CVM Instruction No. 278 (Revoked) - Foreign Capital Emerging Companies Investment Mutual Funds

INSTRUCTION CVM NO. 278, OF MAY 8, 1998, WITH THE CHANGES INTRODUCED BY CVM INSTRUCTION NO. 554/14.

Provides for the constitution, operation, and administration of Mutual Investment Funds in Emerging Companies - Foreign Capital.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Collegiate Body, in a meeting held on this date, and in view of the provisions of CMN Resolution No. 2,406, of June 26, 1997, and Article 19 of Law No. 6,385, of December 7, 1976, HAS DECIDED to issue the following Instruction:

CHAPTER I
OF THE CONSTITUTION AND CHARACTERISTICS

Art. 1. The Mutual Investment Fund in Emerging Companies - Foreign Capital, constituted in the form of a closed condominium, that is, without redemption of shares, in which only individuals or legal entities residing, domiciled, or headquartered abroad, funds, or other foreign collective investment entities participate, is a communion of resources destined for application in a diversified portfolio of securities issued by emerging companies, and its denomination must contain the expression "Mutual Investment Fund in Emerging Companies - Foreign Capital".

§1. Emerging companies are understood to be companies that present annual net revenue lower than the equivalent, in national currency, to R$ 60,000,000.00 (sixty million reais) calculated in the balance sheet closing the exercise prior to the acquisition of the securities of their issuance.

§2. The limit provided for in §1 of this article will be determined at the time of the first investment, but will not apply when the Fund subscribes or makes new acquisitions of shares or other securities of those same companies.

§3. It is prohibited for the Fund to invest in a company that is part of a group of companies, de facto or de jure, whose consolidated net assets are greater than or equal to, in national currency, R$ 120,000,000.00 (one hundred and twenty million reais).

§4. It is prohibited for the Fund to invest in a company in which unitholders or administrators of the Fund, or their respective spouses, partners, or relatives up to the second degree, participate, directly or indirectly, individually or jointly, in a percentage greater than ten percent of the share capital, or in which they hold administrative positions, except for the exercise, by the administrators of the Fund, of positions on exclusively advisory bodies of the companies they participate in.

Art. 2. The Fund will have a maximum duration of ten years, counted from the date of authorization for operation by the CVM.

Sole Paragraph. The duration term will be extendable, only once, for up to five more years, by approval of 2/3 of the total issued shares, in a General Assembly specially convened for this purpose.

Art. 3. Once the Fund is constituted, the administrator must request authorization from the CVM for its operation.

§1. Authorization for the operation of the Investment Fund in Emerging Companies - Foreign Capital will depend on compliance with the following requirements:
I - prior registration of public distribution of shares, if applicable; II - proof of subscription of all shares related to the initial patrimony; III - deed of constitution of the Fund, registered at the Titles and Documents Registry.

§2. The total subscription of the shares constituting the initial patrimony must be closed within a maximum period of 180 days, counted from the date of granting of the registration of the distribution of shares by the CVM, if applicable, or from the date of the decision of its issuance if intended for private placement.

§3. Only the issuance of shares with a value equal to or greater than R$ 10,000.00 (ten thousand reais) will be permitted.

§3 - REVOKED

• §3 revoked by CVM Instruction No. 554, of December 17, 2014.

Art. 4. The Bylaws of the Mutual Investment Fund in Emerging Companies - Foreign Capital must necessarily provide for:
I - qualification of the administering institution; II - investment policy to be adopted by the administrator, assets that may compose the Fund's Portfolio, and the establishment of the diversification policy; III - entry fee or criterion for its fixation; IV - remuneration of the administrator; V - availability of information for unitholders, observing the provisions of Chapter IX; VI - expenses and charges of the Fund; VII - possibility or not of new issuances; VIII - possibility and conditions for amortization of shares; IX - competence of the General Assembly of unitholders, criteria and requirements for its convocation and deliberation, observing the provisions of Chapter IV.

Sole Paragraph. The fees, expenses, and deadlines will be identical for all unitholders.

Art. 5. The following acts relating to the Fund depend on CVM approval:
I - amendment of the Bylaws;
II - indication and substitution of the director responsible for the administration of the Fund; III - substitution of the administrator; IV - merger; V - incorporation; VI - spin-off; VII - liquidation; VIII - issuance of new shares.

§1. The acts provided for in items II, III, and VIII must be submitted to the CVM prior to their formalization.

§2. The Central Bank of Brazil will be informed by the CVM of the authorization for the operation of the Fund, as well as of the cases provided for in items III to VII of this article.

CHAPTER II
OF THE ADMINISTRATION

Art. 6. The administration of the Fund is the responsibility of the natural or legal person authorized by the CVM to exercise the activity of administration of securities portfolios.

§1. The administration of the Fund and other activities inherent to the administration of client resources must be entirely segregated from the other activities of the administering institution.

§2. The administration of the Fund, when exercised by a legal entity, will be under the direct supervision and responsibility of a director of the administering institution.

§3. When the administration of the Fund is not exercised by a financial institution or member of the distribution system, the administrator must hire a legally qualified institution to execute the services of placement, issuance, and redemption of shares and treasury, such as:
I - opening and movement of bank accounts, in the name of the Fund; II - receipt of resources upon issuance or full payment of shares and payment upon redemption of shares or liquidation of the Fund; III - receipt of dividends and any other income; IV - financial settlement of all operations of the Fund.

Art. 7. The administrator will have powers to exercise all rights inherent to the titles and securities comprising the Fund's portfolio, including the right to sue and to attend and vote in general and special assemblies.

§1. The administrator may also open and move bank accounts, freely acquire and alienate titles and securities, settle disputes, and, in short, practice all acts necessary for the administration of the portfolio, observing the provisions of this Instruction.

§2. The custodian institutions of the titles and securities of the Fund may only comply with orders signed by the legal representative(s) or agent of the administrator, duly accredited with him for this purpose.

Art. 8. The administrator may, with prior notice of at least sixty days, addressed to each unitholder, resign from the administration of the Fund, and must immediately communicate the fact to the CVM.

Art. 9. The CVM, in the exercise of its legal powers, may de-register the administrator who fails to comply with current regulations.

§1. The de-registration process will begin with notification from the CVM to the administrator, indicating the facts that supported it and the deadline for presenting a defense, not less than fifteen days counted from the date of receipt of the respective notification.

§2. The CVM's decision to de-register the administrator will be reasoned, with an appeal to the National Monetary Council, without suspensive effect, within fifteen days counted from the date of receipt of the respective communication.

Art. 10. In the cases of resignation and de-registration, the administrator will be obliged to immediately convene the General Assembly to elect its successor, and it will be facultative for unitholders who hold at least five percent of the issued shares, in any case, or for the CVM, in cases of de-registration, to convene the General Assembly, if the administrator does not do so within fifteen days counted from the event.

Sole Paragraph. The administrator must remain in the exercise of its functions until its effective substitution.

CHAPTER III
OF THE OBLIGATIONS OF THE ADMINISTRATOR

Art. 11. The following are included among the obligations of the administrator:
I - maintain, at its own expense, updated and in perfect order:
a) the records of unitholders and transfers of shares; b) the minutes book of general assemblies; c) the archive of auditors' opinions; d) the accounting records relating to the operations and patrimony of the Fund; e) the documentation relating to the operations of the Fund, for a period of five years. II - receive dividends, bonuses, and any other income or values from the Fund; III - exercise or alienate the rights of subscription of shares and other securities; IV - employ, in the defense of the rights of unitholders, the diligence required by the circumstances, practicing all acts necessary to ensure them, including lawsuits, appeals, and exceptions; V - cover the advertising expenses of the Fund; VI - keep custodied in a commercial bank, multiple bank with investment portfolio, investment bank, stock exchange, or custody entity authorized by the CVM, the titles and securities comprising the Fund; VII - the payment of coercive fines, in accordance with current legislation, per day of delay in fulfilling the deadlines provided for in this Instruction; VIII - prepare an opinion regarding the operations and results of the Fund, annually, forwarding the financial statements, which must contain, among other necessary information and/or comments, a declaration that the provisions of this Instruction and the Fund's Bylaws were observed; IX - prepare investment studies and analyses that support the decisions to be made, maintaining appropriate records with the justifications for recommendations and decisions taken; X - periodically update the studies and analyses, allowing perfect monitoring of the investments made, objectives achieved, return perspectives, and identification of possible courses of action that maximize the investment result.

Sole Paragraph. Any benefit or advantage that the administrator may obtain, which is not provided for in the bylaws, must be immediately transferred to the Fund.

CHAPTER IV
OF THE GENERAL ASSEMBLY

Art. 12. It is exclusively the competence of the General Assembly of unitholders:
I - to take, annually, the accounts relating to the Fund and deliberate on the financial statements presented by the administrator; II - to amend the Fund's Bylaws; III - to deliberate on the substitution of the administrator; IV - to deliberate on the merger, incorporation, spin-off, or eventual liquidation of the Fund; V - to deliberate on the issuance of new shares; VI - to deliberate on changes in the administrator's remuneration rate, including with respect to participation in the Fund's results.

Sole Paragraph. The Fund's Bylaws may be amended independently of a General Assembly or consultation with unitholders whenever such amendment results exclusively from the need to meet the express requirement of the CVM, as a consequence of legal or regulatory norms, and the necessary communication to unitholders must be provided, within thirty days, if applicable.

Art. 13. The convocation of the General Assembly will be made in the manner stipulated in the Fund's Bylaws.

§1. Regardless of the convocation provided for in this article, the General Assembly will be considered regular if all unitholders attend.

§2. The General Assembly may be convened by the administering institution or by unitholders who hold at least five percent of the total shares issued by the Fund.

Art. 14. At the General Assembly, which may be installed with any number, deliberations will be taken by the criterion of majority of shares present, with each share corresponding to one vote, except for the provisions of §3 of Art. 15.

Sole Paragraph. Deliberations relating to the matters provided for in items III, IV, and VI of Art. 12, and, unless already provided for in the Bylaws, the issuance of new shares, must be approved by the majority of issued shares.

Art. 15. The deliberations of the General Assembly may be taken through a formalized consultation process by letter, telex, or telegram directed by the administering institution to each unitholder for response within a maximum period of thirty days.

§1. The consultation must contain all informative elements necessary for the exercise of the right to vote.

§2. The absence of response will be considered as consent by the unitholders, provided that such interpretation is expressly authorized by the Fund's Bylaws and appears in the consultation itself.

§3. The quorum for deliberations taken in the manner of this article will be the absolute majority of issued shares, regardless of the matter.

Art. 16. Only unitholders registered in the "Register of Unitholders" or in the deposit account, as applicable, three days before the date fixed for its realization, may vote at the General Assembly.

Art. 17. Legal representatives of unitholders or their legally constituted proxies will have the quality to attend the General Assembly or to vote in the deliberation process by consultation.

CHAPTER V
OF THE ISSUANCE, PLACEMENT, NEGOTIABILITY, AND REDEMPTION OF SHARES

Art. 18. The shares of the Mutual Investment Fund in Emerging Companies - Foreign Capital will correspond to ideal fractions of its patrimony and will assume the form of registered shares.

§1. The shares may be represented by Investment Certificates or kept in deposit accounts in the name of their holders, as established by the Fund's Bylaws.

§2. The ownership of registered shares is presumed by the registration of the unitholder's name in the "Register of Registered Shares" or in the deposit account of the shares, opened in the name of the unitholder.

Art. 19. The Investment Certificate, when adopted, will contain:
I - the denomination "INVESTMENT CERTIFICATE"; II - the name of the Fund and its registration number in the General Register of Taxpayers of the Ministry of Finance; III - the following information about the administering institution:
a) denomination and headquarters location; b) reference to CVM authorization; c) registration number in the General Register of Taxpayers of the Ministry of Finance; IV - name of the unitholder; V - serial number of the certificate; VI - quantity of shares represented by it; VII - place and date of issuance; VIII - authorized signature of the administrator or the director responsible for the administrator, mechanical chancellery admitted.

Art. 20. Only the shares of the Fund that have been previously registered with the CVM may be negotiated on the organized stock or over-the-counter market.

§1. The Fund's shares may only be negotiated, on stock exchanges or in an organized over-the-counter market, after the full payment of the issuance price.

§2. The shares of the Mutual Investment Fund in Emerging Companies - Foreign Capital may only be placed with the public through a multiple bank with investment portfolio, investment bank, brokerage firm, or distribution company, observing the formalities required by the CVM.

Art. 21. The request for registration of the distribution of shares with the CVM will be formulated by the administrator, accompanied by the following documents:
I - decision of the administrator relating to the project for the constitution of the Fund, which must contain the full text of its bylaws, registered at the Titles and Documents Registry located at the administrator's headquarters, and the initial patrimony of the Fund; II - indication of the director of the administering institution responsible for the administration of the Fund, if applicable; III - other documents necessary for the complete disclosure of the distribution.

Art. 22. All shares of the Fund guarantee the same rights to their holders.

Art. 23. The Fund's Bylaws must provide for the destination of the Fund's financial resources if authorization for its constitution is not obtained in accordance with Art. 3 of this Instruction.

Art. 24. In Mutual Investment Funds in Emerging Companies - Foreign Capital, there will be no redemption of shares, except upon the expiration of the duration term or liquidation of the Fund.

CHAPTER VI
OF THE COMPOSITION AND DIVERSIFICATION OF THE PORTFOLIO

Art. 25. Once constituted and authorized for operation, the Fund must maintain, at least, 75% of its applications in shares, debentures convertible into shares, or subscription warrants for shares issued by emerging companies.

§1. The portion of its applications not invested in securities of emerging companies must, obligatorily, be invested in shares of fixed-income funds, and/or in fixed-income titles of free choice of the administrator, or securities of open companies acquired on a stock exchange or in an organized over-the-counter market.

§2. To meet the minimum limit provided for in the caput of this article, it will be admitted that daily positions in securities of emerging companies reach fifty percent of the total value of applications, provided that the average, every 180 days, obeys the minimum percentage of 75% of the total value of applications.

Art. 26. Mutual Investment Funds in Emerging Companies - Foreign Capital must, obligatorily, highlight in their prospectuses the risks inherent to the concentration of the portfolio resulting from their applications.

Art. 27. Orders to buy and sell titles and securities will always be issued with precise identification of the Fund.

CHAPTER VII
OF THE CHARGES OF THE FUND

Art. 28. The following will constitute charges of the Fund, in addition to the remuneration referred to in item IV of Art. 4, expenses that may be debited by the administrator:
I - taxes, federal, state, municipal, or autonomous contributions, that fall or may fall on the assets, rights, and obligations of the Fund; II - expenses with printing, dispatch, and publication of reports, forms, and periodicals, provided for in this Instruction or in pertinent regulation; III - correspondence expenses of interest to the Fund, including communications to unitholders; IV - fees and expenses of the auditors responsible for the review of the Fund's financial statements and the analysis of its situation and the administrator's performance, including with respect to the investment policy fixed in the statutes and prospectuses; V - emoluments and commissions paid for foreign exchange operations and purchase and sale of titles and securities of the Fund; VI - lawyers' fees, court costs, and related expenses incurred in defense of the Fund's interests, in court or out of court, including the value of the condemnation, imputed to the Fund, if applicable; VII - portion of eventual losses not resulting directly from fault or negligence of the administrator in the exercise of its functions; VIII - insurance premiums, as well as any expenses relating to the transfer of resources of the Fund between banks; IX - any expenses inherent to the constitution, merger, incorporation, spin-off, or liquidation of the Fund and to the holding of a General Assembly of unitholders; X - custody fee for titles and securities of the Fund.

Sole Paragraph. Any expenses not provided for as charges of the Fund will be borne by the administrator.

CHAPTER VIII
OF THE FINANCIAL STATEMENTS

Art. 29. The Mutual Investment Fund in Emerging Companies - Foreign Capital will have its own accounting bookkeeping.

Art. 30. The Fund's financial statements will be subject to the bookkeeping standards issued by the CVM and will be audited, annually, by an independent auditor, registered with the CVM.

Sole Paragraph. The financial statements of the emerging companies whose securities constitute the portfolio of the Mutual Investment Fund in Emerging Companies - Foreign Capital must be audited, annually, by an independent auditor registered with the CVM.

CHAPTER IX
OF THE INFORMATION

Art. 31. It must be provided to the investor, obligatorily and free of charge, at the time of their entry as a unitholder of the Mutual Investment Fund in Emerging Companies - Foreign Capital, against receipt:
I - a copy of the Fund's Bylaws, referred to in Art. 4; II - a brief history of the administrator; III - a document clearly stating the expenses with commissions or subscription fee, distribution, and others with which the investor must bear.

Art. 32. The Fund's administrator is obliged to widely and immediately disclose any relevant act or fact relating to it, in order to guarantee all unitholders access to information that may, directly or indirectly, influence their decisions regarding staying in the Fund and other investors regarding the acquisition of shares.

Art. 33. The Fund's administrator must forward to the CVM:
I - semi-annually, within sixty days after the end of this period, the following information:
a) net asset value per share; b) portfolio movement, discriminating quantity and type of titles and securities that compose it; c) balance sheet and other financial statements of the Fund; d) list of institutions responsible for providing custody services for titles and securities components of the portfolio. II - annually, within ninety days after the end of the period, the following information:
a) annual balance sheet and other financial statements accompanied by the opinion of the independent auditor; b) the charges debited to the Fund, as provided for in Art. 28, specifying their value and percentage relative to the Fund's average monthly net assets.

Art. 34. The administrator must forward to unitholders, in addition to the information provided for in Art. 33:
I - semi-annually, within sixty days after the end of the period, the balance sheet and semi-annual financial statements of the emerging companies issuing the securities constant in the Fund's portfolio; II - annually, within ninety days after the end of the period, the annual balance sheet and financial statements, accompanied by the opinion of an independent auditor, of the emerging companies issuing the securities constant in the Fund's portfolio.

Sole Paragraph. The CVM may at any time request the information provided for in this article.

Art. 35. The administrator must also annually forward to the unitholder their balance in shares and the corresponding value.

CHAPTER X
OF THE PROHIBITIONS

Art. 36. It is prohibited for the administrator, in the name of the Fund:
I - to receive deposits in current accounts;
II - to contract or make loans under any modality; III - to provide guarantee, aval, acceptance, or co-obligate under any other form; IV - to negotiate with duplicate bills, promissory notes, except those referred to in CVM Instruction No. 134, of November 1, 1990, or other titles not authorized by the CVM; V - to promise predetermined yield to unitholders; VI - to apply resources:

a) abroad; b) in the acquisition of real estate; c) in the subscription or acquisition of shares of its own issuance.

Art. 37. It is prohibited for the administrator to sell fund shares on installment.

CHAPTER XI
OF THE TERM FOR GRANTING AUTHORIZATIONS

Art. 38. The authorizations provided for in this Instruction shall be granted within thirty days, counted from the date of filing the request with the CVM, duly accompanied by the respective documentation.

Art. 39. The authorization shall be deemed automatically granted if the request is not denied within the period referred to in Art. 38.

Sole Paragraph. A request not accompanied by the relevant documentation shall be summarily denied, with the applicant being informed of the decision.

Art. 40. The thirty-day period shall be suspended only once, if the CVM requests documents or additional information necessary for the examination of the authorization request or conditions it on modifications to the relevant documentation.

§1º A period not exceeding sixty days, counted from the receipt by the applicant of the respective correspondence, shall be granted to comply with any requirements, under penalty of the request being denied.

§2º The CVM is assured, for a final statement, a period corresponding to five business days, if the remainder of the period provided for in the caput is less.

Art. 41. The denial of the authorization request shall be communicated to the interested party through a letter with Acknowledgment of Receipt (AR).

CHAPTER XII
OF THE PENALTY FINE

Art. 42. The administrator who fails to forward to the Securities and Exchange Commission (Comissão de Valores Mobiliários) the information provided for in this Instruction shall be subject to a daily penalty fine of R$ 500.00 (five hundred reais), which shall apply from the day following the end of the period provided for compliance with the obligation, without prejudice to liability under item V of Art. 9 and Art. 11 of Law No. 6.385/76, as amended by Law No. 9.457/97.

CHAPTER XIII
OF LIABILITY AND OFFENSES

Art. 43. Compliance with the provisions of this Instruction is the responsibility of the fund administrator, whether an individual or legal entity, as well as the administrators of the legal entity directly responsible for the administration of the fund.

Art. 44. A serious offense, for the purposes of Art. 11, § 3º, of Law No. 6.385/76, as amended by Art. 2º of Law No. 9.457/97, is considered the violation of the provisions of this Instruction, except those relating to Arts. 1, 3, 5, 6, 7, 11, 13, 20, 25, 27, 28, 31 and 33 to 37, which constitute objective offense scenarios for the purposes of the summary administrative proceeding process.

Art. 45. This Instruction enters into force on the date of its publication in the Official Gazette of the Union.

Signed original by
FRANCISCO DA COSTA E SILVA
President