fund's powers
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to make expenditures, encumber securities, borrow or take similar actions
affecting the Fund.
2.25. CUSTODIAN ADVANCES. - In the event that the Custodian is
directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund for which there would be, at the close of business on the date
of such payment or transfer, insufficient funds held by the Custodian on behalf
of the Fund, the Custodian may, in its discretion without further proper
instructions, provide an advance ("Advance") to the Fund in an amount sufficient
to allow the completion of the transaction by reason of which such payment or
transfer of funds is to be made. In addition, in the event the Custodian is
directed by proper instructions to make any payment or transfer of funds on
behalf of a Fund as to which it is subsequently determined that the Fund has
overdrawn its cash account with the Custodian as of the close of business on the
date of such payment or transfer, said overdraft shall constitute an Advance.
Any Advance to a Fund shall be payable on demand by the Custodian, unless
otherwise agreed by the Fund and the Custodian, and shall accrue interest from
the date of the Advance to the date of payment by the Fund at a rate agreed upon
from time to time by the Custodian and the Fund. It is understood that any
transaction in respect of which the Custodian shall have made an Advance to a
Fund, including but not limited to a foreign exchange contract or transaction in
respect of which the Custodian is not acting as a principal, is for the account
of and at the risk of the Fund, and not, by reason of such Advance,
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deemed to be a transaction undertaken by the Custodian for its own account and
risk. The Custodian and each Fund acknowledge that the purpose of Advances is
to finance temporarily the purchase or sale of securities for prompt delivery in
accordance with the settlement terms of such transactions or to meet emergency
expenses not reasonably foreseeable by the Fund.
2.26. RESTRICTED SECURITIES. - In the case of a "restricted
security", each Fund shall have the responsibility to provide to or obtain for
the Custodian, the issuer of the security or other appropriate third party any
necessary documentation, including without limitation, legal opinions or
consents, and to take any necessary actions required in connection with the
registration of restricted securities in the manner provided in Section 2.3 upon
acquisition thereof by the Fund or required in connection with any sale or other
disposition thereof by the Fund. Upon acquisition and until so registered in
accordance with Section 2.3, the Custodian shall have no duty to service such
restricted securities, including without limitation, the receipt and collection
of cash and stock dividends, rights and other items of like nature, nor shall
the Custodian have responsibility for the inability of a Fund to exercise in a
timely manner any right in respect of any restricted security or to take any
action in a timely manner in respect of any other type of corporate action
relating to a restricted security. Similarly, the Custodian shall not have
responsibility for the inability of a Fund to sell or otherwise transfer in a
timely manner any restricted security in the absence of any such
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documentation or action to be provided, obtained or taken by the Fund. At such
time as the Custodian shall receive on behalf of a Fund any restricted security,
regardless of when it shall be registered as aforesaid, the Fund shall also
deliver to the Custodian a term sheet summarizing those rights, restrictions or
other matters of which the Custodian should have knowledge, such as exercise
periods, expiration dates and payment dates, in order to assist the Custodian in
servicing such securities. As used herein, the term "restricted security" shall
mean a security which is subject to restrictions on transfer, whether by reason
of contractual restrictions or federal, state or foreign securities or similar
laws, or a security which has special rights or contractual features which do
not apply to publicly-traded shares of, or comparable interests representing,
such security.
2.27. PROPER INSTRUCTIONS - Proper instructions shall mean a
tested telex from a Fund or a written request, direction, instruction or
certification signed or initialed on behalf of the Fund by two or more
persons as the Board of Trustees or Directors of the Fund shall have from
time to time authorized, provided, however, that no such instructions
directing the delivery of securities or the payment of funds to an authorized
signatory of the Fund shall be signed by such person. Those persons
authorized to give proper instructions may be identified by the Board of
Trustees or Directors of a Fund by name, title or position and may include at
least one officer empowered by the Board to name other individuals who are
authorized to give proper
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instructions on behalf of the Fund. Telephonic or other oral instructions
may be given by any one of the above persons, and instructions given by
facsimile transmissions may be given by any two or more of the above persons
and will be considered proper instructions if the Custodian reasonably
believes them to have been given by a person or persons authorized to give
such instructions with respect to the transaction involved. Oral
instructions will be confirmed by tested telex or in writing in the manner
set forth above but the lack of such confirmation shall in no way affect any
action taken by the Custodian in reliance upon such oral instructions. Each
Fund authorizes the Custodian to tape record any and all telephonic or other
oral instructions given to the Custodian by or on behalf of the Fund
(including any of its officers, Directors, Trustees, employees or agents or
any investment manager or adviser or person or entity with similar
responsibilities which is authorized to give proper instructions on behalf of
the Fund to the Custodian). Proper instructions may relate to specific
transactions or to types or classes of transactions, and may be in the form
of standing instructions.
Proper instructions from a Fund may include communications effected
directly between electro-mechanical or electronic devices or systems, in
addition to tested telex, provided that the Fund and the Custodian agree to the
use of such device or system.
2.28. SEGREGATED ACCOUNT - The Custodian shall upon receipt of proper
instructions establish and maintain on its
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books a segregated account or accounts for and on behalf of each Fund, into
which account or accounts may be transferred cash and/or securities of the Fund,
including securities maintained by the Custodian pursuant to Section 2.22
hereof, (i) in accordance with the provisions of any agreement among the Fund,
the Custodian and a broker-dealer registered under the Securities Exchange Act
of 1934 and a member of the National Association of Securities Dealers, Inc. (or
any futures commission merchant registered under the Commodity Exchange Act)
relating to compliance with the rules of the Options Clearing Corporation and of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Fund, (ii) for purposes of segregating cash or securities in
connection with options purchased, sold or written by the Fund or commodity
futures contracts or options thereon purchased or sold by the Fund, (iii) for
the purposes of compliance by the Fund with the procedures required by
Investment Company Act Release No. 10666, or any subsequent release or releases
of the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies, and (iv) as mutually
agreed from time to time between the Fund and the Custodian.
3. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO THE
APPOINTMENT OF SUBCUSTODIANS: The Fund hereby authorizes and instructs the
Custodian to appoint, at any time and from time to time, (i) any bank, trust
company or other entity meeting the
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requirements of an "eligible foreign custodian" under Section 17(f) of the 1940
Act and the rules and regulations thereunder or by order of the Securities and
Exchange Commission exempted therefrom, or (ii) any bank as defined in Section
2(a)(5) of the 1940 Act and the rules and regulations thereunder or an overseas
branch of a "Qualified U.S. Bank" (as such term defined in Rule 17f(5) of the
1940 Act), to hold securities, funds and other property of the Funds which are
maintained outside the United States (a "Subcustodian"). The Fund hereby further
authorizes and instructs the Custodian to utilize any securities depositories
outside the United States which meet the requirements of Section 17(f) of the
1940 Act and the rules and regulations thereunder or by order of the Securities
and Exchange Commission exempted therefrom (a "Foreign Depository"). The Fund
shall approve in writing (1) the appointment of each Subcustodian and the
subcustodian agreement to be entered into between such Subcustodian and the
Custodian, and (2) if the Subcustodian is organized under the laws of a country
other than the United States, the country or countries in which the Subcustodian
is authorized to hold securities, cash and other property of the Fund. Upon
such approval by the Fund, the Custodian is authorized on behalf of the Fund to
notify each Subcustodian of its appointment as such.
Those Subcustodians, and the countries where and the Foreign
Depositories through which they or the Custodian may hold securities, cash and
other property of each Fund which each Fund has approved to date are set forth
on the applicable Appendix A
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hereto. Such Appendix shall be amended from time to time as Subcustodians,
and/or countries and/or Foreign Depositories are changed, added or deleted. A
Fund shall be responsible for informing the Custodian sufficiently in advance of
a proposed investment which is to be held in a country not listed on Appendix A,
in order that there shall be sufficient time for the Fund to give the approval
required by the preceding paragraph and for the Custodian to put the appropriate
arrangements in place with such Subcustodian, including negotiation of a
subcustodian agreement and submission of such subcustodian agreement to the Fund
for approval.
If any Subcustodian or Foreign Depository set forth in Appendix A (a)
sends notice to the Custodian that it will no longer serve as Subcustodian, or
(b) shall no longer satisfy the requirements of a branch of a "Qualified U.S.
Bank" or an "Eligible Foreign Custodian" under the 1940 Act, the Custodian shall
promptly notify the applicable Fund of such development. In such event and upon
receipt of such notice, the applicable Fund will promptly review and approve a
new custodial arrangement ("Replacement Subcustodian") in sufficient time to
assure the Fund's continued compliance with the safekeeping requirements of the
1940 Act and the rules adopted thereunder. The Custodian shall, as soon as
practicable after receiving notice of the Fund's approval, transfer the assets
of the Fund to such Replacement Subcustodian.
If a Fund shall have invested in a security to be held in a country
before the foregoing procedures have been completed,
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such security shall be held by such agent as the Custodian may appoint. In any
event, the Custodian shall be liable to such Fund for the actions of such agent
if and only to the extent the Custodian shall have recovered from such agent for
any damages caused the Fund by such agent. At the request of such Fund, the
Custodian agrees to remove any securities held on behalf of the Fund by such
agent, if practical, to an approved Subcustodian. Under such circumstances the
Custodian will collect income and respond to corporate actions on a best efforts
basis.
With respect to securities and funds held by a Subcustodian, either
directly or indirectly (including by a Foreign Depository or foreign clearing
agency) or by a Foreign Depository or foreign clearing agency utilized by the
Custodian, notwithstanding any provision of this Agreement to the contrary,
payment for securities purchased and delivery of securities sold may be made
prior to receipt of the securities or payment, respectively, and securities or
payment may be received in a form, in accordance with (A) governmental
regulations, (B) rules of Foreign Depositories or foreign clearing agencies, (C)
generally accepted trade practice in the applicable local market, (D) the terms
of the instrument representing the security, or (E) proper instructions.
With respect to the securities and funds held by a Subcustodian,
either directly or indirectly (including by a securities depository or a
clearing agency) including demand and interest bearing deposits, currencies or
other deposits and foreign exchange contracts as referred to in Sections 2.12,
2.13,
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2.14 or 2.15, the Custodian shall be liable to a Fund for any loss or damage to
the Fund caused by or resulting from the acts and omissions of any Subcustodian
to the extent that under the terms set forth in the subcustodian agreement
between the Custodian and the Subcustodian (or in the subcustodian agreement
between a Subcustodian and any secondary Subcustodian), the Subcustodian (or
secondary Subcustodian) has failed to perform in accordance with the standard of
conduct imposed under such subcustodian agreement as determined in accordance
with the law which is adjudicated to govern such agreement and in accordance
with any determination of any court as to the duties of said Subcustodian
pursuant to said agreement. The Custodian shall nevertheless be liable to a
Fund (a) for its own negligence in transmitting any instructions received by it
from the Fund (b) for its own negligence in connection with the delivery of any
securities or funds held by it to any such Subcustodian and (c) the Custodian
shall have acted negligently in recommending the Subcustodian, taking into
account the eligible foreign custodians and banks (as those terms are defined in
the 1940 Act and the rules thereunder) which are available to act as
subcustodians within a given jurisdiction, provided that the Custodian shall in
no event be liable for losses which result from systemic or market-wide risks,
including without limitation those arising from custody, clearance and
settlement systems, posed by the financial infrastructure of a given foreign
jurisdiction.
In the event that any Subcustodian appointed pursuant to the
provisions of this Section 3 fails to perform any of its
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obligations under the terms and conditions of the applicable subcustodian
agreement, the Custodian shall use its best efforts to cause such Subcustodian
to perform such obligations. In the event that the Custodian is unable to cause
such Subcustodian to perform fully its obligations thereunder, the Custodian
shall forthwith upon any Fund's request terminate such Subcustodian as a
Subcustodian for each of the Funds in accordance with the termination provisions
under the applicable subcustodian agreement and, if necessary or desirable,
appoint another subcustodian in accordance with the provisions of this Section
3. At the election of a Fund, it shall have the right to enforce, to the extent
permitted by the subcustodian agreement and applicable law, the Custodian's
rights against any such Subcustodian for loss or damage caused the Fund by such
Subcustodian.
The Custodian will not amend any subcustodian agreement or agree to
change or permit any changes thereunder except upon the prior written approval
of each Fund.
The Custodian may, at any time in its discretion upon notification to
each Fund, terminate any Subcustodian of the Funds in accordance with the
termination provisions under the applicable Subcustodian Agreement, and at the
written request of any Fund, the Custodian will terminate any Subcustodian as a
Subcustodian for each of the Funds in accordance with the termination provisions
under the applicable Subcustodian Agreement.
If necessary or desirable, the Custodian may appoint another subcustodian
to replace a Subcustodian terminated pursuant to the
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foregoing provisions of this Section 3, such appointment to be made upon
approval of the successor subcustodian by the Board of Directors or Trustees of
each Fund in accordance with the provisions of this Section 3.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the appropriate Fund or Funds of such claim. No
more than thirty days after written notice to such Fund or Funds of the
Custodian's intention to make such payment, such Fund or such Funds severally
and not jointly will reimburse the Custodian the amount of such payment made in
respect of each such Fund except in respect of any negligence or misconduct of
the Custodian.
4. ASSISTANCE BY THE CUSTODIAN AS TO CERTAIN MATTERS: The Custodian
may assist generally in the preparation of reports to Fund shareholders and
others, audits of accounts, and other ministerial matters of like nature.
5. POWERS AND DUTIES OF THE CUSTODIAN WITH RESPECT TO RECORDS: The
Custodian shall have and perform the following duties with respect to records:
5.1. RECORDS - To create, maintain and retain such records for each
Fund relating to its activities and obligations under this Agreement as are
required under the Investment Company Act of 1940 and the rules and regulations
thereunder (including Section 31 thereof and Rules 31a-1 and 31a-2 thereunder)
and under applicable Federal and State tax laws. All such records will be the
property of the Fund to which they relate and in the
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event of termination of this Agreement shall be delivered to the successor
custodian.
5.2. ACCESS TO RECORDS - The books and records maintained by the
Custodian on behalf of a Fund pursuant to Section 5.1 shall at all times during
the Custodian's regular business hours be open to inspection and audit by
officers of, attorneys for and auditors employed by the Fund and by employees
and agents of the Securities and Exchange Commission, provided that all such
individuals shall observe all security requirements of the Custodian applicable
to its own employees having access to similar records within the Custodian and
such regulations as may be reasonably imposed by the Custodian.
5.3. CALCULATION OF NET ASSET VALUE - To compute and determine the
net asset value per share of each Fund as of the close of business on the New
York Stock Exchange on each day on which such Exchange is open, unless otherwise
directed by proper instructions. Such computation and determination on behalf
of each Fund shall be made in accordance with (1) the provisions of the Fund's
Declaration of Trust or Certificate of Incorporation and By-Laws, as they may
from time to time be amended and delivered to the Custodian, (2) the votes of
the Board of Trustees or Directors of the Fund at the time in force and
applicable, as they may from time to time be delivered to the Custodian, and (3)
proper instructions from such officers of the Fund or other persons as are from
time to time authorized by the Board of Trustees or Directors of the Fund to
give instructions with respect to computation and determination of the net asset
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value. On each day that the Custodian shall compute the net asset value per
share of a Fund, the Custodian shall provide the Fund with written reports which
permit the Fund to verify that portfolio transactions have been recorded in
accordance with the Fund's instructions and are reconciled with the Fund's
trading records.
In computing the net asset value of a Fund, the Custodian may rely
upon any information furnished by proper instructions, including without
limitation any information (1) as to accrual of liabilities of the Fund and as
to liabilities of the Fund not appearing on the books of account kept by the
Custodian, (2) as to the existence, status and proper treatment of reserves, if
any, authorized by the Fund, (3) as to the sources of quotations to be used in
computing the net asset value, including those listed in Appendix B, (4) as to
the fair value to be assigned to any securities or other property for which
price quotations are not readily available, and (5) as to the sources of
information with respect to "corporate actions" affecting portfolio securities
of the Fund, including those listed in Appendix B. (Information as to "corporate
actions" shall include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges, recapitalizations,
mergers, redemptions, calls, maturity dates and similar transactions, including
the ex- and record dates and the amounts or other terms thereof.)
In like manner, the Custodian shall compute and determine the net
asset value of a Fund as of such other times as
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the Board of Trustees or Directors of the Fund from time to time may reasonably
request.
Notwithstanding any other provisions of this Agreement, including
Section 6.3, the following provisions shall apply with respect to the
Custodian's foregoing responsibilities in this Section 5.4: The Custodian shall
be held to the exercise of reasonable care in computing and determining net
asset value of each Fund as provided in this Section 5.4, but shall not be held
accountable or liable for any losses, damages or expenses the Fund or any
shareholder or former shareholder of the Fund or any other person may suffer or
incur arising from or based upon errors or delays in the determination of such
net asset value unless such error or delay was due to the Custodian's
negligence, gross negligence or reckless or willful misconduct in determination
of such net asset value. (The parties hereto acknowledge, however, that the
Custodian's causing an error or delay in the determination of net asset value
may, but does not in and of itself, constitute negligence, gross negligence or
reckless or willful misconduct.) In no event shall the Custodian be liable or
responsible to a Fund, any present or former shareholder of the Fund or any
other person for any error or delay which continued or was undetected after the
date of an audit performed by the certified public accountants employed by the
Fund if, in the exercise of reasonable care in accordance with generally
accepted accounting standards, such accountants should have become aware of such
error or delay in the course of performing such audit. The Custodian's
liability for any such
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negligence, gross negligence or reckless or willful misconduct which results in
an error in determination of such net asset value of a Fund shall be limited to
the direct, out-of-pocket loss the Fund, shareholder or former shareholder shall
actually incur, measured by the difference between the actual and the
erroneously computed net asset value, and any expenses the Fund shall incur in
connection with correcting the records of the Fund affected by such error
(including charges made by the Fund's registrar and transfer agent for making
such corrections) or communicating with shareholders or former shareholders of
the Fund affected by such error.
Without limiting the foregoing, the Custodian shall not be held
accountable or liable to a Fund, any shareholder or former shareholder thereof
or any other person for any delays or losses, damages or expenses any of them
may suffer or incur resulting from (1) the Custodian's failure to receive timely
and suitable notification concerning quotations or corporate actions relating to
or affecting portfolio securities of the Fund or (2) any errors in the
computation of the net asset value based upon or arising out of quotations or
information as to corporate actions if received by the Custodian either (i) from
a source which the Custodian was authorized pursuant to the second paragraph of
this Section 5.3 to rely upon, or (ii) from a source which in the Custodian's
reasonable judgment was as reliable a source for such quotations or information
as the sources authorized pursuant to that paragraph. Nevertheless, the
Custodian will use its best judgment in determining whether to
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verify through other sources any information it has received as to quotations or
corporate actions if the Custodian has reason to believe that any such
information might be incorrect.
In the event of any error or delay in the determination of such net
asset value of a Fund for which the Custodian may be liable, the Fund and the
Custodian will consult and make good faith efforts to reach agreement on what
actions should be taken in order to mitigate any loss suffered by the Fund or
its present or former shareholders, in order that the Custodian's exposure to
liability shall be reduced to the extent possible after taking into account all
relevant factors and alternatives. Such actions might include such Fund or the
Custodian taking reasonable steps to collect from any shareholder or former
shareholder who has received any overpayment upon redemption of shares such
overpaid amount or to collect from any shareholder who has underpaid upon a
purchase of shares the amount of such underpayment or to reduce the number of
shares issued to such shareholder. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which should
appropriately be borne by the Custodian, such Fund and the Custodian will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have been reasonably expected to have detected the error sooner
than the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the
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possibility that other parties providing services to the Fund might be induced
to absorb a portion of the loss incurred.
6. STANDARD OF CARE AND RELATED MATTERS:
6.1. LIABILITY OF THE CUSTODIAN WITH RESPECT TO PROPER INSTRUCTIONS;
EVIDENCE OF AUTHORITY; ETC. The Custodian shall not be liable for any action
taken or omitted in reliance upon proper instructions believed by it to be
genuine or upon any other written notice, request, direction, instruction,
certificate or other instrument believed by it to be genuine and signed by the
proper party or parties.
The Secretary or Assistant Secretary of each Fund shall certify to the
Custodian the names, signatures and scope of authority of all persons authorized
to give proper instructions or any other such notice, request, direction,
instruction, certificate or instrument on behalf of the Fund, the names and
signatures of the officers of the Fund, the name and address of the Shareholder
Servicing Agent, and any resolutions, votes, instructions or directions of the
Fund's Board of Directors or Trustees or shareholders. Such certificate may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and may be considered in full force and effect until receipt
of a similar certificate to the contrary.
So long as and to the extent that it is in the exercise of reasonable
care, the Custodian shall not be responsible for the title, validity or
genuineness of any property or evidence of title thereto received by it or
delivered by it pursuant to this Agreement.
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The Custodian shall be entitled, at the expense of the appropriate
Fund or Funds, to receive and act upon advice of (i) counsel regularly retained
by the Custodian in respect of custodian matters, (ii) counsel for such Fund or
Funds, or (iii) such other counsel as such Fund or Funds and the Custodian may
agree upon, with respect to all matters, and the Custodian shall be without
liability for any action reasonably taken or omitted pursuant to such advice.
6.2. LIABILITY OF THE CUSTODIAN WITH RESPECT TO USE OF SECURITIES
SYSTEMS AND FOREIGN DEPOSITORIES - With respect to the portfolio securities,
cash and other property of a Fund held by a Securities System or by a Foreign
Depository utilized by the Custodian or any Subcustodian, the Custodian shall be
liable to the Fund only for any loss or damage to the Fund resulting from use of
the Securities System or Foreign Depository if caused by any negligence,
misfeasance or misconduct of the Custodian or any of its Agents (as said term is
defined in Section 6.6) or of any of its or its Agents' employees or from any
failure of the Custodian or any such Agent to enforce effectively such rights as
it may have against the Securities System or Foreign Depository. At the
election of a Fund, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System, Foreign
Depository or any other person which the Custodian may have as a consequence of
any such loss or damage to the Fund if and to the extent that the Fund has not
been made whole for any such loss or damage.
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6.3. STANDARD OF CARE; LIABILITY; INDEMNIFICATION - The Custodian
shall be held only to the exercise of reasonable care and diligence expected of
a professional custodian in carrying out the provisions of this Agreement,
provided that the Custodian shall not thereby be required to take any action
which is in contravention of any applicable law, rule or regulation or any order
or judgment of any court of competent jurisdiction. The Custodian shall assume
the burden of proving that it exercised such care and diligence in the event of
any loss of property of any of the Funds.
Each Fund agrees to indemnify and hold harmless the Custodian and its
nominees from all claims and liabilities (including counsel fees) incurred or
assessed against it or its nominees in connection with the performance of this
Agreement on behalf of such Fund, except such as may arise from its or its
nominee's breach of the relevant standard of conduct set forth in this
Agreement. Without limiting the foregoing indemnification obligation of each
Fund, each Fund agrees to indemnify the Custodian and any nominee in whose name
portfolio securities or other property of the Fund is registered against any
liability the Custodian or such nominee may incur by reason of taxes assessed to
the Custodian or such nominee or other costs, liability or expense incurred by
the Custodian or such nominee resulting directly or indirectly from the fact
that portfolio securities or other property of the Fund is registered in the
name of the Custodian or such nominee.
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In no event shall the Custodian incur liability under this Agreement
if the Custodian or any Subcustodian, Securities System, Foreign Depository,
Banking Institution or any agent or entity utilized by any of them is prevented,
forbidden or delayed from performing, or omits to perform, any act or thing
which this Agreement provides shall be performed or omitted to be performed, by
reason of (i) any Sovereign Risk or (ii) any provision of any present or future
law or regulation or order of the United States of America or any state thereof,
or of any foreign country or political subdivision thereof, or of any securities
depository or clearing agency which operates a central system for handling of
securities or equivalent book-entries in a country or which operates a
transnational system for the central handling of securities or equivalent book-
entries, or (iii) any provision of any order or judgment of any court of
competent jurisdiction. A "Sovereign Risk" shall mean nationalization,
expropriation, devaluation, revaluation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's property; or acts of war, terrorism,
insurrection or revolution; or any other act or event beyond the Custodian's
control.
Except to the extent that (i) the Custodian has specifically agreed to
comply with a rule or regulation, or (ii) the Custodian is bound by a rule or
regulation in the performance
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of its duties hereunder, including Rule 17f-5 under the Investment Company Act
of 1940, the Custodian shall not be responsible for compliance of this Agreement
and the actions to be taken hereunder with any rules, regulations and
restrictions including without limitation those imposed by a Fund's prospectus
or the Investment Company Act of 1940 and the rules and regulations thereunder.
6.4. REIMBURSEMENT OF DISBURSEMENTS, ETC. - The Custodian shall be
entitled to receive reimbursement from each Fund on demand, in the manner
provided in Section 7, for its cash disbursements, expenses and charges
(including the fees and expenses of any Subcustodian or any Agent) made or
incurred in respect of such Fund in connection with this Agreement, but
excluding salaries and usual overhead expenses.
6.5. SECURITY FOR OBLIGATIONS TO CUSTODIAN - If the Custodian or
any nominee thereof shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of this
Agreement (collectively a "Liability"), in respect of a Fund, except such as may
arise from its or such nominee's breach of the relevant standard of conduct set
forth in this Agreement, or if the Custodian shall make any Advance to a Fund,
then in such event any property at any time held for the account of such Fund by
the Custodian or a Subcustodian shall be security for such Liability of such
Fund or for such Advance and the interest thereon, and if the Fund shall fail to
pay such Advance or interest when due or shall fail to reimburse or indemnify
the Custodian promptly in respect of a
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Liability, the Custodian shall be entitled to utilize available cash and to
dispose of the Fund's property, including securities, to the extent necessary to
obtain repayment, reimbursement or indemnification.
6.6. APPOINTMENT OF AGENTS - The Custodian may at any time or times
in its discretion appoint (and may at any time remove) any other bank or trust
company as its agent (an "Agent") to carry out such of the provisions of this
Agreement as the Custodian may from time to time direct, provided, however, that
the appointment of such Agent (other than an Agent appointed pursuant to the
third paragraph of Section 3) shall not relieve the Custodian of any of its
responsibilities under this Agreement.
6.7. POWERS OF ATTORNEY - Upon request, each Fund shall deliver to
the Custodian such proxies, powers of attorney or other instruments as may be
reasonable and necessary or desirable in connection with the performance by the
Custodian or any Subcustodian of their respective obligations under this
Agreement or any applicable subcustodian agreement.
7. COMPENSATION OF THE CUSTODIAN: Each Fund shall pay the
Custodian a custody fee based on such fee schedule as may from time to time be
agreed upon in writing by the Custodian and the Fund. Such fee, together with
all amounts for which the Custodian is to be reimbursed in accordance with
Section 6.4, shall be billed to the appropriate Fund and be paid in cash to the
Custodian.
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8. TERMINATION OF AGREEMENT AS TO ONE OR MORE FUNDS; SUCCESSOR
CUSTODIAN: With respect to each Fund, this Agreement shall continue in full
force and effect until the first to occur of: (a) termination by the Custodian
by an instrument in writing delivered or mailed to such Fund, such termination
to take effect not sooner than seventy five (75) days after the date of such
delivery or (b) termination by such Fund by an instrument in writing delivered
or mailed to the Custodian, such termination to take effect not sooner than
seventy-five (75) days after the date of such delivery. In the event of
termination pursuant to this Section 8 by any Fund (a "Terminating Fund"), each
Terminating Fund shall make payment of all accrued fees and unreimbursed
expenses with respect to such Terminating Fund within a reasonable time
following delivery of a statement to the Terminating Fund setting forth such
fees and expenses and in any event prior to delivery of the securities, cash or
other property held by the Custodian to the Terminating Fund or a successor
custodian. Each Terminating Fund shall identify in any notice of termination a
successor custodian or custodians to which the cash, securities or other assets
of such Fund shall, upon termination of this Agreement with respect to such
Terminating Fund, be delivered. In the event that no written notice designating
a successor custodian shall have been delivered to the Custodian on or before
the date when termination of this Agreement as to a Terminating Fund shall
become effective, the Custodian may deliver to a bank or trust company doing
business in Boston, Massachusetts, of its own selection, having an
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aggregate capital, surplus, and undivided profits, as shown by its last
published report, of not less than $25,000,000, all securities cash and other
property of such Terminating Fund held by the Custodian under this Agreement.
Thereafter such bank or trust company shall be the successor or the Custodian
with respect to such Terminating Fund under this Agreement. In the event that
securities, cash and other property of such Terminating Fund remain in the
possession of the Custodian after the date of termination hereof with respect to
such Terminating Fund owing to failure of the Terminating Fund to appoint a
successor custodian, the Custodian shall be entitled to compensation for its
services in accordance with the fee schedule most recently in effect, for such
period as the Custodian retains possession of such securities, cash and other
property, and the provisions of this Agreement relating to the duties and
obligations of the Custodian and the Terminating Fund shall remain in full force
and effect.
In the event of the appointment of a successor custodian, it is agreed that the
cash, securities and other property owned by a Terminating Fund and held by the
Custodian, any Subcustodian or nominee shall be delivered to the successor
custodian; and the Custodian agrees to cooperate with such Terminating Fund in
execution of documents and performance of other actions necessary or desirable
in order to substitute the successor custodian for the Custodian under this
Agreement.
9. AMENDMENT: This Agreement constitutes the entire understanding
and agreement of the parties hereto with respect to
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the subject matter hereof. No provision of this Agreement may be amended or
terminated except by a statement in writing signed by the party or parties
against which enforcement of the amendment or termination is sought.
In connection with the operation of this Agreement, the Custodian and
the Funds may agree in writing from time to time on such provisions
interpretative of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Agreement.
The section headings in this Agreement are for the convenience of the
parties and in no way alter, amend, limit or restrict the contractual
obligations of the parties set forth in this Agreement.
10. GOVERNING LAW: This Agreement is executed and delivered in The
Commonwealth of Massachusetts and shall be governed by and construed according
to the laws of said Commonwealth.
11. NOTICES: Notices and other writings delivered or mailed postage
prepaid to Each Fund addressed to the Fund c/o BEA Associates, 153 East 53rd
Street, New York, New York 10022 or to such other address as a Fund may have
designated to the Custodian in writing, or to the Custodian at 40 Water Street,
Boston, Massachusetts 02109, Attention: Manager, Securities Department, or to
such other address as the Custodian may have designated to
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the Funds in writing, shall be deemed to have been properly delivered or given
hereunder to the respective addressee.
12. BINDING EFFECT: This Agreement shall be binding on and shall
inure to the benefit of each Fund and the Custodian and their respective
successors and assigns, provided that no party hereto may assign this Agreement
or any of its rights or obligations hereunder without the prior written consent
of the other party.
13. COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
each of the parties.
14. OBLIGATIONS SEVERAL: The Custodian agrees that the obligations
of each Fund hereunder are several and that the Custodian shall have no recourse
against any Fund for the payment or obligations of any other Fund.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above written.
EACH OF THE INVESTMENT COMPANIES BROWN BROTHERS HARRIMAN & Co.
LISTED ON APPENDIX C HERETO
By /s/ Paul P. Stamler By /s/ R.A. Hill
------------------------ ------------------------
NAME: Paul P. Stamler NAME: Richard A. Hill
TITLE: S.V.P. TITLE: Manager
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AGREEMENT
FOR STOCK TRANSFER SERVICES
BETWEEN
THE BRAZILIAN EQUITY FUND, INC.
AND
THE FIRST NATIONAL BANK OF BOSTON
This Agreement is made as of September 1, 1995 by and between The
Brazilian Equity Fund, Inc., a Maryland corporation (the "Fund") and The First
National Bank of Boston, a national banking association with its head offices at
100 Federal Street, Boston, Massachusetts, 02110 ("Bank of Boston"). This
Agreement sets forth the terms and conditions under which Bank of Boston will
serve as Sole Transfer Agent and Registrar for the Fund.
1. APPOINTMENT. The Fund hereby appoints Bank of Boston to provide
transfer agency and registrar services in accordance with the terms set
forth in this Agreement. Bank of Boston accepts such appointment and
agrees to furnish such services in accordance with the terms as set forth
herein.
2. COMPLIANCE WITH GOVERNMENT RULES AND REGULATIONS. Bank of Boston
undertakes to comply with all applicable requirements of the Securities Act
of 1933, as amended, the Investment Company Act of 1940, as amended, and
any laws, rules and regulations of governmental authorities having
jurisdiction with respect to all duties to be performed by Bank of Boston
hereunder. Except as specifically set forth herein, Bank of Boston assumes
no responsibility for such compliance by the Fund.
3. INSTRUCTIONS. Bank of Boston shall with respect to items 11 and
36 contained in Section 5 herein, act only upon oral or written
instructions received from any officer of the Fund or any person set forth
in Schedule I hereto. Schedule I may be amended from time to time by the
Fund by providing to Bank of Boston with such amended Schedule, together
with a certificate, signed by two officers of the Fund, certifying that
such amended Schedule shall supersede and replace the Schedule then in
effect.
4. FEE FOR STANDARD SERVICES. For the standard services set forth
in Section 5 hereto, the Fund will be charged an annual fee and $18,000,
payable in equal monthly installments, as billed.
5. DESCRIPTION OF STANDARD SERVICES. Bank of Boston agrees to
provide the following services to the Fund.
ACCOUNT MAINTENANCE:
1. Administrative services as Transfer Agent
2. Administrative services as Registrar
3. Maintaining shareholder accounts, including processing of new accounts
4. Posting and acknowledging address changes and processing other routine
file maintenance adjustments
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Page 2
ACCOUNT MAINTENANCE, CONTINUED:
5. Posting all transactions, including debit and credit certificates to
the stockholder file
6. Researching and responding to all stockholder inquiries, including
mailing prospectuses, semi-annual and annual reports
7. Remote inquiry access to Masterfile via PC or terminal with
telecommunications software
8. Confirmations of purchases and sales of shares of the Fund
9. Maintaining shareholder mailing database
10. Prepare and mail account statements to shareholders
CERTIFICATE ISSUANCE:
11. Certificate issuance, cancellation and registration
12. Daily Transfer Reports
13. Processing window items, mail items and all legal transfers
14. Combining certificates into large denominations
15. Processing Indemnity Bonds and replacing lost certificates
16. Maintaining stop-transfers, including the placing and removing of same
MAILING, REPORTING AND MISCELLANEOUS SERVICES:
17. Addressing and enclosing Semi-Annual Reports, two (2) per annum for
registered shareholders
18. Preparing a full Statistical Report to reflect shareholder base by
geographic residence code, class code, and share group, one (1) per
annum
19. Preparing a full stockholder list, one (1) per annum (in addition to
the list provided under item 22)
20. Coding "multiple" accounts at a single household to suppress mailing
of reports to same
21. Providing Bank of Boston's toll free number for Shareholder Services
ANNUAL MEETING SERVICES:
22. Preparing a full stockholder list as of the Annual Meeting Record Date
23. Administrative coordination in connection with Proxy Material
Distribution
24. Addressing proxy cards
25. Enclosing proxy card along with notice and statement, return envelope
and Annual Report via Bipak envelope
26. Receiving, opening and examining returned proxies
27. Writing in connection with unsigned or improperly executed proxies
28. Providing summary reports on status of tabulation on a daily basis
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ANNUAL MEETING SERVICES, CONTINUED:
29. Responding to inquiries as to whether specific accounts have yet voted
30. Tabulating returned proxies
31. Preparing a final Annual Meeting List reflecting how each account has
voted on each proposal
32. Attending Annual Meeting as Inspector of Election
33. Interfacing with outside proxy solicitor
ABANDONED PROPERTY REPORTING SERVICES:
34. Preparing Abandoned Property Reports, one (1) per annum to all 50
states
35. Preparing a set of labels, one (1) per annum to perform "Due
Diligence" mailing
DIVIDEND SERVICES:
As Dividend Disbursing Agent and Paying Agent, Bank of Boston will
perform the dividend related services indicated below, pursuant to the
following terms and conditions:
- Checks to be drawn on The First National Bank of Boston and funds
immediately available in-house on mailing date.
- All funds must be received by 1:00 P.M., EASTERN TIME via Federal
Funds Wire or Bank of Boston Demand Deposit Account debit.
- Dividend checks will be released upon receipt of funding.
36. Preparing and mailing quarterly dividends (check includes address
change feature) with an additional enclosure with each dividend check
37. Preparing a hardcopy dividend list as of each dividend record date
38. Preparing and filing Federal Information Returns (Form 1099) of
dividends paid in a year and mailing a statement to each stockholder
39. Preparing and filing State Information Returns of dividends paid in a
year to stockholders resident within such state
40. Preparing and filing annual withholding return (Form 1042) and
payments to the government of income taxes withheld from Non-Resident
Aliens
41. Replacing lost dividend checks
42. Providing photocopies of cancelled checks when requested
43. Reconciling paid and outstanding checks
44. Coding "undeliverable" accounts to suppress mailing dividend checks to
same
45. Processing and recordkeeping of accumulated uncashed dividends
46. Furnishing requested dividend information to stockholders
47. Performing the following duties as required by the Interest and
Dividend Tax Compliance Act of 1983:
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DIVIDEND SERVICES, CONTINUED:
- Withholding tax from shareholder accounts not in compliance with the
provisions of the Act
- Reconciling and reporting taxes withheld, including additional 1099
reporting requirements, to the Internal Revenue Service
- Responding to shareholder inquiries regarding the Regulations
- Mailing to new accounts who have had taxes withheld, to inform them
of procedures to be followed to curtail subsequent back-up
withholding
- Annual mailing to pre-1984 accounts which have not yet been
certified
- Performing shareholder file adjustments to reflect certification of
accounts
48. Automated Clearing House crediting of dividends
DIVIDEND REINVESTMENT SERVICES:
As Administrator of your Dividend Reinvestment Plan ("DRP"), Bank of Boston
will perform the following DRP related services:
49. Reinvestment and/or cash investment transactions of Dividend
Reinvestment Plan participant accounts including the issuances
(subject to prior Fund approval as set forth in the DRP) or purchase
of shares in connection with the DRP
50. Preparing and mailing a dividend reinvestment detailed statement with
an additional enclosure to each Dividend Reinvestment Plan participant
51. Preparing and mailing a cash investment detailed statement with an
additional enclosure to each Dividend Reinvestment participant
52. Maintaining DRP accounts and establishing new participant accounts
53. Processing termination requests
54. Processing withdrawal requests
55. Supplying summary reports for each reinvestment/investment to the Fund
56. Certificate depository
57. Handling shareholder inquiries concerning the Plan
58. Preparing and mailing Form 1099 to participants and related filings
with the IRS
6. CONVERSION OF RECORDS. Bank of Boston agrees to convert
shareholder records as provided on the stockholder masterfile tape. Manual
conversion of records and subsequent conversion of additional information
including, but not limited to, uncashed or returned dividend check
information or certificate detail not included on tape will be priced by
appraisal as set forth in Section 7.
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7. ADDITIONAL SERVICES AND EXPENSES. (a) Items not included in
Section 5 hereof as "Standard Services" such as payment of a stock dividend
or split, or services associated with a special project are to be billed
separately, on an appraisal basis.
(b) Services required by legislation or regulatory fiat which become
effective after the date of this Agreement shall not be a part of the
Standard Services and shall be billed by appraisal.
(c) All out-of-pocket expenses such as telephone USAGE charges associated
with toll free telephone calls, overprinting of proxy cards, postage,
insurance, stationery, facsimile charges, cost of disposal of excess
material, etc. will be billed as incurred. Expenses related to the
attendance of a Bank of Boston representative to act as Inspector of
Election will be billed as incurred.
(d) Good funds to cover postage expenses in excess of $5,000 for
shareholder mailings must be received by Bank of Boston by 1:00 p.m.,
Eastern Time on the scheduled mailing date. Postage expenses less than
$5,000 will be billed as incurred.
(e) Overtime charges will be assessed in the event of late delivery of
material for mailings to shareholders unless the mail date is rescheduled.
Such material includes, but is not limited to: proxy statements, annual
and quarterly reports, dividend enclosures and news releases. Receipt of
material for mailing to shareholders by Bank of Boston's Mail Unit must be
in accordance with Shareholder Services' SCHEDULE OF REQUIRED MATERIAL
DELIVERY TIME FRAMES attached hereto as Schedule II.
(f) ALL SERVICES NOT SPECIFICALLY COVERED UNDER THIS AGREEMENT WILL BE
BILLED IN ACCORDANCE WITH BANK OF BOSTON'S PUBLISHED SCHEDULE OF FEES, OR
BY APPRAISAL, AS APPLICABLE.
8. BILLING DEFINITION OF ACCOUNT MAINTENANCE. For billing purposes,
number of accounts will be based on open accounts on file at beginning of
each billing period, plus any new accounts added during that period.
9. TERMINATION. This Agreement is terminable without penalty by
thirty (30) days written notice by either party.
10. PAYMENT FOR SERVICES. It is agreed that invoices will be
rendered and payable on a monthly basis. Each billing period will,
therefore, be of one (1) month duration.
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11. CONFIDENTIALITY. (a) The information contained in this
Agreement is confidential and proprietary in nature. By receiving this
Agreement, the Fund agrees that none of its directors, officers, employees,
or agents without the prior written consent of Bank of Boston, will
divulge, furnish or make accessible to any third party, except as permitted
by the next sentence, any part of this Agreement or information in
connection therewith which has been or may be made available to it. In
this connection, the Fund agrees that it will limit access to the Agreement
and such information to only those officers or employees with
responsibilities for analyzing the Agreement and to its counsel and such
independent consultants hired expressly for the purpose of assisting in
such analysis. In addition, the Fund agrees that any persons to whom such
information is properly disclosed shall be informed of the confidential
nature of the Agreement and the information relating thereto, and shall be
directed to treat the same appropriately.
(b) Bank of Boston agrees to keep confidential all records of the Fund and
information relating to the Fund and its shareholders that it may have
obtained pursuant to the performance of its obligations hereunder. Bank of
Boston further agrees that it will not disclose any such information
without the prior written consent of the Fund.
(c) The agreement regarding confidentiality set forth in paragraphs (a)
and (b) above shall be subject to the proviso that if the information
described in such paragraphs is required by law or judicial process to be
disclosed, the Fund or Bank of Boston, as the case may be, shall promptly
give notice to the other party of such requirement and shall disclose only
such information as is legally required and shall consult with the other
party as to the advisability of taking legally available steps to resist or
narrow such disclosure.
12. ASSIGNABILITY. The Bank may, without further consent on the part
of the Company, subcontract for the performance hereof with any entity with
which the Bank is affiliated, which entity is duly registered as a transfer
agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934
provided however, that the Bank shall be as fully responsible to the
Company for the acts and omissions of any subcontractor as it is for its
own acts and omissions.
13. RECORDS. The books and records pertaining to the Fund, which are
in the possession of Bank of Boston, shall be the property of the Fund.
The Fund shall have access to such books and records at all times during
Bank of Boston's normal business hours. Upon the reasonable request of the
Fund and at the Fund's expense, copies of any such books and records shall
be provided by Bank of Boston to the Fund.
14. COOPERATION WITH ACCOUNTANTS AND OTHER SERVICE PROVIDERS. Bank
of Boston shall cooperate with the Fund's independent accountants and
administrator. Bank of Boston shall provide to the accountants such
information as may be necessary for the accountants to render their opinion
as required by the Fund.
15. STANDARD OF CARE. Bank of Boston shall be obligated to exercise
due care and diligence in the performance of its duties hereunder and
hereby agrees to act in good faith and to use its best efforts when
providing the standard services set forth in Section 5 herein or for any
additional services contemplated under Section 7 of this Agreement.
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THE FUND
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16. NOTICES. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or
mailed by registered mail, postage prepaid, (1) to Bank of Boston at P.O.
Box 1865, M/S 45-02-62, Attention: Client Administration or (2) to the
Fund c/o BEA Associates at 153 East 53rd Street, New York, New York 10022,
Attention: Paul P. Stamler, Senior Vice President.
17. AMENDMENTS. This Agreement may be amended only by written
consent of the parties hereto.
18. 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.
19. HEADINGS. The headings in this Agreement are included for
convenience of reference only and do not constitute a part of this
Agreement.
20. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without reference to
the choice of law principles thereof.
21. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof,
and supersedes any prior negotiations, commitments, understandings or
agreements, both written and oral, between the parties and any of them with
respect to the subject matter hereof.
In witness whereof, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly agreed and authorized,
as of the effective date of this Agreement.
THE FIRST NATIONAL BANK OF BOSTON THE FUND
By: /s/ Gordon C. Stevenson By:/s/ Rachel Manney
------------------------- -------------------------
Name: Gordon C. Stevenson Name: Rachel Manney
Title: Administration Manager Title: V.P. & Treasurer
----------------------- ---------------------
Date: August 29, 1995 Date: September 12, 1995
----------------------- ------------------
<PAGE>
ADMINISTRATION AGREEMENT
ADMINISTRATION AGREEMENT, made as of the 7th day of August, 1995 between
The Brazilian Equity Fund, Inc., a Maryland corporation (the "Fund"), and Bear
Stearns Funds Management Inc., a New York corporation (the "Administrator").
W I T N E S S E T H:
WHEREAS, the Fund is a non-diversified closed-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"); and
WHEREAS, the Fund has retained an investment adviser for the purpose of
investing its assets in securities and desires to retain the Administrator for
certain administrative services, and the Administrator is willing to furnish
such administrative services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto agree as follows:
1. APPOINTMENT. The Fund hereby appoints the Administrator to provide
the services set forth below, subject to the overall supervision of the Board of
Directors of the Fund (the "Board") for the period and on the terms set forth in
this Agreement. The Administrator hereby accepts such appointment and agrees
during such period to render the services herein described and to assume the
obligations herein set forth; for the compensation herein provided.
2. DESCRIPTION OF SERVICES. Subject to the supervision of the Board and
the officers of the Fund, the Administrator shall provide office facilities and
personnel to assist the officers of the Fund in the performance of the following
services:
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(a) Oversee 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;
(b) Oversee the maintenance by Brown Brothers Harriman & Co. of
certain books and records of the Fund as required under the Investment Company
Act and maintain (or oversee maintenance by such other persons as approved by
the Board) such other books and records (other than those maintained by the
investment adviser) required by law or for the proper operation of the Fund;
(c) Assist in the preparation and the filing of the Fund's federal,
state and local income tax returns and any other required tax return;
(d) Review the appropriateness of and arrange for the payment of the
Fund's expenses;
(e) Prepare for review and approval by officers of the Fund financial
information for the Fund's semi-annual, annual and other periodic reports, proxy
statements and other communications with shareholders required or otherwise to
be sent to the Fund's shareholders, and arrange for the printing and
dissemination of such reports and communications to shareholders;
(f) Prepare for review by an officer of the Fund the Fund's periodic
financial reports required to be filed with the Securities and Exchange
Commission ("SEC") on Form N-SAR and Form N-2 and such other reports, forms or
filings, as may be mutually agreed upon;
(g) Prepare reports relating to the business and affairs of the Fund
as may be mutually agreed upon and not otherwise appropriately prepared by the
Fund's investment adviser, custodian, legal counsel or auditors;
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<PAGE>
(h) Prepare such information and reports as may be required by any
stock exchange or exchanges on which the Fund's shares are listed;
(i) Make such reports and recommendations to the Board concerning the
performance of the independent accountants as the Board may reasonably request
or deems appropriate;
(j) Make such reports and recommendations to the Board concerning the
performance and fees of the Fund's custodian and transfer and disbursing agent
as the Board may reasonably request or deems appropriate;
(k) Oversee and review calculations of fees paid to the
Administrator, the investment adviser, the custodian, and any other service
providers of the Fund;
(l) Consult with the Fund's officers, independent accountants, legal
counsel, custodian, accounting agent and transfer and dividend disbursing agent
in establishing the accounting policies of the Fund;
(m) Review implementation of any stock purchase or dividend
reinvestment programs authorized by the Board;
(n) Compute the amount of dividends and distributions to be paid
by the Fund;
(o) Develop and implement procedures to assist the investment
adviser in monitoring, on a monthly basis, compliance with regulatory
requirements and compliance with the Fund's investment objectives, policies and
restrictions as set forth in the Fund's prospectus and as amended by the Board
and by the Fund's shareholders;
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(p) Provide communication and coordination services with regard to
the Fund's investment adviser, transfer and disbursing agent, custodian and
other service providers that render recordkeeping or shareholder communication
services to the Fund;
(q) Provide such assistance to the investment adviser, the custodian
and the Fund's legal counsel and auditors as generally may be required to
properly carry on the business and operations of the Fund; and
(r) Respond to or refer to the Fund's officers or transfer agent,
shareholder inquiries relating to the Fund.
All services are to be furnished through the medium of any directors,
officers or employees of the Administrator as the Administrator deems
appropriate in order to fulfill its obligations hereunder.
Each party shall bear all its own expenses incurred in connection with this
Agreement, except as noted below.
3. COMPENSATION. The Fund will pay the Administrator a monthly fee at
the annual rate of .100% of the first $100 million of the Fund's average net
assets and .080% of amounts over $100 million based on the net asset value on
the last day of each week and on which the New York Stock Exchange is open for
business. In addition to the fee, the Fund would be required to reimburse to
the Administrator all out-of-pocket expenses incurred by the Administrator for
attendance at any meeting (outside of the New York metropolitan area) of the
Board, or any committees of such Board, or at any other meetings or
presentations for which the Administrator is required to attend.
4
<PAGE>
4. RESPONSIBILITY OF ADMINISTRATOR. The Administrator assumes no
responsibility under this Agreement other than to render the services called for
hereunder, and specifically assumes no responsibilities for investment advice or
the investment or reinvestment of the Fund's assets.
5. INDEMNIFICATION. The Administrator shall not be liable to the Fund
for any action taken or omitted to be taken by the Administrator in connection
with the performance of any of its duties or obligations under this Agreement,
and the Fund shall indemnify the Administrator and hold it harmless from and
against all damages, liabilities, costs and expenses (including reasonable
attorneys' fees and amounts reasonably paid in settlement) incurred by the
Administrator in or by reason of any pending, threatened or completed action,
suit, investigation or other proceeding (including an action or suit by or in
the right of the Fund or its security shareholders) arising out of or otherwise
based upon any action actually or allegedly taken or omitted to be taken by the
Administrator in connection with the performance of any of its duties or
obligations under this Agreement; provided, however, that nothing contained
herein shall protect or be deemed to protect the Administrator against or
entitle or be deemed to entitle the Administrator to indemnification in respect
of any liability to the Fund or its security holders to which the Administrator
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or, by reason of its reckless
disregard of its duties and obligations under this Agreement.
6. DURATION AND TERMINATION. This Agreement shall become effective as of
the date hereof and shall thereafter continue in effect unless terminated as
herein provided. This Agreement may be terminated by either party hereto
(without penalty) at any time by giving not less than 60 days' prior written
notice to the other party hereto.
7. SERVICES TO OTHERS. The services of the Administrator to the Fund
hereunder are not exclusive and nothing in this Agreement shall limit or
restrict the right of the Administrator to
5
<PAGE>
engage in any other business or to render services of any kind to any other
corporation, firm, individual or association. The Administrator shall be deemed
to be an independent contractor, unless otherwise expressly provided or
authorized by this Agreement.
8. REFERENCES TO THE ADMINISTRATOR. During the term of this Agreement,
the Fund agrees to furnish the Administrator at the principal office of the
Administrator prior to use thereof all prospectuses, proxy statements, reports
to shareholders, sales literature, or other material prepared for distribution
to shareholders of the Fund or the public that refer in any way to the
Administrator. If the Administrator reasonably objects in writing to such
references within five business days (or such other time as may be mutually
agreed) after receipt thereof, the Fund will modify such references in a manner
reasonably satisfactory to the Administrator. In the event of termination of
this Agreement, the Fund will continue to furnish to the Administrator copies of
any of the above-mentioned materials that refer in any way to the Administrator
and, as soon as practicable after such termination, shall eliminate all
references to the Administrator in all written materials used thereafter. The
Fund shall furnish or otherwise make available to the Administrator such other
information relating to the business affairs of the Fund as the Administrator at
any time, or from time to time, reasonably requests in order to discharge its
obligations hereunder.
9. AMENDMENTS. This Agreement may be amended only by mutual written
consent.
10. NOTICES. Any notice or other communication required to be given
pursuant to this Agreement shall be deemed duly given if delivered or mailed by
registered mail, postage prepaid, (1) to the Administrator at 245 Park Avenue,
8th floor, New York, New York 10167, Attention: Frank J. Maresca, Executive
Vice President or (2) to the Fund c/o BEA Associates at 153 East 53rd Street,
New York, New York 10022, Attention: Paul P. Stamler, Senior Vice President.
11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties hereto solely with respect to the matters covered
hereby and the
6
<PAGE>
relationship between the Fund and Bear Stearns Funds Management Inc. as
Administrator. Nothing in this Agreement shall govern, restrict or limit in any
respect any other business dealings between the parties hereto unless otherwise
expressly provided herein.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without reference to choice of
law principles thereof and in accordance with the Investment Company Act. In
the case of any conflict the Investment Company Act shall control.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
ATTEST: THE BRAZILIAN EQUITY FUND, INC.
/s/ Michael A. Pignataro By: /s/ Paul P. Stamler
- -------------------------- ---------------------------------
Name: Paul P. Stamler
Title: Senior Vice President
ATTEST: BEAR STEARNS FUNDS MANAGEMENT INC.
/s/ Eileen Coyle By: /s/ Frank J. Maresca
- -------------------------- --------------------------------
Name: Frank J. Maresca
Title: Executive Vice President
7
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 1, 1996, by
and among each of the management investment companies listed on SCHEDULE I
hereto, acting either for itself or solely on behalf of the portfolios indicated
on said Schedule (each, a "PORTFOLIO"), as said Schedule may from time to time
be modified or amended (each of such management investment companies in such
individual or representative capacity being hereafter referred to as a
"BORROWER" and collectively as the "BORROWERS") and THE FIRST NATIONAL BANK OF
BOSTON, a national banking association with its head office at 100 Federal
Street, Boston, Massachusetts 02110 (the "BANK").
WHEREAS, the Existing Borrowers and the Bank entered into an Amended and
Restated Credit Agreement dated as of December 15, 1994 (the "PRIOR AGREEMENT")
providing for advances to be made by the Bank to the Existing Borrowers for
temporary or emergency purposes; and
WHEREAS, the Existing Borrowers and the Bank desire to amend and restate
the Prior Agreement to add the New Borrowers as Borrowers; and
WHEREAS, each of the Borrowers is authorized to borrow money for its own
temporary or emergency purposes, or the temporary or emergency purposes of any
of its Portfolios, and desires to enter into this Agreement so that it may
borrow funds from the Bank from time to time for such purposes; and
WHEREAS, the Bank is willing to advance funds to the Borrowers for their
own accounts or for the accounts of any of their Portfolios from time to time on
a demand, discretionary basis on the terms and subject to the conditions set
forth below;
NOW, THEREFORE, in consideration of the mutual promises and agreements of
the parties set forth herein, the parties hereto agree as follows:
Section 1. DEFINITIONS; INTERPRETATION.
Section 1.1. DEFINITIONS. As used herein, the following terms shall have
meanings assigned to them below:
ADJUSTED EURODOLLAR RATE. Applicable to any Interest Period, shall mean a
rate per annum determined pursuant to the following formula:
AER = [ LIBOR ]* DIVIDED BY [ 1.00 - RP ]
AER = Adjusted Eurodollar Rate
LIBOR = London Interbank Offered Rate
RP = Reserve Percentage
*The amount in brackets shall be rounded upwards, if necessary, to the
next higher 1/100 of 1%.
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Where:
"LONDON INTERBANK OFFERED RATE" applicable to any Eurodollar Loan for
any Interest Period means the rate of interest determined by the Bank to be
the prevailing rate per annum at which deposits in U.S. dollars are offered
to the Bank by first-class banks in the London interbank Eurodollar market
on or about 11:00 a.m. (London time) two Business Days before the first day
of such Interest Period in an amount approximately equal to the principal
amount of the Eurodollar Loan to which such Interest Period is to apply for
a period of time approximately equal to such Interest Period.
"RESERVE PERCENTAGE" applicable to any Interest Period means the rate
(expressed as a decimal) applicable to the Bank during such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System for determining the maximum reserve requirement
(including, without limitation, any basic, supplemental, emergency or
marginal reserve requirement) of the Bank with respect to "Eurocurrency
liabilities" as that term is defined under such regulations.
The Adjusted Eurodollar Rate shall be adjusted automatically as of the effective
date of any change in the Reserve Percentage.
AFFECTED LOANS. As defined in Section 2.8(a).
AFFILIATED PERSON. As defined in the 1940 Act and the rules and
regulations promulgated thereunder.
AGREEMENT. This Second Amended and Restated Credit Agreement as originally
executed, or if amended or supplemented from time to time, as so amended or
supplemented. References to the Agreement shall mean and include references to
each of the Exhibits and Schedules hereto.
BANK. As defined in the preamble hereof.
BASE RATE. The greater of (i) the annual rate of interest announced from
time to time by the Bank at its Head Office as its "Base Rate", and (ii) the
Federal Funds Effective Rate plus 1/2 of 1% per annum (rounded upwards, if
necessary, to the next 1/8 of 1%).
BASE RATE LOAN. A Loan that bears interest at the Base Rate.
BORROWER AND BORROWERS. As defined in the preamble hereof.
BORROWING DATE. The date on which any Loan is made or is to be made
hereunder.
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BORROWER'S PERCENTAGE. As applied to any Borrower, for its own account or
for the account of a Portfolio, the percentage obtained by dividing 100 by the
number of Borrowers set forth in SCHEDULE I hereto.
BUSINESS DAY. (i) For all purposes other than as covered by clause (ii)
below, any day other than a Saturday, Sunday or legal holiday on which banks in
Boston, Massachusetts or New York, New York are open for the conduct of a
substantial part of their commercial banking business; and (ii) with respect to
all notices and determinations in connection with, and payments of principal and
interest on, Eurodollar Loans, any day that is a Business Day described in
clause (i) and that is also a day for trading by and between banks in U.S.
Dollar deposits in the London interbank Eurodollar market.
CUSTODIAN. The entity that acts as a Borrower's custodian for purposes of
Section 17(f) of the 1940 Act or, if a Borrower has more than one custodian for
the assets of its Portfolios, the entity that acts as custodian for the assets
of a Portfolio.
DEFAULT. As defined in Section 6.1 hereof.
EURODOLLAR LOAN. Any Loan bearing interest at a rate determined with
reference to the Adjusted Eurodollar Rate.
EVENT OF DEFAULT. As defined in Section 6.1 hereof.
EXISTING BORROWERS. Those Borrowers identified as "Existing Borrowers" on
SCHEDULE I hereto.
FEDERAL FUNDS EFFECTIVE RATE. For any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal Funds
transactions with members of the Federal Reserve System arranged by Federal
Funds brokers, as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day that is a Business Day, the
average of the quotations for such day on such transactions received by the Bank
from three Federal Funds brokers of recognized standing selected by the Bank.
HEAD OFFICE. The head office of the Bank, which at present is located at
100 Federal Street, Boston, Massachusetts 02110.
INDEBTEDNESS. All obligations, contingent and otherwise, that in
accordance with generally accepted accounting principles should be classified
upon the obligor's balance sheet as indebtedness, or to which reference should
be made by footnotes thereto, including, without limitation, in any event and
whether or not so classified: (i) all debt for money borrowed and similar
extensions of credit, whether direct or indirect; (ii) all liabilities secured
by any mortgage, pledge, security interest, lien, charge, or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; and (iii) all guaranties,
endorsements and other
<PAGE>
-4-
contingent obligations, whether direct or indirect, in respect of Indebtedness
of others, including any obligation to supply funds to or in any manner to
invest in, directly, or indirectly, the debtor, to purchase Indebtedness, or to
assure the owner of Indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the Indebtedness held by such owner or otherwise, and the obligations
to reimburse the issuer of any letters of credit.
INTEREST PERIOD. (a) With respect to each Eurodollar Loan made to a
Borrower for its own account or for the account of a Portfolio, the period
commencing on the date of the making or continuation of or conversion to such
Eurodollar Loan and ending seven, 14 or 30 days thereafter, as such Borrower may
elect in the applicable Loan Request delivered pursuant to Section 2.2(a), or
continuation notice delivered pursuant to Section 2.5(b); provided that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (iii) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day
unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the immediately preceding Business Day;
(ii) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically corresponding
day in the calendar month at the end of such Interest Period) shall,
subject to clause (iii) below, end on the last Business Day of a calendar
month;
(iii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date;
(iv) notwithstanding clause (iii) above, no Interest Period shall
have a duration of less than seven days; and if any Interest Period
applicable to such Loan would be for a shorter period, such Interest Period
shall not be available hereunder; and
(v) the Interest Period for any Eurodollar Loan made to any
Portfolio of the RBB Fund may not exceed seven days.
(b) With respect to each Money Market Loan made to a Borrower for its own
account or for the account of a Portfolio, the period commencing on the date of
the making of such Money Market Loan and ending one to 30 days thereafter, as
such Borrower may elect in the applicable Loan Request delivered pursuant to
Section 2.2(a), PROVIDED that:
(i) any Interest Period (other than an Interest Period determined
pursuant to clause (ii) below) that would otherwise end on a day that is
not a Business Day shall be extended to the next succeeding Business Day;
and
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(ii) any Interest Period that would otherwise end after the
Termination Date shall end on the Termination Date.
INVESTMENT ADVISER. BEA Associates, a New York general partnership.
LOAN OR LOANS. As defined in Section 2.1 hereof.
LOAN ACCOUNT. As defined in Section 2.3 hereof.
LOAN REQUEST. As defined in Section 2.2(a) hereof.
MAXIMUM AMOUNT. With respect to each Borrower or, if applicable, each
Portfolio, and at the relevant time of reference thereto, an amount equal to the
lesser of the following:
(i) until the Termination Date, $50,000,000, or
(ii) at all times, and when added to all other indebtedness of such
Borrower incurred for itself or on behalf of such Portfolio, as applicable,
then outstanding, 25% of the value of the net assets of such Borrower or
such Portfolio at such time (total assets less all liabilities other than
liabilities for borrowed money), or
(iii) the maximum amount such Borrower is permitted to borrow for
itself or on behalf of such Portfolio, as applicable, at such time under
(a) applicable federal or state laws, statutes and regulations, including
without limitation the asset coverage requirements of Section 18(a)(1) of
the 1940 Act, (b) agreements (whether or not having the force of law) by
such Borrower for itself or on behalf of such Portfolio, as applicable,
with federal, state, local or foreign governmental agencies, authorities or
regulators, as more particularly described in Part 1 of SCHEDULE II hereto,
as amended and in effect from time to time, and (c) limitations on
borrowing adopted by such Borrower for itself or on behalf of such
Portfolio, as applicable, and described in its Registration Statement,
Prospectus or Statement of Additional Information, if applicable, or
elsewhere, as more particularly described in Part 2 of SCHEDULE II hereto,
as amended and in effect from time to time.
Although it will be within the discretion of the Bank whether it makes Loans
under this Agreement, each Borrower understands that the Bank may use the
Maximum Amount as a ceiling on Loans.
MONEY MARKET LOANS. Loans bearing interest at a Money Market Rate.
MONEY MARKET RATE. The rate quoted by the Bank in its sole discretion (it
being understood that the Bank is under no obligation to quote such rate) to
each Borrower for its own account or for the account of a Portfolio as the fixed
rate of interest at which it is
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willing to make a "money market" loan to such Borrower or Portfolio in the
amount and for the period of the requested Loan.
NEW BORROWERS. Those Borrowers identified as "New Borrowers" on SCHEDULE I
hereto.
1940 ACT. The Investment Company Act of 1940, as amended.
PORTFOLIO. As defined in the preamble hereof.
PRIOR AGREEMENT. As defined in the preamble hereof.
PROSPECTUS. The Prospectus required to be delivered by each Borrower and
each Portfolio to offerees of its securities pursuant to the Securities Act of
1933, as amended from time to time.
RBB FUND. The RBB Fund, Inc., an open end management investment company
incorporated under the law of Maryland and registered under the 1940 Act and a
Borrower under this Agreement acting solely on behalf of the Portfolios
indicated on SCHEDULE I hereto.
REGISTRATION STATEMENT. The most recent Registration Statement on Form N-2
or Form N-1A, as applicable, filed by each Borrower on its own behalf or on
behalf of its Portfolios with, and declared effective by, the Securities and
Exchange Commission and amended from time to time, pursuant to the 1940 Act.
REGULATION U. Regulation U promulgated by the Board of Governors of the
Federal Reserve System, as in effect from time to time.
STATEMENT OF ADDITIONAL INFORMATION. The Statement of Additional
Information that must be provided by each Borrower and each Portfolio to
recipients of its Prospectus upon request, pursuant to the rules and regulations
of the Securities and Exchange Commission.
TERMINATION DATE. The date on which the credit facility shall have been
terminated as provided for in Section 2.13 of this Agreement and made demand for
the repayment of all amounts then outstanding hereunder.
Section 1.2. INTERPRETATION. All terms of an accounting character not
specifically defined herein shall have the meanings assigned thereto by
generally accepted accounting principles in the United States of America, unless
the context otherwise requires. Each reference herein to a particular person or
entity (including, without limitation, the Bank) shall include a reference to
the successors and permitted assigns of such person or entity. The words
"herein", "hereof", "hereunder", and words of like import shall refer to this
Agreement as a whole and not to any particular Section or subdivision of this
Agreement.
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Section 2. CREDIT FACILITY.
Section 2.1. CREDIT FACILITY. Subject to the terms and conditions set
forth in this Agreement, the Bank agrees to make revolving loans ("LOANS") to
each Borrower from time to time in the Bank's discretion on any Business Day
during the period from the date hereof to (but not including) the Termination
Date, as may be requested by any Borrower for itself or on behalf of a
Portfolio. Each Loan made by the Bank shall be in the principal amount stated
in the applicable Loan Request, and shall be in a minimum amount of at least
$1,000,000 and an integral multiple of $100,000 (or the balance of the
applicable unborrowed Maximum Amount), provided that at no time shall the
aggregate outstanding principal amount of all Loans made to any Borrower for its
own account or for the account of a Portfolio exceed the Maximum Amount
applicable to such Borrower or Portfolio; and provided, further that at no time
shall the aggregate outstanding principal amount of all Loans to all Borrowers
exceed $50,000,000. Within the limits of the provisions of this Section 2.1,
each Borrower may borrow, pay or prepay, for its own account or the account of
its Portfolios, pursuant to Section 2.7 and reborrow under this Section 2.1.
Section 2.2. NOTICE AND MANNER OF BORROWING. All Loans shall be
requested and funded in accordance with the procedures set forth below:
(a) LOAN REQUESTS. Each request by a Borrower for a Loan hereunder for
its own account or the account of its Portfolios shall be made by telephonic
notice to the Bank (a "LOAN REQUEST") prior to 11:30 a.m., Boston time, on the
Borrowing Date in the case of Base Rate Loans or Money Market Loans, and three
days prior to the Borrowing Date in the case of Eurodollar Loans. Each Loan
Request shall be irrevocable and shall state (i) the principal amount of the
requested Loan; (ii) the interest rate to be applicable thereto; (iii) in the
case of Eurodollar Loans or Money Market Loans, the Interest Period requested
for such Loan (subject to the definition of Interest Period); and (iv) in the
case of a Loan to a Borrower on behalf of a Portfolio, the name of Portfolio for
which the Loan is being requested. Each Loan Request shall also state the
maximum amount such Borrower is then permitted to borrow hereunder, for itself
or on behalf of the relevant Portfolio, as applicable, determined in accordance
with the definition of Maximum Amount. Each Loan Request shall be made by a
duly authorized representative of such Borrower, as specified by such Borrower
in writing from time to time, and the Bank may rely upon any telephone request
that it reasonably believes is made by such a representative. Each Loan Request
shall promptly be followed by a written confirmation thereof, substantially in
the form of EXHIBIT A hereto, PROVIDED that if such written confirmation differs
in any material respect from the action of the Bank taken in good faith reliance
upon such telephone request, the records of the Bank shall control absent
manifest error.
Each Loan Request made by a Borrower for its own account or for the account
of a Portfolio shall constitute a representation and warranty by such Borrower
to the Bank that (i) the Loan requested thereby is permitted under the
Prospectus, Registration Statement and, if applicable, Statement of Additional
Information of such Borrower or Portfolio; (ii) such Loan will not, when made,
cause the aggregate outstanding principal amount of all
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Loans of all Borrowers hereunder to exceed $50,000,000; (iii) the proceeds of
such Loan will be used by such Borrower for itself or on behalf of the
applicable Portfolio only in accordance with the provisions of Section 2.11
hereof; and (iv) all of the representations and warranties of such Borrower made
with respect to itself or its Portfolios contained in Section 4 hereof are true
and correct on and as of the date of such Loan Request and the date of such Loan
as though made on and as of such dates.
(b) FUNDING THE LOANS. If, upon receipt of a Loan Request in accordance
with Section 2.2(a) hereof, the Bank is willing, in its discretion, to make a
Loan to the requesting Borrower for itself or on behalf of a Portfolio, the Bank
shall make such Loan by depositing or wiring the proceeds thereof, on the same
day in immediately available funds and at the applicable Borrower's expense, to
an account maintained on behalf of such Borrower or Portfolio by the Custodian
of such Borrower or Portfolio in accordance with the wiring instructions set
forth in SCHEDULE III hereto, as amended by such Borrower and in effect from
time to time.
Section 2.3. LOAN ACCOUNT. The Bank will maintain a separate account on
its books for each Borrower and each Portfolio (each a "LOAN ACCOUNT") on which
will be recorded, in accordance with the Bank's customary accounting practice,
(a) all Loans made by the Bank to such Borrower for its own account or for the
account of such Portfolio, (b) all payments on such Loans made by such Borrower
for its own account or for the account of such Portfolio to the Bank, and (c)
all other charges and expenses properly chargeable to such Borrower for its own
account or for the account of such Portfolio hereunder. The debit balance of
each Loan Account shall reflect the amount of the applicable Borrower's
indebtedness incurred for its own account or the account of its Portfolios from
time to time to the Bank hereunder and, in the absence of manifest error, shall
constitute conclusive evidence of the indebtedness of such Borrower incurred for
its own account or for the account of its Portfolios to the Bank hereunder.
Section 2.4. REPAYMENT OF LOANS. Each Loan made hereunder shall be
payable on demand or upon the termination of the credit facility provided
hereunder, as contemplated by Section 2.13; PROVIDED that if demand is not
earlier made, each Base Rate Loan shall mature and the principal amount thereof
become due and payable in full on the seventh day following the date of the
making of such Base Rate Loan, in the case of Loans to any Borrower for the
account of any of its Portfolios, and on the Termination Date, in the case of
all other Loans; and each Eurodollar Loan and Money Market Loan shall mature and
the principal amount thereof become due and payable on the last day of the
applicable Interest Period. Only the relevant Borrower or the assets of the
relevant Portfolio, as applicable, shall be liable for the due and punctual
payment of each such Loan made to such Borrower for its own account or the
account of such Portfolio, together with interest accrued thereon and any other
amounts payable with respect thereto.
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Section 2.5. INTEREST.
(a) INTEREST RATE ON LOANS. Except as otherwise provided in Section
2.5(d) below, the outstanding principal amount of each Loan to a Borrower for
its own account or for the account of a Portfolio shall bear interest until
maturity at (i) the Base Rate, (ii) the Adjusted Eurodollar Rate plus 1-1/2%, or
(iii) the applicable Money Market Rate as selected by the applicable Borrower
for itself or for a Portfolio from time to time in the applicable Loan Request.
Interest accrued on each Base Rate Loan shall be paid by the applicable Borrower
for its own account or for the account of a Portfolio on the last day of each
calendar quarter and upon demand by the Bank for repayment of such Loan.
Interest accrued on each Eurodollar Loan or Money Market Loan shall be paid on
the last day of the Interest Period applicable thereto and upon demand by the
Bank for repayment of such Loan.
(b) DURATION OF INTEREST PERIODS. Subject to the provisions of the
definition of Interest Period, the duration of each Interest Period applicable
to a Eurodollar Loan or Money Market Loan shall be as specified in the
applicable Loan Request delivered pursuant to Section 2.2(a). The applicable
Borrower shall have the option to elect a subsequent Interest Period to be
applicable to a Eurodollar Loan or a Money Market Loan made to such Borrower for
its own account or for the account of a Portfolio (if the Bank in its discretion
is then willing to make a Money Market Loan to such Borrower for its own account
or for the account of a Portfolio) by giving notice of such election to the Bank
received no later than 10:00 a.m. Boston time three Business Days before the end
of the then applicable Interest Period.
If the Bank does not receive a notice of election of duration of an
Interest Period for a Eurodollar Loan made to a Borrower for its own account or
for the account of a Portfolio within the applicable time limits specified
therein, or if, when such notice must be given, the Bank shall not then be
willing, in its sole discretion, to continue such Loan or a Default or Event of
Default then exists, such Borrower shall be deemed to have elected to convert
such Loan in whole into a Base Rate Loan on the last day of the then current
Interest Period with respect thereto.
Notwithstanding the foregoing, no Borrower may select an Interest Period to
be applicable to a Loan made to such Borrower for its own account or for the
account of a Portfolio that would end, but for the provisions of the definition
of Interest Period, after the Termination Date.
(c) OVERDUE PRINCIPAL AND INTEREST. Overdue principal and (to the extent
permitted by applicable law) interest on each Loan and all other overdue amounts
payable hereunder shall bear interest compounded monthly and payable on demand
at a rate per annum equal to two percent above the greater of (i) the interest
rate then in effect for such Loan and (ii) the Base Rate, until such amount
shall be paid in full (whether before or after judgment).
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(d) LIMITATION ON INTEREST. No provision of this Agreement shall require
the payment or permit the collection of interest in excess of the rate then
permitted by applicable law.
Section 2.6. PLACE AND MODE OF PAYMENTS; COMPUTATIONS.
(a) Each payment made or caused to be made by a Borrower for its own
account or for the account of a Portfolio to the Bank under this Agreement shall
be made directly to the Bank in United States Dollars at the Bank's Head Office
ABA #011-000-390 Attention: Loretta Barrasso, Commercial Loan Services, not
later than 2:00 p.m., Boston time, on the due date of each such payment, and in
immediately available and freely transferable funds.
(b) If any sum would, but for the provisions of this subsection (b),
become due and payable to the Bank by any Borrower for its own account or for
the account of a Portfolio on any day that is not a Business Day, then such sum
shall become due and payable on the next succeeding Business Day, and interest
payable to the Bank under this Agreement shall be adjusted by the Bank
accordingly.
(c) All computations of interest and fees hereunder shall be made by the
Bank on the basis of a 360-day year and paid for the actual number of days
elapsed.
(d) The Bank will determine the Base Rate in effect from time to time.
Any change in the Base Rate shall, for all purposes of this Agreement, become
effective on, and from the beginning of, the day on which such change shall
first be announced or determined by the Bank in accordance with the Bank's
customary banking practices.
(e) Each payment by a Borrower for its own account or for the account of a
Portfolio under this Agreement shall be made without set-off or counterclaim and
free and clear of and without deduction or withholding of any kind.
Section 2.7. OPTIONAL PREPAYMENTS; CERTAIN MANDATORY PREPAYMENTS.
(a) Each Borrower shall have the right at any time to repay any Base Rate
Loans made to such Borrower for its own account or for the account of a
Portfolio, in whole or in part, upon telephonic notice to the Bank of its
intention to repay such Loan prior to 12:00 noon, Boston time, on the date such
prepayment is to be made; PROVIDED, HOWEVER, that each such prepayment (except a
prepayment in full) shall be made in an amount of $100,000 or an integral
multiple thereof. Except as otherwise provided herein, Eurodollar Loans may
only be prepaid on the last day of the applicable Interest Period, and no Money
Market Loans may be prepaid.
(b) If at any time the aggregate unpaid principal amount of all Loans to
all Borrowers exceeds $50,000,000, the Borrower that borrowed the Loan (for its
own account or for the account of a Portfolio) that caused such excess agrees to
immediately prepay the
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amount of such excess from its own funds or from the funds of such Portfolio, as
applicable, together with any amounts payable pursuant to Section 2.10 hereof.
(c) If at any time the aggregate unpaid principal amount of Loans made to
any Borrower for its own account or for the account of a Portfolio shall exceed
the Maximum Amount applicable to such Borrower or Portfolio, such Borrower
agrees to immediately prepay the amount of such excess from its own funds or
from the funds of such Portfolio, as applicable, together with any amounts
payable pursuant to Section 2.10 hereof.
(d) Upon each repayment or prepayment of any principal of any Loan
pursuant to any of the provisions of this Agreement, the applicable Borrower
hereby absolutely and unconditionally promises, for itself or on behalf of the
relevant Portfolio, to pay to the Bank, and there shall become absolutely due
and payable on the date of each such repayment or prepayment, all of the unpaid
interest accrued to such date on the amount of the principal of the Loans being
repaid or prepaid by such Borrower from its own funds or from the funds of such
Portfolio, as applicable, on such date. Whenever any interest on and any
principal of the Loans are paid simultaneously hereunder, the whole amount paid
shall be applied first to interest then due and payable.
2.8. CHANGED CIRCUMSTANCES.
(a) In the event that:
(i) on any date on which the Adjusted Eurodollar Rate would otherwise
be set the Bank shall have determined in good faith (which determination
shall be final and conclusive) that adequate and fair means do not exist
for ascertaining the London Interbank Offered Rate, or
(ii) at any time the Bank shall have determined in good faith (which
determination shall be final and conclusive) that:
(A) the making or continuation of or conversion of any Loan to a
Eurodollar Loan has been made impracticable or unlawful by (1) the
occurrence of a contingency that materially and adversely affects the
London interbank Eurodollar market or (2) compliance by the Bank in good
faith with any applicable law or governmental regulation, guideline or
order or interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or with any
request or directive of any such governmental authority (whether or not
having the force of law); or
(B) the Adjusted Eurodollar Rate shall no longer represent the
effective cost to the Bank for U.S. dollar deposits in the London interbank
market;
then, and in any such event, the Bank shall forthwith so notify each Borrower
thereof. Until the Bank notifies a Borrower that the circumstances giving rise
to such notice no longer apply, the obligation of the Bank to allow selection by
such Borrower of Loans for its
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own account or for the account of a Portfolio of the type of Loan affected by
the contingencies described in this Section 2.8(a) (herein called "AFFECTED
LOANS") shall be suspended. If at the time the Bank so notifies each Borrower,
a Borrower has previously given the Bank a Loan Request for its own account or
for the account of a Portfolio with respect to one or more Affected Loans but
such Loans have not yet gone into effect, such Loan Request shall be deemed to
be void and, if the Bank in its discretion continues to be willing to lend to
such Borrower for its own account or for the account of a Portfolio, such
Borrower may borrow Loans for its own account or for the account of a Portfolio
of a non-affected type by delivering a substitute Loan Request pursuant to
Section 2.2(a) hereof.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) each Borrower shall, with respect to
the outstanding Affected Loans made to it for its own account or for the account
of a Portfolio, prepay the same, together with interest thereon and any amounts
required to be paid pursuant to Section 2.10, and may borrow Loans for its own
account or for the account of a Portfolio of another type in accordance with
Section 2.1 hereof by delivering substitute Loan Requests pursuant to Section
2.2(a) hereof.
(b) In case any change in law, regulation, treaty or official directive or
the interpretation or application thereof by any court or by any governmental
authority charged with the administration thereof or the compliance with any
guideline or request of any central bank or other governmental authority
(whether or not having the force of law):
(i) subjects the Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by any
Borrower for its own account or for the account of a Portfolio or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of the Bank imposed by the United States of America
or any political subdivision thereof), or
(ii) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, the Bank (other than such
requirements as are already included in the determination of the Adjusted
Eurodollar Rate), or
(iii) imposes upon the Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to the Bank,
reduce the income receivable by the Bank or impose any expense upon the Bank
with respect to any Loans, the Bank shall notify each Borrower thereof. To the
extent such cost, reduction or expense is attributable to any specific Loan or
Loans, the applicable Borrower(s) agree(s) to pay to the Bank for its own
account or for the account of a Portfolio the amount of such increase in cost,
reduction in income or additional expense attributable to such Loan or Loans as
and when such cost, reduction or expense is incurred or determined, upon
presentation by the Bank of a statement in the amount and setting forth the
Bank's calculation thereof, which statement shall be deemed true and correct
absent manifest error. To the extent such cost,
<PAGE>
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reduction or expense is not so attributable to any Loan or Loans, each Borrower,
for its own account or for the account of any of its Portfolios, as applicable,
agrees to pay to the Bank, in the proportion that the average amount of Loans
outstanding made to such Borrower for its own account or for the account of each
Portfolio during the preceding 12-month period (or such shorter period that this
Agreement shall have been effective) bears to the average amount of all Loans
outstanding to all Borrowers for their own accounts or for the accounts of any
of its Portfolios during such period (or, if no Loans shall have been
outstanding, such Borrower's Percentage of such amount), the amount of such
increase in cost, reduction in income or additional expense, determined and paid
as aforesaid.
Section 2.9. INCREASED CAPITAL REQUIREMENTS. If any law or any
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) or the interpretation thereof by a court or
governmental authority with appropriate jurisdiction affects the amount of
capital required to be maintained by the Bank or any corporation controlling the
Bank and the Bank determines that the amount of capital required is increased by
or based upon the existence of the credit facilities established hereunder or
any Loans made pursuant hereto, and such increase has or would have the effect
of reducing the return on the Bank's equity to a level below that which the Bank
could have achieved (taking into consideration the Bank's then existing policies
with respect to capital adequacy and assuming the full utilization of the Bank's
capital) but for such law, rule, regulation, policy, guideline or directive,
then the Bank shall notify each Borrower in writing of such fact. To the extent
such reduction is attributable to any specific Loan or Loans, the applicable
Borrower(s) agree(s) to pay to the Bank, for its own account or for the account
of a Portfolio, the amount of such reduction attributable to such Loan or Loans
as and when such reduction is determined, upon presentation by the Bank of a
statement in the amount and setting forth the Bank's calculation thereof, which
statement shall be deemed true and correct absent manifest error. To the extent
such reduction is not so attributable to any Loan or Loans, each Borrower agrees
to pay, in the proportion that the average amount of Loans outstanding made to
such Borrower for its own account or for the account of each Portfolio, as
applicable, during the preceding 12-month period (or such shorter period that
this Agreement shall have been effective) bears to the average amount of all
Loans outstanding to all Borrowers for their own accounts or for the accounts of
any of their Portfolios during such period (or, if no Loans shall have been
outstanding, such Borrower's Percentage of such amount), the amount of such
reduction, determined and paid as aforesaid. In determining such amount, the
Bank may use any reasonable averaging and attribution methods. In this
connection, the Bank shall allocate such costs among its customers in good faith
and on an equitable basis.
Section 2.10. FUNDING LOSSES. If a Borrower for any reason makes any
payment of principal for its own account or for the account of a Portfolio with
respect to a Eurodollar Loan or Money Market Loan on any date other than the
scheduled maturity thereof, or fails to borrow or continue a Eurodollar Loan or
Money Market Loan after giving a Loan Request or continuation notice therefor,
such Borrower shall, for its own account or for the account of a Portfolio,
reimburse the Bank for any resulting loss or expense incurred by the Bank,
including without limitation any loss reasonably incurred in obtaining,
liquidating or employing of deposits from third parties. Such Borrower shall
pay the amount of such loss
<PAGE>
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or expense for its own account or for the account of a Portfolio upon
presentation of a statement in the amount thereof and setting forth the Bank's
calculation thereof, which statement shall be deemed true and correct absent
manifest error.
Section 2.11. USE OF PROCEEDS. The proceeds of each Loan hereunder made
to a Borrower for its own account or for the account of a Portfolio shall be
used by the applicable Borrower to meet requests for funds from such Borrower
for itself or on behalf of a Portfolio of such Borrower for temporary or
emergency purposes, as specified in the Prospectus of such Borrower or
Portfolio. No portion of any Loan made to a Borrower (other than the New
Borrowers) which is a "closed-end fund" (as identified on SCHEDULE I hereto) is
to be used for the "purpose of purchasing or carrying" any "margin stock" as
such terms are used in Regulations U and X of the Board of Governors of the
Federal Reserve System, 12 C.F.R. 221 and 224, as amended. In addition, each of
the New Borrowers hereby agrees that during the term of this Agreement, no more
than 25% of its assets (after applying the proceeds of any Loans made under this
Agreement) shall consist of such "margin stock". Proceeds for any Loan made to
a Borrower for its own account or for the account of a Portfolio, which Borrower
is an "open-end fund" (as identified on SCHEDULE I hereto) shall be used by such
Borrower solely to effect redemptions to shareholders during the period in which
such Borrower is awaiting receipt of settlement money from the sale of assets
made to cover requests for redemptions.
Section 2.12. DISCRETIONARY DEMAND FACILITY. It is acknowledged and
agreed by each Borrower that the Bank has no obligation to make any Loan
hereunder, and that the decision whether or not to make any Loan requested by
any Borrower for its own account or for the account of a Portfolio is within the
sole and exclusive discretion of the Bank. The Bank may terminate the credit
facilities provided for herein either in whole or in part with respect to one or
more Borrowers for their own accounts or for the accounts of one or more
Portfolios at any time by written notice to the affected Borrower(s).
Section 2.13. TERM. This Agreement and the credit facility provided
herein shall automatically terminate on the earlier to occur of (i) the date on
which the Bank in its sole discretion shall have terminated the credit facility
and made demand for the repayment of all amounts then outstanding hereunder and
(ii) March 31, 1997; PROVIDED that if the Bank shall give written notice to the
Borrowers, after February 1 and prior to February 25 in any year, of its
willingness to extend such termination date for an additional year (which notice
by the Bank may be given or not given in the sole and absolute discretion of the
Bank), then, subject to the Bank's ability to terminate the credit facility at
any time in its discretion as aforesaid, this Agreement shall be extended for an
additional year (to expire on March 31 of the following year).
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Section 3. CONDITIONS PRECEDENT.
Section 3.1. CONDITIONS OF CLOSING. This Agreement shall become
effective upon the receipt by the Bank of the following:
(a) executed original counterparts of this Agreement, signed by the Bank
and each Borrower;
(b) certified copies of the charter documents and bylaws of each New
Borrower, and certified copies of any amendments executed since December 15,
1994 to the charter documents and bylaws of each Existing Borrower;
(c) certified copies of all documents relating to the due authorization
and execution by each Borrower of this Agreement as the Bank may reasonably
request, including, without limitation, all votes of the Board of Directors of
such Borrower authorizing (i) the execution and delivery by such Borrower of
this Agreement, (ii) its performance of all of its agreements and obligations
under this Agreement, and (iii) the borrowings and other transactions
contemplated by this Agreement;
(d) an incumbency certificate, dated the date hereof, signed by the
Secretary or Assistant Secretary of each Borrower setting forth the names and
specimen signatures of each individual authorized to give notices, sign or act
on behalf of such Borrower in connection with the transactions contemplated by
this Agreement;
(e) an opinion of Ballard Spahr Andrews & Ingersoll, counsel to the RBB
Fund, an opinion of Skadden, Arps, Slate, Meagher and Flom, counsel to The First
Israel Fund, Inc. and an opinion from Willkie Farr & Gallagher, counsel to the
remaining Borrowers, substantially in the form of Exhibits B-1, B-2 B-3, and B-4
respectively; and
(f) such other documents as the Bank shall have requested in order to
comply with applicable rules and regulations promulgated by the Federal Reserve
Board and other governmental and regulatory authorities.
Section 3.2. CONDITIONS OF LOANS. The willingness of the Bank in its
discretion to make any Loan to a Borrower for its own account or for the account
of a Portfolio on a Borrowing Date shall be subject to the satisfaction, at or
before the time each such Loan is made, of each of the following conditions
precedent (unless and to the extent that satisfaction of such conditions
precedent or any of them is waived pursuant to Section 16 hereof):
(a) the Bank shall have received a Loan Request from the applicable
Borrower for itself or on behalf of a Portfolio, as required by Section 2.2(a);
(b) the representations and warranties contained in Section 4 of this
Agreement and otherwise made by or on behalf of or with respect to such Borrower
for itself or on behalf of a Portfolio in connection with the transactions
contemplated by this Agreement
<PAGE>
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shall (except to the extent that such representations and warranties relate
expressly to a specific date, and except to the extent of changes resulting from
the transactions contemplated or permitted by this Agreement and changes
occurring in the ordinary course of business that, singly or in the aggregate,
do not materially adversely affect such Borrower or such Portfolio or its
business, assets, operations, prospects or its condition (financial or
otherwise)), be true and correct at and as of such Borrowing Date;
(c) there shall exist no Default or Event of Default upon the making of
such Loan;
(d) the Bank shall be satisfied that there has been no material adverse
change (i) in the business, assets, operations, prospects or condition
(financial or otherwise) of such Borrower or Portfolio since the date of the
most recent financial statements of such Borrower or Portfolio referred to in
Section 4.9, or (ii) in the political or economic conditions prevailing in the
countries of origin of the issuers of the portfolio securities of such Borrower
or Portfolio; and
(e) the making of such Loan shall not contravene any law, regulation,
decree or order binding on such Borrower with respect to itself or a Portfolio
or the Bank, and the Bank shall have received all such certificates and
documents in relation thereto as the Bank or the Bank's counsel shall have
reasonably requested.
Section 4. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers
represents and warrants to the Bank that:
Section 4.1. ORGANIZATION, QUALIFICATION, ETC. Such Borrower is duly
organized and validly existing as a corporation under the laws of its
jurisdiction of incorporation and each Borrower and each Portfolio is duly
qualified to do business in each other jurisdiction wherein the nature of its
properties or its business requires such qualification and in which the failure
to be so qualified could materially adversely affect the business, assets or
condition (financial or otherwise) of such Borrower or Portfolio.
Section 4.2. REGISTRATION UNDER APPLICABLE LAW. Such Borrower is
registered as a closed-end management investment company under the 1940 Act or,
in the case of the RBB Fund, such Borrower is registered as a open-end
management investment company under the 1940 Act.
Section 4.3. AUTHORIZATION, ETC. The execution, delivery and performance
by such Borrower of this Agreement, and the borrowing of Loans for its account
or for the accounts of any of its Portfolios, are within the powers of such
Borrower, have been duly authorized by all necessary and proper action on the
part of such Borrower, and do not and will not (i) violate or contravene any
provision of such Borrower's charter documents or bylaws, or any amendment
thereof; (ii) violate or contravene any provision of the Prospectus,
Registration Statement or Statement of Additional Information, if applicable, of
such Borrower or Portfolio; (iii) conflict with, or result in a breach of any
material term, condition or provision
<PAGE>
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of, or constitute a default under or result in the creation of any mortgage,
lien, pledge, charge, security interest or other encumbrance upon any of the
property or assets of such Borrower or Portfolio under, any agreement, trust
deed, indenture, mortgage or other instrument to which such Borrower is a party
or by which such Borrower or any of its or its Portfolios' property or assets is
bound or affected; or (iv) violate or contravene any provision of any material
law, regulation, order, ruling or interpretation thereunder or any decree, order
or judgment of any court or governmental or regulatory authority, bureau, agency
or official.
Section 4.4. BINDING EFFECT OF AGREEMENT, ETC. This Agreement and all
the provisions hereof constitute the legally valid and binding obligations of
such Borrower, acting on its own behalf or on behalf of a Portfolio, enforceable
against such Borrower in its own capacity or on behalf of a Portfolio in
accordance with their terms, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or affecting
generally the enforcement of creditors' rights and except to the extent that the
availability of equitable remedies is subject to the discretion of the court
before which any proceeding therefor may be brought.
Section 4.5. APPROVALS, ETC. No authorization, approval, consent or
other action by, and no notice to or filing with, any shareholder or creditor of
such Borrower with respect to such Borrower or a Portfolio of such Borrower, or
governmental or regulatory agency or authority having jurisdiction over such
Borrower with respect to such Borrower or a Portfolio of such Borrower, is
required to make valid and legally binding the execution, delivery and
performance by such Borrower of this Agreement for its own account or for the
account of its Portfolios or the consummation by such Borrower for its own
account or for the account of its Portfolios of the transactions contemplated
hereby, or the exercise by the Bank of its rights and remedies hereunder.
Section 4.6. COMPLIANCE WITH OTHER INSTRUMENTS. Such Borrower is in
compliance with all investment policies and restrictions applicable to it or to
its Portfolios identified in its Prospectus, Registration Statement and
Statement of Additional Information, if applicable, and is in compliance with
all investment policies and restrictions applicable to it or its Portfolios
under Section 8(b), Section 13 and all other provisions of the 1940 Act. Such
Borrower is not in violation of any material provision of its charter documents
or bylaws, or any amendment thereof, or in default under any material indenture
or agreement to which it is a party or by which it or any of its property or
assets is bound, or in violation of any material applicable laws or orders,
regulations, rulings, decrees or requirements of any court or governmental or
regulatory agency or authority by which it or any of its property or assets is
bound, which default or violation could have a material adverse effect on the
business, assets, operations, prospects or condition (financial or otherwise) of
such Borrower or any of the Portfolios of such Borrower.
Section 4.7. LITIGATION. There are no pending or, to the best knowledge
of such Borrower, threatened actions, suits, investigations or proceedings at
law or in equity before any federal, state, local or foreign court, governmental
or regulatory authority, agency,
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commission, board, bureau or instrumentality, or board of arbitration, against
or affecting such Borrower or any Portfolio of such Borrower or its right, title
and interest in or to any of its or such Portfolio's properties or assets.
Section 4.8. TAXES. Such Borrower has made or filed all federal, state,
local, foreign and other tax returns, reports and declarations required by any
jurisdiction to which such Borrower is subject, for its own account or for the
account of its Portfolios, and has paid all taxes and other assessments and
charges shown or determined to be due on such returns, reports and declarations
or pursuant to any matters raised by audits or for other reasons known to it,
except those being contested in good faith by appropriate proceedings and as to
which there have been set aside reserves adequate with respect to such tax,
assessment or charge so contested. Such Borrower has set aside on its books,
for its own account or for the account of its Portfolios, provisions reasonably
adequate for the payment of all taxes for periods subsequent to the periods to
which such returns, reports or declarations apply. There are no unpaid taxes
claimed to be due by the taxing authority of any jurisdiction, and such Borrower
knows of no basis for any such claim.
Section 4.9. FINANCIAL STATEMENTS; NO MATERIAL CHANGES.
The audited and certified financial reports of each Borrower with respect
to such Borrower or the Portfolios of such Borrower previously furnished to the
Bank, setting forth the investments of such Borrower or its Portfolios, a
statement of assets and liabilities as of the date of such report and a
statement of operations and a statement of changes in net assets of such
Borrower or its Portfolios for the period then ended, are complete and correct
in all material respects, and fairly present the financial condition of such
Borrower or its Portfolios as of such date and the results of the operations of
such Borrower or its Portfolios for the period ended on such date, all in
accordance with generally accepted accounting principles applied on a consistent
basis. Since the date of each of such reports, there has been no change in the
assets, liabilities, business, condition (financial or otherwise) or results of
operations of such Borrower or any of its Portfolios, that have been, in any
case or in the aggregate, materially adverse.
Section 4.10. NO DEFAULTS. No Default or Event of Default has occurred
and is continuing.
Section 4.11. AFFILIATED PERSONS.
(a) So far as appears from the records of such Borrower, neither the Bank
nor, to the knowledge of such Borrower, any Affiliated Person of the Bank,
individually or in the aggregate, owns, controls or holds with the power to
vote, five percent or more of the outstanding voting securities of such Borrower
or any Portfolio of such Borrower;
(b) neither such Borrower nor, to the knowledge of such Borrower, any
Affiliated Person of such Borrower, directly or indirectly, individually or in
the aggregate, owns, controls or holds with power to vote, either for its own
account or for the account of its
<PAGE>
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Portfolios, five percent or more of the outstanding voting securities of the
Bank or, to the knowledge of such Borrower, any Affiliated Person of the Bank;
(c) neither such Borrower, for its own account or for the account of any
Portfolio, nor, to the knowledge of such Borrower, any Affiliated Person of such
Borrower or Portfolio, directly or indirectly, individually or in the aggregate,
controls or, to the knowledge of such Borrower, after due inquiry, is controlled
by or under common control with, the Bank or, to the knowledge of such Borrower,
any Affiliated Person of the Bank;
(d) no officer, director or employee of such Borrower or, to the knowledge
of such Borrower, any Affiliated Person of such Borrower or of a Portfolio of
such Borrower is an Affiliated Person of the Bank or, to the knowledge of such
Borrower, any Affiliated Person of the Bank;
(e) except as described in SCHEDULE IV hereto, as amended and in effect
from time to time, such Borrower does not, directly or indirectly, own, control,
or hold with power to vote, either for its own account or for the account of its
Portfolios, ten percent or more of the outstanding voting securities of any
issuer; and
(f) except as described in SCHEDULE V, as amended and in effect from time
to time, to the knowledge of such Borrower, no person, directly or indirectly,
owns, controls or holds with power to vote, five percent or more of the
outstanding voting securities of such Borrower or a Portfolio of such Borrower.
Section 4.12. DISCLOSURE. Neither this Agreement nor any of the
information concerning such Borrower or any Portfolio of such Borrower submitted
to the Bank in connection herewith contains any untrue statement of a material
fact or omits to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances in which they are
made. Except as disclosed herein or in the Prospectuses, Registration
Statements or Statements of Additional Information, there is no fact known to
such Borrower that materially adversely affects, or that, in the best judgment
of the management of such Borrower, could in the future materially adversely
affect, the assets, business, prospects, condition (financial or otherwise) or
operations of such Borrower or any Portfolio of such Borrower.
Section 5. COVENANTS. Each Borrower covenants and agrees that, so long
as any amounts are owing with respect to the Loans or otherwise under this
Agreement, or if no such amount is owing, so long as the Bank shall, in its
discretion, be willing to make Loans hereunder as provided herein, it will
comply with the following covenants. EACH BORROWER ACKNOWLEDGES AND AGREES THAT
COMPLIANCE WITH THE FOLLOWING COVENANTS SHALL IN NO WAY COMPROMISE THE ABSOLUTE
DISCRETION OF THE BANK TO ADVANCE FUNDS UNDER THIS CREDIT FACILITY TO SUCH
BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY PORTFOLIO OR MAKE DEMAND
AT ANY TIME FOR PAYMENT OF THE
<PAGE>
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OBLIGATIONS OF SUCH BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY
PORTFOLIO TO THE BANK.
Section 5.1. USE OF PROCEEDS. Such Borrower shall use the proceeds of
Loans made to it for its own account or for the account of a Portfolio only for
the purposes specified in Section 2.11 and, if applicable, shall hold no more
than 25% of its assets in margin stock as specified in Section 2.11.
Section 5.2. PUNCTUAL PAYMENT. Such Borrower will duly and punctually
pay or cause to be paid principal and interest and all other sums due from it
for its own account or for the account of any Portfolio under this Agreement in
accordance with the terms hereof.
Section 5.3. TAXES, ETC. Such Borrower (a) will file all federal, state,
local, foreign and other tax returns, reports and declarations required by any
jurisdiction to which such Borrower is subject for its own account or for the
account of any Portfolio on or before the due dates for the returns, reports and
declarations; and (b) will pay and discharge, before the same shall become in
arrears, all taxes, assessments and other governmental charges shown or
determined to be due on such returns, reports and declarations, unless, and in
any such case, the same is being contested in good faith by appropriate
proceedings and an adequate reserve therefor has been established.
Section 5.4. COMPLIANCE WITH LAW, ETC. Such Borrower will comply in all
material respects with (i) all applicable federal, state and local laws, rules,
regulations and governmental or regulatory directives (whether or not having the
force of law), and all orders, writs, judgments, injunctions, decrees or awards
to which it may be subject with respect to such Borrower or a Portfolio of such
Borrower; (ii) all of the investment policies and restrictions set forth in its
or its Portfolios' Prospectus, Registration Statement or Statement of Additional
Information, if applicable, or otherwise; and (iii) the provisions of its
charter documents and bylaws and all agreements and instruments by which it or
any of its property or assets or the property or assets of any of its Portfolios
may be affected or bound.
Section 5.5. COMPLIANCE WITH REGULATION U. Such Borrower will, at any
time and from time to time upon receipt of notice from the Bank, and at the
expense of such Borrower for its own account or the account of the applicable
Portfolio, promptly execute and deliver or file all additional instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Bank may reasonably request, in order to fully comply with the
requirements of Regulation U.
Section 5.6. NOTICE OF CERTAIN EVENTS. Such Borrower will give the Bank
prompt written notice of:
(a) any change in any federal, state or local law, rule or regulation or
governmental or regulatory directive (whether or not having the force of law)
materially adversely affecting such Borrower or any Portfolio of such Borrower,
or any of the property
<PAGE>
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or assets of such Borrower or any Portfolio of such Borrower, or affecting such
Borrower's ability to repay the Loans made to it for its own account or for the
account of any Portfolio and comply with the terms of this Agreement;
(b) any change in its agreements with governmental authorities or
regulators or its investment policies or restrictions that would make any of the
information set forth in SCHEDULE II hereto incorrect, incomplete or misleading
in any material respect, and will prepare and submit to the Bank for attachment
to this Agreement an amendment to SCHEDULE II reflecting such change;
(c) any change in its portfolio or in the ownership of its outstanding
voting securities that would make any of the information set forth in SCHEDULES
IV and V hereto incorrect or incomplete in any material respect, and will
prepare and submit to the Bank for attachment to this Agreement an amendment to
SCHEDULE IV or V, as applicable, reflecting such change;
(d) any material change in its method of business or in the Registration
Statement or Statement of Additional Information, if applicable (it being
understood that any change in the investment restrictions and limitations on
indebtedness applicable to such Borrower or any Portfolio of such Borrower shall
constitute material changes);
(e) the commencement of any litigation or any administrative, regulatory
or arbitration proceeding or investigation to which such Borrower may hereafter
become a party with respect to itself or any Portfolio that may involve any
material risk of any material final judgment or liability not adequately covered
by insurance or that may otherwise result in any material adverse change in the
business, assets, operations, prospects or condition (financial or otherwise) of
such Borrower or any Portfolio; and
(f) the occurrence of any Default or Event of Default.
Section 5.7. TOTAL VALUE OF ASSETS, ETC. Such Borrower will, at any time
and from time to time during normal business hours, notify the Bank by telephone
or in writing, as requested by the Bank, of a listing of the portfolio
securities, the total asset value of such securities and the net asset value of
such securities of such Borrower, or any of the Portfolios of such Borrower, and
any changes in any of such values, in each case as most recently calculated.
Section 5.8. REPORTS, ADDITIONAL INFORMATION, ETC. Such Borrower will
cause to be furnished to the Bank:
(a) as soon as available, and not later than 90 days after the end of each
fiscal year of such Borrower or each of the Portfolios of such Borrower, the
Annual Report(s) of such Borrower for itself or for its Portfolios, including
audited financial statements certified by Coopers & Lybrand or other independent
public accountants of national standing, setting forth the Schedule of
Investments and the Statement of Assets and Liabilities of
<PAGE>
-22-
such Borrower or Portfolios, each as of the end of such fiscal year, and
including Statements of Operations, Cash Flows and Changes in Net Assets of such
Borrower or Portfolios for the fiscal period then ended;
(b) as soon as available, and not later than 60 days after the end of the
second fiscal quarter of such Borrower or each of the Portfolios of such
Borrower, the Semi-Annual Report(s) prepared by such Borrower for itself or for
its Portfolios, its administrator or accounting agent , setting forth the
Schedule of Investments and the Statement of Assets and Liabilities of such
Borrower or Portfolios, each as of the end of such fiscal quarter, and including
Statements of Operations, Cash Flows and Changes in Net Assets of such Borrower
or Portfolios for the fiscal period then ended;
(c) at the same times as such reports are furnished to the shareholders of
such Borrower or Portfolio, any additional reports required by Section 30(d) of
the 1940 Act or any applicable law;
(d) upon request by the Bank, within 10 Business Days after the issuance
thereof, copies of all other regular and periodic reports and any other reports
that such Borrower may be required to file with the Securities and Exchange
Commission or any similar or corresponding governmental commission, department
or agency with respect to itself or any Portfolio; and
(e) such other information with respect to the financial standing and
history or the business, property, assets or prospects of such Borrower or any
of the Portfolios of such Borrower as the Bank may, at any time and from time to
time, reasonably request.
Section 5.9. FURTHER ASSURANCES. Such Borrower will, at any time and
from time to time, execute and deliver such additional instruments and take such
further action as the Bank may reasonably request to carry out to the Bank's
satisfaction the transactions contemplated by this Agreement.
Section 5.10. PROHIBITED AFFILIATIONS. (a) Such Borrower will not,
directly or indirectly, own, control, or hold with power to vote, either for its
own account or for the account of its Portfolios, five percent or more of the
outstanding voting securities of the Bank or any Affiliated Person of the Bank
known to such Borrower to be such an Affiliated Person;
(b) such Borrower will use its best efforts to ensure that it will not,
directly or indirectly, for its own account or for the account of a Portfolio,
control the Bank or any Affiliated Person of the Bank known to such Borrower to
be such an Affiliated Person; and
(c) such Borrower will use its best efforts to ensure that none of its
officers, directors, or employees is or becomes an Affiliated Person of the Bank
or any Affiliated Person of the Bank known to such Borrower to be such an
Affiliated Person.
<PAGE>
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Section 5.11. NEGATIVE PLEDGE ON ASSETS. Such Borrower will not create or
permit to exist any lien or encumbrance upon any of its property or assets, or
the assets of any of its Portfolios, as applicable, other than (i) liens in
favor of the Bank; (ii) liens arising from attachments or similar proceedings,
pending litigation, judgments or taxes or assessments, in any such event whose
validity or amount is being contested in good faith by appropriate proceedings
and for which adequate reserves have been established and are maintained, or
liens arising from taxes and assessments which are not due and delinquent; and
(iii) banker's liens or rights of offset on deposits held in banks; PROVIDED
that this provision shall not prohibit the making of any collateral arrangement
or the segregation of assets as required by law in connection with certain
portfolio strategies, such as forward contracts, futures contracts and options.
Section 5.12. LIMITATION ON ADDITIONAL INDEBTEDNESS. Such Borrower will
not incur or permit to exist or remain outstanding, for its own account or for
the account of any of its Portfolios, as applicable, any Indebtedness to any
person or entity; PROVIDED, HOWEVER, that such Borrower may incur or permit to
exist or remain outstanding, for its own account or for the account of any
Portfolio:
(a) Indebtedness of such Borrower incurred for its own account or for the
account of any of its Portfolios, as applicable, to the Bank arising under this
Agreement;
(b) Indebtedness in respect of taxes, assessments and other governmental
charges to the extent that payment thereof is not at the time required to be
made or is being contested in good faith by appropriate proceedings and for
which an adequate reserve has been established;
(c) Indebtedness of such Borrower incurred for its own account or for the
account of any of its Portfolios, as applicable, incurred in the ordinary course
of business and not incurred through the borrowing of money or the obtaining of
credit or the leasing of property, except that this provision shall not prohibit
(i) credit on an open account basis customarily extended to such Borrower for
its own account or for the account of its Portfolios, in connection with
purchases of goods or services in the ordinary course of business; (ii) the
entry into reverse repurchase agreements and dollar rolls; and (iii) short-term
credits for the clearance and settlement of securities transactions; and
(d) Indebtedness in respect of judgments or awards which have been in
force for less than the applicable appeal period, so long as execution is not
levied or in respect of which such Borrower shall, for its own account or for
the account of its Portfolios, at the time in good faith be prosecuting an
appeal or proceedings for review.
Section 5.13. LIMITATION ON DIVIDENDS. Such Borrower will not declare or
pay any dividend or make any other distribution on any class of its capital
stock or purchase any of such capital stock in violation of the requirements of
Section 18(a)(1)(B) of the 1940 Act or any other applicable law or regulation.
<PAGE>
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Section 6. EVENTS OF DEFAULT; ACCELERATION.
Section 6.1. EVENTS OF DEFAULT; ACCELERATION. If any of the following
events ("EVENTS OF DEFAULT" or, if the giving of notice or the lapse of time or
both is required, then, prior to such notice and/or lapse of time, "DEFAULTS")
shall occur:
(a) if any Borrower shall fail to pay any principal of any Loan
outstanding made to it hereunder for its own account or for the account of a
Portfolio when the same shall become due and payable, whether at the stated date
of maturity or any accelerated date of maturity or at any other date fixed for
payment;
(b) if any Borrower shall fail to pay any interest on any Loan outstanding
made to it for its own account or for the account of a Portfolio when the same
shall become due and payable, whether at the stated date of maturity or any
accelerated date of maturity or at any other date fixed for payment, and such
failure shall continue unremedied for three Business Days;
(c) if any Borrower, acting for itself or on behalf of a Portfolio, shall
fail to perform, discharge, observe or comply with any of the terms, covenants
and agreements contained in Section 5.1, 5.6(f), 5.7 or 5.10 through 5.13;
(d) if any Borrower, acting for itself or on behalf of a Portfolio, shall
fail to perform, discharge, observe or comply with any of the terms, covenants
and agreements contained herein (other than those specified in paragraphs (a),
(b) and (c) of this Section 6.1), and such failure shall continue unremedied for
30 days after written notice of such failure has been given to such Borrower by
the Bank;
(e) if any representation or warranty of any Borrower made with respect to
itself or any Portfolio contained in this Agreement or any other document or
instrument delivered by such Borrower pursuant to or in connection with this
Agreement shall prove to have been false or misleading in any material respect
as of the time when made or deemed to have been made;
(f) if any Borrower, acting for itself or on behalf of a Portfolio, shall
fail in the performance or the payment, at maturity or within an applicable
period of grace, of any obligation contained in any agreement or instrument
evidencing any other indebtedness with respect to borrowed money or credit
received, or any mortgage, pledge, agreement, indenture or other agreement
relating thereto, for such period of time as would, or would have permitted
(assuming the giving of appropriate notice if required) the holder or holders
thereof or of any obligations issued thereunder to accelerate the maturity
thereof;
(g) if any Borrower makes an assignment for the benefit of creditors, or
admits in writing its inability to pay or generally fails to pay its debts
incurred for its own account or for the account of its Portfolios as they mature
or become due, or petitions or applies for the appointment of a trustee (in
bankruptcy) or other custodian, liquidator or receiver of
<PAGE>
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such Borrower or of any substantial part of the property or assets of such
Borrower or any of its Portfolios or commences any case or other proceeding
relating to such Borrower under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction, now or hereafter in effect, or takes any action to authorize
or in furtherance of any of the foregoing;
(h) if any such petition or application is filed or any such case or other
proceeding is commenced against such Borrower and such Borrower indicates its
approval thereof, consent thereto or acquiescence therein or an order for relief
or appointing any such trustee (in bankruptcy), custodian, liquidator or
receiver is entered adjudicating such Borrower bankrupt or insolvent, or
approving a petition in any such case or other proceeding, and such order
remains unstayed and in effect for more than 60 days, whether or not
consecutive;
(i) if there shall remain in force, undischarged, unsatisfied and
unstayed, for more than 30 days, whether or not consecutive, any final judgment
against such Borrower with respect to itself or any Portfolio that, with other
outstanding final judgments undischarged against such Borrower or Portfolio, (i)
exceeds, in the aggregate, $500,000 or (ii) shall have a materially adverse
effect upon the business, assets, operations, prospects or condition (financial
or otherwise) of such Borrower or Portfolio; or
(j) if there shall occur a material adverse change in the business,
assets, operations, prospects or condition, financial or otherwise, of such
Borrower or any of its Portfolios; it being acknowledged that a reduction in a
Borrower's total assets resulting from declines in the market value of its
assets or, in the case of any Portfolios of a Borrower, shareholder redemptions,
shall not constitute a material adverse change so long as the aggregate amount
of such Borrower's Loans made for its own account or for the account of its
Portfolios does not exceed the Maximum Amount applicable to such Borrower;
then and in any such event and without notice or demand by the Bank (i) the
obligation of the Bank to consider, in its discretion, making Loans to the
defaulting Borrower for its own account or for the account of its Portfolios
shall terminate, (ii) the Loans of such Borrower for its own account or for the
account of its Portfolios, all interest thereon and all other amounts payable by
such Borrower for its own account or for the account of its Portfolios under
this Agreement shall become and be forthwith due and payable without
presentment, demand, protest or notice, all of which are expressly waived by
such Borrower. In case any one or more of the foregoing Events of Default shall
have occurred and be continuing, and whether or not the Bank shall have
accelerated the maturity of the Loans of any Borrower made for its own account
or for the account of its Portfolios pursuant to the foregoing, the Bank may
proceed to protect and enforce its rights against such Borrower by suit in
equity, action at law and/or other appropriate proceeding, whether for the
specific performance of any covenant or agreement contained in this Agreement or
any instrument pursuant to which the obligations of any Borrower for its own
account or for the account of its Portfolios to the Bank hereunder are
evidenced, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the Bank hereunder. No remedy conferred upon the Bank herein
is
<PAGE>
-26-
intended to be exclusive of any other remedy and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or any other provision
of law.
EACH BORROWER ACKNOWLEDGES AND AGREES THAT INCLUSION OF THE PRECEDING
EVENTS OF DEFAULT AND REMEDIES THEREFOR SHALL IN NO WAY COMPROMISE THE ABSOLUTE
DISCRETION OF THE BANK TO ADVANCE FUNDS UNDER THIS CREDIT FACILITY TO SUCH
BORROWER FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF ANY PORTFOLIO OR MAKE DEMAND
AT ANY TIME FOR PAYMENT OF THE OBLIGATIONS OF SUCH BORROWER FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF ANY PORTFOLIO TO THE BANK
Section 7. SET-OFF. Any deposits, balances or other sums credited by
or due from the Bank to any Borrower hereunder for its own account or for the
account of a Portfolio may be, at any time or from time to time, set-off and
applied by the Bank, in such order as the Bank in its sole discretion may
determine, against the payment of all or any part of the obligations of such
Borrower hereunder for its own account or for the account of such Portfolio then
due and payable and any other liabilities, direct or indirect, absolute or
contingent, now existing or hereafter arising, of such Borrower for its own
account or for the account of such Portfolio then due and payable to the Bank
hereunder. The Bank agrees promptly to notify the applicable Borrower of such
set-off or application, provided that the failure to give such notice shall not
affect the validity of such set-off or application. Nothing herein shall permit
the Bank to set off any deposits, balances or other sums credited by or due from
the Bank to any Portfolio of a Borrower against any obligations to the Bank of
another Portfolio of the Borrower.
Section 8. EXPENSES. Whether or not the transactions contemplated
hereby are consummated, and to the extent any expense is attributable to any
specific Loan or Loans made to a Borrower for its own account or for the account
of a Portfolio, the applicable Borrower(s) agrees to reimburse the Bank on
demand out of its own funds or the funds of such Portfolio, as applicable, the
amount of all reasonable expenses attributable to such Loan or Loans, including
but not limited to reasonable attorneys' fees and disbursements (and the
allocated costs of in-house counsel for the Bank), incurred or expended in
connection with the preparation or interpretation of this Agreement or any
amendment hereof, or with the enforcement of any obligations or the satisfaction
of any indebtedness of such Borrower hereunder incurred for its own account or
for the account of a Portfolio, or in connection with any litigation, proceeding
or dispute hereunder in any way related to the Bank's relationship hereunder.
To the extent any such expense is not so attributable to any Loan or Loans, each
Borrower agrees to pay to the Bank, out of its own funds or the funds of its
Portfolios, as applicable, in the proportion that the average amount of Loans
made to such Borrower for its own account or for the account of a Portfolio
outstanding during the preceding 12-month period (or such shorter period that
this Agreement shall have been effective) bears to the average amount of all
Loans outstanding to all Borrowers for their own accounts or for the accounts of
any of their Portfolios during such period (or, if no Loans shall have been
outstanding, such Borrower's Percentage of such amount), the amount of such
expense, determined and paid as aforesaid.
<PAGE>
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Section 9. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
representations and warranties made herein or in any documents or other papers
delivered by, or on behalf of, each Borrower with respect to itself or any
Portfolio pursuant hereto shall be deemed to have been relied upon by the Bank,
notwithstanding any investigation heretofore or hereafter made by it, and shall
survive the making by the Bank of the Loans to such Borrower, as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Agreement remains outstanding and unpaid or the Bank has any
obligation to make any Loans to such Borrower hereunder for its own account or
for the account of any Portfolio. All statements contained in any certificate,
document or other paper delivered by any authorized person to the Bank at any
time by or on behalf of any Borrower pursuant hereto or in connection with the
transactions contemplated hereby shall constitute representations and warranties
by such Borrower hereunder with respect to itself or any Portfolio.
Section 10. INDEMNIFICATION. (a) Each Borrower agrees, for itself or on
behalf of any applicable Portfolio to indemnify and hold harmless the Bank from
and against any and all claims, actions and suits whether groundless or
otherwise, and from and against any and all liabilities, losses, damages and
expenses of every nature and character arising out of this Agreement or the
transactions evidenced hereby as they directly relate to such Borrower for
itself or on behalf of any applicable Portfolio or the Loans made by the Bank to
such Borrower for its own account or for the account of a Portfolio; provided
that the Bank shall have no right to be indemnified hereunder with respect to
any such claims, actions, suits, liabilities, losses, damages and expenses to
the extent arising as a result of its own gross negligence, willful misconduct
or bad faith; and provided, further that no Borrower, acting for itself or on
behalf of any applicable Portfolio, shall be liable for any settlement,
compromise or consent to the entry of any order adjudicating or otherwise
disposing of any claim, action, suit, liability, loss, damage or expense
effected without the consent of such Borrower for itself or on behalf of any
applicable Portfolio. Should any claim be made by a person not a party to this
Agreement with respect to any matter to which the foregoing indemnity relates,
the Bank shall promptly notify the applicable Borrower of any such claim, and
such Borrower shall, acting for itself or on behalf of any applicable Portfolio,
have the right to direct and control the defense of such claim or any litigation
based thereon at its own expense through counsel of its own choosing.
(b) The Bank agrees to indemnify and hold harmless each Borrower for its
own account or for the account of any applicable Portfolio from and against any
and all claims, actions and suits whether groundless or otherwise, and from and
against any and all liabilities, losses, damages and expenses of every nature
and character arising out of this Agreement or the transactions evidenced
hereby; provided that no Borrower shall have the right to be indemnified
hereunder for its own account or for the account of any applicable Portfolio
with respect to any such claims, actions, suits, liabilities, losses, damages
and expenses to the extent arising as a result of its own gross negligence,
willful misconduct or bad faith; and provided, further that the Bank shall not
be liable for any settlement, compromise or consent to the entry of any order
adjudicating or otherwise disposing of any
<PAGE>
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claim, action, suit, liability, loss, damage or expense effected without the
consent of the Bank. Should any claim be made against a Borrower with respect
to itself or any applicable Portfolio by a person not a party to this Agreement
with respect to any matter to which the foregoing indemnity relates, such
Borrower shall, for itself or on behalf of any applicable Portfolio, promptly
notify the Bank of any such claim, and the Bank shall have the right to direct
and control the defense of such claim or any litigation based thereon at its own
expense through counsel of its own choosing.
Section 11. PARTIES IN INTEREST; PARTICIPATIONS. All the terms of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto; provided that no
Borrower may assign or transfer its rights hereunder with respect to itself or
any Portfolio or any interest herein without the prior written consent of the
Bank. The Bank may, with the prior written consent of any Borrower, acting for
itself or on behalf of its Portfolios, (which shall not be unreasonably withheld
or delayed), assign or transfer to any other person or entity, all or any part
of, or any interest in, its rights and obligations hereunder with respect to
such Borrower for its own account or the account of its Portfolios, or without
such consent, grant loan participations therein; provided that in all cases
other than the case of the sale of loan participations, the Bank shall give the
applicable Borrower prompt written notice thereof, and provided, further that
such Borrower shall make payment of all amounts due and payable hereunder for
its own account or for the account of any Portfolio and deliver such documents
as are required hereunder to the Bank until such time as it is notified in
writing to do otherwise.
Section 12. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, all notices, demands and other communications made or required
to be given pursuant to this Agreement shall be in writing and shall be
delivered by hand, by accepted express mail service, postage prepaid, or sent by
telex or facsimile transmission and confirmed by letter, addressed as follows:
(a) if to any Borrower, for itself or on behalf of any Portfolio, c/o
BEA Associates, One Citicorp Center, 153 East 53rd Street, New York, New
York 10022 Attention: Paul Stamler, Vice President - Fund Administration
or at such other address for notice or demand as any Borrower shall last
have furnished in writing to the Bank; or
(b) if to the Bank, to the address set forth in the preamble of this
Agreement, Attention: John T. Daley, Vice President, or at such other
address for notice as the Bank shall last have furnished in writing to each
Borrower.
Any such notice or demand shall be deemed to have been duly given or made and to
have become effective (a) if delivered by hand to a responsible officer of the
party to which it is directed, at the time of receipt thereof by such officer,
(b) if sent by accepted express mail service, postage prepaid, one Business Day
after posting thereof, and (c) if sent by facsimile transmission or telex, at
the time of receipt of any automatic answer-back or other similar acknowledgment
of receipt thereof.
<PAGE>
-29-
Section 13. MISCELLANEOUS. This Agreement shall be deemed to be a
contract under the laws of The Commonwealth of Massachusetts and shall for all
purposes be construed in accordance with and governed by the laws of said
Commonwealth. The rights and remedies herein expressed are cumulative and not
exclusive of any other rights that the Bank or any Borrower (acting for itself
or on behalf of any Portfolio), as the case may be, would otherwise have. The
captions in this Agreement are for convenience of reference only and shall not
define or limit the provisions hereof. This Agreement and any amendment hereof
may be executed in several counterparts and by each party on a separate
counterpart, each of which when so executed and delivered shall be an original,
but all of which together shall constitute one instrument. In proving this
Agreement, it shall not be necessary to produce or account for more than one
such counterpart signed by the party against whom enforcement is sought.
Section 14. SEVERABILITY. If any of the provisions of this Agreement or
the application thereof to any party hereto or to any person or entity or
circumstance is held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other term
or provision hereof or thereof or the application thereof to any other party
hereto or to any other person or entity or circumstance.
Section 15. ENTIRE AGREEMENT, ETC. This Agreement amends and restates
in its entirety the Prior Agreement. This Agreement, together with any of the
documents executed in connection herewith, express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
orally or in writing, except as provided in Section 16 hereof.
Section 16. CONSENTS, AMENDMENTS, WAIVERS, ETC. Except as otherwise
expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement to be given by the Bank may be given, and any term
of this Agreement or of any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by any Borrower, acting for
itself or on behalf of any Portfolio, of any terms of this Agreement or such
other instrument or the continuance of any Default or Event of Default by such
Borrower, acting for itself or on behalf of any Portfolio, or any condition or
term hereof applicable to such Borrower, acting for itself or on behalf of any
Portfolio, may be waived (either generally or in a particular instance and
either retroactively or prospectively) with, but only with, the written consent
of such Borrower, acting for itself or on behalf of any Portfolio, and the
written consent of the Bank. No waiver shall extend to or affect any obligation
not expressly waived or impair any right consequent thereon. No course of
dealing or delay or omission on the part of the Bank in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. No
notice to or demand on any Borrower for its own account or for the account of
any Portfolio shall entitle such Borrower to other or further notice in similar
or other circumstances.
<PAGE>
-30-
Section 17. WAIVER OF JURY TRIAL. THE BANK AND EACH BORROWER, FOR
ITSELF OR ON BEHALF OF EACH PORTFOLIO, AGREE THAT NONE OF THEM NOR ANY ASSIGNEE
OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING,
COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR ARISING OUT OF, THIS AGREEMENT
OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE BANK AND EACH BORROWER, FOR ITSELF OR ON BEHALF OF EACH
PORTFOLIO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. NEITHER THE
BANK NOR ANY BORROWER, FOR ITSELF OR ON BEHALF OF ANY PORTFOLIO, HAS AGREED WITH
OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE
FULLY ENFORCED IN ALL INSTANCES.
Section 18. SUBMISSION TO JURISDICTION. Each Borrower agrees, for
itself or on behalf of its Portfolios, that any suit for the enforcement of this
Agreement may be brought in the courts of The Commonwealth of Massachusetts or
any Federal Court sitting therein and consents to the non-exclusive jurisdiction
of such court and to service of process in any such suit being made upon such
Borrower for itself or on behalf of any applicable Portfolio, by mail at the
address specified in Section 12 hereof. Each Borrower hereby waives, for itself
or on behalf of any applicable Portfolio, any objection that it may now or
hereafter have to the venue of any such suit or any such court or that such suit
was brought in an inconvenient court.
Section 19. JUDGMENT CURRENCY. Each Borrower agrees to indemnify the
Bank, for its own account or for the accounts of its Portfolios, against any
loss incurred by it as a result of any judgment or order against such Borrower
for its own account or for the accounts of its Portfolios being given or made
for the payment of any amount due hereunder which is expressed and paid in a
currency (the "JUDGMENT CURRENCY") other than the currency in which such amount
was to be paid (the "OBLIGATION CURRENCY") and as a result of any variation
between (a) the rate of exchange at which the Obligation Currency amount is
converted into Judgment Currency for the purposes of such judgment or order, and
(b) the rate of exchange at which the Bank is able to purchase the Obligation
Currency with the amount of Judgment Currency actually received by the Bank.
The foregoing indemnity shall constitute a separate and independent obligation
of each Borrower for its own account and for the accounts of its Portfolios and
shall continue in full force and effect notwithstanding any such judgment or
order as aforesaid. The term "rate of exchange" shall include any premiums and
costs of exchange payable in connection with the purchase of, or conversions
into, the relevant currency.
Section 20. CONFIDENTIALITY. The Bank agrees that in handling any non-
public information received from any Borrower with respect to itself or any of
its Portfolios hereunder the Bank shall exercise the same degree of care that it
exercises with respect to
<PAGE>
-31-
its own proprietary information of the same or similar types in order to
maintain the confidentiality of such information, it being understood by each
Borrower, however, for itself or on behalf of any applicable Portfolio, that
disclosure of such information may be made (i) to the subsidiaries or affiliates
of the Bank in connection with their present or prospective business relations
with any Borrower, in its own capacity or on behalf of any of its Portfolios,
(ii) to prospective transferees or purchasers of an interest in the Loans made
to any Borrower for its own account or for the account of any Portfolio, (iii)
as required by law, regulation, rule or order, subpoena, judicial order or
similar order and (iv) as may be required in connection with the examination,
audit or similar investigation of the Bank.
Section 21. OBLIGATIONS SEVERAL. The Bank agrees that the obligations
of each Borrower and, in case of the RBB Fund, each Portfolio, hereunder are
several and that the Bank shall have no recourse against any Borrower or
Portfolio for the payment or performance of the obligations of any other
Borrower or Portfolio.
<PAGE>
-32-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as an instrument under seal by its duly authorized officer as
of the date first written above.
THE LATIN AMERICA INVESTMENT FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE LATIN AMERICA EQUITY FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE CHILE FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE BRAZILIAN EQUITY FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE PORTUGAL FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE FIRST ISRAEL FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
<PAGE>
-33-
THE INDONESIA FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE EMERGING MARKETS
TELECOMMUNICATIONS FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE EMERGING MARKETS
INFRASTRUCTURE FUND, INC.
By: /s/ Rachel Manney
------------------------------------
Title: Vice President
THE RBB FUND, INC.
acting solely on behalf of the following portfolios:
BEA Emerging Markets Equity Portfolio
BEA Global Fixed Income Portfolio
BEA International Equity Portfolio
BEA Municipal Bond Fund Portfolio
BEA Strategic Fixed Income Portfolio
BEA U.S. Core Equity Portfolio
BEA U.S. Core Fixed Income Portfolio
By: /s/ Edward J. Roach
------------------------------------
Title: President
BEA INCOME FUND, INC.
By: /s/ Michael A. Pignataro
------------------------------------
Title: Assistant Secretary
<PAGE>
-34-
BEA STRATEGIC INCOME FUND, INC.
By: /s/ Michael Pignataro
------------------------------------
Title: Assistant Secretary
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ John T. Daley
------------------------------------
Vice President
<PAGE>
[Letterhead of Willkie Farr & Gallagher]
July 16, 1996
The Brazilian Equity Fund, Inc.
One Citicorp Center
153 East 53rd Street
New York, NY 10022
Ladies and Gentlemen,
We have acted as counsel to The Brazilian Equity Fund, Inc. (the "Fund"), a
corporation organized under the laws of the State of Maryland, in connection
with the issuance of up to 1,930,835 shares, consisting of 1,544,668 shares to
be issued under the Primary Subscription (the "Primary Subscription Shares") and
up to 386,167 shares to be issued pursuant to the Over-Subscription Privilege
(the "Additional Shares") of its common stock, par value $.001 per share (the
"Common Stock"), pursuant to the exercise of rights (the "Rights") to purchase
Common Stock to be distributed to shareholders of the Fund (the "Offer") in
accordance with the Fund's Registration Statement on Form N-2 (File Nos.
333-5475 and 811-6555) under the Securities Act of 1933, as amended, and under
the Investment Company Act of 1940, as amended (the "Registration Statement").
We have examined copies of the Articles of Incorporation and By-Laws of the
Fund, as amended, the Registration Statement, resolutions adopted by the Fund's
Board of Directors and its Pricing Committee and other records and documents
that we have deemed necessary for the purpose of this opinion. We have also
examined such other documents, papers, statutes and authorities as we have
deemed necessary to form a basis for the opinion hereinafter expressed.
In our examination, we have assumed the genuineness of all signatures and the
conformity to original documents of all copies submitted to us. As to various
questions of fact material to our opinion, we have relied upon statements and
certificates of officers and representatives of the Fund and others. We have
further assumed that if the Fund decides to extend the Offer, that extension
will have been duly authorized by the Pricing Committee of the Board of
Directors pursuant to the authority that has heretofore
<PAGE>
The Brazilian Equity Fund, Inc.
July 16, 1996
Page 2
been delegated to it by the Board of Directors. As to matters governed by the
laws of the State of Maryland, we have relied upon the opinion of Venable,
Baetjer and Howard, LLP that is attached to this opinion.
Based upon the foregoing, we are of the opinion that when the Primary
Subscription Shares have been issued and paid for as contemplated by the
Registration Statement, the Primary Subscription Shares to be issued upon
exercise of the Rights will have been validly and legally authorized and issued
and will be fully paid and non-assessable. We are further of the opinion that
when the Pricing Committee of the Board of Directors of the Fund has
authorized the issuance of the Additional Shares pursuant to the authority
delegated to it by the Board of Directors, the Additional Shares to be issued
upon exercise of the Rights will have been duly authorized and, upon such
exercise, when the Additional Shares have been issued and paid for as
contemplated by the Registration Statement, the Additional Shares will have been
validly and legally authorized and issued and will be fully paid and non-
assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus included as part of the Registration Statement.
Very truly yours,
/s/ Willkie Farr & Gallagher
<PAGE>
[Letterhead of Venable, Baetjer & Howard, LLP]
July 16, 1996
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
Re: The Brazilian Equity Fund, Inc.
-------------------------------
Ladies and Gentlemen:
We have acted as special Maryland counsel to The Brazilian Equity
Fund, Inc., a Maryland corporation (the "Company"), in connection with the
issuance of up to 1,930,835 additional shares, consisting of 1,544,668 primary
subscription shares (the "Primary Subscription Shares") and up to 386,167
additional over-subscription shares (the "Additional Over-Subscription Shares"),
which may, at the discretion of the Board of Directors, be issued pursuant to an
over-subscription privilege, of the Company's common stock, par value $.001 per
share (the "Common Stock"), pursuant to the exercise of non-transferable rights
(the "Rights") to purchase Common Stock to be distributed to the Company's
shareholders in accordance with the Company's Registration Statement on Form N-2
(Securities Act File No. 333-5475, Investment Company Act File No. 811-6555)
(the "Registration Statement").
We have examined the Company's prospectus included in the
Registration Statement substantially in the form in which it is to become
effective (the "Prospectus"), the form of subscription certificate for exercise
of the Rights, the Company's Charter and Bylaws, and resolutions adopted by the
Board of Directors of the Company and its Pricing Committee with respect to
the Rights, and have further examined and relied upon a certificate of the
Maryland State Department of Assessments and Taxation to the effect that the
Company is duly incorporated and existing under the laws of the State of
Maryland and is in good standing and duly authorized to transact business in the
State of Maryland. We have also assumed that if the initial Expiration Date of
the offering of the Rights is extended as described in the Registration
Statement, such action will have been duly authorized by the Pricing Committee
of the Board of Directors pursuant to the authority that has heretofore been
delegated to the Pricing Committee by the Board of Directors.
We have also examined and relied upon such other corporate
records of the Company and documents and certificates
<PAGE>
Willkie Farr & Gallagher
July 16, 1996
Page 2
with respect to factual matters as we have deemed necessary for purposes of
this opinion. With respect to the documents we have received, we have assumed,
without independent verification, the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
with originals of all documents submitted to us as copies.
Based on the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Maryland.
2. The Primary Subscription Shares of Common Stock to be issued
upon exercise of the Rights have been duly authorized, and, upon such exercise,
when the Primary Subscription Shares have been issued and paid for as
contemplated by the Registration Statement, the Primary Subscription Shares will
have been validly and legally authorized and issued and will be fully paid and
nonassessable. When the Pricing Committee of the Board of Directors has
authorized the issuance of the Additional Over-Subscription Shares pursuant to
the authority delegated to it by the Board of Directors, the Additional Over-
Subscription Shares of Common Stock to be issued upon exercise of the Rights
will have been duly authorized and, upon such exercise, when the Additional
Over-Subscription Shares have been issued and paid for as contemplated by the
Registration Statement, the Additional Over-Subscription Shares will have been
validly and legally authorized and issued and will be fully paid and
nonassessable.
This letter expresses our opinion with respect to the Maryland
General Corporation Law governing matters such as due organization and the
authorization and issuance of stock. It does not extend to the securities or
"Blue Sky" laws of Maryland, to federal securities laws or to other laws.
You may rely on this opinion in rendering your opinion to the
Company that is to be filed as an exhibit to the Registration Statement. We
consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the Prospectus under the caption "Legal
Matters." We do not thereby admit that we are "experts" within the meaning of
the Securities Act of 1933 and the regulations thereunder. This opinion may not
be relied upon by any other person or for any other purpose without our prior
written consent.
Very truly yours,
/s/ Venable, Baetjer & Howard, LLP
-2-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the following with respect to this Pre-Effective Amendment
No. 1 to the Registration Statement on Form N-2 (File No. 333-5475) 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 for the year ended
March 31, 1996.
- The reference to our Firm under the headings "Financial Highlights"
and "Experts" in the Prospectus.
Coopers & Lybrand L.L.P.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
July 15, 1996
<PAGE>
[Letterhead of Tozzini, Freire, Teixeira e Silva]
Sao Paulo, July 16, 1996
The Brazilian Equity Fund, Inc.
One Citicorp Center
153 East 53rd Street, 58th Floor
New York, NY 10022
Gentlemen:
We have acted as special Brazilian tax counsel to The Brazilian Equity Fund,
Inc. (the "Company"), a corporation incorporated under the laws of the State
of Maryland, in connection with the preparation of a Registration Statement on
Form N-2 (the "Registration Statement"), filed with the U.S. Securities and
Exchange Commission on July 16, 1996, as such has been amended to the date
hereof, relating to the offer and sale of rights entitling the holders thereof
to subscribe for shares of the Company's common stock.
We are of the opinion that (a) the statement made in the Statement of Additional
Information that forms part of the Registration Statement (the "Statement of
Additional Information") under the heading "Taxation--Brazilian Taxes" fairly
summarize the matters therein described and (b) the information contained in the
Statement of Additional Information, to the extent it relates to matters of
Brazilian tax law, currently in force, or legal conclusions based thereon, is an
accurate and complete, although general, description of Brazilian tax law and
legal conclusions based thereon applicable to the Company and the operation of
its business as described in the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Prospectus that forms
part of the Registration Statement under the heading "Legal Matters" and in the
Statement of Additional Information under the heading "Taxation--Brazilian
Taxes."
<PAGE>
The Brazilian Equity Fund, Inc.
July 16, 1996
Page 2
The opinions expressed herein are limited to the laws of Brazil as presently
existing and we do not purport to express any opinion on any question arising
under the law of any other jurisdiction.
Very truly yours,
/s/ Tozzini, Freire, Teixeira e Silva
