CVM Instruction No. 296 of December 18, 1998, with amendments introduced by CVM Instruction No. 350/01

FULL TEXT OF CVM INSTRUCTION NO. 296, OF DECEMBER 18, 1998, WITH AMENDMENTS INTRODUCED BY CVM INSTRUCTION NO. 350/01.
CVM INSTRUCTION NO. 296, OF DECEMBER 18, 1998.
Provides for the registration of public distribution of collective investment contracts.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Collegiate Body, in a meeting held on this date, in view of the provisions of arts. 4, items I, IV and VI, 8, item I, 16, item I, and 19, § 5, of Law No. 6,385, of December 7, 1976, and of art. 1, § 3, of Provisional Measure No. 1,637-11, of November 20, 1998, HAS RESOLVED to issue the following Instruction:

ON SCOPE AND PURPOSE
Art. 1. The registration of public distribution of collective investment contracts is regulated by the provisions of this Instruction.

ON COLLECTIVE INVESTMENT CONTRACTS
Art. 2. Collective investment contracts that generate rights of participation, partnership, or remuneration, including resulting from the provision of services, whose earnings derive from the effort of the entrepreneur or third parties, constitute securities, subject to the regime of Law No. 6,385, of December 7, 1976, when offered publicly.

Art. 3. No public issuance of collective investment contracts may be distributed in the market without prior registration with the CVM.

Art. 3. No public issuance of securities or collective investment contracts may be distributed in the market without prior registration with the CVM, which will be conditioned upon compliance with the following obligations: (NR) I – provision of real guarantee in an amount equal to at least 50% of the updated principal value of the securities or collective investment contracts in circulation, in treasury, and to be issued pending registration, when that total accumulated value exceeds the issuer's net equity or the amount of R$ 5,000,000.00; and, II – proof by the issuer of the total placement of previously registered issuances with the CVM, if applicable, or of the cancellation of the unplaced balance, allowing the presentation of the registration request before the end of the placement. (NR)

§1. When the updated value of the securities or collective investment contracts in circulation, in treasury, and to be issued, including those pending registration, exceeds the amount of R$ 10,000,000.00, in addition to providing a guarantee, the issuer must be registered as an open company, in accordance with CVM Instruction No. 202, of December 6, 1993. (NR)

§2. Securities or collective investment contracts with a unit value equal to or greater than R$ 150,000.00 and intended exclusively for placement with qualified investors, as defined in art. 99 of CVM Instruction No. 302, of May 5, 1999, may be issued without the guarantees provided for in item I of this article. (NR)

§3. The guarantee referred to in item I of this article may only have as its object free and clear assets, of value compatible with the total guaranteed, according to the evaluation that accompanies the registration request. (NR)

§4. The guarantee referred to in item I of this article may be totally or partially substituted, at the issuer's discretion, by:
I – surety guarantee provided by a financial institution with equity compatible with the total guaranteed; or II – real guarantee on assets identical to those subject to the issuance, which falls on free and clear assets of other encumbrances, and whose value is compatible with the total guaranteed, according to the evaluation that accompanies the substitution request. (NR)

§5. Unless it is an issuance intended for qualified investors, as provided in § 2 of art. 3 of this Instruction, the registration of the issuance may be denied if the feasibility study referred to in item V of article 11 of this Instruction reveals that the securities or contracts to be issued, including those pending registration, together with those in circulation and in treasury, compromise the payment capacity of the issuing company, being reckless with regard to the risks to which the investors to whom it is destined will be exposed. (NR)

• Article and §§ with wording given by CVM Instruction No. 350, of April 3, 2001.

Art. 4. Any products or by-products intended for commercial purposes may be the object asset of collective investment contracts.

Sole Paragraph. Collective investment contracts must be traded in units compatible with those used in the commercial practices of their object asset.

Art. 5. Collective investment contracts must obligatorily contain the following information:

I - denomination and specification: "COLLECTIVE INVESTMENT CONTRACTS IN......"; II - number and series of the contract; III - identification of the issuing company, including corporate name, line of business, headquarters, number of registration in the General Register of Taxpayers of the Ministry of Finance - CGC, and number of company registration with the CVM; IV - number and date of public distribution registration with the CVM; V - investor identification, including name and CPF; VI - specification of the characteristics of the object asset, the trading unit, and the quantity of the latter represented by the contract; VII - unit price of the object asset expressed in reais on the date of signing; VIII - initial value of the contract; IX - contract maturity term; X - form of payment, specifying whether subscription will be at sight or on credit; when on credit, information on the number of installments and the respective calculation methodology; XI - specification of financial redemption conditions at maturity, and early, if applicable, and of the investor remuneration calculation methodology; XII - physical redemption conditions, if applicable, specifying the delivery location, taxes, freight, storage, and other necessary expenses; XIII - specification of the administration fee and others that may eventually be charged to the investor, indicating the collection method; XIV - specification of the guarantee, if any; XV - specification of procedures in case of investor default, in credit sales; XVI - specification of the notary office for titles and documents registering the contract;

XVI – Specification of the consequences and penalties resulting from eventual default by the issuer; (NR)

• Item XVI with wording given by CVM Instruction No. 350, of April 3, 2001.

XVII - express declaration by the investor of having taken knowledge of the terms contained in the prospectus; XVII - Specification of the notary office for titles and documents registering the contract. (NR)

• Item XVII with wording given by CVM Instruction No. 350, of April 3, 2001.

XVIII - place and date of contract issuance;
XVIII - Express declaration by the investor of having taken knowledge of the terms contained in the prospectus. (NR)

• Item XVIII with wording given by CVM Instruction No. 350, of April 3, 2001.

XIX - space for the investor's signature and the legal representatives of the issuing company.
XIX – Declaration by the issuer that it undertakes to apply the raised resources, within a maximum period of 90 (ninety) days from the effective raising, in the following manner: (NR) (a) 50% (fifty percent), at minimum, in the object asset of the security or contract; (NR) (b) the remaining resources in: (NR)

1. fixed-income securities issued by the National Treasury or private institutions that have low credit risk classification; (NR)
2. fixed-income funds. (NR)
3. in derivatives, exclusively, for protection against price fluctuations of the object asset or of the inputs necessary for the fulfillment of contractual obligations. (NR)

• Item XIX with wording given by CVM Instruction No. 350, of April 3, 2001.

XX – With emphasis, the same caveats referred to in items I to III of the sole paragraph of art. 11 of this Instruction.

• Item XX added by CVM Instruction No. 350, of April 3, 2001.

XXI - Place and date of contract issuance. (NR)

• Item XXI added by CVM Instruction No. 350, of April 3, 2001.

XXII - Space for the investor's signature and the legal representatives of the issuing company.
(NR)

• Item XXII added by CVM Instruction No. 350, of April 3, 2001.

Sole Paragraph. Any promise of financial profitability in the contract is prohibited.

ON PUBLIC DISTRIBUTION REGISTRATION
Art. 6. The examination of the public distribution registration request for collective investment contracts will only be carried out if the company registration is up to date, in accordance with CVM Instruction No. 270, of January 23, 1998.

Art. 7. The registration request must be accompanied by the following documents, in two copies:
I - request signed by a legal representative of the issuing company containing information on:
a) amount of the issuance and the number of series into which it is divided; b) indication of the means used for the public distribution of the contracts; II - copy of the collective investment contract model; III - copy of the contract signed between the issuing company and the intermediary, if any; IV - draft prospectus, in accordance with art. 11 of this Instruction; V - certificates proving ownership of the real estate and/or copy of the lease or rental contracts for real estate for the execution of the project; VI - proof of payment of the supervision fee related to the public distribution registration of the collective investment contracts;

VII - copy of the corporate bylaws.

Art. 8. Registration is presumed granted if the request is not denied within thirty days counted from the date of its receipt at the CVM.

§1. The analysis period may be interrupted only once, if the CVM requests additional information or conditions the registration to modifications in the relevant documentation.

§2. To meet any requirements, a period not exceeding sixty days will be granted, counted from the receipt of the respective correspondence.

§3. Registration will be denied if the company does not meet the CVM's requirements within the period established in the previous paragraph.

§4. The approval or denial of registration will be communicated to the company.

§5. The failure to present all documents provided for in art. 7 of this Instruction implies the preliminary denial of the request.

Art. 9. After approval, any and all communications regarding the issuance must, obligatorily, mention the registration number granted by the CVM.

Art. 10. The CVM may suspend, at any time, the distribution that is being made under conditions different from those stated in the registration, or when there are indications of illegality or fraud.

PROSPECTUS
Art. 11. The prospectus is the document that contains basic data about the issuing company and the distribution, as well as the reasons justifying the expectation of good success of the project, and must present at least:
I - denomination and indication on the cover of the prospectus that it is a distribution of COLLECTIVE INVESTMENT CONTRACT, further highlighting the type of object asset of the issuance; II - total quantity of the object asset contemplated in the public distribution, accompanied by its order number, number and date of registration with the CVM; III - identification of the issuing company, including: corporate name, line of business, nationality, headquarters, number of company registration in the CGC and registration with the CVM, name of the director of investor relations, name or corporate name of the independent auditor, composition and distribution of share capital of the controllers down to the level of natural person;

IV - history of the company and its economic activities as an issuer of collective investment contracts, including information about the farms, own and leased facilities, the useful area dedicated to the object asset, the production processes adopted, and the main clients and suppliers; V - feasibility study, containing at least the following information: economic analysis of the line of business in which the issuing company is inserted, economic-financial analysis of the project related to the registration request, including a schedule of the physical evolution of production, projected cash flow and return on investment, clearly and objectively exposing each of the assumptions adopted, as well as the impact of the project on the company as a whole, description of the processes and technology employed, and risk factors associated with the project; VI - financial statements and explanatory notes provided for in art. 176 of Law No. 6,404, of December 15, 1976, referring to the last three fiscal years, and, if applicable, consolidated financial statements, prepared in accordance with current legislation (Law 6,404/76, arts. 249 and 250 and CVM regulation), accompanied by explanatory notes and independent auditor's report, referring to the last fiscal year, or drawn up on a date subsequent to its closing, if in that period the investments added to credits of any nature in controlled companies represent more than thirty percent of the company's net equity;

Sole Paragraph. In addition to the information requested in the caput of this article, the prospectus must contain the following texts, written in easy-to-read font and with emphasis:
I - "THE REGISTRATION OF THIS ISSUANCE DOES NOT IMPLY, ON THE PART OF THE CVM, GUARANTEE OF THE TRUTHFULNESS OF THE INFORMATION PROVIDED OR JUDGMENT ON THE QUALITY OF THE PROJECT, THE ISSUING COMPANY, OR THE PROFITABILITY AND RISK OF THE INVESTMENT REPRESENTED IN THIS COLLECTIVE INVESTMENT CONTRACT". II - "THE FINAL PROFITABILITY OF THIS INVESTMENT IS SUBJECT TO PRICE FLUCTUATIONS OF THE ... (TRADING UNIT OF THE OBJECT ASSET)". III - "THIS INVESTMENT DOES NOT REPRESENT AGRICULTURAL PARTNERSHIP UNDER THE TERMS OF LAW No. 8,023, OF APRIL 12, 1990."

Sole Paragraph. In addition to the information requested in the caput of this article, the prospectus must contain the following texts, written in easy-to-read font and with emphasis: (NR) I - "THE CVM DOES NOT GUARANTEE THE TRUTHFULNESS OF THE INFORMATION PROVIDED BY THE ISSUING COMPANY OR JUDGMENT ON THE QUALITY OF THE PROJECT, THE ISSUING COMPANY, OR THE PROFITABILITY AND RISK OF THE INVESTMENT REPRESENTED IN THIS COLLECTIVE INVESTMENT CONTRACT". (NR)

II - "THE FINAL PROFITABILITY OF THIS INVESTMENT IS SUBJECT TO PRICE FLUCTUATIONS OF THE ______ (TRADING UNIT OF THE OBJECT ASSET)". (NR) III - "THIS INVESTMENT DOES NOT REPRESENT AGRICULTURAL PARTNERSHIP UNDER THE TERMS OF LAW No. 8,023, OF APRIL 12, 1990." (APPLICABLE WHEN IT IS AN AGRICULTURAL AND LIVESTOCK OBJECT ASSET)" (NR)

• Sole Paragraph and items I to III with wording given by CVM Instruction No. 350, of April 3, 2001.

Art. 12. The prospectus must be available to the public for consultation during the distribution period, at the contract sales locations and with the natural persons in charge of the sales.

Sole Paragraph. Distribution may only begin with the prospectus available to the public.

Art. 12-A. Issuances of securities or collective investment contracts will also be accompanied by an informative booklet, written in simple language and with clear presentation, which should briefly bring the information contained in the prospectus, highlighting the risks to which the investor in the offered security or collective investment contract is subject, and repeating with emphasis the caveats referred to in the sole paragraph of art. 11 of this Instruction. (NR)

Sole Paragraph. The informative booklet referred to in the caput of this article will be previously approved by the CVM and delivered to all acquirers of collective investment contracts. (NR)

• Article added by CVM Instruction No. 350, of April 3, 2001.

ON THE OBLIGATIONS OF THE ISSUING COMPANY
Art. 13. The issuing company must:
I - send to the CVM, by the tenth day of the month following the negotiation, a monthly report on the sale of contracts, as well as the respective balance to be paid, in relation to the total amount authorized in the registration; II - maintain a technical department qualified to provide analysis and monitoring services for the project, or hire such services externally, in order to attend to and provide technical clarifications to investors; III - keep the prospectus available to the public during the period of distribution of the collective investment contracts;

IV - notify the CVM of the end of the public distribution within a maximum period of two business days, counted from the date of closure; V - periodically send investors proof of applications and gains for income tax declaration purposes, observing the provisions of the Federal Revenue Secretariat.

Art. 14. The issuing company must present the quarterly information form - ITR with the following data related to the authorized contract series that still have contracts open:
I - physical inventory of the object asset of the contracts, discriminating its location and age; II - liability arising from open contracts, discriminating the number of open contracts, their equivalence in trading units to which the object asset refers, payment mode (at sight or on credit), and contract maturity terms; III - number of investors, by type of contract, discriminating the type of investor (natural or legal person) and the investment mode (at sight or on credit); IV - comparative table showing the evolution of the project in relation to the values and parameters contained in the feasibility study presented in the prospectus.

Sole Paragraph. The table referred to in item IV of this article must discriminate the destination of the raised resources, duly audited by an independent auditor. (NR)

• Sole Paragraph added by CVM Instruction No. 350, of April 3, 2001.

SPECIFIC ACCOUNTING STANDARDS (NR)
Art. 14-A. The issuing company of collective investment contracts, which has agricultural, animal, and extractive products intended for sale as its object, must evaluate its inventories at net realizable value, whenever they possess immediate liquidity, the sector of activity is primary, and the costs and expenses to be incurred in placing the product for sale are determined. (NR)

Sole Paragraph. For the purposes of the provisions of this article, net realizable value is considered the selling price minus taxes and other costs and expenses associated with the sale. (NR)

• Article added by CVM Instruction No. 350, of April 3, 2001.

Art. 14-B. The obligations related to collective investment contracts must be updated, under the accrual basis, based on the update and remuneration indices provided for in the contracts, adopting, at minimum, the “pro-rata-mens” criterion. (NR)

• Article added by CVM Instruction No. 350, of April 3, 2001.

Art. 14-C. Without prejudice to the provisions of art. 14 of CVM Instruction No. 296/98, the issuing company must prepare an explanatory note of reconciliation, evidencing the changes occurred in the book value of inventories, between the beginning and the end of the fiscal year, encompassing: (NR) a) variation resulting from physical increase; (NR) b) variation resulting from physical decrease; (NR) c) variation resulting from price fluctuation; (NR) d) sales occurred; (NR) e) acquisitions occurred; (NR) f) other variations. (NR)

• Sole Article added by CVM Instruction No. 350, of April 3, 2001.

ON ADVERTISING MATERIAL
Art. 15. The use of any advertising text for the distribution, advertisement, or promotion of the distribution of collective investment contracts can only be made after the granting of registration and depends on examination and prior approval by the CVM.

Sole Paragraph. Upon the expiration of the period of two business days without any manifestation by the CVM, the advertising text is presumed approved.

ON THE TRUTHFULNESS OF THE INFORMATION
Art. 16. The administrators and controllers of the issuing company are responsible for the truthfulness of the information forwarded to the CVM.

Art. 17. The registration provided for in this Instruction does not imply, on the part of the CVM, guarantee of the truthfulness of the information provided or judgment on the quality of the company, as well as on the collective investment contracts.

ON INFRACTIONS AND PENALTIES

Art. 18. Considered a serious offense, for the purposes of § 3 of art. 11 of Law No. 6,385/76, without prejudice to the fine provided for in § 1 of the same article:

Art. 18. Considered a serious offense, for the purposes of § 3 of art. 11 of Law No. 6,385, of December 7, 1976, without prejudice to the fine provided for in § 1 of the same article: (NR)

• "Caput" with wording given by CVM Instruction No. 350, of April 3, 2001.

I - carried out under conditions different from those stated in the registration request; I - the distribution carried out under conditions different from those stated in the registration request. (NR)

• Item I with wording given by CVM Instruction No. 350, of April 3, 2001.

II - carried out without prior registration with the CVM.
II – the distribution carried out without prior registration with the CVM. (NR)

• Item II with wording given by CVM Instruction No. 350, of April 3, 2001.

III – the destination of the raised resources in disagreement with what is provided for in the prospectus. (NR)

• Item III added by CVM Instruction No. 350, of April 3, 2001.

Art. 19. Non-compliance with the period established in item I of art. 13 of this Instruction constitutes a hypothesis of objective nature offense, which may be investigated through an administrative inquiry, observing the summary procedure.

ON TRANSITORY AND FINAL PROVISIONS
Art. 20. The company that is promoting public distribution of collective investment contracts of its issuance has a period of sixty days to adapt to the provisions contained in this Instruction.

Art. 21. This Instruction enters into force on the date of its publication in the Official Gazette of the Union.

Original signed by
FRANCISCO DA COSTA E SILVA
President