Bankboston Banco Múltiplo S.A. Bankboston Leasing S.A. – Arrendamento Mercantil U.S.$1,000,000,000

OFFERING CIRCULAR

BANKBOSTON BANCO MÚLTIPLO S.A. BANKBOSTON LEASING S.A. – ARRENDAMENTO MERCANTIL U.S.$1,000,000,000

Boston-Brazil Medium Term Note Program

certain of which Notes may be unconditionally and irrevocably guaranteed as to Commercial Risk, as further described herein, by BANKBOSTON, N.A.*

BankBoston Banco Múltiplo S.A. ("BankBoston Banco Múltiplo S.A." or the "Bank"), BankBoston Leasing S.A. - Arrendamento Mercantil ("BBL") and each other issuer organized or incorporated under the laws of the Federative Republic of Brazil ("Brazil") as may be designated from time to time in a supplementary Offering Circular (each, an "Issuer" and collectively, the "Issuers") may from time to time issue Medium Term Notes (the "Notes") under the Boston-Brazil Medium Term Note Program (the "Program") described in this Offering Circular, provided that there shall only be one Issuer with respect to each Note issued. The Program has been established pursuant to the provisions of theAmended and Restated FiscalAgencyAgreement dated as of July 17, 1998, as the same has been and may be amended from time to time. Except as set forth herein, the Notes may have such minimum or maximum maturities, may be issued at their nominal amount or at a premium over or discount to their nominal amount, may bear interest at a fixed or floating rate or by reference to an index or formula and may be issued on a fully discounted basis, in each case as agreed to by the relevant Issuer and the relevant Dealer or Dealers (as defined below) and stated in the applicable supplement to this document (each, a "Pricing Supplement"). The maximum principal amount of all Notes from time to time outstanding will not exceed U.S.$1,000,000,000 (or its equivalent in any other Specified Currency as defined herein under "Description of the Notes"), subject to increase as provided herein. Certain of the Notes may be unconditionally and irrevocably guaranteed (each, a "Guarantee") as to Commercial Risk by BankBoston, N.A.* (the "Guarantor"), which Guarantee will be attached or affixed to and will constitute a part of each relevant Note. The Noteholders should review the Pricing Supplement for each issuance of Notes in order to ascertain whether such Notes are guaranteed. The Notes will be offered by the relevant Issuer through one or more of the dealers listed below and any other dealer appointed from time to time by such Issuer (each a "Dealer," and together the "Dealers") on a continuous basis or through syndicated placements. The applicable Pricing Supplement will specify the relevant Issuer and any Dealer, Dealers or syndicate of Dealers through which the Notes of a particular Tranche (as defined herein) will be offered. Notes that are identical in all respects (including as to Issue Date (as defined herein) but without regard to whether they are issued in registered and/or bearer form) shall constitute a "Tranche," and any Tranches of Notes that (i) are expressed to be consolidated and form a single series and (ii) are identical in all respects (except for their respective Issue Dates, Interest Commencement Dates and/or Issue Prices (each as defined herein under "Description of the Notes-Pricing Supplements") and except for whether they are issued in registered and/or bearer form) shall constitute a "Series”. THE NOTES AND, IF APPLICABLE, THE GUARANTEE MAY BE SUBJECT TO CERTAIN LIMITATIONS ON REPAYMENT IN THE EVENT OF A BRAZILIAN SOVEREIGN RISK EVENT, WHICH, UNLESS OTHERWISE PROVIDED IN THE RELEVANT PRICING SUPPLEMENT, IS DESCRIBED UNDER "TERMS AND CONDITIONS OF THE NOTES-BRAZILIAN SOVEREIGN RISK EVENT". IN THE EVENT OF CERTAIN BRAZILIAN SOVEREIGN RISK EVENTS, PAYMENT ON THE NOTES MAY BE DELAYED OR MAY BE MADE THROUGH THE PAYMENT OF BRAZILIAN CURRENCY OR THROUGH THE DELIVERY OF RIGHTS IN MANDATORY REMITTANCES. SEE "INVESTMENT CONSIDERATIONS-BRAZILIAN SOVEREIGN RISK EVENT”. Each payment in respect of Notes made by or on behalf of the relevant Issuer to or to the order of Deutsche Trust Bank Limited, as principal paying bank (the "Principal Paying Bank") on the date on which such payment is due shall discharge such Issuer’s and the Guarantor’s (if applicable) obligation with respect to such payment. Thereafter holders of such Notes shall be entitled to look only to the Principal Paying Bank for payment of such amount subject to, and as more fully described under, "Terms and Conditions of the Notes-Discharge of Issuer; Principal Paying Bank Default." Interest on the Notes shall cease to accrue as provided in "Terms and Conditions of the Notes-Interest" with respect to each timely payment by or on behalf of the relevant Issuer to the Principal Paying Bank. Application has been made for certain of the Notes to be issued under the Program to be listed on the Luxembourg Stock Exchange. Notice of the aggregate nominal amount of Notes, interest (if any) payable in respect of Notes, the issue price of Notes and any other terms and conditions not contained herein that are applicable to each Tranche of Notes will be set forth in the Pricing Supplement, which, with respect to Notes to be listed, will be delivered to the Luxembourg Stock Exchange on or before the date of issue of the Notes of such Tranche. The Program provides that Notes may be listed on such other or further stock exchange(s) as may be agreed between the relevant Issuer and the relevant Dealer(s). An Issuer may also issue unlisted Notes. Application will be made for Notes represented by a Restricted Global Note (as defined in "Description of the Notes")(insofar as is necessary for such Notes to be settled through The Depository Trust Company ("DTC")) to be accepted as eligible for trading in the Private Offerings, Resales and Trading throughAutomated Linkages System ("PORTAL") of the NationalAssociation of Securities Dealers, Inc. Notes of a Tranche may be issued in bearer form outside the United States ofAmerica (the "United States" or the "U.S.") and/or in registered form both outside or within the United States. See "Investment Considerations" for a discussion of certain factors to be considered in connection with an investment in the Notes. THE NOTES DO NOT EVIDENCE DEPOSITSANDARE NOT INSURED BYANY REGULATORY OR GOVERNMENTALAGENCY OFTHE UNITED STATES, BRAZIL OR ANY OTHER JURISDICTION. THE NOTES ARE NOT OBLIGATIONS OF, NOR ARE THEY GUARANTEED BY, FLEETBOSTON FINANCIALCORPORATION. The Notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and may include Notes in bearer form that are subject to United States tax law requirements. Subject to certain exceptions described herein, Notes may not be offered, sold or delivered within the United States or to, or for the account or benefit of, U.S. persons. See "Subscription and Sale”.

Dealer BANKBOSTON TRUST COMPANY LIMITED

The date of this Offering Circular is June 19, 2002

* BankBoston, N.A., a FleetBoston Financial Company, is the corporate name under which Fleet National Bank operates in Latin America.

This Offering Circular is to be read in conjunction with all documents that are deemed to be incorporated herein by reference (see "Incorporation by Reference"). This Offering Circular shall be read and construed on the basis that such documents are incorporated and form part of this Offering Circular.

Any Issuer and the Guarantor (if applicable) may agree with any Dealer that Notes may be issued in a form or manner not contemplated herein, in which case a supplementary Offering Circular, if appropriate, will be prepared by the relevant Issuer and, if applicable, the Guarantor, and made available that will describe the effect of the agreement reached in relation to such Notes.

Each Issuer and the Guarantor have taken all reasonable care to ensure that the facts stated in this Offering Circular in relation to such Issuer, the Guarantor and the Notes are true and accurate in all material respects and that there are no other material facts the omission of which would make misleading any statement contained herein, whether of fact or opinion. Each Issuer and the Guarantor accept responsibility accordingly. Notwithstanding the foregoing, the information provided herein with respect to Brazil is drawn from publicly available information, and none of the Guarantor, any Issuer or the Dealers make any representation or warranty relating thereto, other than that each of the Issuers accepts responsibility for the accurate summarization of such information as relates to it.

No person has been authorized to give any information or to make any representation not contained in this Offering Circular or any Pricing Supplement and, if given or made, such information or representation must not be relied upon as having been authorized by the relevant Issuer, the Guarantor or any Dealer.

This Offering Circular or any supplement hereto and any Pricing Supplement should not be considered as a recommendation by any Issuer, the Guarantor or any Dealer that any recipient of this Offering Circular or any Pricing Supplement should purchase Notes. Each investor contemplating purchasing Notes of a Tranche should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the relevant Issuer and the Guarantor (if applicable). This Offering Circular and any Pricing Supplement do not constitute an offer or invitation by or on behalf of any Issuer, the Guarantor or any Dealer to any person to subscribe for or to purchase any of the Notes. Neither the delivery of this Offering Circular or any Pricing Supplement nor the offering, sale and delivery of any Note shall create any implication that the information contained herein is correct at any time after the date hereof or that there has been no change in the financial condition and affairs of any Issuer or the Guarantor since the date hereof. Each Dealer expressly does not undertake to review the financial condition or affairs of any Issuer or the Guarantor during the life of the Program. Investors should review, inter alia, the most recent financial statements of the relevant Issuer and the Guarantor (if applicable) when evaluating an investment in the Notes of any Tranche.

No Dealer has separately verified the information contained in this Offering Circular. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility is accepted by any Dealer as to the accuracy or completeness of the information contained in this Offering Circular or any further information supplied in connection with the Notes. Each Dealer accepts no liability in relation to the information contained in this Offering Circular or the distribution hereof or with regard to any other information supplied by or on behalf of any Issuer or the Guarantor.

The distribution of this Offering Circular and any Pricing Supplement and the offer, sale and delivery of Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular or other offering material comes are required to inform themselves about and to observe any such restrictions. For a description of certain restrictions on offers, sales and deliveries of Notes and on distribution of this Offering Circular and other offering material, see "Subscription and Sale." Certain other restrictions may apply as described in the applicable Pricing Supplement. This Offering Circular and other offering material do not constitute an offer to sell or the solicitation of an offer to buy the Notes in any jurisdiction in which such offer or solicitation is unlawful.

The Notes have not been and will not be registered with the Brazilian Securities Commission (Comissão de Valores Mobiliários or the "CVM"), the Brazilian entity equivalent to the U.S. Securities and Exchange Commission (the "SEC"). Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in Brazil is not lawful without such prior registration under Law No. 6,385/76. Subsequent trading of the Notes in private transactions is not subject to registration with the CVM to the extent such trading does not qualify as a public offering or distribution. Any seller of a Note, however, may be required to comply with procedural requirements to evidence previous title to relevant documents, as well as be subject to withholding tax on capital gains. Persons wishing to offer or acquire Notes within Brazil should consult with their own counsel as to the applicability of these registration requirements or any exemption therefrom.

The Notes have not been registered with or approved or disapproved by the SEC, the Office of the Comptroller of the Currency of the United States (the "Comptroller") or any state securities commission nor has the SEC, the Comptroller, any U.S. state securities commission, the CVM or any other authority of the federal government of Brazil, any of its subdivisions, the Central Bank (Banco Central do Brasil, or “Central Bank”) or any other de facto or de jure office, agency or institutionality of Brazil (the "Brazilian Government") passed upon the accuracy or adequacy of this Offering Circular or any Pricing Supplement.

The Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act, the regulations of the Comptroller relating to securities offerings by national banks (12 C.F.R. Part 16) (the "Comptroller’s Regulations") and the applicable securities laws of the states of the United States or pursuant to registration or an exemption therefrom. See "Subscription and Sale." No representation can be made as to the availability of the exemption provided by Rule 144 under the Securities Act for resale of the Notes.

This Offering Circular may be used by any Dealer, including any Dealer which may be an affiliate of the Guarantor, in connection with offers and sales related to secondary market transactions in the Notes. Any such Dealer may act as principal or agent in such transactions. Such sales will be made at prices related to prevailing market prices at the time of sale.

In connection with the issue and distribution of Notes under the Program, each Dealer who is specified for such purpose in the applicable Pricing Supplement in relation to the relevant Tranche of Notes may over-allot or effect transactions which stabilize or maintain the market price of the Notes of the Series of which such Tranche forms a part at a level which might not otherwise prevail. Such stabilizing, if commenced, may be discontinued at any time.

ENFORCEABILITY OF JUDGMENTS IN BRAZIL

The Issuers are entities existing under the laws of Brazil. Most or all of the directors and officers of the Issuers are residents of Brazil, and all or a significant portion of the assets of the directors and officers and substantially all of the assets of the Issuers, are located in Brazil. As a result, it may not be possible for investors to effect service of process upon such directors or officers outside Brazil, or to enforce against such persons, in U.S. or other courts outside Brazil, judgments predicated upon civil liabilities of such directors or officers under the laws of jurisdictions other than Brazil, including any judgments predicated upon civil liabilities under the federal securities laws of the United States.

The Issuers have been advised by Brazilian counsel that the judgments of U.S. courts for civil liabilities predicated upon the federal securities laws of the United States, subject to certain requirements described below, may be enforced in Brazil. A judgment against any Issuer or any other person described above obtained outside Brazil would be enforceable in Brazil against such Issuer or any such person without reconsideration of the merits upon confirmation of that judgment by the Brazilian Federal Supreme Court (Supremo Tribunal Federal). That confirmation generally will occur if the foreign judgment (a) fulfills all formalities required for its enforceability under the laws of the country where the foreign judgment is

iiii granted, (b) is issued by a competent court after proper service of process is made in accordance with Brazilian legislation, (c) is not subject to appeal, (d) is authenticated by a Brazilian consular office in the country where the foreign judgment is issued and is accompanied by a sworn translation into Portuguese and (e) is not contrary to Brazilian national sovereignty or public policy or "good morals" (as set forth in Brazilian law). The Issuers have been further advised by their Brazilian counsel that original actions predicated on the U.S. federal securities laws may be brought in Brazilian courts and that Brazilian courts may enforce civil liabilities in such actions against either of the Issuers or any of the persons referred to above. A plaintiff (whether Brazilian or non-Brazilian) who resides outside Brazil during the course of litigation in Brazil must provide a bond to guarantee court costs and legal fees if the plaintiff owns no real property in Brazil that may assure such payment. This bond must have a value sufficient to satisfy the payment of court fees and defendant’s attorney’s fees, as determined by the Brazilian judge, except in the case of the enforcement of foreign judgments which have been duly confirmed by the Brazilian Federal Supreme Court. Notwithstanding the foregoing, no assurance can be given that confirmation will be obtained, that the process described above can be conducted in a timely manner or that a Brazilian court would enforce a monetary judgment for violation of the U.S. securities laws with respect to the Notes.

AVAILABLE INFORMATION

To permit compliance with Rule 144A under the Securities Act in connection with resales of Notes that are "restricted securities," each Issuer of Notes to be resold pursuant to Rule 144A and the Guarantor (if applicable) is required to furnish upon the request of a holder of such a Note and a prospective purchaser designated by such holder the information to be delivered under Rule 144A(d)(4) under the Securities Act if at the time of such request such Issuer or Guarantor, as may be the case, is neither a reporting company under Section 13 or Section 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder. If an Issuer or Guarantor (if applicable) is a reporting company under the Exchange Act and, as long as such Issuer or Guarantor, as may be the case, continues to be a reporting company, it will not be required to deliver information required to be delivered under Rule 144A(d)(4). For so long as any Notes are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the information (if any) required to be furnished as described in this paragraph will also be made available, free of charge, at the office of the Luxembourg Paying Bank set forth on the back cover page hereof.

NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF THE STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE OR CAUSE TO BE MADE TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

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TABLE OF CONTENTS

Page

INCORPORATION BY REFERENCE ...... 1 PRESENTATION OF FINANCIAL INFORMATION...... 3 SUMMARY OF THE PROGRAM...... 5 INVESTMENT CONSIDERATIONS ...... 17 USE OF PROCEEDS ...... 28 FOREIGN EXCHANGE RATES AND EXCHANGE CONTROLS...... 28 THE ISSUERS...... 31 BANKBOSTON BANCO MÚLTIPLO S.A...... 32 BANKBOSTON LEASING S.A. - ARRENDAMENTO MERCANTIL...... 42 THE GUARANTOR ...... 50 TAXATION...... 53 DESCRIPTION OF THE NOTES...... 67 TERMS AND CONDITIONS OF THE NOTES...... 77 SUBSCRIPTION AND SALE ...... 109 TRANSFER RESTRICTIONS...... 112 LISTING AND GENERAL INFORMATION ...... 115 FINANCIAL STATEMENTS...... F-1

APPENDIX A SUMMARY OF PRINCIPAL DIFFERENCES IN ACCOUNTING POLICIES BETWEEN BRAZIL AND THE UNITED STATES ...... A-1 APPENDIX B THE FEDERATIVE REPUBLIC OF BRAZIL...... B-1 APPENDIX C THE BRAZILIAN FINANCIAL SYSTEM AND BANKING REGULATION...... C-1 APPENDIX D UNITED STATES REGULATORY MATTERS...... D-1 APPENDIX E FORM OF COMMERCIAL RISK GUARANTEE ...... E-1

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INCORPORATION BY REFERENCE

The following documents, as well as the other documents expressly stated in this portion of the Offering Circular to be incorporated herein by reference, shall be deemed to be incorporated in and form part of, this document from and after the applicable date of circulation, preparation or such other date as may be specified herein:

(1) All supplements to this Offering Circular circulated by the Issuers and the Guarantor from time to time; and

(2) any Pricing Supplement prepared in respect of the Program; except that any statement contained herein or in any such document shall be deemed to be modified or superseded for purposes of this Offering Circular to the extent that a statement contained herein or in any such subsequent document modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular.

The Issuers and the Guarantor have undertaken that if at any time while any Notes are listed on the Luxembourg Stock Exchange there shall occur any material adverse change in the financial condition or results of operations of any Issuer of Notes which are then listed on the Luxembourg Stock Exchange or, if applicable, the Guarantor of such Notes, or the ability of any such Issuer or the Guarantor (if applicable), to make payments under such Notes or the applicable Guarantee, as the case may be, such Issuer and, if applicable, the Guarantor, will prepare and make available a supplement to this Offering Circular or prepare a new Offering Circular for use in connection with any subsequent issue of a Tranche of Notes listed or to be listed on the Luxembourg Stock Exchange. If the terms of the Program are modified or amended in a manner which would make the Offering Circular, as supplemented, inaccurate or misleading in any material respect, a new Offering Circular or supplement thereto will be prepared.

Copies of all documents deemed incorporated by reference herein other than exhibits to such documents (unless such exhibits are specifically incorporated by reference in such documents) will be available without charge to each person, including any beneficial owner of Notes, who receives a copy of this Offering Circular at the office of the Fiscal Agent or any Paying Bank set forth on the back cover page hereof.

This Offering Circular may be used for the offer, sale and listing of Notes with an aggregate principal or face amount outstanding at any time not to exceed U.S.$1,000,000,000 or the equivalent thereof in other currencies, subject to the right of the Issuers to increase such amount.

The Issuers hereby incorporate by reference into this Offering Circular their publicly available financial statements for the years ended December 31, 1999 through December 31, 2001 and for the period ending March 31, 2002 and any financial statements of the Issuers that shall become publicly available subsequent to the date hereof and prior to the termination of the offering of the Notes, which financial statements shall be deemed to be a part hereof from the date such financial statements became publicly available.

The Guarantor submits, and each bank which has merged with or been consolidated into the Guarantor submitted prior to such merger or consolidation, quarterly to the Federal Deposit Insurance Corporation ("FDIC") on behalf of the Comptroller, Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices (the "Call Reports") on Federal Financial Institutions Examination Council ("FFIEC") Form 031. Each Call Report consists of a Balance Sheet, Income Statement, Changes in Equity Capital and other supporting schedules as of the end of and for the period to which such Call

Report relates. The Call Reports are prepared in accordance with regulatory instructions issued by the FFIEC, which follow, in all material respects, United States generally accepted accounting principles, including the opinions and statements of the Accounting Principles Board of the American Institute of Certified Public Accountants and the Financial Accounting Standards Board. While the Call Reports are supervisory and regulatory documents, not primarily accounting documents, and do not provide a complete range of financial disclosure about the applicable bank, the Call Reports nevertheless provide important information concerning the financial condition and results of operations of the Guarantor. The Guarantor hereby incorporates by reference into this Offering Circular the publicly available portions of the Call Reports of the Guarantor, any bank which has merged with or been consolidated into the Guarantor, and any amendment or supplement thereto, beginning with and including the Call Report for the period ended December 31, 2001. The publicly available portions of each Call Report filed by the Guarantor after the date of this Officer Circular and prior to the termination of the offering of the Notes shall be incorporated by reference into this Offering Circular and deemed to be a part hereof from the date of the filing of such Call Report until the information contained in such document is superseded or updated by any subsequently filed document that is incorporated by reference into this Offering Circular or by any supplement or amendment to this Offering Circular. Call Reports with respect to the Guarantor are on file with, and publicly available upon written request to, the FDIC, 550 17th Street, N.W., Washington, D.C. 20429-9990, Attention: Disclosure Group, Room F-518. All such Call Reports may be obtained by calling the FDIC at (800) 688-3342. The FDIC also maintains an Internet Web site that contains reports and certain other information regarding depository institutions, such as the Guarantor, that file reports with the FDIC. The address of the FDIC’s Web site is http://www.fdic.gov.

The Guarantor is a wholly owned subsidiary of FleetBoston Financial Corporation ("FleetBoston" or the "Corporation"), a financial services company incorporated pursuant to the laws of the State of Rhode Island and registered with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant to the United States Bank Holding Company Act of 1956, as amended ("BHCA"). FleetBoston is subject to the informational requirements of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports and other information with the SEC. In addition to the Call Reports of the Guarantor referred to above, the Guarantor also hereby incorporates by reference into this Offering Circular the Annual Report on Form 10-K for the year ended December 31, 2001, the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 and the Current Reports on Form 8-K filed January 29, 2002, March 12, 2002, and April 16, 2002, each as filed by FleetBoston with the SEC pursuant to the Exchange Act. Each document filed by FleetBoston pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act and the rules and regulations thereunder after the date of this Offering Circular and prior to the termination of the offering of the Notes shall be incorporated by reference into this Offering Circular and deemed to be a part hereof from the date of filing of such document. This filed material may be inspected and copied at the Public Reference Room of the Commission, 450 Fifth Street, N.W., Washington, D.C., 20549 and at the Commission’s regional offices at 175 W. Jackson Boulevard, Suite 900, Chicago, Illinois 60604-2511 and 233 Broadway, New York, New York 10048. Copies of such reports may be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains an Internet Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC, including FleetBoston. The address of such Internet Web site is http://www.sec.gov. In addition, such material can also be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and the Boston Stock Exchange, 100 Franklin Street, Boston, Massachusetts 02110, on which exchanges certain securities of FleetBoston are listed.

Any statement contained in a Call Report or other document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Offering Circular to the extent that a statement contained herein or in any other subsequently filed document which also is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statement so

2 modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular.

The Guarantor will provide upon request and without charge to each person to whom a copy of this Offering Circular is delivered a copy of any or all of the foregoing documents incorporated herein by reference (other than exhibits to such documents which are not specifically incorporated therein by reference). Written requests should be directed to FleetBoston Corporation 100 Federal Street, Boston, Massachusetts 02106-2106. Telephone requests may be directed to Investor Relations at (617) 434-7858.

PRESENTATION OF FINANCIAL INFORMATION

The financial information respecting the Issuers presented in this Offering Circular has been prepared in accordance with Brazilian Corporate Law (the "Corporate Law"). Because of the highly inflationary conditions which prevailed in Brazil for a number of years through the first half of 1994, inflation accounting in the form of monetary correction had been developed to compensate for the impact of the distortions in financial statements caused by inflation. Two methods of inflation accounting were used by Brazilian companies. One, required of all corporate entities under the Corporate Law (the "Corporate Law Method") and used by Brazilian tax authorities in determining taxable income, required the monetary correction of reported amounts of fixed assets, investments and deferred charges (known collectively as "permanent assets") and opening shareholders’ equity, with the amount of the net adjustment charged or credited to the income statement. The Corporate Law Method did not require restatement of prior period financial statements when more than one period was presented. As of January 1, 1996, Law 9,429 abolished monetary correction of financial statements under the Corporate Law. Financial statements prepared in accordance with the second method of inflation accounting (the "Constant Currency Method") were required of those entities whose securities were registered with the CVM and of certain financial institutions registered with the Central Bank. The Constant Currency Method requires the restatement of Corporate Law Method financial statements to the price level for the current period. The effect of this method is to allocate the monetary adjustments presented under the Corporate Law Method to their respective accounts within the income statement. Accordingly, Constant Currency Method financial statements do not present a net monetary adjustment and most income statement entries have different values, although net income will generally be the same under both methods. Under the Constant Currency Method, balance sheets of prior periods are restated to the price level of the current period. See "Appendix A—Summary of Principal Differences in Accounting Policies Between Brazil and the United States."

Financial information of the Issuers set forth herein at, and for the years ended December 31, 2001, 2000 and 1999, as well as for the three-month period ended March 31, 2002 is presented according to the Corporate Law Method and accordingly is presented without adjustment for the effects of inflation. Any analysis of the financial information of the Issuers contained in this Offering Circular should consider the effects of distortions resulting from inflation. See "Investment Considerations—Distortions of Issuer Financial Statements."

The Issuers have not prepared a reconciliation of their respective Financial Statements to U.S. GAAP and any such reconciliation could produce material differences between the Financial Statements and any financial statements prepared in accordance with U.S. GAAP. Brazilian Corporate Law differs in certain important respects from U.S. GAAP. See "Appendix A—Summary of Principal Differences in Accounting Policies Between Brazil and the United States," for a summary of certain of the principal differences between Brazilian Corporate Law and U.S. GAAP, as they relate to the Issuers.

All references herein to the "real," "reais," “Reais” or "R$" are to Brazilian reais, the official currency of Brazil. All references herein to "U.S.$", "U.S. dollars," “U.S. dollars,” "dollars" are to United States dollars. The exchange rate of real amounts into U.S. dollars was R$2.7181 to U.S.$1.00 at June 14, 2002,

3 based on the commercial selling rate (the "Commercial Market Rate") as reported by the Central Bank. The Commercial Market Rate is used herein rather than the noon buying rate in New York City as reported by the Federal Reserve Bank of New York because such noon buying rate was not consistently reported for reais during the periods shown herein. See "Foreign Exchange Rates and Exchange Controls" for information regarding exchange rates applicable to the Brazilian currency since January 1, 1993. For the convenience of the reader, the amounts in Brazilian currency have been translated into U.S. dollars at the following rates, unless otherwise indicated: R$2.3204 = U.S.$1.00 at, and for the year ended, December 31, 2001, R$1.9554 = U.S.$1.00 at, and for the year ended, December 31, 2000; and R$1.7890 = U.S.$1.00 at, and for the year ended, December 31, 1999. Amounts expressed in U.S. Dollars have been derived from financial information prepared in nominal reais, in accordance with the Corporate Law Methodology, and translated from reais to U.S. Dollars at the real/U.S. Dollar exchange selling rate published by the Central Bank on the respective balance sheet date. The reader should take into account the significant devaluation of the Brazilian real in relation to foreign currencies since December 31, 2001. The exchange rate of Reais to U.S.$ at June 14, 2002 was R$2.7181 = U.S.$1.00. Since 1999, the real has significantly devalued against the U.S. dollar. There have been and may in the future be consequences for the financial condition and operations of the Issuers due to devaluation of the real from time to time, including the significant distortions that may arise when comparing U.S. Dollar financial data before and after a devaluation. As a result of recent fluctuations in the real-U.S. dollar exchange rate, the closing sell rate at each period presented may not be indicative of current or future exchange rates. Therefore, you should not read these exchange rate conversions as representations that any such amounts have been or could be converted into U.S. dollars at those or any other exchange rates.

For your convenience, certain amounts have been converted from reais to U.S. dollars. These conversions have been calculated using the U.S. dollar selling rate at closing published by the Central Bank. See “Foreign Exchange Rates and Exchange Controls” for more information regarding the exchange rates applicable to the Brazilian currency.

Certain figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.

SUMMARY OF THE PROGRAM

The following summary does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Offering Circular and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Pricing Supplement. Words and expressions defined in "Description of the Notes" and "Terms and Conditions of the Notes" below shall have the same meanings in this summary.

Issuers: BankBoston Banco Múltiplo S.A., BankBoston Leasing S.A. - Arrendamento Mercantil, and each other Issuer which may be added from time to time.

Description of Issuers: It is contemplated that each Issuer will be a member of the BankBoston Group (as hereinafter defined in "The Issuers") organized or incorporated in Brazil.

Guarantor: Certain of the Notes issued by any Issuer may be guaranteed as to Commercial Risk by BankBoston, N.A.* (the "Guarantor"), subject to the occurrence of a Brazilian Sovereign Risk Event.

Description of Program: Continuously offered Boston-Brazil Medium Term Note Program.

Dealers: BankBoston Trust Company Limited and such other dealers as may be appointed from time to time by any Issuer.

Fiscal Agent, Paying Bank and Transfer Agent: Deutsche Bank AG, London (the "Fiscal Agent").

Registrar, Transfer Agent and Bankers Trust Company, New York office (the Paying Bank: "Registrar").

Principal Paying Bank: Deutsche Trust Bank Limited (the "Principal Paying Bank").

Listing Agent, Paying Bank and Transfer Agent: Deutsche Bank Luxembourg S.A.

* BankBoston, N.A., a FleetBoston Financial Company, is the corporate name under which Fleet National Bank operates in Latin America.

Payments to Principal Paying Bank: Each payment in respect of Notes made by or on behalf of an Issuer to or to the order of the Principal Paying Bank on the date on which such payment is due shall discharge such Issuer’s and the Guarantor’s (if applicable) obligation with respect to such payment. Thereafter, holders of such Notes shall be entitled to look only to the Principal Paying Bank for payment of such amount subject to, and as more fully described under, "Terms and Conditions of the Notes—Discharge of Issuer; Principal Paying Bank Default." Interest on the Notes shall cease to accrue as provided in "Terms and Conditions of the Notes—Interest" with respect to each timely payment by or on behalf of the relevant Issuer to the Principal Paying Bank.

Size of the Program: The aggregate principal or face amount of Notes outstanding at any time may not exceed U.S.$1,000,000,000 (or its equivalent in any other Specified Currency) or such higher amount as may be authorized from time to time.

Brazilian Sovereign Risk Event: The Notes and, if applicable, the Guarantee may contain a Brazilian Sovereign Risk Event provision, which, unless otherwise provided in the relevant Pricing Supplement, is more fully described under "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event."

"Brazilian Sovereign Risk Event" means,

(a) the occurrence of:

(1) the failure by the Brazilian Government to exchange, or to approve or permit the exchange of Brazilian Currency for the relevant Specified Currency, or any other action of the Brazilian Government that has the effect of prohibiting or restricting such exchange or the payment of funds in such Specified Currency in Brazil or the transfer of funds in such Specified Currency from Brazil, or the unavailability of such Specified Currency in any legal exchange market therefor in Brazil in accordance with normal commercial practice; or

(2) any suspension directly or indirectly imposed by the Brazilian Government of payments by banks or financial institutions in Brazil, or companies affiliated therewith in Brazil, the imposition by the Brazilian Government of any moratorium on the payment of any indebtedness, the requirement by the Brazilian Government of the rescheduling of any indebtedness, or the requirement by the Brazilian Government of the approval of the payment of any indebtedness which approval has not been received by the relevant Issuer after reasonable efforts; or

(3) the commencement of any war (whether declared or undeclared), civil strife or other similar events or escalation thereof in which Brazil is involved;

which has the effect of, directly or indirectly, prohibiting or preventing the relevant Issuer from receiving and/or obtaining in Brazil and/or transferring from Brazil, or the Guarantor, if applicable, from procuring that the relevant Issuer receives and/or obtains in Brazil and/or transfers from Brazil, such Specified Currency, in accordance with normal commercial practice, in the Commercial Exchange Market instituted by Resolution No. 1,690, dated March 18, 1990, issued by the Brazilian National Monetary Council (the “Commercial Market”) for the purpose of making payments under any relevant Note(s); or

(b) the occurrence of:

(1) any expropriation, confiscation, requisition, nationalization, control de facto or de jure, or arbitrary or discriminatory action or any other action taken by the Brazilian Government (whether de facto or de jure) which, directly or indirectly, (x) deprives the relevant Issuer of all or substantially all of the assets constituted from or investments made with the proceeds of the relevant Notes; (y) affects or modifies the rights of the parties under the relevant Notes or related to assets constituted from or investments made with the proceeds received by the Issuer from the relevant Notes or (z) prohibits any Issuer from being, or which removes or substitutes (in each case, whether such action is de facto or de jure) any Issuer as the obligor in whole or in part under the relevant Notes (or the related coupons, if any); or

(2) any expropriation, confiscation, requisition, nationalization, control de facto or de jure, or arbitrary or discriminatory action or any other action taken by the Brazilian Government (whether de facto or de jure) or other action by the Brazilian Government which deprives BankBoston (or any affiliate thereof), directly or indirectly, of its power to control and manage any Issuer or its operations, including but not limited to any transfer by BankBoston (or any affiliate thereof) of its direct or indirect ownership, management or control of any Issuer or its operations that results from a reasonable belief on the part of BankBoston (or any affiliate thereof) that failure to agree to or consummate any such transfer would result in economic or other retaliation against BankBoston (or any affiliate thereof); or

(3) any "Mandatory Remittance," which means any action by the Brazilian Government which requires the remittance of funds in relation to any relevant Note(s) to a financial institution designated or authorized by it, the repayment of which is precluded by reason of any of the foregoing acts of the Brazilian Government or any action taken by or on behalf of the Brazilian Government;

provided that such occurrence is not originated by a bankruptcy, insolvency or similar purely credit-related proceeding relating to the relevant Issuer.

Unless otherwise provided in the relevant Pricing Supplement with respect thereto, the effect of the Brazilian Sovereign Risk Event provision on the payment obligations with respect to Notes (including Notes denominated in any Specified Currency) of each Issuer (with respect to each Note issued by it) and the Guarantor (with respect to each Note that is guaranteed) is as follows:

Specified Currency If a Brazilian Sovereign Risk Event based upon an event Unavailability Condition: described in paragraph (a) of the definition of Brazilian Sovereign Risk Event (a "Specified Currency Unavailability Condition") (and not also based on an Expropriation Condition or a Mandatory Remittance) has occurred and is continuing on any relevant Due Date of any Note, then:

(A) With respect to Note(s) with a maturity of less than 360 days: each of the relevant Issuers and, if applicable, the Guarantor shall have been for all purposes considered to discharge its obligations in respect of principal, interest or Additional Amounts payable with respect to any relevant Note(s) by transferring, in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations, the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s).

(B) With respect only to any Note(s) with a maturity of 360 days or more:

(I) if the Holder has duly made the election to receive Brazilian Currency as described in this paragraph (B), the relevant Issuer and, if applicable, the Guarantor, shall not be required to effect payment of any amount of principal interest or Additional Amounts payable with respect to any relevant Note(s) in the Specified Currency under the relevant Note(s), and shall have been for all purposes considered to discharge its obligations in respect of any such payment due with respect to any such Note(s) by transferring, on the Due Date therefor (or, in the event notice of election of payment in Brazilian Currency as set forth herein has been duly made by the fifteenth day after such Due Date, promptly after such notice has been made) in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s).

(II) if the Holder has duly made an election to receive a Specified Currency (including upon failure duly to make an election to receive Brazilian Currency) as described in this paragraph (B), all payments of principal, interest or Additional Amounts, with respect to any relevant Note in the relevant Specified Currency shall be postponed until such time, if any, as there has been a Specified Currency Unavailability Condition Termination; provided that with respect to any such amount payable shall cease to accrue interest on such Due Date at the rate (if any) otherwise applicable under the terms and conditions of the relevant Notes, but interest shall accrue with respect to any such amount payable from (and including) such Due Date and to (but excluding) the date on which the payment in a Specified Currency is made by the Issuer at the Libo Rate.

Mandatory Remittance: If a Brazilian Sovereign Risk Event based upon a Mandatory Remittance (whether or not together with a Specified Currency Unavailability Condition) has occurred and is continuing on any relevant Due Date of any Note and provided that no Expropriation Condition (defined below) has occurred and is continuing, then the obligations of each of the relevant Issuers and, if applicable, the Guarantor in respect of principal, interest or Additional Amounts payable with respect to any relevant Note(s) shall be discharged by making mandatory remittances with respect to the Notes to a financial institution designated or authorized by the Brazilian Government, as required by the Brazilian Government.

Expropriation Condition: If a Brazilian Sovereign Risk Event resulting from any event described in clauses (b)(i) and/or (b)(ii) above under "Brazilian Sovereign Risk Event" (an "Expropriation Condition") has occurred and is continuing on any relevant Due Date of any Notes, the relevant Holders will be paid in the applicable Specified Currency only at such time, if any, as such Expropriation Condition shall have terminated.

Limitation on Guarantee: The Notes of a Series may be guaranteed by a guarantee issued by the Guarantor (the "Guarantee") guaranteeing the payment of each such Note, if applicable, subject to the occurrence of a Brazilian Sovereign Risk Event. See "Appendix E—Form of Commercial Risk Guarantee," "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event" and "Terms and Conditions of the Notes—Status of the Notes and Guarantees." The payment obligations of the Guarantor under the Guarantee shall be limited to Commercial Risk only and, to the extent provided by applicable law, rank behind the payment obligations owed by the Guarantor to its preferred creditors (including its depositors and claims of the FDIC as a receiver of the Guarantor) in the event of the liquidation of the Guarantor or other resolution by the FDIC of the Guarantor but otherwise shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all other present and future unsecured and unsubordinated obligations. THE NOTES DO NOT EVIDENCE DEPOSITS AND NEITHER THE NOTES NOR THE GUARANTEE ARE INSURED BY THE FDIC OR ANY OTHER INSURER.

Form: Notes of a Tranche to be issued in bearer form and sold in offshore transactions outside the United States in reliance on Regulation S ("Regulation S") under the Securities Act will initially be represented by a temporary global Note without coupons (a "Temporary Global Note"), which will be deposited on or prior to the Issue Date of such Notes with a common depositary for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global Note without coupons representing Notes of the same Series (a "Permanent Global Note") on or after the 40th day (the "Exchange Date") after the completion of the distribution of the Tranche of such Notes upon certification of non-U.S. beneficial ownership.

Notes of a Series to be issued in registered form and sold in offshore transactions outside the United States in reliance on Regulation S will be represented by a single Permanent Global Note in fully registered form without coupons deposited with a custodian for, and registered in the name of a nominee of, DTC for the accounts of Euroclear and Clearstream (a "Regulation S Global Note"). On or prior to the 40th day after the completion of the distribution of the Tranche of which such Notes are a part, beneficial interests in the Regulation S Global Note may be held only through Euroclear or Clearstream.

Notes of a Series to be issued in registered form and sold in reliance on Rule 144A under Securities Act ("Rule 144A") will be represented by a single permanent global Note in fully registered form without coupons deposited with a custodian for, and registered in the name of a nominee of, DTC (a "Restricted Global Note" and, together with a Regulation S Global Note, a "Registered Global Note" or the "Registered Global Notes").

Beneficial interests in a Registered Global Note will be shown on, and transfers thereof will be effected only through, records maintained by DTC and its direct and indirect participants, including Euroclear and Clearstream.

Transfers of interests in Regulation S Global Notes and Restricted Global Notes of the same Series may be made, subject to certain certification requirements.

Except as described herein, Registered Global Notes will not be exchanged for definitive Notes in registered form and Permanent Global Notes will not be exchanged for definitive Notes in bearer form. Notes in registered form will not be exchangeable for Notes in bearer form and Notes in bearer form will not be exchangeable for Notes in registered form. See "Description of the Notes" and "Terms and Conditions of the Notes."

Specified Currencies: Japanese yen, Euro, British pound sterling, and U.S. dollars or such other currency or currencies as may be agreed between the relevant Issuer and the relevant Dealer or Dealers, as specified in the applicable Pricing Supplement, subject to compliance with applicable legal and regulatory requirements.

Maturities: Any minimum and maximum maturity as stated in the applicable Pricing Supplement, subject to compliance with applicable legal and regulatory requirements.

Issue Price: Notes will be issued on a fully-paid basis and may be issued at an issue price that is at par or at a discount to, or premium over, par. The issue price of the Notes will be agreed between the relevant Issuer and the relevant Dealer or Dealers at the time of issue, as specified in the applicable Pricing Supplement.

Fixed Rate Notes: Fixed Rate Notes will bear interest at such fixed rate, and will be payable in arrears on such date or dates, as may be agreed between the relevant Issuer and the relevant Dealer or Dealers (as specified in the applicable Pricing Supplement) and on redemption.

Interest on Fixed Rate Notes will be computed on the basis of a 360-day year consisting of 12 months of 30 days each (or such other basis as may be agreed between the relevant Issuer and the relevant Dealer or Dealers as specified in the applicable Pricing Supplement) and, in the case of an incomplete month, the number of days elapsed.

Floating Rate Notes: Floating Rate Notes will bear interest calculated by reference to the London interbank offered rate ("LIBOR") or such other variable rate as may be agreed between the relevant Issuer and the relevant Dealer or Dealers as specified, including the method of computation, in the applicable Pricing Supplement.

The Margin(s) (if any) over LIBOR or any other variable rate and any maximum interest rate or minimum interest rate will be agreed between the relevant Issuer and the relevant Dealer or Dealers for such issue of Floating Rate Notes and will be specified in the applicable Pricing Supplement.

Interest on Floating Rate Notes will be payable on the last day of each Interest Period as selected prior to the Issue Date by the relevant Issuer and the relevant Dealer or Dealers and will be computed on the basis of the actual number of days in the Interest Period concerned divided by 360 unless otherwise specified in the applicable Pricing Supplement.

Interest Periods for Floating Rate Notes: Such period(s) as the relevant Issuer and the relevant Dealer or Dealers may agree (as specified in the applicable Pricing Supplement).

Indexed Notes and Dual Currency Notes: Payments in respect of principal or face amount (at maturity or otherwise) or interest in respect of Indexed Notes will be computed by reference to such index and/or formula as the relevant Issuer and the relevant Dealer or Dealers may agree (as specified in the applicable Pricing Supplement). Dual Currency Notes may also be issued with principal or face amount and/or interest payable in one or more currencies different from the currency in which the Notes are denominated.

Issues of Indexed Notes and Dual Currency Notes may be subject to compliance with regulations of the central bank (or equivalent body) applicable to the relevant Specified Currency.

Zero Coupon Notes: Zero Coupon Notes may be offered and sold at a discount to their nominal or face amount and will not bear interest except in the circumstances provided in the relevant Pricing Supplement and Notes.

Redemption: The Pricing Supplement relating to each Tranche of Notes will specify either that the Notes of such Tranche cannot be redeemed prior to their stated maturity (other than in specified installments, where applicable, or for taxation reasons or following an Event of Default) or that such Notes will be redeemable at the option of the relevant Issuer and/or the holders of such Notes upon giving not more than 60 nor less than 30 days’ irrevocable notice (or such other notice period, if any, as specified in the applicable Pricing Supplement) to such holders or the relevant Issuer, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such terms as specified in the applicable Pricing Supplement.

Authorized Denominations: Notes will be issued in such denominations as may be specified in the applicable Pricing Supplement, subject to compliance with all applicable legal and regulatory requirements.

Listing: Certain of the Notes, if any, may be listed on the Luxembourg Stock Exchange or otherwise as the relevant Issuer and the relevant Dealer or Dealers may agree (as specified in the applicable Pricing Supplement).

Redenomination for Euros: Pursuant to the Treaty of Rome, as modified by the Treaty on European Union, entered into on February 7, 1992 (the "Maastricht Treaty" and, together with the Treaty of Rome, the "Treaty"), as more fully described in "Investment Considerations—Replacement of Certain European Currencies by the Euro," and certain regulations issued by the European Council in reliance thereon (the "Regulations"), the Euro became, as of January 1, 1999, the currency of such member states of the European Union which agreed to adopt the Euro (the "participating Member States"). The currencies of the participating Member States were substituted by the Euro at a fixed rate, set on December 31, 1998. Payments in respect of Notes denominated and payable in any Specified Currency will (i) in the case such Specified Currency is the currency of a participating Member State, and (ii) in the case such Specified Currency is the currency of a non-participating Member State, after becoming a participating Member State, be made in Euros at the conversion rate specified in, or as otherwise provided in, the applicable Pricing Supplement.

The applicable Pricing Supplement may provide that Notes denominated in any Specified Currency that is replaced by the Euro, may be redenominated in Euro and/or exchanged for another Series of Notes denominated in Euro at the time of replacement of such Specified Currency by the Euro. See "Terms and Conditions of the Notes—Currency of Notes."

Further Issues: The relevant Issuer may from time to time, without the consent of the holders of any outstanding Notes or coupons (if any) appertaining thereto, create and issue further Notes having the same terms and conditions as such outstanding Notes, or that are the same in all respects except for their Issue Dates, Interest Commencement Dates and/or Issue Prices (regardless in either case of whether any such Notes are issued in registered and/or bearer form), so that the same shall be consolidated and form a single Series with such outstanding Notes.

Governing Law: The Notes will be governed by, and construed in accordance with, the laws of the State of New York, United States, without regard to conflict of laws principles.

Selling Restrictions: Those pertaining to the laws of the United States, the United Kingdom, Brazil and such other restrictions as may be imposed in connection with a particular Tranche of Notes.

INVESTMENT CONSIDERATIONS

Before investing in the Notes, prospective purchasers should consider carefully all the information set forth herein and, in particular, the special factors applicable to an investment in Brazil and applicable to an investment in securities of the Issuers. In general, investing in the securities of issuers in emerging market countries, such as Brazil, involves a higher degree of risk than investing in the securities of U.S. issuers. For additional information concerning Brazil and certain matters discussed below, see "Appendix B—The Federative Republic of Brazil."

Brazilian Sovereign Risk Event

The Notes and the Guarantee may contain a Brazilian Sovereign Risk Event provision, which, unless otherwise provided in the relevant Pricing Supplement, is more fully described under "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event." Unless otherwise provided in the relevant Pricing Supplement with respect thereto, the effect of the Brazilian Sovereign Risk Event provision on the payment obligations with respect to Notes (including Notes denominated in any Specified Currency) of each Issuer (with respect to each Note issued by it) and the Guarantor (with respect to each Note that is guaranteed) is as follows: (i) under certain circumstances restricting or preventing an Issuer or the Guarantor, if applicable, from paying in the relevant Specified Currency (a) for amounts owing under Notes with a maturity of less than 360 days, such amounts will, subject to certain conditions, be paid in the lawful currency of Brazil, or (b) for amounts owing under Notes with a maturity of 360 days or more, such amounts will be paid at the Noteholder’s option (1) subject to certain conditions in the lawful currency of Brazil, or (2) in the relevant Specified Currency at such time, if any, as such payment under such note is no longer so restricted or prevented; (ii) in the case of a Mandatory Remittance payment obligations under the affected Notes will be satisfied by making a Mandatory Remittance under Brazilian law or (iii) in the case of an Expropriation Condition, payment may be delayed until termination of the Expropriation Condition.

There can be no assurance as to when an event triggering a Brazilian Sovereign Risk Event may occur, or as to when, if ever, such event will cease to restrict, reduce or prevent payments under the Notes in U.S. dollars or any other relevant Specified Currency. The events that constitute a Brazilian Sovereign Risk Event are described below and will be dependent on macroeconomic conditions in Brazil and/or Brazilian Government action. See "Investment Considerations—Factors Relating to Brazil." Such events may be categorized generally as those relating to the inability to exchange reais into U.S. dollars in Brazil or transfer U.S. dollars outside Brazil, in each case in accordance with normal commercial practice through the Commercial Market, the requirement by the Brazilian Government to make a Mandatory Remittance or the expropriation of all or any portion of the relevant Notes or the assets of each of the relevant Issuers located in Brazil.

"Brazilian Sovereign Risk Event" means,

(a) the occurrence of:

(3) the commencement of any war (whether declared or undeclared), civil strife or other similar events or escalation thereof in which Brazil is involved;

(b) the occurrence of:

provided that such occurrence is not originated by a bankruptcy, insolvency or similar purely credit-related proceeding relating to the relevant Issuer.

An Event described in paragraph (a) above is referred to as a Specified Currency Unavailability Condition, an event described in paragraph (b)(1) or (2) above is referred to as an Expropriation Condition and an event described in paragraph (b)(3) above is referred to as a Mandatory Remittance.

Brazilian Currency Option

If a Brazilian Sovereign Risk Event based upon a Specified Currency Unavailability Condition (and not also based on an Expropriation Condition or a Mandatory Remittance) has occurred and is continuing and on any relevant Due Date of any Note, then:

(A) With respect to Note(s) with a maturity of less than 360 days: each of the relevant Issuer and, if applicable, the Guarantor shall have been for all purposes be considered to have discharged its obligations in respect of principal, interest or Additional Amounts payable with respect to any relevant Note(s) by transferring, in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations, the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s). In order to receive payment under this paragraph (A), the Holder will be required to make such arrangements as it deems appropriate, at its own cost and risk, in order to receive payment in such manner as may be provided for in this paragraph (A), and neither the Issuer nor the Guarantor, if applicable, shall be obligated to open any account or otherwise make arrangements other than those expressly set forth in the relevant Note(s) or in the Fiscal Agency Agreement, in order to effect any payment on behalf of any Noteholder in respect of such Noteholder’s rights under the relevant Note(s).

The Holder will be obligated under these circumstances to deposit its Note, together (in the case of bearer Notes) with all coupons relating thereto which mature after the occurrence of such Brazilian Sovereign Risk Event, with a Paying Bank (in the case of bearer Notes) or Transfer Agent (in the case of registered Notes), together with the duly completed notice containing the details of the relevant Brazilian Currency account in the form obtainable from any Paying Bank or Transfer Agent, such deposit and notice to be made after the occurrence and notification of such Brazilian Sovereign Risk Event but in no event later than 15 days prior to any relevant Due Date for any payment on such Note(s); provided, however, that if such Brazilian Sovereign Risk Event occurs later than 15 days prior to the Due Date for any payment on such Note(s) such deposit and notice shall be made no later than the tenth business day after such Due Date. No Note or coupon so deposited may be withdrawn unless if upon due presentation payment is improperly withheld or refused, or unless, after such payment, amounts are still owing in respect of the Notes or coupons, or unless the relevant Brazilian Sovereign Risk Event ceases prior to such payment being made provided no other Brazilian Sovereign Risk Event then exists and is continuing.

(B) With respect only to any Note(s) with a maturity of 360 days or more:

with respect to any such Note(s) by transferring, on the Due Date therefor (or, in the event notice of election of payment in Brazilian Currency as set forth herein has been duly made by the fifteenth day after such Due Date, promptly after such notice has been made) in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s).

(II) if the Holder has duly made an election to receive a Specified Currency (including upon failure duly to make an election to receive Brazilian Currency) as described in this paragraph (B), all payments of principal, interest or Additional Amounts, with respect to any relevant Note in the relevant Specified Currency shall be postponed until such time, if any, as there has been a Specified Currency Unavailability Condition Termination; provided that any such amount payable shall cease to accrue interest on such Due Date at the rate (if any) otherwise applicable under the terms and conditions of the relevant Notes, but interest shall accrue with respect to any such amount payable from (and including) such Due Date to (but excluding) the date on which the payment in a Specified Currency is made by the Issuer at the Libo Rate.

Any payment to be effected in accordance with the option mentioned in item (II) above shall be effected as soon as practicable, but no later then 15 (fifteen) days after the Specified Currency Unavailability Condition Termination. In order to receive payment under this paragraph (B), the Holder will be required to make such arrangements as it deems appropriate, at its own cost and risk, in order to receive payment in such manner as may be provided for in this paragraph (B), and neither the Issuer nor the Guarantor, if applicable, shall be obligated to open any account or otherwise make arrangements other than those expressly set forth in the relevant Note(s) or in the Fiscal Agency Agreement, in order to effect any payment on behalf of any Noteholder in respect of such Noteholder’s rights under the relevant Note(s). To exercise its election to receive Specified Currency or Brazilian Currency under this paragraph (B), the Holder will be obligated to deposit its Note, together (in the case of bearer Notes) with all coupons relating thereto which mature after the occurrence of the relevant Brazilian Sovereign Risk Event, with a Paying Bank (in the case of bearer Notes) or Transfer Agent (in the case of registered Notes), together with a duly completed notice of the form of payment elected by the Holder in the form obtainable from a Paying Bank or Transfer Agent, such deposit and notice to be made after the occurrence and notification of such Brazilian Sovereign Risk Event but in no event later than 15 days prior to the Due Date for any relevant payment on such Note(s); provided, however, that if such Brazilian Sovereign Risk Event occurs later than 15 days prior to the Due Date for any relevant payment with respect to such Note(s) such deposit and notice shall be made no later than the tenth business day after such Due Date. If no such election is made to receive Brazilian Currency as provided in the relevant Note(s), the Holder of such Note will be deemed irrevocably to have elected to receive payment in Specified Currency subject to the terms and conditions as provided above. Such irrevocable election to receive payment in Brazilian Currency shall bind all subsequent Holders of any Note or coupon in respect of which it has been made. No Note or coupon so deposited may be withdrawn unless upon due presentation payment is improperly withheld or refused, or unless, after such payment, amounts are still owing in respect of the Notes or coupons (if any), or unless there has been a Specified Currency Unavailability Condition Termination prior to such payment being made; provided that no other Brazilian Sovereign Risk Event then exists and is continuing.

If a Noteholder elects to receive payment in Brazilian Currency in the event of a Brazilian Sovereign Risk Event, such amount will be determined on the basis of the Applicable Exchange Rate. See "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event." There can be no assurance that the Applicable Exchange Rate will represent the true market rate of exchange at such time for Dollars and

Brazilian Currency. If any such payment by the relevant Issuer or, if applicable, the Guarantor, could not lawfully be made in Brazilian Currency, then a Noteholder’s election to receive Brazilian Currency shall not be effective and such Noteholder will be entitled only to receive the relevant Specified Currency at such time, if ever, that the event triggering such Brazilian Sovereign Risk Event will cease to exist.

If a Specified Currency Unavailability Condition occurs and is continuing, the relevant Issuer or, if applicable, the Guarantor, would be able to make payment in the relevant Specified Currency on indebtedness that is pari passu with the Notes without making payment in such Specified Currency on the Notes. See "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event."

Mandatory Remittances

If a Brazilian Sovereign Risk Event based on the existence of a Mandatory Remittance (whether or not together with a Specified Currency Unavailability Condition) occurs or exists on the Due Date in respect of any Note(s), and provided that no Expropriation Condition has occurred and is continuing, the obligations of the relevant Issuer and, if applicable, the Guarantor to make payments of such amounts as may be due shall be discharged by making any mandatory remittance of funds related to the amounts due under the relevant Note (s) to a financial institution designated or authorized by the Brazilian Government, as required by the Brazilian Government. If a Mandatory Remittance occurs and the relevant Issuer or, if applicable, the Guarantor, performs its obligations under the Notes by payment to or through a Brazilian regulatory body, there can be no assurance that such regulatory body would provide for the accrual of interest on overdue principal amounts, or that any interest provided for would accrue at the Note rate. In addition, the relevant Issuer or, if applicable, the Guarantor, would be able to make payment on indebtedness that is pari passu with the affected Notes other than through a Mandatory Remittance without making a corresponding payment on the Notes.

Expropriation Condition

In the event of the occurrence and continuation of a Brazilian Sovereign Risk Event based upon an Expropriation Condition (whether or not together with a Specified Currency Unavailability Condition and whether or not together with the occurrence of a Mandatory Remittance) on the Due Date in respect of any Note(s), any principal, interest or Additional Amounts payable with respect to the Notes but which was not paid due to the occurrence and continuance of such Expropriation Condition shall be payable in the relevant Specified Currency (without accruing any interest from the date of the occurrence of the Expropriation Condition) only upon the termination of such Expropriation Condition; provided that on such date neither a Specified Currency Unavailability Condition nor a Mandatory Remittance has occurred and/or is continuing and provided further that the relevant Issuer receives, after the termination of such Expropriation Condition, all the assets the ownership of which the relevant Issuer had been deprived.

If an Expropriation Condition occurs and is continuing, the relevant Issuer or, if applicable, the Guarantor, would be able to make payments on indebtedness that is pari passu with the Notes without making payment on the Notes. See "Terms and Conditions of the Notes—Brazilian Sovereign Risk Event."

Factors Relating to Brazil

Political and Economic Factors

The Brazilian economy has been characterized by frequent and occasionally drastic intervention by the Brazilian Government. The Brazilian Government has often changed fiscal, monetary, credit, tariff and other policies to influence the course of Brazil’s economy. The Brazilian Government’s actions to control inflation and effect other policies have often involved wage and price controls as well as other measures,

21 such as freezing bank accounts and imposing capital controls. Changes in policy involving tariffs, exchange controls, and other matters could adversely affect the Issuers’ business and financial results, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, and the Brazilian Government’s response to such developments.

Mr. Fernando Henrique Cardoso, the Finance Minister at the time of the implementation of Brazil’s latest economic stabilization plan (the "Real Plan"), was elected President of Brazil in October 1994. Subsequently, Mr. Cardoso was elected for a second term. The Real Plan, which reduced inflation since the introduction of the real in July 1994, has been continued by the Cardoso government. See "Appendix B—The Federative Republic of Brazil—The Brazilian Economy—Overview" and the investment consideration below regarding Presidential Elections-2002

The instability and volatility in world financial markets, which began with the Southeast Asia crisis in October 1997 and which continued and expanded throughout 1998 and early 1999, together with a significant reduction in agricultural, mineral, and industrial commodity prices in international markets, led to a generalized collapse of confidence in emerging market countries, including Brazil, resulting in a negative impact on the Brazilian securities market and economic outlook. On October 16, 2000, Moody´s Investor Services upgraded the rating of Brazilian foreign debt from B2 to B1. On January 3, 2000, Standard & Poor´s upgraded Brazil´s long-term senior unsecured foreign currency-denominated debt from B to BB-. It also upgraded its rating on Brazilian long term real-denominated debt from BB to BB+ and maintained its B rating on Brazil´s short term real-denominated debt. To the date of this Offering Memorandum these ratings have not changed.

During the last quarter of 1998 and early 1999 Brazil experienced a significant decline in Central Bank reserves. As of March 31, 1999, international reserves measured approximately U.S.$33.9 billion. International reserves increased to U.S.$43.83 billion on April 9, 1999, due to the disbursement by the IMF of the second tranche of its emergency loan to Brazil. On December 29, 2000, international reserves measured approximately U.S.$33.0 billion. On December 31, 2001, international reserves measured approximately U.S.$35.8 billion. On June 19, 2002, international reserves measured approximately U.S. 32.9 billion. See "—International Monetary Fund Emergency Loan Package."

In January 1999, interest rates began to fall compared to the 36.0% interest rate during November 1998, but the benchmark ceiling rate was raised to 41.0%. At the same time, the benchmark floor on interest rates was decreased to 24.75%, broadening the interval between these two basic interest rates to help prevent wide fluctuations in the value of the real and control inflation. On March 4, 1999, the Central Bank’s Monetary Policy Committee (Comitê de Política Monetária or "COPOM") announced that a single benchmark rate, the Special System of Settlement and Custody (Sistema Especial de Liquidação e Custódia or "SELIC") market benchmark would replace the dual interest rate system and the new benchmark rate was also immediately raised to 45.0% to help decrease pressure on the real. On March 25, 1999, however, COPOM reduced the benchmark rate from 45.0% to 42.0%, a move prompted by improving inflationary expectations. Since June 20, 2000, the benchmark rate has been officially changed as follows: 17% as of June 20, 2000; 16.5% as of July 19, 2000; 15.75% as of December 20, 2000; 15.25% as of January 17, 2001, 15.75% as of March 21, 2001; 16.25% as of April 18, 2001; 16.75% as of May 23, 2001; 18.25% as June 20, 2001; 19.0% as of July 18, 2001; 18.75% as of February 20, 2002, and 18.5% as of March 20, 2002. There can be no assurance that the benchmark rate will not be raised in the future should pressure on the real return. Any increase in the benchmark could have a recessionary effect on the Brazilian economy, with a resulting negative effect on companies doing business in Brazil as well as Brazilian obligors. See Appendix B—The Federative Republic of Brazil—The Brazilian Economy— Overview."

The Fiscal Stabilization Program

On October 4, 1998, with the National Congress having approved an amendment to the Brazilian Constitution that removed the restriction prohibiting the President (as well as state governors and mayors) from being re-elected for a second term of office, Mr. Cardoso was re-elected as President for a second 4- year term. On October 28, 1998, in response to the world-wide financial crisis which impacted Brazil, the Government announced a set of measures, collectively referred to as the Fiscal Stabilization Program. See "Appendix B—The Federative Republic of Brazil—Recent Political History."

Certain measures proposed by the Fiscal Stabilization Program and approved by Congress include an increase in the social security tax paid by companies (Contribuição para o Financiamento da Seguridade Social or "COFINS") and reforms to the welfare system. On March 18, 1999, the rate of tax on financial transactions (Contribuição Provisória sobre Movimentações Financeiras or "CPMF") was approved by the Chamber of Deputies of the Brazilian Congress in its second and final vote. The CPMF is thought to be a key to the Brazilian Government’s fiscal reform program and its approval appeared to be viewed very favorably by the international financial community. The 0.38% percent tax on all financial transactions took effect on June 17, 1999 and was recently extended through December 31, 2004 pursuant to a constitutional amendment dated June 12, 2002.

On November 17, 1999 the Brazilian Senate ratified a bill approved by the Chamber of Deputies that changes the rules for retirement for private sector employees. The bill introduces a new social security factor that will be used to calculate benefits for retirees. This factor takes into account not only age and years of contributions to the National Social Security Institute (Instituto Nacional de Seguro Social, or "INSS"), but also life expectancy. The legislation also changes the base for calculating the INSS benefit of any person retiring after 1994 to the arithmetic mean of 80% of the highest monthly salaries of that retiree, rather than the average monthly salary of that retiree during the last 36 months before retirement. The new social security factor is to be phased in over a five-year period and is expected to maintain the deficit at its current level, 0.9%. The bill was ratified by the President and it became law on November 29, 1999.

There can be no assurance that uncertainties and volatility affecting the Brazilian financial and economic markets will not continue and possibly result in a Brazilian Sovereign Risk Event or adversely affect the results of operations and financial condition of the Issuers and the Guarantor and/or the value of the Notes. See "Appendix B—The Federative Republic of Brazil—Recent Political History."

International Monetary Fund Emergency Loan Package

The measures proposed by the Fiscal Stabilization Program were aimed not only at curtailing the existing fiscal deficit but also were designed to meet conditions of the International Monetary Fund (the "IMF") in order to receive the U.S.$41.5 billion IMF-led aid package announced on November 13, 1998. On June 29, 2001 and September 28, 2001, Brazil received disbursements from the IMF in the amounts of 2.0 billion and 4.7 billion, respectively. On March 15, 2001 and April 29, 2001, Brazil repaid the IMF 87 million and 4.2 billion, respectively.

Impact of Extreme Inflation

Brazil has historically experienced extremely high rates of inflation. Inflation itself, as well as certain governmental measures to combat inflation, have in the past had significant negative effects on the Brazilian economy and have caused distortions in the Issuers’ reported results of operation and financial condition. See "Presentation of Financial Information." Inflation, actions taken to combat inflation, and public speculation about possible future actions, have also contributed significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.

Beginning in December 1993, the Brazilian Government commenced the Real Plan, an economic stabilization plan intended to reduce inflation by reducing certain public expenditures, collecting liabilities owed to the Brazilian Government, increasing tax revenues, continuing the privatization program and introducing the real as a new currency. Since the introduction of the real, Brazil’s inflation rate has been substantially lower than in previous periods. Inflation, as measured by the Market General Price Index (Indice Geral de Preços do Mercado or "IGP-M"), was approximately, 1.8% in 1998, 20.1% in 1999, 10.0% in 2000, 10.4% in 2001 and 0.50% in the first quarter of 2002. There can be no assurance that the recent increase in inflation will not continue or that future Brazilian governmental actions (including actions to adjust the value of the Brazilian currency) will not trigger a further increase in inflation. Periods of substantial inflation may in the future have significant adverse effects on the Brazilian economy, the Brazilian market for financial products and the markets for Brazilian securities, which adverse effects may increase the likelihood of the occurrence of a Brazilian Sovereign Risk Event.

Effects of Exchange Rate Fluctuations

The relationship of Brazil’s currency to the value of the U.S. dollar and the rates of devaluation of Brazil’s currency relative to the prevailing rates of inflation may affect the Issuers’ respective financial conditions and results of operations.

From its introduction on July 1, 1994 through March 1995, the real appreciated against the U.S. dollar, although Brazil’s currency in past years has frequently devalued in relation to the U.S. dollar. In response to a deterioration in the current account, in March 1995 the Central Bank formalized an exchange band system for both the commercial foreign exchange market and floating foreign exchange market, pursuant to which the real would be permitted to float against the U.S. dollar within bands established by the Central Bank. Under the exchange band system, the Central Bank committed to intervene in the market whenever rates approached the upper and lower limits of the band.

The Central Bank has periodically adjusted the exchange band to permit the gradual devaluation of the real against the U.S. dollar. On February 2, 1999, Mr. Lopes was replaced by Mr. Arminio Fraga, as Central Bank president, and the Senate confirmed his appointment on March 3, 1999. As of early March 1999, however, the real generally continued to decline against the U.S. dollar. On March 2, 1999, the real declined to as low as R$2.16 per dollar, prompting the Central Bank to intervene by spending foreign currency reserves to protect the real. On March 10, 1999, the real began a slow increase against the dollar, and as of December 31, 2000 the real was valued at R$1.985 against the U.S. dollar; as of December 31, 2001, it was valued at R$2.3204 U.S. dollar; and, as of June 14, 2002, it was valued at R$2.7181. There can be no assurance that the new foreign exchange regime will be maintained in the future or that it will be beneficial to the Brazilian economy. In addition, there can be no assurance that there will not be a further devaluation of the real or that any future devaluation will not adversely affect the value of the Notes, have a material adverse effect on the Issuers, or increase the likelihood that a Brazilian Sovereign Risk Event shall occur. See "Foreign Exchange Rates and Exchange Controls" and "Appendix B—The Federative Republic of Brazil—The Brazilian Economy—Brazilian Foreign Exchange Rates, Foreign Exchange Controls and Remittances Abroad."

Exchange Controls and Restrictions

Under current Brazilian legislation, the Federal Government may impose temporary restrictions on remittances of foreign capital abroad in the event of a serious imbalance or an anticipated serious imbalance of Brazil’s balance of payments. For approximately nine months in 1989 and early 1990, the Federal Government froze all dividend and capital repatriations held by the Central Bank of Brazil that were owed to foreign equity investors, in order to conserve Brazil’s foreign currency reserves. These amounts were subsequently released in accordance with Federal Government directives. There can be no assurance that similar measures will not be taken by the Brazilian Government in the future or that the

Brazilian Government will not institute more restrictive currency conversion or exchange control policies in the future, which could result in the occurrence of a Brazilian Sovereign Risk Event.

Payments of External Debt Controlled by the Central Bank

Brazil has, in the past, periodically entered into negotiations with its foreign creditors to restructure its foreign indebtedness. During the 1980s, Brazil encountered significant difficulty in the timely servicing of its external indebtedness to commercial banks and foreign creditors and Brazil’s public sector external debt was restructured several times during the decade. Since 1983, as a result of the formal restructuring of the Brazilian foreign debt, certain payments of principal on external obligations due to commercial banks have been centralized through the Central Bank, which has assumed responsibility for the payments thereof. Under Resolution No. 1564, enacted January 16, 1989 and implemented in July 1989, Brazil suspended certain payments of interest and principal, in addition to those payments of principal already centralized at the Central Bank.

On June 26, 1991, the Central Bank enacted Resolution No. 1,838, which allowed certain private sector companies to resume the payment of external debt obligations. However, there can be no assurance that the Central Bank or another part of the Brazilian Government will not institute restrictions on payments of external obligations, including funds transferred to any holder of Notes by any Issuer.

Additional Central Bank Authorization

The Central Bank has authorized the issuance of the Notes and has issued a certificate of registration authorizing the Issuers to make payment under the Notes where such payment requires the conversion of reais into U.S. dollars (including any payment made upon the enforcement of a judgment against any Issuer). However, additional Central Bank authorization is needed for the payment of the Notes upon acceleration or a change-in-control. There can be no assurance that such authorization would be granted by the Central Bank.

Developments in Other Emerging Market Countries

Economic conditions in Brazil are, to some extent, influenced by economic and securities market conditions in other countries, particularly emerging market countries. Although economic conditions are different in each country, investors’ reaction to developments in one country can have effects on the securities of issuers in other countries or securities otherwise linked to other countries, including Brazil, such as the Notes. For example, the instability and volatility in world financial and securities markets that began with the devaluation of the currencies of a number of Southeast Asian countries in mid-1997 and that continued and expanded throughout 1998 and early 1999, negatively affected the Brazilian securities and financial markets. Developments in other countries, particularly in Argentina and Latin America, may have also at times adversely affected the market price of Brazilian companies’ securities. There can be no assurance that Brazilian economic conditions will not continue to be affected negatively by events elsewhere, especially in emerging markets, or that such effects will not result in a Brazilian Sovereign Risk Event or adversely affect the operations of the Issuers or the market value of the Notes.

Developments in Argentina

Argentina, historically, one of Brazil´s main trading partners, is in a serious crisis that started as a three-year recession which appeared to have peaked in December of 2001 with the loss of confidence in the financial system and a fleeing of capital in an effort to protect and preserve capital. The impact of the crisis in Argentina on Brazil has been limited to date. Only 10% of Brazil´s exports were attributable to Argentina in 2001. A possible future negative impact could stem from the decrease of capital flow to Brazil from Argentina. Additionally, investors’ perception of increased risk for investments in Argentina and fear of devaluation or default may lead to reduced levels of investment in Brazil and, by extension in

Latin America. Also, such perception may negatively affect the ability of Brazilian companies to access the international capital markets.

Presidential Elections-2002

Brazilian Presidential elections will be held during October 2002. The new Brazilian President is expected to serve a four-year term. The current President, Mr. Fernando Henrique Cardoso, cannot run for reelection. Currently, there are two leading candidates, Mr. Luiz Inácio “Lula” da Silva, of the Worker´s Party (Partido dos Trabalhadores-PT), known as the candidate for the opposition, and Mr. José Serra, of the Brazilian Social Democratic Party (Partido Social Democrático Brasileiro-PSDB), known as the candidate for the existing government. We cannot predict in any way the outcome of the elections nor can we be sure of the policies that the new administration will pursue. Nevertheless, any change in the popularity of the candidates, the outcome of the elections, the policies to be pursued by the new administration, and the ensuing economic conditions in Brazil could negatively affect the Brazilian securities and financial markets.

Risk of Convergence of Factors

The convergence of a number of factors, including those described in the Investment Considerations included in this Offering Circular, could form a significant risk for investors in Brazilian securities. A capital flow reduction provoked by crises in Argentina could cause further devaluation of the real, which might have the effect of increasing the public debt, as a percentage of the GDP. In turn, this might create political conditions favorable to an opposition victory. An eventual confidence crisis of the markets in the new government, whether justified or not, could create difficulties for Brazil in obtaining financing for, and in the refinancing of, the internal and/or external public debt thereby worsening the internal public debt situation and reversing the recent lengthening of the maturity profile of Brazilian debt. In such a situation, a loss of confidence in the new government would occur and the economy could move into a recession, affecting the capacity of payment of public debt, and increasing the exchange devaluation associated therewith.

The New Brazilian Civil Code and Corporate Law

The majority of all codified rights and obligations (in the private sector) related to persons and property in Brazil is currently regulated by Law 3,071 of January 1, 1916. This law, together with a part of the Brazilian Commercial Code (Law 556 of June 25, 1850) is currently scheduled to be revoked and replaced in the beginning of 2003 by Law 10,406 of January 10, 2002, which establishes a new Brazilian Civil Code.

In relation to the previous Civil Code, the new Civil Code will significantly change certain matters related to, inter alia, rules relating to limited liability companies, debt assumption, and bills of exchange (títulos de crédito). Consequently, it is possible that the foregoing changes may adversely affect your rights under the Notes.

The Brazilian Corporate Law (Law 6,404 of December 15, 1976) has recently been amended, and in certain aspects the amendments are significant. These amendments were implemented by Law 10,303 of November 30, 2001. Although the law has been in effect since March 1, 2002, companies incorporated after October 31, 2001 must comply with the law beginning on the date of their incorporation. Companies incorporated as of October 31, 2001 are entitled to a grace period for compliance which will expire on March 1, 2003.

The recent amendments to the Brazilian Corporate Law (together with amendments to Law 6,385 of December 7, 1976 - the Capital Markets Law) seek to create a more favorable environment for the development of the Brazilian capital markets through the introduction of new rules, such as rules relating

26 to preferential shares, corporate oversight boards, and arbitration proceedings for settlement of disputes among shareholders and the company. Several aspects of the amendments are aimed at increasing corporate transparency.

September 11, 2001 Terrorist Attacks in the U.S.A.

Since the terrorist attacks in New York City and Washington, D.C. an unprecedented worldwide concern about terrorism has emerged. In addition to military retaliation against the Al Qaeda organization, investigative measures, including the tracking of funding sources related to terrorist activities, have been implemented in an attempt to prevent future terrorist attacks. Nevertheless, terrorist attacks cannot be accurately predicted, and the impact of such events poses a credible threat to the international economy, as well as to regional and domestic economies. Accordingly, future terrorist attacks could negatively affect the Brazilian securities and financial markets.

Factors Relating to the Issuers and the Guarantor

Relationship Between the Bank and the Brazil Branch

The Bank and the Brazil Branch of the Guarantor (the "Brazil Branch") are separate legal entities, although management of the Bank and the Brazil Branch may in some cases be on an integrated basis where there are no regulatory restrictions against doing so. Generally, operations can be carried on by one or the other; however, for regulatory reasons, equity investments and investment banking can only be carried out in the Bank, not the Brazil Branch.

While there are no regulatory or historical reasons for booking operations in a particular entity, one of the factors that influences where an asset or liability is booked is the Brazilian fiscal consequences to the different entities, one of the considerations being not to increase unnecessarily the Brazilian tax burden on any of the BankBoston Group’s Brazilian operations. Another consideration is the capacity of the entity to book the transaction having regard to the state of its book at any time, for example as a consequence of the requirement to adhere to concentration limits. As a result of this policy, the results of the Bank are closely related to the results of the Brazil Branch, although the profit or loss shown in one or the other in isolation will not be indicative of the combined results. Management makes case by case decisions on a daily basis as to which entity to use for the purposes of booking a certain asset or liability. Once an asset is booked in one entity, however, it cannot be transferred to the book of the other. Nevertheless, as a result of initial booking decisions, the size of the asset and liability base and the results of the Bank could vary in material amounts at and between balance sheet dates. With respect to the Notes that are guaranteed by the Guarantor, however, any assets booked in the Brazil Branch would constitute assets of the Guarantor.

Limited Guarantee of Guaranteed Notes

The Notes of a Series may be subject to a guarantee issued by the Guarantor (the "Guarantee") that guarantees the payment of those Notes subject to the occurrence of a Brazilian Sovereign Risk Event. The payment obligations of the Guarantor under the Guarantee shall, to the extent provided by applicable legislation, rank behind the payment obligations owed by the Guarantor to its preferred creditors (including holders of U.S. deposits in the Guarantor and claims of the FDIC as a receiver of the Guarantor) in the event of the liquidation of the Guarantor or other resolution by the FDIC of the Guarantor but otherwise shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all other present and future unsecured and unsubordinated obligations. A substantial portion of the Guarantor’s liabilities consist of U.S. deposits. Noteholders should review the relevant Pricing Supplement prior to each purchase of Notes in order to ascertain whether such Notes are guaranteed. NEITHER THE NOTES NOR THE GUARANTEE, IF ANY, APPLICABLE TO

ANY NOTE ARE INSURED BY THE FDIC OR ANY OTHER INSURER. See "The Guarantor" and "Appendix D—United States Regulatory Matters."

Principal Paying Bank

Each payment in respect of Notes made by or on behalf of the relevant Issuer to or to the order of Deutsche Trust Bank Limited as principal paying bank (the "Principal Paying Bank") on the date on which such payment is due shall discharge such Issuer’s and the Guarantor’s (if applicable) obligation with respect to such payment. Thereafter, holders of such Notes shall be entitled to look only to the Principal Paying Bank for payment of such amount subject to, and as more fully described under "Terms and Conditions of the Notes—Discharge of Issuer; Principal Paying Bank Default." Interest on the Notes shall cease to accrue as provided in "Terms and Conditions of the Notes—Interest" with respect to each timely payment by or on behalf of the relevant Issuer to the Principal Paying Bank.

Replacement of Certain European Currencies by the Euro

On January 1, 1999, certain members of the European Economic and Monetary Union ("EMU"), established a common European currency known as the "euro" and each member’s local currency became a denomination of the euro. Each participating country (currently, Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, and Spain) has replaced its local currency with the euro effective January 1, 2002. A European Central Bank is responsible for setting the official interest rate to maintain price stability within the euro zone. The replacement of currencies with the euro may cause market disruptions and adversely affect the market value of the Notes.

EMU is driven by the expectation of a number of economic benefits, including lower transaction costs, reduced exchange risk, greater competition, and a broadening and deepening of European financial markets. However, there are a number of significant risks associated with EMU. Monetary and economic union on this scale has never been attempted before. There is a significant degree of uncertainty as to whether participating countries will remain committed to EMU in the face of changing economic conditions. This uncertainty may increase the volatility of European markets.

USE OF PROCEEDS

Unless otherwise specified in the applicable Pricing Supplement, the net proceeds of each tranche of Notes under the Program will be used for general corporate purposes.

FOREIGN EXCHANGE RATES AND EXCHANGE CONTROLS

The purchase and sale of foreign currency in Brazil is subject to governmental control. There are two foreign exchange markets in Brazil that are subject to Central Bank regulations: the commercial rate exchange market (the "Commercial Market") and the floating rate exchange market (the "Floating Market"). The Commercial Market involves all trade (exports and imports) and most financial transactions. Central Bank authorization is required for all financial transactions involving injections of capital, equity transactions in stock markets, mergers and acquisitions, repatriation of capital invested in Brazil, dividends, payments of principal of and interest on loans, notes, bonds and other debt instruments, and services related to exports or imports (insurance, freight and agent commission). Purchases of foreign exchange in the Commercial Market may be carried out only through a financial institution in Brazil authorized to buy and sell currency in that market. The Floating Market was developed initially for the tourism industry but has expanded to allow certain other financial transactions. The Floating Market is generally open to transactions that do not require prior approval by the Central Bank. After February 1,

1999 and the adoption of the "dirty float" foreign exchange rate regime discussed below, the foreign exchange rates for each market have been the same.

The key distinction between these two markets is that (i) the Commercial Market is generally restricted to transactions which require the prior approval of, or registration with, the Central Bank and (ii) the Floating Market is generally open to transactions that do not require any kind of prior approval by the Central Bank. Payments under the Notes will be made through the Commercial Market.

The real was introduced in July 1994, and from that time through March 1995 the real appreciated against the U.S. dollar. In March 1995 the Central Bank introduced exchange rate policies that established a trading band within which the real-U.S. dollar exchange rate could fluctuate, allowing the gradual devaluation of the real against the U.S. dollar. In January 1999, in response to increased pressure on Brazil’s foreign currency reserves, the Central Bank allowed the real to float freely.

During 1999 the real experienced high volatility and suffered a decline against the U.S. dollar. During 2000 and 2001 and during the first five months of 2002 the real continued to experience volatility against the U.S. dollar. Under the current free convertibility exchange system, the real may undergo further devaluation or may appreciate against the U.S. dollar and other currencies.

The following table sets forth the period-end, average, high and low selling rate reported by the Central Bank at closing, expressed in reais per U.S. dollars for the periods and dates indicated.

Closing Rate Selling Rate for U.S. dollars R$ per U.S.$1.00 Period Period-End Average(1) High Low 1999...... 1.7890 1.8019 2.1647 1.2078 2000...... 1.9554 1.8313 1.9847 1.7234 2001...... 2.3204 2.3226 2.7828 1.9711 December ...... 2.3204 2.4672 2.2930

2002 January ...... 2.4183 2.4384 2.2932 February ...... 2.3482 2.4691 2.3482 March ...... 2.3236 2.3663 2.3236 April ...... 2.3620 2.3689 2.2709 May ...... R$2.5220 R$2.5296 R$2.3770

______(1) Averages for each year are based upon month-end rates. Source: Central Bank

On June 14, 2002, the U.S. dollar selling rate reported by the Central Bank at the close of day was R$2.7181 to U.S.$1.00.

THE ISSUERS

The following is a description of each of the Issuers included in the Program as of the date hereof. Additional information about any such Issuer, or information about any other Issuer designated from time to time, may be included in a Pricing Supplement or in a supplemental Offering Circular.

The following chart illustrates the position of the Issuers and certain other entities within the Corporation’s Brazilian group of companies (the "BankBoston Group"). The names of the Issuers presently named as Issuers under the Program and the Guarantor appear in boldface type.

FleetBoston Financial Corporation USA

Fleet National Bank (BankBoston, N.A.)

Boston World Holding Corporation 100%

Boston Adm. e Empreend. BRAZIL Ltda. 1% 99%

BankBoston Banco Múltiplo S/A 99% 99% 99% 99% . 99% 99% 99%

BankBoston BankBoston BankBoston Leasing S/A Companhia Distribuidora de Tit. de Arrendamento Hipotecária Valores Mobiliarios S/A Mercantil

BankBoston Adm. Boston Negócios Boston BankBoston Corretora Cartões de Crédito e Participações Previdência Privada de Câmbio TVM S/A Ltda. Ltda

99.99%

BBLA Holding SPAIN Europe S.L. (Spain)

100% BankBoston Latino PORTUGAL Americano S/A (Lisbon)

BANKBOSTON BANCO MÚLTIPLO S.A.

BankBoston Banco Múltiplo S.A. (the "Bank"), founded as Valnasa S.A. Crédito, Financiamento e Investimento, was incorporated under the laws of Brazil as a sociedade anônima with unlimited duration on July 8, 1966 and initially operated as a consumer financing company under Law No. 4,595 of December 31, 1964. Its name was changed to Boston Financeira S.A. Crédito, Financiamento e Investimento in 1969 and to Financiadora Bank of Boston - Crédito, Financiamento e Investimento in 1985. On December 14, 1990, the Bank was licensed by the Central Bank to operate as a banco múltiplo, pursuant to Central Bank Resolutions Nos. 1,523 and 1,524, both dated September 21, 1988, and changed its name to Banco de Boston S.A. In April 1997, its name was changed to BankBoston Banco Múltiplo S.A. The Bank maintains its main administrative office at Av. Dr. Chucri Zaidan, 246, São Paulo, SP, Brazil, and its headquarters is located at Rua Líbero Badaró, 633/641, São Paulo, SP, Brazil.

As a banco múltiplo, the Bank may carry out wholesale credit, financing, commercial banking and investment banking activities. The Bank’s main businesses are short-term interbank lending, medium- term working capital, domestic currency lending, investment fund management, treasury operations and corporate finance. Through its network of 66 full-service branches, 98 ATM’s and 9 electronic mini- branches, the Bank provides a full range of products and services (both banking and financial), including large corporate, corporate/middle-market and retail banking, corporate finance, fund management and cash management services. The Bank also carries out international banking transactions through BankBoston Latino Americano, S.A. ("BBLA"), its indirect subsidiary incorporated under the laws of Portugal on September 5, 1996.

BBLA is engaged in providing a variety of international financial services to corporate and institutional customers and operates primarily as a funding vehicle for the BankBoston Group. It raises funds in the capital markets, including through the issuance of certificates of deposit, and lends such funds, directly or indirectly through affiliated entities, to members of the BankBoston Group, as well as other affiliated financial institutions. A substantial portion of BBLA’s operating income is derived from the interest rate spread between its funding and lending activities. Historically, these activities have generally involved short-term assets and liabilities with a maturity of less than one year.

The Bank is authorized by the Central Bank to operate 66 branches located in 22 cities throughout Brazil. Of its branches, 29 are in the state of São Paulo. The Bank operates 3 branches in the Federal District and in each of 9 states other than the state of São Paulo. The branches are operated under licenses from the Central Bank issued in the name of the Bank. However, substantially all of the real property and permanent assets (investments, fixed assets and deferred charges) used by the Bank’s branches are owned by, and are included in the accounts of, its parent, Boston Administração e Empreendimentos Ltda. ("Boston Ltda."), the headquarters of which are located at Av. Dr. Chucri Zaidan, 246- 7° andar, São Paulo, SP, Brazil. These properties and assets are made available to the branches of the Bank pursuant to rental contracts with Boston Ltda. Business originated in the Bank’s branches may, in the absence of regulatory constraints, be attributed either to the Bank or to the Brazil Branch. See "Investment Considerations—Relationship Between the Bank and the Brazil Branch."

Strategy

While the Bank’s business had traditionally been oriented towards serving the banking needs of large Brazilian corporations, in response to changes in the Brazilian economy the Bank has pursued a strategy of diversification of its activities and customer base by enhancing its commercial and retail banking services. In addition, through the operations of its local subsidiaries, Boston Negócios e Participações, a holding company that indirectly owns BBLA, BBL, a financial leasing company, BankBoston Distribuidora de Títulos e Valores Mobiliários, a brokerage company, and BankBoston Cia Hipotecária, a residential mortgage loan company, among others, the Bank has also diversified its activities beyond traditional commercial bank lending. As a result, it is currently engaged in other activities such as

31 financial leasing, securities underwriting, investment fund management, brokerage activities and residential mortgage lending.

Share Capital and Ownership; Dividends

As of December 31, 2001, Boston Administração e Empreendimentos Ltda. owned approximately 99.99% of the 580,576,124,221 ordinary shares with no par value that comprised all of the authorized and issued share capital of the Bank. The remaining ordinary shares are held by members of the Bank’s Administrative Council or Board of Directors. Boston Administração e Empreendimentos Ltda. is a subsidiary of Boston World Holding Corporation, which is a wholly-owned subsidiary of the Guarantor.

Summary Selected Financial Information

The financial information of the Bank contained in the following tables and elsewhere in this Offering Circular as of and for the years ended December 31, 2001, 2000 and 1999, has been derived from the audited financial statements of the Bank maintained in Brazilian currency in accordance with Brazilian Corporate Law. See "Presentation of Financial Information." The financial information of the Bank at and for the three-month period ended March 31, 2002 is derived from the unaudited local currency financial statements prepared in accordance with Brazilian Corporate Law and have been subject to a limited review by PricewaterhouseCoopers Auditores Independentes ("PwC").

Basis of Translation

For the convenience of the reader, certain amounts included in this Offering Circular derived from the financial statements for the years ended December 31, 2001, 2000 and 1999, as well as for the three- month period ended March 31, 2002 have been translated into U.S. Dollars from the amount of nominal reais at the real/U.S. Dollar exchange selling rate published by the Central Bank on the respective balance sheet date, i.e., R$2.3236; U.S. 1.00 on March 31, 2002, R$2.3204; U.S.$1.00 on December 31, 2001, R$1.9554; U.S.$1.00 on December 31, 2000 and R$1.7890; U.S.$1.00 on December 31, 1999. The reader should take into account that the real was significantly devalued against the U.S. Dollar from December 31, 1998 and the exchange rates used for purposes of the convenience translation did not reflect this devaluation. The exchange rate of reais at June 14, 2002 was R$2.7181; U.S.$1.00. Brazilian Corporate Law does not recommend any specific methodology to translate reais to U.S. Dollars. In addition, these financial statements have not been restated to reflect the effects of inflation. Accordingly, the translation of nominal reais amounts into U.S. Dollars utilizing the exchange rates at each period-end may result in distortions to the amounts presented, particularly in items of the income statement which represent flows of income and expenses over the period covered thereby. The translation of Brazilian currency amounts into U.S. Dollars is for indicative purposes only; it should not be construed as a representation that amounts of reais could be converted into or settled in U.S. Dollars at such rate or any other.

Summary Balance Sheet Data:

March 31, December 31, March 31, December 31, 2002 2001 2000 1999 2002 2001 2000 1999 (in millions of U.S. dollars)(i) (in millions of reais) Assets Current assets: Cash and securities ...... 448.1 546.3 549.5 443.4 1,041.3 1,267.8 1,074.5 793.1 Interbank/Interdepartamental accounts...... 196.1 205.2 254.2 143.9 455.6 476.1 497.1 257.5 Interbank Investments 2,372.7 1,910.9 2,599.8 2,505.0 5,513.3 4,434.0 5,083.7 4,481.4 Lending and lease operations, net .. 1,356.4 1,523.9 1,354.4 904.5 3,151.7 3,536.1 2,648.3 1,618.1 Foreign exchange portfolio ...... 36.0 0.4 0.3 -- 83.6 1.0 0.6 -- Other credits and assets ...... 413.0 424.8 222.7 394.1 959.7 985.6 435.5 704.9 Total current assets ...... 4,822.3 4,611.5 4,980.9 4,390.9 11,205.2 10,700.6 9,739.7 7,855.0

Non-current assets: Securities ...... 813.3 904.6 709.0 1,178.9 1,889.9 2,099.0 1,386.4 2,109.0 Interbank investments...... 57.8 60.7 113.0 23.8 134.4 140.9 221.0 42.6 Lending and lease operations, net ...... 305.7 327.9 284.2 285.2 710.3 760.8 555.7 510.4 Other...... 120.0 138.0 74.6 35.5 278.8 320.3 145.8 63.6 Total non-current assets 1,296.8 1,431.2 1,180.8 1,523.4 3,013.4 3,321.0 2,308.9 2,725.6 Permanent assets: Investments, fixed assets and deferred charges 583.2 553.3 434.2 329.7 1,355.2 1,283.8 849.1 590.0 Total assets 6,702.3 6,596.0 6,595.9 6,244.0 15,573.8 15,305.4 12,897.7 11,170.6

Liabilities and Stockholders’ Equity Current liabilities: Deposits...... 2,183.7 2,222.6 2,283.2 2,184.9 5,074.1 5,157.4 4,464.5 3,909.0 Repurchase agreements ...... 1,880.2 1,890.7 2,196.6 1,830.9 4,368.9 4,387.2 4,295.3 3,275.6 Foreign exchange portfolio ...... 40.8 4.9 4.6 263.1 94.8 11.3 9.0 470.7 Borrowings and on-lending...... 119.4 191.1 494.1 136.2 277.5 443.5 966.2 243.6 Other...... 1,145.8 1,011.3 664.9 934.9 2,662.4 2,346.5 1,300.2 1,672.4 Total current liabilities...... 5,369.9 5,320.6 5,643.4 5,350.0 12,477.7 12,345..9 11,035.2 9,571.3

Noncurrent liabilities: Deposits...... 154.1 24.1 0.9 7.0 358.1 56.0 1.8 12.4 Borrowings and on-lendings ...... 289.1 293.7 336.4 486.9 671.7 681.4 657.7 871.2 Other...... 235.7 317.5 163.2 9.9 547.6 736.7 319.2 17.7 Total non-current liabilities 678.9 635.3 500.5 503.8 1,577.4 1,474.1 978.7 901.3

Deferred income...... 0.9 1.0 0.7 0.4 2.2 2.4 1.3 0.7 Total liabilities...... 6,049.7 5,956.9 6,144.6 5,854.2 14,057.3 13,822.4 12,015.2 10,473.3

Total shareholders’ equity...... 652.6 639.1 451.3 389.8 1,516.5 1,483.0 882.5 697.3 Total liabilities and shareholders’ equity 6,702.3 6,596.0 6,595.9 6,244.0 15,573.8 15,305.4 12,897.7 11,170.6

(i) Amounts presented in U.S. dollars have been translated from reais at an exchange rate prevailing on the last business day of each period presented. For more information, see “Foreign Exchange Rates and Exchange Controls.” Such translations should not be construed as a representation that the real amounts presented, have been or could have been converted into U.S. dollars at that rate. The reader should take into account the significant devaluation of the real in relation to foreign currencies since December 31, 1999. The exchange rate of reais to U.S.$ at June 14, 2002 was R$ 2.7181 = U.S.$ 1.00.

Summary Statement of Income Data:

March 31, December 31, March 31, December 31, 2002 2001 2000 1999 2002 2001 2000 1999 (in millions of U.S. dollars)(i) (in millions of reais)

Income from financial intermediation ...... 235.3 1,311.6 1,005.2 1,235.1 546.8 3,043.5 1,965.5 2,209.6 Expenses from financial intermediation ..... (176.3) (912.9) (738.6) (915.5) (409.6) (2,118.4) (1,444.2) (1,637.9) Net revenue from financial intermediation...... 59.0 398.7 266.6 319.6 137.2 925.1 521.3 571.7 Other income...... 41.6 235.1 208.0 221.0 96.7 545.6 406.8 395.4 Other expenses...... (83.3) (328.3) (352.1) (407.9) (193.6) (761.8) (688.5) (729.6) Operating income...... 17.3 305.5 122.5 132.7 40.3 708.9 239.6 237.5 Non-operating income (loss), net...... 0 (3.9) (7.0) (6.1) 0.1 (9.1) (13.7) (11.0) Income before income taxes, social contribution and profit sharing ...... 17.3 301.6 115.5 126.6 40.4 699.8 225.9 226.5 Income tax, social contribution and profit sharing ...... (3.0) (67.8) (20.8) (28.5) (6.9) (157.4) (40.7) (50.8)

Net income...... 14.3 233.8 94.7 98.1 33.5 542.4 185.2 175.7

Capitalization of the Bank

The following table presents the capitalization of the Bank as of March 31, 2002. Since March 31, 2002, there has been no material change in the capitalization of the Bank.

March 31, 2002 (in millions (in millions of USD)(i) of reais) Current liabilities Deposits: Demands deposits...... 270.4 628.4 Savings deposit...... 346.3 804.6 Interbank deposits...... 1,498.6 3,482.2 Time deposits ...... 68.4 158.9 Repurchase agreements 1,880.2 4,368.9 Interbank/Interdepartamental accounts 259.5 603.0 On-lendings: Federal funds-FINAME ...... 84.5 196.5 Foreign funds...... 18.9 43.8 Foreign loans ...... 16.0 37.2 Other Liabilities Collection of taxes and contributions ...... 73.3 170.4 Social and statutory ...... 1.1 2.5 Taxes and social security...... 28.5 66.2 Negotiation and Intermediation of Securities...... 293.9 683.0 Foreign exchange portfolio 40.8 94.8 Other...... 489.5 1,137.3 Total current liabilities...... 5,369.9 12,477.7

Non-current liabilities Deposits Interbank deposits 128.2 297.8 Time deposits ...... 25.9 60.3 Repurchase agreements ...... 6.4 14.8 On-lendings: Federal funds-FINAME ...... 104.6 242.9 Foreign funds...... 184.5 428.8 Other liabilities ...... 229.3 532.8 Total non-current liabilities...... 678.9 1,577.4

Deferred income ...... 0.9 2.2

Business of the Bank

General

The Bank’s operations comprise four primary areas: (i) Wholesale Banking (comprising the Corporate Division, which serves corporate customers, middle market customers, financial institutions and the Corporate Finance Group); (ii) Retail Banking (comprising the Retail Bank Division, which serves small businesses and consumers); (iii) Private (comprising the Private Banking Division, which serves individual clients with a minimum required investment of U.S.$1,000,000); and (iv) Treasury (comprising the Treasury Operations Division).

The following table sets out the sources of income from financial intermediation of the Bank by operating activity for the years ended December 31, 2001, 2000 and 1999.

Year ended December 31, Year ended December 31, 2001 2000 1999 2001 2001 1999 (in millions of U.S. dollars)(i) (in millions of Reais) Lending and financing...... 409.9 297.1 394.2 951.0 580.9 705.2

Securities ...... 885.5 684.0 726.3 2,054.6 1,337.6 1,299.3

Others 16.2 24.1 114.6 37.9 47.0 205.1

Income from financial intermediation...... 1,311.6 1,005.2 1,235.1 3,043.5 1,965.5 2,209.6

Lending and Financing

Lending and financing accounted for approximately 31.2%, 29.6% and 31.9% of the Bank’s total income from financial intermediation in reais for the periods ended December 31, 2001, 2000 and 1999, respectively.

The following table shows Brazilian inflation as measured by the IGP-DI, devaluation of the real against the U.S. dollar and the period-end exchange rates and average exchange rates for the periods indicated:

December 31, 2001 2000 1999 (in R$, except percentages) Inflation (IGP-DI) 10.4% 9.8% 20.0% Devaluation of the real U.S.$ 18.7% 9.3% 48.0% Period-end exchange rate—U.S.$1.00(1) R$2.3204 R$1.9554 R$1.7890 Average exchange rate—U.S.$1.00(2) R$2.3226 R$1.8313 R$1.8019 ______(1) The real-U.S. dollar exchange rate at June 14, 2002 was R$2.7181. (2) The average exchange rate is the sum of the closing exchange rates at the end of each month in the period divided by the number of months in the period. Sources: FGV-Fundação Getúlio Vargas and the Central Bank.

The following table shows the change in real GDP and average interbank interest rates for the periods indicated:

December 31, 2001 2000 1999 Change in real GDP(1) 1.5% 4.5% 0.8% Average base interest rates(2) 19.0 15.7 19.0 Average interbank interest rates(3) 19.0% 15.7% 18.8% ______(1) Calculated by dividing the real GDP of a period by the real GDP of the same period in the previous year. (2) Calculated in accordance with Central Bank methodology (based on nominal rates). (3) Calculated in accordance with Central Clearing and Custody House (“CETIP”) methodology (based on nominal rates). Sources: The Central Bank, the Brazilian Geography and Statistics Institute (IBGE) and CETIP.

We had an expansion of the Retail Banking area. From 1999 to 2001, the number of retail customers increased from 153.000 to 199.000, and the net revenue from financial intermediation in the Retail Banking area increased 17.7% in 1999 when compared to 1998. Historically, lending operations of the BankBoston Group in Brazil have been booked in the Bank, other than trade-related transactions which have been booked in the Brazil Branch. Lease transactions have historically been booked in BBL, but in some circumstances leases may be assigned from BBL to the Bank. See "Investment Considerations- Relationship Between the Bank and the Brazil Branch."

The Bank undertakes lending to customers serviced by the Wholesale Banking area and to customers serviced by the Retail Banking area. See "Business of the Bank—Market Segmentation," below for a description of each category of customers. The total loan and leasing operations (net of credit reserves) portfolio was R$4,296.9 million, R$3,204.0 million and R$2,128.5 million at December 31, 2001, 2000 and, 1999, respectively. All of the Bank’s lending activities are denominated in reais or are loans in reais indexed to the U.S. Dollar. The following table sets forth as of the dates indicated the breakdown of loans between these categories of customers.

December 31, December 31, 2001 2000 1999 2001 2000 1999 (in millions of U.S. dollars) (i) (in millions of Reais)

Wholesale Banking...... 1,729.4 1,490.3 867.0 4,012.9 2,914.0 1,551.1 Retail ...... 122.4 148.3 322.7 284.0 290.0 577.4 Total ...... 1,851.8 1,638.6 1,189.7 4,296.9 3,204.0 2,128.5

The majority of the Bank’s lending transactions have maturities of less than one year.

Market Segmentation

Three divisions of the Bank are responsible for the Bank’s relationships with its customers. The Wholesale Banking area services corporate customers nationwide with annual sales above U.S.$10.0 million and is sub-divided as follows: (i) the Senior Bankers Group, that services the largest corporate customers with a national presence; (ii) National Corporate, that services mainly regional smaller and mid-sized corporate customers with customers with less complex operations, and sometimes

37 regional penetration; (iii) Specialized, that services customers in the energy, utilities, media and telecommunications industries; (iv) Commercial Credit, that services regional government owned companies located in the greater São Paulo region, regardless of sales size, and (v) Financial Institutions. The Retail Bank Division supports small business customers with annual sales between U.S.$1.0 million and U.S.$10.0 million, and individual customers with monthly personal income above R$4,000, providing a full range of products, including fund management services involving both real and U.S. dollar denominated funds. The Private Bank Division manages portfolios of more than 1,300 customers and the minimum required investment is U.S.$1,000,000. Products offered by the Private Banking Division include certificates of deposit issued to non-financial customers (CDBs), savings deposit accounts, gold and foreign exchange products, mutual funds, financial advisory services, stock and fixed income portfolio management, mortgages and consumer financing.

The composition of the Bank’s corporate customers is distributed approximately evenly among the Brazilian subsidiaries of European companies, the Brazilian subsidiaries of United States companies and Brazilian companies. The high proportion of internationally affiliated corporations among the Bank’s customers reflects in part the Bank’s orientation towards the derivative products generally required by these types of customers in connection with their management of the interest rate and currency volatility experienced in connection with their export and import operations.

Funding

The main source of funding for the Bank’s activities is the issuance of certificates of deposit to its large corporate customers and corporate customers. The Bank also issues certificates of deposit ("CDIs") to other financial institutions and enters into repurchase agreements, although those activities are undertaken primarily in order to take advantage of arbitrage opportunities rather than to fund lending activities. The Bank obtains U.S. dollars from the issuance of debt obligations in the international capital markets, as well as through crossborder borrowings from affiliates and unaffiliated correspondent banks.

The Bank historically has not suffered from a lack of liquidity and therefore has not been forced to attract additional sources of funding. The Bank’s funding policy has generally been to generate revenues from the management of its liabilities and therefore to access attractive sources of funds when those funds are available at rates which allow the Bank to acquire a matching asset or hedge its risk at an advantageous rate when compared with the cost of funding. The amount of funding and liquidity available to the Bank is affected by decisions as to whether to book particular liabilities with the Bank or with the Brazil Branch. See "Investment Considerations—Relationship Between the Bank and the Brazil Branch."

The following table shows the sources of funding for the Bank’s activities at December 31, 2001, 2000 and 1999.

Year ended December 31, Year ended December 31, 2001 2000 1999 2001 2000 1999 (in millions of U.S. dollars) (i) (in millions of Reais)

Demand deposits ...... 280.2 259.8 296.3 650.2 508.1 530.1 Savings, interbank and time deposits...... 1,966.5 2,024.3 1,895.6 4,563.2 3,958.2 3,391.3 Repurchase agreements ...... 1,890.7 2,196.6 1,830.9 4,387.2 4,295.3 3,275.6 Borrowings and on-lendings ...... 484.8 830.5 623.1 1,124.9 1,623.9 1,114.8 Foreign exchange portfolio ...... 4.9 4.6 263.1 11.3 9.0 470.7 Other liabilities...... 1,329.8 828.8 945.2 3,085.6 1,620.7 1,690.8

Total funds...... 5,956.9 6,144.6 5,854.2 13,822.4 12,015.2 10,473.3

dollars at that rate. The reader should take into account the significant devaluation of the real in relation to foreign currencies since December 31, 1999. The exchange rate of reais to U.S.$ at June 14, 2002 was R$ 2.7181 = U.S.$ 1.00.

Treasury Operations

The primary function of the Treasury Operations Division is to administer the Bank’s own resources and to maintain the liquidity of the Bank at an appropriate level for its activities. This division also conducts the Bank’s trading and arbitrage activities and establishes base pricing for all liability and asset operations of the Bank.

The Bank invests in various types of Brazilian public debt, participates in the CDI market, trades domestic public debt, undertakes structured financing transactions and makes use of various derivative products. In each case, the purpose is to take advantage of arbitrage opportunities in the financial markets.

The Bank operates within certain risk exposure limits allocated to each of the markets within which it operates. These limits are set based on the volatility, risk and historical performance of each relevant market and are approved annually by the Asset/Liability and Capital Committee and Market Risk Committee of the Guarantor at its head office in Boston.

Credit Policy and Control and Loan Loss Experience

Credit Policy and Control

The Bank operates under lending guidelines set by the Guarantor for its worldwide operations. Additional guidelines have been established for specific business segments in Brazil as defined either by industry or by type of customer.

All credit lines must be approved by specific levels of authority. The credit approval process begins at the Management Credit Committee for Wholesale Banking, Retail Banking and Credit Card activity. Credit requests in excess of limits that may be authorized by the Management Credit Committee in each of these areas are submitted to the Brazilian Credit Committee of the Bank. Credit lines that exceed U.S.$55.0 million depending on the consumer risk rating and which are approved by the Brazilian Credit Committee are submitted for final approval to the Senior Credit Committee in Boston.

Loan Loss Experience

The following table summarizes the Bank’s loan loss experience for the years ended December 31, 2001, 2000 and 1999, respectively.

Year ended December 31, Year ended December 31, 2001 2000 1999 2001 2000 1999 (in millions of U.S. dollars)(i) (in millions of Reais)

Total loan portfolio at the end of the year ...... 1,910.9 1,659.3 1,189.7 4,434.1 3,244.6 2,128.5 Allowance for loan losses at the end of the year ...... 61.7 32.8 18.2 143.3 64.2 32.5 Loan losses during the year (ii) ...... 7.3 11.4 11.6 16.9 22.3 20.7

(ii) Loan losses defined as amounts written off.

In 2001, allowances for loan losses were R$143.3 million as compared to R$64.2 million in 2000. The increase reflects a conservative position taken by the Bank relating to an increase in customers’ loan portfolios from R$3.2 billion in 2000 to R$4.4 billion in 2001.

Capital Adequacy

The Basle Accord requires banks to have a ratio of capital to risk-weighted assets of a minimum of 8%. At least half of total capital must consist of Tier I capital. Tier I, or core, capital includes equity capital less certain intangibles. Tier II capital includes asset revaluation reserves, general loan loss reserves and subordinated debt, subject to some limitations. Tier II capital is limited to the amount of Tier I capital.

Brazilian financial institutions are subject to a capital measurement and standards methodology based on a weighted risk asset ratio. The framework of such methodology is similar to the international framework for minimum capital measurements as adopted in the Basle Accord. The requirements imposed by the Central Bank differ from the Basle Accord in a few respects. Among other differences, the Central Bank:

• imposes a minimum capital requirement of 11% in lieu of the 8% minimum capital requirement of the Basle Accord;

• requires an additional amount of capital with respect to off-balance sheet interest rate and foreign currency swap transactions; and

• assigns different risk weights to certain assets and credit conversion amounts, including a risk weighting of 300% on tax credits relating to income and social contribution taxes.

Brazilian banking regulations impose a deduction from capital corresponding to fixed assets held in excess over limits imposed by the Central Bank and also do not permit general loan loss reserves to be considered as capital.

As of the date hereof, the Bank is in full compliance with all applicable capital adequacy rules. See "Appendix C—The Brazilian Banking Industry."

Subsidiaries and Affiliates

The Bank’s investments in subsidiaries were the following at December 31, 2001:

Investment Investment Ownership (in millions (in millions of U.S.$)(i) of Reais) (%) BankBoston Distribuidora de Titulos Valores Mobiliários S.A. 8.1 18.8 99.99 BankBoston Leasing S.A. – ArrendamentoMercantil 78.3 181.6 99.99 BankBoston Cia. Hipotecária 3.0 6.9 99.00 BankBoston Administradora de Cartões de Crédito S/C Ltda. 23.8 55.2 99.99 BankBoston Corretora de Câmbio, Títulos e Valores Mobiliários S/A 4.0 9.2 99.99 Boston Negócios e Participações Ltda. 269.9 626.3 99.99 Boston Previdência Privada S/A 2.1 5.0 99.99 Total 389.2 903.0

Litigation

The Bank is subject to claims in the normal course of business, including tax assessments, a number of labor claims by former employees and claims by customers in connection with inflation indexation under economic plans published by the Brazilian government during periods of hyperinflation. We believe that any potential liabilities arising from such lawsuits and administrative proceedings will not have a material adverse effect on our financial condition.

We are not currently the subject of any pending or threatened material proceedings by the Central Bank, CVM and SUSEP. Management believes that it is in compliance with all applicable Central Bank, CVM and SUSEP regulations and considers our relationship with these authorities to be good.

We believe that our reserves for contingencies and our subsidiaries’ litigation reserves are adequate to cover any probable and estimated losses from litigation, and that there are no suits pending or threatened, individually or in the aggregate, that if decided against us or our subsidiaries would have a material adverse effect on our business, financial condition or properties.

Management

Management of the Bank is vested in the Administrative Council (Conselho Administrativo) and the Board of Directors (Diretoria). Members of the Administrative Council are elected by the Bank’s shareholders at general meetings for renewal terms of three years. The Administrative Council is composed of a minimum of three and a maximum of nine members, who meet as often as required by the President.

The Board of Directors is elected by the Administrative Council and consists of a minimum of eight and a maximum of thirteen members. Board members are elected for renewable terms of three years. The Board of Directors meets whenever necessary.

The members of the Bank's Administrative Council and Board of Directors are listed below:

Administrative Council Geraldo José Carbone President Donald Ward Mac Darby Jr. Council Member Marco Way Huan Ho Council Member

Board of Directors Alex Waldemar Zornig Marcio Antonio Teixeira Linares Marcio Verri Bigoni Maurício Carvalho D´amico Natalísio de Almeida Junior Pedro Mader Meloni Ricardo Augusto Gallo Rodolfo Pereira da Silva Sandra Nunes da Cunha Boteguim

Employees

As of December 31, 2001, approximately 3,800 employees were employed by the BankBoston Group in Brazil, 1,906 of which were employed directly by the Bank.

BANKBOSTON LEASING S.A. - ARRENDAMENTO MERCANTIL

General

BankBoston Leasing S.A. - Arrendamento Mercantil ("BBL") was established in 1972 as Leasing Bank of Boston S.A. - Arrendamento Mercantil. BBL is engaged primarily in the leasing of vehicles, machinery and equipment, data processing equipment and real estate in Brazil. BBL forms an integral part of the BankBoston Group’s operations in Brazil. BBL is located at Alameda Rio Negro, 1439, Q.12 – L. 11, Barueri, SP, Brazil.

Share Capital and Ownership

As of December 31, 2001, the Bank owned approximately 99.99% of the 3,604,285 ordinary shares with no par value that comprised all of the authorized and issued share capital of BBL. The remaining ordinary shares are held by members of the Bank’s (or BBL’s) Administrative Council or Board of Directors. See "BankBoston Banco Múltiplo S.A.—Share Capital and Ownership; Dividends."

Strategy

BBL’s strategy has been to provide quality service and innovative products, thus acting as a consultant to provide solutions meeting the needs of its customers. BBL is one of the few leasing companies in Brazil that provides products such as crossborder leases and domestic leases for imported products. Currently, BBL’s objective is to strengthen its presence in the middle market area by selectively expanding its middle market customer list.

The Leasing Industry in Brazil

Leasing companies in Brazil play an important role in Brazil’s capital formation process. In Brazil, leasing generally funds the acquisition of capital goods since leasing represents one of the few sources of long term funding available to growing companies. Given the volatility of the financial markets that can result from inflation, high interest rates or high tax rates, other sources of long term funding generally are not available. According to the Brazilian Leasing Companies Association, which we call “ABEL”, the aggregate discounted present value of the leasing portfolios of leasing companies in Brazil on December 31, 2001 was R$11.5 billion. Certain government subsidy programs for long term funding exist, but these are limited in scope.

Summary Financial Data

The financial information of BBL contained in the following tables and elsewhere in this Offering Circular at, and for the years ended, December 31, 2001, 2000 and 1999, has been derived from the audited financial statements of BBL maintained in Brazilian currency in accordance with Brazilian Corporate Law. See "Presentation of Financial Information." The financial information of BBL at and for the period ended March 31, 2002 is derived from the unaudited local currency financial statements prepared in accordance with Brazilian Corporate Law and have been subject to a limited review by PwC. BBL prepares unconsolidated financial statements on a semiannual basis only.

Basis of Translation

take into account that the real was significantly devalued against the U.S. Dollar from December 31, 1998 and the exchange rates used for purposes of the convenience translation did not reflect this devaluation. The exchange rate of reais at June 14, 2002 was R$2.7181; U.S.$1.00. Brazilian Corporate Law does not recommend any specific methodology to translate reais to U.S. Dollars. In addition, these financial statements have not been restated to reflect the effects of inflation. Accordingly, the translation of nominal reais amounts into U.S. Dollars utilizing the exchange rates at each period-end may result in distortions to the amounts presented, particularly in items of the income statement which represent flows of income and expenses over the period covered thereby. The translation of Brazilian currency amounts into U.S. Dollars is for indicative purposes only; it should not be construed as a representation that amounts of reais could be converted into or settled in U.S. Dollars at such rate or any other.

Summary Balance Sheet Data: March 31 December 31 March 31 December 31 2002 2001 2000 1999 2002 2001 2000 1999 (in millions of U.S. dollars) (i) (in millions of Reais) Assets Current assets: Cash and securities ...... 239.0 232.5 203.7 0.7 555.3 539.6 398.4 1.3 Interbank investments...... 24.8 170.6 265.1 549.9 57.7 395.9 518.3 983.8 Lease financing...... 9.0 31.5 5.3 0.5 20.9 73.2 10.4 0.9 Other credits and assets ...... 3.3 8.9 15.4 11.6 7.6 20.5 30.1 20.7 Total current assets...... 276.1 443.5 489.5 562.7 641.5 1,029.2 957.2 1,006.7

Non-current assets:......

Interbank investments...... 128.2 ------298.0 ------Lease financing...... 0.4 (3.9) (5.7) (20.1) 0.9 (9.1) (11.1) (35.9) Other ...... 17.6 17.1 20.1 20.9 40.7 39.8 39.4 37.4 Total non-current assets ...... 146.2 13.2 14.4 0.8 339.6 30.7 28.3 1.5 Permanent assets: Investments, fixed assets and deferred charges ...... 0.1 0.1 0.1 6.2 0.2 0.2 0.1 11.0 Leased assets...... 199.5 169.3 174.9 247.2 463.5 392.8 342.0 442.3 Total permanent assets 199.6 169.4 175.0 253.4 463.7 393.0 342.1 453.3 Total assets ...... 621.9 626.1 678.9 816.9 1,444.8 1,452.9 1,327.6 1,461.5 Liabilities and Stockholders' Equity Current Liabilities: Deposits ...... ------0.4 ------0.7

Borrowings and on-lendings...... 21.8 30.2 49.4 40.6 50.6 70.0 96.6 72.6 Other ...... 16.5 29.1 50.6 64.8 38.4 67.5 98.9 116.0 Total current liabilities ...... 38.3 59.3 100.0 105.8 89.0 137.5 195.5 189.3

Noncurrent liabilities:

Acceptance, issuance or endorsement of securities...... 225.0 217.8 225.3 301.5 522.8 505.4 440.5 539.4 Borrowings and on-lendings...... 225.0 220.8 222.3 255.2 522.8 512.4 434.6 456.6 Other ...... 52.5 50.0 61.4 94.2 121.9 116.0 120.2 168.6 Total non-current liabilities...... 502.5 488.6 509.0 650.9 1,167.5 1,133.8 995.3 1,164.6 Total liabilities ...... 540.8 547.9 609.0 756.7 1,256.5 1,271.3 1,190.8 1,353.9 Total shareholders' equity ...... 81.1 78.2 69.9 60.2 188.3 181.6 136.8 107.6 Total liabilities and shareholders' equity 621.9 626.1 678.9 816.9 1,444.8 1,452.9 1,327.6 1,461.5

Summary Statement of Income Data:

March 31 December 31 March 31 December 31 2002 2001 2000 1999 2002 2001 2000 1999 (in millions of U.S. dollars) (i) (in millions of Reais)

Income from financial intermediation...... 35.9 204.4 207.2 375.4 83.4 474.4 405.1 671.6

Expenses from financial intermediation.... (30.0) (168.2) (171.1) (328.4) (69.8) (390.4) (334.5) (587.5)

Gross profit from financial intermediation 5.9 36.2 36.1 47.0 13.6 84.0 70.6 84.1

Other operating income(expenses)...... (1.7) (7.0) (12.6) (21.4) (3.9) (16.2) (24.7) (38.3)

Operating income...... 4.2 29.2 23.5 25.6 9.7 67.8 45.9 45.8

Income before income taxes, social contribution and profit sharing...... 4.2 29.2 23.5 25.6 9.7 67.8 45.9 45.8 Income tax, social contribution and profit sharing...... (1.3) (9.8) (8.6) (8.6) (3.1) (22.9) (16.7) (15.4) Net income...... 2.9 19.4 14.9 17.0 6.6 44.9 29.2 30.4

Capitalization of BBL

The following table presents the capitalization of BBL as of March 31, 2002. Since March 31, 2002, there has been no material change in the capitalization of BBL.

March 31, 2002 (in millions (in millions of U.S.$)(i) of reais) Current liabilities Deposits:

On-lendings: Local onlendings – official institutions – Finame ..... 0.3 0.6 Local borrowings, other institutions...... -- -- Foreign borrowings ...... 21.5 50.0 Other liabilities: Tax and social security...... 1.4 3.2 Other...... 15.1 35.2 Total current liabilities ...... 38.3 89.0 Non-current liabilities Acceptance, issuance or endorsement of securities: Debentures...... 225.0 522.8 Borrowings and on-lendings: Local borrowings, other institutions...... 8.1 18.8 Foreign borrowings ...... 216.9 504.0 Other liabilities...... 52.5 121.9 Total non-current liabilities...... 502.5 1,167.5

Shareholder's equity Capital ...... 45.2 105.0 Capital reserve...... 0.1 0.2 Revenue reserve ...... 3.7 8.5 Retained earnings...... 32.1 74.6 Total shareholders' equity...... 81.1 188.3 Total liabilities andshareholders' equity ...... 621.9 1,444.8

(i) Amounts presented in U.S. dollars have been translated from Brazilian reais at an exchange rate ruling on the last working day of each period presented. For more information, see “Foreign Exchange Rates and Exchange Contrals”. Such translations should not be construed as representation that the Brazilian real amounts presented, have been or could be converted into U.S. dollars at that rate. The reader should take into account the significant devaluation of the Brazilian real in relation to foreign currencies since December 31, 1999. The exchange rate of Reais to U.S.$ at June 14, 2002 was R$ 2,7181 = U.S.$ 1,00.

Description of activities

BBL engages in the business of leasing vehicles (including cars, buses and trucks), machinery and equipment, data processing equipment and real estate. Pursuant to Brazilian regulations, the minimum term for financial leasing contracts is two years (three years for assets with a useful life of more than five years) and the minimum term for operating leases is 90 days. The majority of BBL's leases are extended for two to four years, with some extending to five years. In general, at the end of the lease term, the lessee pays the residual value of the leased assets and has the option of keeping the leased assets or allowing BBL to sell the leased assets on behalf of the lessee and remit the proceeds to the lessee. Notwithstanding the fact that the lessor has title to the leased assets, additional security may be required by BBL, generally through a mortgage or pledge of other assets or securities. See "—Customers and Credit Policy" for a description of BBL's rating system used to determine the amount of security it requires in various cases.

BBL utilizes the Bank's Brazilian branch network to originate leases and it has its own specialized sales force to assist the Bank's relationship managers with originating, negotiating and closing lease transactions. BBL's total leasing operations ( as measures by the present value of the leasing portfolio ) as of December 31, 2001 was approximately R$340.3 million as compared to R$250.0 million as of December 31, 2000. BBL’s total fixed assets related to leasing activity as of Deccember 31,2001 was R$309.5 million as compared to R$247.5 million as of December 2000. In accordance with BBL's policy of matching its funding base, leasing contracts are structured to match the currency of the funding portfolio. See"—Funding." BBL values leases according to the payments to be received from the lessee thereunder pursuant to the terms of the lease, including certain costs passed through to the lessee.

Portfolio of Fixed Assets Related to Leasing Activity

As of December 31, 2001, 2000 and 1999, BBL had an aggregate portfolio of fixed assets relating to leasing activity of R$309.5, R$247.5, and R$277.9 million, respectively. The composition of BBL's fixed assets relating to leasing activity as of December 31, 2001, 2000 and 1999 follows:

Year ended December 31, Year ended December 31, 2001 2000 1999 2001 2000 1999 (in millions of U.S. dollars) (i) (in millions of Reais)

Vehicles 35.6 55.1 93.5 82.6 107.8 167.3 Machinery and Equipment 48.8 40.3 40.8 113.1 78.7 73.1 Data Processing 47.8 27.7 12.8 111.0 54.1 22.8 Real Estate 1.0 2.7 6.6 2.3 5.3 11.8 Other 0.2 0.8 1.7 0.5 1.6 2.9 Total 133.4 126.6 155.4 309.5 247.5 277.9

Funding

Of total leases outstanding at December 31, 2001, 2000 and 1999, respectively, approximately 32%, 41%, and 59% had dollar-based funding and 68%, 59%, and 41% had reais-based funding. BBL obtains U.S. dollars from the issuance of debt obligations in the international capital markets, as well as through crossborder borrowings which have political risk insurance provided by the Overseas Private Investment Corporation (OPIC) and/or the Multilateral Investment Guarantee Agency (MIGA). BBL funds its reais needs by issuing debt obligations in local interbank and local and international capital markets.

Customers and Credit Policy

BBL has a wide diversity of customers and has not experienced any local credit losses during the past twelve years. BBL applies the credit policies developed by the Guarantor for itself and its direct and indirect subsidiaries. BBL additionally abides by standards established by the Guarantor with respect to the structure for credit approvals, treasury management, hedging, funding, personnel and management. These credit standards and policies aim to achieve a high level of credit quality in BBL's credit portfolio as well as a suitable level of risk diversification.

The Bank's Credit Department (the "Credit Department") assigns a credit rating to each customer on the basis of (i) its financial performance; (ii) its performance relative to the sector in which it operates; and (iii) an assessment of overall business risk (e.g., the size of the loan or the residual value of the equipment). Leases are priced according to the customer's assigned credit rating. If the rating is below a certain level, the Credit Department and BBL will require additional protection, including, for example, a guarantee or some other form of security or collateral.

The Credit Department and BBL review high credit risks quarterly, moderate credit risks semi-annually, and low credit risks annually. Under the terms of the leases, BBL cannot "call" the leases if the credit deteriorates absent an actionable default. However, BBL may, in certain cases, require additional security at any time pursuant to the terms of the leases.

Collection Procedures

BBL structures the terms of its leasing transactions to avoid, to the extent possible, the need to undertake significant collection activities. It seeks to do this through the imposition of financial penalties on those clients that fail to make payments on a timely basis.

If clients become delinquent in making payments, BBL follows certain standardized collection procedures. These procedures commence with the delivery of a written notice after a certain period of delinquency. Written notices are followed by efforts by BBL to personally contact the client through a relationship manager assigned by the Brazil Branch. If a client's payment delinquency continues, the relationship manager may visit the client, either to arrange for a negotiated solution or to request that the asset involved be returned to BBL. To date, BBL has undertaken legal proceedings in respect of collection activities on only an infrequent basis.

Client Concentration

As of December 31, 2001, BBL had a total lease portfolio of R$340.3 million, which was distributed among approximately 2,341 clients.

Subject to its profitability goals and its administrative capabilities, BBL maintains a policy of diversifying its client base. BBL's products, however, tend to generate different levels of client concentration. For example, the financing of the purchase of automobiles by individuals generates high administrative expenses and returns with very low client concentration. Certain other leasing transactions, on the other hand, generate higher client concentration with lower administrative expenses and returns.

As of December 31, 2001, the largest client of BBL represented 7.8% of BBL's portfolio.

Competition

BBL operates in a highly competitive environment. BBL was ranked eleventh in total domestic assets out of 58 leasing companies operating in Brazil in December 2001 based on information published by the Brazilian Association of Leasing Companies - ABEL in February 2002. The principal competitors of BBL are the leasing companies of the major Brazilian banks which direct the majority of their business to the retail market. Certain of the leasing operations of these banks are significantly larger than the corresponding operations of BBL.

Because BBL historically has operated in the context of its affiliation with the Bank and the Guarantor, BBL has been able to capitalize on such affiliation in the following ways:

(i) BBL utilizes the Guarantor's credit approval and administrative processes;

(ii) BBL utilizes the Bank's relationship managers to prospect and make initial contact with clients; and

(iii) BBL utilizes the Guarantor's structure to give support in the fiscal, legal and accounting areas.

Management

Management of BBL is vested in the Administrative Council (Conselho Administrativo) and the Board of Directors (Diretoria). Members of the Administrative Council are elected by BBL’s shareholders at general meetings and their terms are renewable for three years. The Administrative Council is comprised of a minimum of three and a maximum of nine members, who meet formally once a year or as often as required by the President.

The Board of Directors is elected by the Administrative Council and consists of a minimum of three and a maximum of nine members. Board members are elected for renewable terms of three years. The Board of Directors meets formally at least once each year and members of the Board meet informally whenever necessary.

The members of BBL’s Administrative Council and Board of Directors are listed below:

Administrative Council Geraldo José Carbone President Marcio Antonio Texeira Linares Council Member Marco Way Shuan Ho Council Member

Board of Directors Marcio Antonio Texeira Linares Director Natalísio de Almeida Junior Director Pedro Mader Meloni Director Alex Waldemar Zornig Director

Employees

At December 31, 2001, BBL had approximately 20 employees. In addition, the Bank makes available to BBL the services of some of its employees.

Brazilian Leasing Regulations

As a leasing company, BBL’s activities are regulated by certain laws and by the Central Bank. The basic legal framework governing leasing transactions is established by Law No. 6,099 dated September 12, 1974, as amended by Law No. 7,132 dated October 26, 1983 ("Law No. 6,099"), and the regulations published thereunder from time to time by the National Monetary Council ("CMN").

Law 6,099 establishes the general guidelines for the incorporation and activities of leasing companies. The CMN, in its capacity as regulator and supervisor of the Brazilian financial system, provides the details of the provisions set forth in Law No. 6,099, and supervises and controls the transactions carried out by leasing companies. Leasing companies are further regulated by CMN Resolutions No. 2,309 of August 28, 1996, No. 2,465 of February 19, 1998 and No. 2,595 of February 25, 1999, issued by the Brazilian Central Bank. Present regulations provide, among other things, that:

• the minimum term for financial leasing contracts must be at least two years for assets with useful life of 5 years or less, such as vehicles and data processing equipment, and at least three years for all other types of assets; and for operating leasing contracts must be at least 90 days for all types of assets;

• leasing contracts can be written as "financial leases" or "operating leases" in which the lessor retains legal title to the leased property, lease installments are recognized as income to the lessor and as an expense to the lessee, and, solely in the case of financial leases, the residual value of the leased assets is guaranteed by the lessee;

• leasing contracts must, at the end of the contract term, provide the lessee with the right to choose among several options, such as renewing the contract, returning the leased property or acquiring the leased property;

• subject to certain conditions established under rules enacted by the Brazilian Ministry of Finance (Portaria nr. 113 dated February 26, 1988, of the Brazilian Ministry of Finance and subsequent pronouncements) there may be a thirty percent reduction in the useful lives of leased assets for purposes of computing depreciation.

• leasing companies are required to maintain capital equal to at least 11.0% of total risk-weighted assets calculated in accordance with specific criteria set forth by the Central Bank. BBL may, however, choose to comply with this requirement on a consolidated basis with the other companies owned by the Bank; and

• leasing receivables from an individual customer (or from a group of affiliated customers) may not represent more than 25.0% of a leasing company’s net worth (the so-called "patrimônio de referência", calculated in accordance with specific criteria set forth by the Central Bank).

Leasing Operations

Under Brazilian Corporate Law, all leases are treated as operating leases and the expense is recognized at the time that each lease installment falls due. Under U.S. GAAP the treatment of leases is governed by SFAS No. 13, "Accounting for Leases," and subsequent pronouncements, and lease capitalization is required if certain conditions are met.

The Bank’s leasing operations are recorded on the basis of accounting principles prescribed by the Central Bank. These accounting principles differ significantly from Brazilian Corporate Law. Leased assets are recorded at cost and, through December 31, 1995, adjusted for inflation, less depreciation, calculated on the straightline method over 70 percent of the assets’ useful lives. Gains on sale of leased assets are recognized as income in the period in which the purchase, options relating to such assets are exercised. Losses on sales of leased assets are deferred and amortized over the remaining useful lives of the assets, at rates determined by applicable tax legislation. Central Bank regulations require that an adjustment be made to the book value of the leasing portfolio corresponding to present value, utilizing the internal rate of return of each contract. The amount of the adjustment is recorded as an excess/insufficiency of depreciation in the property for lease balance sheet account and credited/charged to other operating income/expenses. Lease financing receivables are recorded at initial contract amounts and adjusted for inflation in conformity with the criteria and indices established by each contract. Corresponding adjustments to unearned lease income are amortized to income over the life of respective contracts.

Capital leases are treated as the acquisition of assets and the incurrence of obligations by the lessee. Operating leases are treated as current operating expenses. For lessors, a financing transaction lease is classified as a sales-type, direct financing, or leveraged lease. To be a sales-type, direct financing, or leveraged lease, the leases must meet one of the same criteria used for lessees to classify a lease as a capital lease, in addition to two criteria dealing with future uncertainties. Leveraged leases also have to meet further criteria. These types of leases are recorded as investments under different specifications for each type of lease. Leases not meeting the criteria are considered operating leases and are accounted for like rental property.

THE GUARANTOR

General

The Guarantor is a national banking association and a wholly-owned subsidiary of the Corporation. The Guarantor and its subsidiaries are engaged in domestic retail banking, worldwide commercial banking and investment management and other financial services activities through offices located throughout New England and New York and Latin America. At March 31, 2002, the Guarantor had total assets of $178.2 billion, total deposits of $125.4 billion and total equity capital of $19.4 billion.

Management

The present members of the Guarantor’s Board of Directors are listed below.

Name Position Terrence Murray Chairman and Director Charles K. Gifford President and Chief Executive Officer and Director Joel B. Alvord Director William Barnet, III Director Daniel P. Burnham Director Paul J. Choquette, Jr. Director Kim B. Clark Director John T. Collins Director Gary L. Countryman Director T. J. Dermot Dunphy Director Marian L. Heard Director Robert M. Kavner Director Thomas J. May Director Donald F. McHenry Director Henrique de Campos Meirelles Director Michael B. Picotte Director Francene S. Rodgers Director Thomas M. Ryan Director T. Joseph Semrod Director Paul R. Tregurtha Director

CAPITALIZATION OF THE GUARANTOR

The following table sets forth the capitalization of the Guarantor and its subsidiaries at March 31, 2002, derived from unaudited financial statements prepared in accordance with regulatory instructions issued by the FFIEC. This table should be read in conjunction with the financial statements of the Guarantor as incorporated by reference herein. There have been no material changes between the date of this table and the date of this Offering Circular. All amounts are stated in millions of U.S. dollars.

March 31, 2002 (Unaudited

Deposits $125,361 Senior and subordinated debt (with remaining maturities over one year) 8,470 TOTAL DEPOSITS AND LONG-TERM DEBT $133,831 Total Stockholder’s equity

Common stock, $1 par value, 15,000,000 shares authorized, 1,209,438 million shares issued and outstanding $ 1 Capital surplus 10,662 Accumulated other comprehensive income 372 Retained earnings 8,354 TOTAL STOCKHOLDER’S EQUITY 19,389 TOTAL CAPITALIZATION $153,220

SELECTED CONSOLIDATED FINANCIAL INFORMATION OF THE GUARANTOR

The following summary sets forth selected unaudited consolidated financial information for the Guarantor and its subsidiaries for the three months ended March 31, 2002 and 2001 and the years ended December 31, 2001, 2000 and 1999. The financial information has been derived from unaudited financial statements prepared in accordance with regulatory instructions issued by the FFIEC, which include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to state the information fairly. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results expected for 2002 or any other interim period. The information supplements the financial statements and information in the Call Reports as described in "Incorporation by Reference."

Three Months Ended Years Ended March 31, December 31, 2002 2001 2001 2000 1999 (Dollars in millions) Balance Sheet Data (at period end) Securities...... $27,470 $22,872 $24,270 $22,274 $16,048 Loans...... 121,725 132,106 126,301 107,629 93,170 Total assets...... 178,224 200,887 187,949 166,281 142,348 Deposits...... 125,361 134,530 132,464 106,917 82,259 Long-term debt...... 8,470 13,508 9,258 13,706 13,493 Stockholder’s equity...... 19,389 19,183 19,012 15,553 13,281

Income Statement Data Interest income...... $2,619 $3,800 $13,411 $12,911 $10,455 Interest expense...... 836 1,838 5,802 6,277 5,373 Net interest income ...... 1,783 1,962 7,609 6,634 5,082 Provision for credit losses ...... 409 314 2,293 1,180 837 Net interest income after 1,374 1,648 5,316 5,454 4,245 provision for credit losses ...... Noninterest income ...... 1,194 1,113 4,415 5,621 4,563 Noninterest expense ...... 1,408 2,242 7,021 6,450 6,656 Income before income taxes...... 1,160 519 2,710 4,625 2,152 Applicable income taxes ...... 416 258 1,050 1,799 827 Net income ...... $744 $261 $1,660 $2,826 $1,325

Regulatory Capital Ratios Tier 1 risk-based capital ratio...... 8.18% 7.61% 7.56% 7.29% 7.30% Total risk-based capital ratio ...... 11.22 11.37 10.57 11.50 11.57 Leverage ratio ...... 8.31 7.50 7.62 7.61 7.92

Asset Quality Data Nonperforming loans (1)...... $2,154 $1,362 $1,944 $1,017 $857 Other real estate owned...... 28 44 32 42 44 Total nonperforming assets ...... $2,182 $1,406 $1,976 $1,059 $901 Reserve for credit losses...... $3,582 $2,728 $3,608 $2,353 $2,134 Net charge-offs...... 389 270 1,369 1,129 794 Reserve for credit losses to 166.30% 200.29% 185.60% 231.37% 249.01% nonperforming loans ...... Reserve for credit losses as a percentage of total loans...... 2.94 2.07 2.86 2.19 2.29 Net charge-offs as a percentage of average loans (2)...... 1.25 0.81 1.06 1.01 0.78 Nonperforming assets as a percentage of loans...... 1.79 1.06 1.56 0.98 0.97 ______(1) Amounts include $255 million, $177 million, $270 million, $138 million and $121 million of net carrying value of nonperforming loans held for sale by accelerated disposition for the three months ended March 31, 2002 and 2001 and the years ended December 31, 2001, 2000 and 1999, respectively. (2) Ratios for the three-month periods have been annualized.

TAXATION

The following summary is based upon the laws of Brazil and the United States as in effect on the date of this Offering Circular, as well as regulations, rulings and decisions of Brazil and the United States available on or before such date and now in effect. All of the foregoing are subject to change which change could apply retroactively and could affect the validity of this summary.

Prospective purchasers of the Notes should consult their own tax advisors as to the Brazilian, United States or other tax consequences of the purchase, ownership and disposition of the Notes, including, in particular, the application to their particular situation of the tax considerations discussed below, as well as the application of state, local, foreign or other tax laws.

Brazilian Taxation

General

Individuals and companies domiciled in Brazil are taxed on the basis of their worldwide income (which includes earnings of Brazilian companies’ foreign subsidiaries, branches and affiliates). The earnings of Brazilian branches of foreign companies and of other non-residents are taxed in Brazil only when derived from Brazilian sources.

Interest, fees, commissions, payments for services rendered and any other income (including original issue discount) payable by a Brazilian obligor out of earnings derived from Brazilian sources to an individual, company, entity, trust or organization domiciled outside Brazil is subject to income tax withheld at source. Generally, the applicable withholding tax rate in respect of debt instruments is 15%. However, pursuant to Law No. 9,779 of January 19, 1999, interest, fees, commissions, payments and any other income (including original issue discount) payable in respect of debt instruments (and other transactions in general) by a Brazilian obligor out of earnings derived from Brazilian sources to an individual, company, entity, trust or organization domiciled outside Brazil is subject to income tax withheld at source of 25% in two instances: (i) where such individual, company, entity, trust or organization is domiciled in a "tax haven" country (IN/64 from December 1999 lists the countries considered "tax havens"), or (ii) where the amounts payable are payments for services rendered. Additionally, the applicable withholding tax rate is zero percent with respect to certain exempted transactions. Law No. 9,481 of August 13, 1997, which reduced to zero percent the applicable withholding tax rate for twelve different types of transactions, has since been modified by Law No. 9,779 (described above) and Law No. 9,959 of January 28, 2000, which revoked the exemptions with respect to certain of the transactions. Lower tax rates than those described herein may be applied to residents of countries that have tax treaties with Brazil. Brazilian tax laws expressly authorize the paying source to pay the income or earnings net of taxes and, therefore, to assume the cost of the applicable tax. Payments of interest and original discount of any Investments will currently be subject to withholding of Brazilian income tax at a rate of 15%.

Pursuant to Decree No. 2,219 of May 2, 1997, foreign exchange transactions are subject to the tax on financial transactions ("IOF"). Foreign exchange transactions subject to the IOF include, among other things, the conversion of foreign currency into Brazilian currency ("currency inflows") such as the conversion of dollars received by a Brazilian borrower from a foreign currency loan into reais (including those in connection with the issue of bonds or notes) and/or the conversion of Brazilian currency into foreign currency ("currency outflows") for the purposes of making payments on foreign currency loans (such as those in connection with the payment of the Investments). Under Single Paragraph of Article 14 of Decree No. 2,219, the Minister of Finance is empowered to establish the applicable tax rate, which may be set to be up to 25% of the proceeds received or paid. From time to time, the Ministry of Finance may issue a Portaria establishing the types of foreign exchange transactions affected and the applicable

53 tax rates. For instance, pursuant to Portaria No. 157, dated June 24, 1999 issued by the Ministry of Finance, currency inflows were subject to a tax at the rate of (i) 0.5% in connection with investments in fixed income investments and (ii) 0.5% in connection with interbanking transactions in the floating rate exchange market and inflows of short-term funds from non-residents of Brazil; and currency outflows were subject to a tax at the rate of 2.5% on remittances associated with payments on credit cards. Subsequent to that date, the Ministry of Finance issued Portaria No. 306 dated August 18, 1999 pursuant to which (i) the IOF rate applied to all of the currency inflows described above was reduced to zero and (ii) the IOF tax rate applied to currency outflows on remittances associated with payments on credit cards was maintained at 2.5%. This tax rate on currency outflows associated with credit card payments was later reduced to 2% by Portaria No. 458/99 starting from February 2000. Finally, pursuant to Portaria No. 492/99, dated December 30, 1999 currency inflows in connection with short-term foreign loans having maturities of up to 90 days are subject to 5% IOF tax rate. Except with respect to the foreign exchange transactions specifically referred to in the immediately preceding sentence, no other foreign exchange transactions are currently subject to IOF charges.

There is no stamp, transfer or other similar tax in Brazil with respect to the transfer, assignment or sale of any debt instrument inside or outside Brazil.

United States Taxation

THE SUMMARY OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES.

The following is a summary of the principal United States federal income tax consequences resulting from the beneficial ownership of Notes by certain persons. This summary is based upon the United States federal tax laws and regulations as now in effect and as currently interpreted and does not take into account possible changes in the tax laws or the interpretations thereof, any of which may be applied retroactively. It does not discuss the tax laws of any state, local or foreign governments.

This summary does not purport to consider all the possible United States federal tax consequences of the purchase, ownership or disposition of the Notes and is not intended to reflect the individual tax position of any beneficial owner. It deals only with Notes held as capital assets. Moreover, it only addresses the tax consequences to initial purchasers of a Note who purchase such Note at its "issue price" (as defined below), and does not address beneficial owners that may be subject to special tax rules, such as banks, insurance companies, dealers in securities or currencies, purchasers that hold Notes (or foreign currency) as a hedge against currency risks or as part of a straddle with other investments or as part of a "synthetic security" or other integrated investment (including a "conversion transaction") comprised of a Note and one or more other investments, or purchasers that have a "functional currency" other than the U.S. dollar. Except to the extent discussed below under "Non-U.S. Holders", this summary is not applicable to non- United States persons not subject to United States federal income tax on their worldwide income. In addition, this summary relates only to Notes issued by the Bank or BBL. If another Issuer issues Notes, the United States federal income tax consequences arising therefrom may be different from those described herein and, if so, will be fully described in the applicable Pricing Supplement. Any special United States federal income tax considerations relevant to a particular issue of Notes, including any Indexed Notes, Dual Currency Notes, Notes denominated in a Specified Currency other than the U.S. dollar and Notes subject to the rules applicable to contingent debt instruments, will be provided in the applicable Pricing Supplement. Persons considering the purchase of Notes should consult their own tax advisors concerning the United States federal income tax consequences to them in light of their particular situations as well as any consequences to them under the laws of any other taxing jurisdiction.

For purposes of this summary, the term "U.S. Person" means a citizen or resident of the United States, a corporation or (except as may be provided in Treasury Regulations) partnership organized in or under the laws of the United States or any political subdivision thereof, an estate the income of which is includable in gross income for United States tax purposes regardless of its source or a trust if a United States court is able to exercise primary supervision over administration of the trust and one or more U.S. Persons have authority to control all substantial decisions of the trust. The term "U.S. Holder" means a U.S. Person that is a beneficial owner of an interest in a Note. The term "Non-U.S. Holder" means the beneficial owner of an interest in a Note that is not, for United States federal income tax purposes, a U.S. Holder.

Brazilian Sovereign Risk Event

As described in detail under "Terms and Conditions of the Notes–Brazilian Sovereign Risk Event" the Notes are subject to certain limitations on and changes in the timing of repayment in the event of a Brazilian Sovereign Risk Event.

As a result, Notes issued under this Program (other than Short-Term Notes, as defined below) may be subject to Treasury Regulations applicable to contingent payment debt instruments (the "Contingent Payment Debt Regulations") while the depending upon the facts and circumstances on the date such Notes are issued and regardless of whether or not a Brazilian Sovereign Risk Event actually occurs Notes are outstanding.

At the time Notes are issued under this Program, the likelihood may be remote that a Brazilian Sovereign Risk Event will occur or exist. If the likelihood of such event is remote, the Contingent Payment Debt Regulations will not apply to such Notes and the U.S. federal income tax consequences described under “Notes Denominated and on which Interest is Payable in U.S. Dollars” or “Notes Denominated and on which Interest is Payable in a Foreign Currency” will apply. If the likelihood of a Brazilian Sovereign Risk Event is not remote, then the U.S. federal income tax consequences described in the next paragraph relating to contingent payment debt instruments will apply to the Notes (other than Short-Term Notes). The determination of whether a Brazilian Sovereign Risk Event is remote is made as of the date such Notes are actually issued. Consequently, if the Issuer believes that the Contingent Payment Debt Regulations are applicable to Notes issued under this Program, the relevant Pricing Supplement will address the material U.S. federal income tax consequences resulting therefrom. If the Contingent Payment Debt Regulations do not apply to the Notes and then, contrary to expectations, a Brazilian Sovereign Risk Event occurs or exists, the Notes will be treated (at such time) as being “retired” and then “reissued” at their adjusted issue price (for OID purposes), with the result that the “reissued” Notes may have OID consequences that are dissimilar to those of the “retired” Notes.

Although the applicable Pricing Supplement will fully discuss the U.S. federal income tax consequences to U.S. Holders resulting from the ownership of Notes that the Issuer believes are subject to the Contingent Payment Debt Regulations, the following discussion briefly summarizes those consequences (since the IRS might disagree with the Issuer’s conclusion as to whether or not it is remote that a Brazilian Sovereign Risk Event will occur or exist). The Contingent Payment Debt Regulations generally require the income o a contingent debt the instrument (which is classified as original issue discount ("OID")) to be accrued every year at a "comparable yield" for the issuer of the instrument, determined at the time of issuance of the instrument. Accruals are based on a projected payment schedule, which results in such a "comparable yield". Adjustments to income accruals are then made to account for differences between actual payments and projected amounts. Any difference between the projected payments and the actual payments in a taxable year results in a positive or negative adjustment of the U.S. Holder’s income from the Note. If the Issuer believes the Notes are subject to the Contingent Payment Debt Regulations, the Issuer will make available to investors a projected payment schedule and its determination of a comparable yield. Each U.S. Holder will be required to report its income consistently with such comparable yield and projected payment schedule unless it determines that the Issuer’s determination is unreasonable, in which case such U.S. Holder will be required to disclose its inconsistent reporting on its U.S. Federal income tax return. The projected payment schedule would be determined solely for U.S.

Federal income tax purposes; it does not constitute a representation by the Issuer as to the timing and amount of any actual payments. Under the Contingent Payment Debt Regulations, a U.S. Holder’s basis in a Note would generally be increased by accruals of OID and decreased by the amount of any payments received on the Note. Furthermore, unless there are no remaining contingent payments due on the Notes under the projected payment schedule, any gain realized on the sale, exchange, retirement or other taxable disposition of the Notes would be treated as ordinary income (and not capital gain) and any loss realized on such sale, exchange, retirement or other taxable disposition would be treated as ordinary loss to the extent of interest or OID income previously taken into account. Any loss realized in excess of such amount generally will be treated as capital loss. Notwithstanding the general summary above, it is particularly important that each U.S. Holder consult with its own tax advisor regarding the potential application of the Contingent Payment Debt Regulations to Notes issued under this Program.

Notes Denominated and on which Interest is Payable in U.S. Dollars

U.S. Holders

Payments of Stated Interest

Each payment of stated interest on a Note (other than on a Discount Note, as defined below under "Original Issue Discount") will generally be includible in the gross income of a U.S. Holder as ordinary interest income at the time such interest is treated as received or accrued, in accordance with the U.S. Holder’s regular method of accounting for U.S. federal income tax purposes.

Original Issue Discount

The following is a general summary of the principal United States federal income tax consequences to U.S. Holders arising from the acquisition, ownership and disposition of Notes issued with original issue discount ("OID"). A U.S. Holder of a Note issued with OID (for purposes of this subsection a "Discount Note") generally will be subject to special tax accounting rules that are set forth in Sections 1271 through 1275 of the Internal Revenue Code of 1986, as amended (the "Code"), and in the Treasury regulations thereunder (the "OID Regulations").

A Note, other than a Note with a fixed maturity date that is not more than one year from the date of its issue (see discussion below under "Short-Term Notes"), will be treated as issued with OID if the excess of the Note’s "stated redemption price at maturity" over its "issue price" is more that a de minimis amount (generally, 0.25% of the Note’s stated redemption price at maturity multiplied by the number of complete years from its issue date to its maturity date or, in the case of a Note providing for the payment of any amount other than "qualified stated interest" (as defined below) prior to maturity, multiplied by the weighted average maturity of such Note).

The "stated redemption price at maturity" of a Note is the sum of all payments provided by the Note, other than payments of "qualified stated interest." "Qualified stated interest" generally means stated interest that is unconditionally payable at least annually at a single fixed rate (with certain exceptions for lower rates during certain periods) or, as described more fullybelow under "Variable Interest Rate Notes," at a qualified floating or objective rate. To the extent that any stated interest payable under a Note does not constitute qualified stated interest, that amount is included in the Note’s stated redemption price at maturity. Generally, the "issue price" of a Note will equal the first price at which a substantial amount of Notes included in the issue of which the Note is a part is sold for money (ignoring sales to bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents, or wholesalers).

Payments of qualified stated interest on a Discount Note will generally be includible in the gross income of a U.S. Holder as ordinary interest income at the time such payments are treated as accrued or received, in accordance with the U.S. Holder’s regular method of tax accounting for United States federal income

56 tax purposes. A U.S. Holder of a Discount Note must also include OID in income (as ordinary interest income for U.S. federal income tax purposes) as it accrues under a constant-yield method, even if this is in advance of receipt of the cash payments representing such income, regardless of such U.S. Holder’s regular method of tax accounting. In general, the amount of OID includible in income by a U.S. Holder of a Discount Note for any taxable year is the sum of the daily portions of OID with respect to the Discount Note for each day on which the U.S. Holder holds such Discount Note during the taxable year.

The daily portion of OID is determined by allocating to each day in any "accrual period" a pro rata portion of the OID allocable to that accrual period. Accrual periods may be of any length and may vary in length over the term of a Discount Note, provided that each accrual period is no longer than one year and each scheduled payment of interest or principal on the Discount Note occurs either on the final or first day of an accrual period. The amount of OID allocable to an accrual period equals the excess of (a) the product of the Discount Note’s "adjusted issue price" at the beginning of the accrual period and such Discount Note’s yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over (b) the amount of any qualified stated interest on the Discount Note allocable to the accrual period.

The "adjusted issue price" of a Discount Note at the beginning of the first accrual period is the Discount Note’s issue price. The "adjusted issue price" of a Discount Note at the beginning of any subsequent accrual period is equal to the issue price of the Discount Note (1) increased by the amount of the accrued OID includible in the U.S. Holder’s income for each prior accrual period and (2) decreased by the amount of any payments previously made on the Discount Note that were not qualified stated interest payments.

The payment of any Additional Amounts paid as a result of the imposition of withholding taxes (see "Terms and Conditions of the Notes—Taxation") should be accorded tax treatment similar to that applicable to stated interest and the existence of a provision requiring the payment of Additional Amounts should not cause the Notes to be subject the Contingent Payment Debt Regulations. It is possible, however, that the Internal Revenue Service (the "IRS") might disagree with the foregoing and take the position that, since Additional Amounts may be paid on the Notes, the Notes are subject to the Contingent Payment Debt Regulations, regardless of whether a withholding tax is actually imposed or any Additional Amounts are actually paid. If the IRS were to successfully assert this position, (i) U.S. Holders might be required to include in income an amount of interest that is more or less than the amount such U.S. Holders would include in income under the rules discussed above, even if no such Additional Amounts are actually paid, (ii) gain realized by U.S. Holders upon disposition of the Notes would be characterized as ordinary income, rather than capital gain, and therefore, at present U.S. federal income tax rates, would be subject to higher tax rates for U.S. Holders who are individuals, and (iii) while U.S. Holders would be required to include amounts in income in advance of receipt, such U.S. Holders might not be entitled to deduct or credit the related foreign taxes until such taxes are actually paid.

Variable Interest Rate Notes

Notes that provide for interest at variable rates ("Variable Interest Rate Notes") generally will bear interest at a "qualified floating rate" and thus will be treated as "variable rate debt instruments" under the OID Regulations. A Variable Interest Rate Note will qualify as a "variable rate debt instrument" under the OID Regulations if (a) its issue price does not exceed the total noncontingent principal payments due under the Variable Interest Rate Note by more than a de minimis amount (as specified in the OID Regulations) and (b) it provides for stated interest, paid or compounded at least annually, at (i) one or more qualified floating rates, (ii) a single fixed rate and one or more qualified floating rates, (iii) a single objective rate, or (iv) a single fixed rate and a single objective rate that is a qualified inverse floating rate.

If interest on a Variable Interest Rate Note is stated at a fixed rate for an initial period of one year or less followed by a variable rate that is either a qualified floating rate or an objective rate for a subsequent period, and the value of the variable rate on the issue date is intended to approximate the fixed rate (e.g., the value of the variable rate on the issue date does not differ from the value of the fixed rate by more

57 than 25 basis points), then the fixed rate and the variable rate together will constitute a single qualified floating rate or objective rate.

A qualified floating rate or objective rate in effect at any time during the term of the Variable Interest Rate Note must be set at a "current value" of that rate. The "current value" of a rate is the value of the rate on any day that is no earlier than 3 months prior to the first day on which that value is in effect and no later than one year following that first day.

In general, a variable rate is a "qualified floating rate" if variations in the value of such rate can reasonably be expected to measure contemporaneous variations in the cost of newly borrowed funds in the currency in which the Variable Interest Rate Note is denominated. Although a multiple of a qualified floating rate will generally not itself constitute a qualified floating rate, a variable rate will constitute a qualified floating rate if it is equal to either (i) the product of a qualified floating rate and a fixed multiple that is greater than .65 but not more than 1.35, or (ii) the product of a qualified floating rate and a fixed multiple that is greater than .65 but not more than 1.35, increased or decreased by a fixed rate. In addition, two or more qualified floating rates that can reasonably be expected to have approximately the same values throughout the term of the Variable Interest Rate Note will be treated as a single qualified floating rate. Two or more qualified floating rates will be conclusively presumed to meet the requirements of the preceding sentence if the values of all of such rates on the issue date are within 25 basis points of each other. Notwithstanding the foregoing, under certain circumstances, a variable interest rate is not a qualified floating rate if it is subject to one or more restrictions on the maximum stated interest rate, on the minimum stated interest rate, or on the amount of increase or decrease in the stated interest rate, or if it contains other similar restrictions.

In general, an "objective rate" is a rate (other than a qualified floating rate) that is determined using a single fixed formula and which is based on objective financial or economic information. Other variable interest rates may be treated as objective rates if so designated by the IRS in the future. Despite the foregoing, a variable rate of interest on a Variable Interest Rate Note will not constitute an objective rate if it is reasonably expected that the average value of such rate during the first half of the Variable Interest Rate Note’s term will be either significantly less than or significantly greater than the average value of the rate during the final half of the Variable Interest Rate Note’s term.

In general, an objective rate is a "qualified inverse floating rate" if the rate is equal to a fixed rate minus a qualified floating rate and the variations in the rate can reasonably be expected to inversely reflect contemporaneous variations in the qualified floating rate.

The OID Regulations generally convert a variable rate debt instrument into a fixed rate instrument and then apply the general OID rules to such deemed fixed rate instrument. Thus, if a Variable Interest Rate Note provides for stated interest at a single qualified floating rate or objective rate that is unconditionally payable in cash or in property (other than certain debt instruments), or that will be constructively received, at least annually, then (i) all stated interest on such Variable Interest Rate Note will constitute qualified stated interest, (ii) the amount of qualified stated interest and the amount of OID, if any, that accrues during an accrual period is determined under the general OID rules applicable to fixed rate debt instruments (described above under "Original Issue Discount") by assuming that the variable rate is a fixed rate equal to (A) in the case of a qualified floating rate or qualified inverse floating rate, the value, as of the issue date, of the qualified floating rate or qualified inverse floating rate (as the case may be), or (B) in the case of an objective rate (other than a qualified inverse floating rate), a fixed rate that reflects the yield that is reasonably expected for the Variable Interest Rate Note, and (iii) the qualified stated interest allocable to an accrual period is increased (or decreased) if the interest actually paid during an accrual period exceeds (or is less than) the interest assumed to be paid.

If a Variable Interest Rate Note is not described in the previous paragraph and does not provide for interest payable at a fixed rate (other than a fixed rate for an initial period of less than one year), the OID Regulations will convert such a Note into an "equivalent" fixed rate debt instrument for purposes of

58 determining the amount and accrual of OID and qualified stated interest. The application of the OID Regulations to such a Variable Interest Rate Note is not described herein. In the event a Variable Interest Rate Note subject to these special rules is issued, the applicable Pricing Supplement will describe the material federal income tax consequences thereof.

If a Variable Interest Rate Note does not qualify as a "variable rate debt instrument" under the OID Regulations, then the Variable Interest Rate Note would be treated as a contingent payment debt obligation. If a Variable Interest Rate Note would be treated as a contingent payment debt obligation, the U.S. federal income tax consequences of such Note will be fully described in the applicable Pricing Supplement.

Applicable High Yield Discount Obligations

If (1) the yield to maturity on the Notes equals or exceeds the sum of (x) the "applicable federal rate" (as determined under Section 1274(d) of the Code) in effect for the month in which the Notes are issued (the "AFR") and (y) five percentage points, (2) the maturity date of the Note is more than five years from its date of issue, and (3) the OID on such Notes is "significant," the Notes will be considered "applicable high yield discount obligations" ("AHYDOs"). If the Notes are characterized as AHYDOs and if the yield to maturity exceeds the sum of (x) the AFR and (y) six percentage points, then a corporate U.S. Holder generally would be required to treat a portion of the interest payments as a dividend which would not qualify for the dividends received deduction provided for by the Code. Corporate U.S. Holders should consult their own tax advisors regarding the application of the United States federal income tax rules applicable to AHYDOs under their particular circumstances.

Election to Treat All Interest as Original Issue Discount

A U.S. Holder may elect to include in gross income all interest that accrues on a Note by using the constant-yield method described above under the heading "Original Issue Discount," with certain modifications. For purposes of this election, interest generally includes stated interest, OID, and market discount (described below under "Market Discount"), as adjusted by acquisition premium (described below under "Acquisition Premium") and amortizable bond premium (described below under "Amortizable Bond Premium"). This election will generally apply only to the Note with respect to which it is made and may not be revoked without the consent of the IRS. If the election to apply the constant- yield method to all interest on a Note is made with respect to a Note with amortizable bond premium, the electing U.S. Holder will be deemed to have made the election described below under "Amortizable Bond Premium" to amortize bond premium on all bonds held or acquired by the U.S. Holder on or after the first day of the first taxable year to which the election applies (which election is irrevocable absent the consent of the IRS). If the election to apply the constant-yield method to all interest on a Note is made with respect to a Note with market discount, the electing U.S. Holder will be treated as having made the election described below under "Market Discount" to include market discount in income currently over the life of all market discount bonds acquired by such U.S. Holder on or after the first day of the first taxable year to which the election applies (which election is irrevocable absent the consent of the IRS). U.S. Holders should consult their own tax advisors concerning the advisability and consequences of these elections.

Market Discount

A U.S. Holder that purchases a Note, other than a Short-Term Note (as defined below), at a market discount (as described below) generally will be required to treat any principal payments on, or any gain on the disposition or maturity of, such Note as ordinary income to the extent of the accrued market discount (not previously included in income) at the time of such payment or disposition. In general, subject to a de minimis exception, market discount is the amount by which the Note’s stated redemption price at maturity (or revised issue price in the case of a Discount Note) exceeds the U.S. Holder’s basis in the Note immediately after the Note is acquired. A Note is not treated as purchased at a market discount,

59 however, if the market discount is less than .25 percent of the stated redemption price at maturity of the Note multiplied by the number of complete years to maturity from the date when the U.S. Holder acquired the Note. Market discount on a Note will accrue on a straight-line basis, unless the U.S. Holder elects to accrue such discount on a constant yield to maturity basis. This election is irrevocable and applies only to the Note for which it is made. The U.S. Holder may also elect to include market discount in income currently as it accrues. This election, once made, applies to all market discount obligations acquired on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. Generally, if such a Note is disposed of in a non-taxable transaction, accrued market discount will nevertheless be includible as ordinary income by a U.S. Holder. In addition, a U.S. Holder may be required to defer until the maturity of the Note or, in certain circumstances, its earlier disposition the deduction for all or a portion of the interest expense attributable to any debt incurred or continued to purchase or carry a Note with market discount, unless an election is made by the U.S. Holder to include market discount in income on a current basis.

Acquisition Premium

A U.S. Holder that purchases a Discount Note for an amount that is greater than the adjusted issue price of such Note at the purchase date, but that is less than or equal to the sum of all amounts payable on the Note after the purchase date (other than payments of qualified stated interest), will be considered to have purchased such Note at an "acquisition premium." The amount of OID which such U.S. Holder must include in its gross income with respect to such Note will be reduced for each accrual period by an amount determined by a fraction (1) the numerator of which is the excess of the adjusted basis of the Note immediately after its acquisition by such U.S. Holder over the adjusted issue price of the Note, and (2) the denominator of which is the excess of the sum of all amounts payable on the Note after the purchase date (other than payments of qualified stated interest) over such Note’s adjusted issue price immediately after its acquisition by such U.S. Holder. Rather than applying the acquisition premium fraction described in the preceding sentence, a U.S. Holder of a Discount Note purchased at an acquisition premium may elect to compute OID accruals by treating the purchase of such Note as a purchase at original issuance and by applying the mechanics of a constant yield to maturity method.

Amortizable Bond Premium

A U.S. Holder that purchases a Note for an amount in excess of the sum of all amounts payable on the Note after the purchase date (other than payments of qualified stated interest) will generally be considered to have purchased the Note with "amortizable bond premium." A U.S. Holder generally may elect to amortize such premium using the constant yield to maturity method. The amount amortized in any year will generally be treated as a reduction of the U.S. Holder’s interest income on the Note. If the amortizable bond premium allocable to a year exceeds the amount of interest allocable to that year, the excess would be allowed as a deduction for that year but only to the extent of the U.S. Holder’s prior interest inclusions on the Note. The premium on a Note held by a U.S. Holder that does not make such an election will decrease the gain or increase the loss otherwise recognized on the sale, redemption, retirement or other disposition of the Note. The election to amortize the premium on a constant yield to maturity method, once made, generally applies to all bonds held or subsequently acquired by the electing U.S. Holder on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS.

Short-Term Notes

If a Note has a fixed maturity date that is not more than one year from the date of issue (a “Short-Term Note”), the Note will be subject to special rules, summarized below. Thus accrual basis U.S. Holders and certain other U.S. Holders who purchase a Short-Term Note (including banks, regulated investment companies, dealers in securities, common trust funds, U.S. Holders who hold the Notes as part of certain identified hedging transactions, certain pass-thru entities and cash basis U.S. Holders who so elect) will be required to include the OID on the Short-Term Notes in income on an accrual basis for U.S. federal

60 income tax purposes, computed on a straight-line basis or, if the U.S. Holder so elects, on a constant yield basis (based on daily compounding). Such a U.S. Holder may additionally elect (which election is only revocable with the consent of the IRS and applies to all obligations acquired by the electing U.S. Holder on or after the first day of the first taxable year to which the election applies) to apply the foregoing rules by reference to the amount by which the face amount of the Short-Term Notes exceeds the U.S. Holder’s tax basis in the Short-Term Notes (“acquisition discount”) rather than by reference to the amount of the Short-Term Notes’ OID.

The OID on the Short-Term Notes will not be currently includible in income, on an accrual basis, by a cash basis U.S. Holder (absent an election to the contrary, and subject to the exceptions noted above). Instead, the income will be deferred, with any gain realized on the sale or retirement of the Short-Term Note being characterized as ordinary income to the extent of the OID that has accrued on the Note through the date of the sale or retirement by the cash basis U.S. Holder, computed on a straight-line basis (unless an election is made to accrue the OID on a constant yield basis). Additionally, such a U.S. Holder will be required to defer deductions for interest paid or accrued on indebtedness which is incurred or continued to purchase or carry the Short-Term Note in an amount not exceeding the deferred income (until the deferred income is realized).

U.S. Foreign Tax Credit

Stated interest received or accrued and OID accrued on the Notes (including any Additional Amounts (see "Terms and Conditions of the Notes—Taxation")) will constitute income from sources without the United States. If withholding taxes are imposed on OID or stated interest (or Additional Amounts) paid on the Notes, U.S. Holders will be treated as having actually received an amount equal to the amount of such taxes and as having paid such amount to the relevant taxing authority. As a result, the amount of interest income included in gross income by a U.S. Holder will be greater than the amount of cash actually received by the U.S. Holder. A U.S. Holder may be able, subject to applicable limitations, to claim a foreign tax credit or a deduction for withholding taxes imposed on payments of stated interest and accrued OID (including Additional Amounts). Stated interest and OID (including Additional Amounts) generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income" for United States foreign tax credit purposes; however, such income will constitute "high withholding tax interest" if the withholding tax is imposed at a rate of 5% or more. The calculation of United States foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of deductions, involves the application of complex rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders should, therefore, consult their own tax advisors regarding the application of the United States foreign tax credit rules to interest income (including Additional Amounts) on the Notes.

Purchase, Sale, Retirement and Other Disposition of the Notes

In general, a U.S. Holder’s adjusted tax basis in a Note will equal the cost of such Note to the U.S. Holder, increased by the amount of any (i) OID (reduced by any amortized acquisition premium with respect to such Note) or (ii) market discount or acquisition discount previously included in the U.S. Holder’s income with respect to the Note, and reduced by (x) the amount of any payments on the Note other than qualified stated interest and (y) the amount of any amortized bond premium on the Note.

A U.S. Holder will generally recognize gain or loss on the sale, retirement or other disposition of a Note in an amount equal to the difference between (i) the amount of cash and the fair market value of property received by such U.S. Holder on such sale, retirement or other disposition (less any amounts attributable to accrued but unpaid interest which will be taxable as such) and (ii) the U.S. Holder’s adjusted tax basis in the Note (as described above). Gain or loss upon the sale, retirement or other disposition of a Note will generally be capital gain or loss (subject to the market discount, Short-Term Note and Contingent Payment Debt Regulation rules discussed above) and, in the case of an individual U.S. Holder, any gain will be subject to United States federal income tax at a reduced rate if such Note were held by such U.S. Holder for more than one year. Gains on the sale of capital assets held for one year or less are subject to

United States federal income tax at ordinary income rates. Certain limitations exist on the deductibility of capital losses by both corporations and individual taxpayers.

Gain recognized by a U.S. Holder on the sale, retirement or other disposition of a Note will generally be U.S.-source income and loss so recognized will generally be allocated to reduce U.S.-source income. Prospective investors should consult their own tax advisors as to the foreign tax credit implications of such sale, retirement or other disposition of a Note.

Non-U.S. Holders

Except as otherwise described below (and subject to the backup withholding rules discussed below under “United States Information Reporting And Backup Withholding), a Non-U.S. Holder of a Note will generally not be subject to United States federal income tax (including the 30% branch profits tax) by withholding or otherwise on the payment of interest on a Note (including stated interest, Additional Amounts, OID and market discount, as adjusted by amortizable bond premium and acquisition premium) or gain realized in connection with the sale, retirement or other disposition of a Note.

A Non-U.S. Holder of a Note will generally be subject to regular U.S. income tax on interest on a Note (including stated interest, Additional Amounts, OID and market discount, as adjusted by amortizable bond premium and acquisition premium) and gain realized in connection with the sale, retirement or other disposition of a Note in the same manner as if it were a U.S. Holder if such Non-U.S. Holder is (a) engaged in a trade or business in the United States or, if an income tax treaty applies, has a United States permanent establishment, and the interest or gain on the Note, as the case may be, is effectively connected with the conduct of such trade or business or is attributable to such permanent establishment, respectively; (b) in the case of gain realized by a Non-U.S. Holder who is an individual, such Holder is present in the United States for 183 days or more in the taxable year of disposition and certain other conditions are satisfied; (c) the Non-U.S. Holder is subject to tax pursuant to the provisions of the Code applicable to United States expatriates; or (d) the Non-U.S. Holder is otherwise subject to United States federal income taxation on a net basis in respect of income attributable to the Note. In addition, if such Non-U.S. Holder is a foreign corporation, it may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments.

Notes Denominated and on which Interest is Payable in a Foreign Currency

In addition to the tax consequences described above, additional tax considerations will apply to Notes denominated and on which interest is payable in a Foreign Currency. As used herein, "Foreign Currency" means a single currency or currency unit other than the U.S. dollar.

U.S. Holders

Payments of Stated Interest

Other than in the case of a Discount Note, U.S. Holders will be required to include the U.S. dollar amount of stated interest on the Notes in gross income as such stated interest is received or accrued in accordance with their regular method of tax accounting. The U.S. dollar amount of stated interest on the Notes is determined by translating the Foreign Currency into U.S. dollars at (a) for cash method U.S. Holders, the spot rate of exchange for the Foreign Currency in effect on the date of receipt, regardless of whether the payment is converted into U.S. dollars at that time and (b) for accrual method U.S. Holders, at the average rate of exchange for the Foreign Currency during such accrual period (or with respect to an accrual period that spans two taxable years, at the average exchange rate for the partial period within the U.S. Holder’s relevant taxable year). The average exchange rate for an accrual period (or partial period) is generally a simple numerical average of the spot rates of exchange for the Foreign Currency for each business day during the accrual period or other average exchange rate for the period reasonably derived and

62 consistently applied by the U.S. Holder. For purposes of this summary, the "spot rate" of exchange generally means a rate that reflects a fair market rate of exchange available to the public for currency under a "spot contract" in a free market and involving representative amounts. A spot contract is a contract to buy or sell a currency on or before two business days following the date of execution of the contract.

An accrual basis U.S. Holder may elect, instead, to translate the stated interest amount on a Note from the Foreign Currency into U.S. Dollars at the spot rate in effect on the last day of the accrual period (or the last day of the taxable year, in the case of a partial accrual period), provided that such U.S. Holder makes the election by filing a statement with the first tax return in which the election is effective. In addition, if the last day of the accrual period is within five business days of the date of receipt of a payment of stated interest on a Note, a U.S. Holder making the election may translate such stated interest using the spot rate of exchange in effect on the date of receipt. This election is made by filing a statement with the U.S. Holder’s first United States federal income tax return in which the election is effective clearly indicating that the election has been made. This election must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.

The accrual basis U.S. Holder will recognize foreign currency exchange gain or loss in U.S. dollars with respect to accrued interest on a Note in an amount equal to the difference, if any, between the U.S. dollar value of the Foreign Currency payment received, translated at the spot rate of exchange in effect on the date of receipt (regardless of whether the payment is actually converted into U.S. dollars at that time) and the U.S. dollar value of the accrued interest to which such payment is allocable, with payments on the Note being treated as allocable, first, to accrued but unpaid interest and, thereafter, to principal.

The tax basis of the Foreign Currency received by a U.S. Holder generally will equal the U.S. dollar value of such Foreign Currency at the spot rate of exchange on the date the Foreign Currency is received, regardless of whether the payment is actually converted into U.S. dollars at that time. Thus, upon any subsequent exchange of such Foreign Currency for U.S. dollars, a U.S. Holder will generally recognize foreign currency exchange gain or loss equal to the difference, if any, between the U.S. dollars received on the subsequent exchange and the U.S. Holder’s tax basis in the Foreign Currency. Foreign currency gain or loss constitutes ordinary income or loss (but generally will not be treated as interest income or expense), and will generally be U.S.-source income if the residence of the U.S. Holder, as determined under Section 988 of the Code, is within the United States.

The foregoing rules also apply to any stated interest payable on a Discount Note that constitutes qualified stated interest (as defined above under “Notes Denominated and on which Interest is Payable in U.S. Dollars—Original Issue Discount”).

Original Issue Discount

A U.S. Holder of a Discount Note must include the U.S. dollar amount of OID in gross income on an annual basis as it accrues under a constant yield to maturity method (see discussion above under "Notes Denominated and on which Interest is Payable in U.S. Dollars—Original Issue Discount").

The U.S. dollar amount of OID on a Note that a U.S. Holder includes in income for any accrual period is generally determined by translating the Foreign Currency into U.S. dollars at the average rate of exchange for the Foreign Currency in effect during such accrual period (or, with respect to an accrual period that spans two taxable years, at the average exchange rate for the partial period within the U.S. Holder’s relevant taxable year). A U.S. Holder may elect instead to translate the Foreign Currency OID amount on a Note into U.S. dollars at the spot rate in effect on the last day of the accrual period (or the last day of the taxable year, in the case of a partial accrual period), provided that such U.S. Holder makes the election by filing a statement with the first tax return in which the election is effective. In addition, if the last day of the accrual period is within five business days of the date of receipt of a payment in respect of OID on a Note, a U.S. Holder making the election may translate such OID using the spot rate of exchange in effect

63 on the date of receipt. This election is made by filing a statement with the U.S. Holder’s first United States federal income tax return in which the election is effective clearly indicating that the election has been made. This election must be applied consistently to all debt instruments from year to year and cannot be changed without the consent of the IRS.

The U.S. Holder will recognize foreign currency exchange gain or loss in U.S. dollars with respect to accrued OID on a Note in an amount equal to the difference, if any, between the U.S. dollar value of the Foreign Currency payment received, translated at the spot rate of exchange in effect on the date of receipt (regardless of whether the payment is actually converted into U.S. dollars at that time) and the U.S. dollar value of the accrued OID to which such payment is allocable (with payments being allocated, first, to accrued qualified stated interest to the extent thereof, second, to accrued OID to the extent thereof, and thereafter, to principal).

The tax basis of the Foreign Currency received by a U.S. Holder generally will equal the U.S. dollar value of such Foreign Currency at the spot rate of exchange on the date such currency is received, regardless of whether the payment actually converted into U.S. dollars at that time. Thus, upon any subsequent exchange of such Foreign Currency for U.S. dollars, a U.S. Holder will generally recognize foreign currency exchange gain or loss equal to the difference, if any, between the amount of U.S. dollars received on the subsequent exchange and the U.S. Holder’s tax basis in the Foreign Currency. Foreign currency gain or loss constitutes ordinary income or loss (but generally will not be treated as interest income or expense), and will generally be U.S-source income if the residence of the U.S. Holder, as determined under Section 988 of the Code, is within the United States.

Market Discount

In the case of a Note that is denominated in, or payments on which are determined by reference to, a Foreign Currency, (i) market discount with respect to such Note will be determined in units of Foreign Currency and (ii) accrued market discount (other than accrued market discount required to be taken into account currently) will be translated into U.S. dollars at the spot rate of exchange on the date of the sale, retirement or other disposition of the Note. No part of such accrued market discount is treated as foreign currency gain or loss. The accrued market discount currently includible in income by a U.S. Holder for any accrual period is translated into U.S. dollars on the basis of the average exchange rate in effect during such accrual period, and the foreign currency gain or loss with respect to accrued market discount currently includible in income is determined in the manner described in "Payments of Stated Interest in a Foreign Currency–Accrual Method" above.

Amortizable Bond Premium

With respect to a Note that is denominated in, or payments on which are determined by reference to, a Foreign Currency, amortizable bond premium with respect to such Note will be determined in units of Foreign Currency and will reduce the interest income on the Note in units of such Foreign Currency. Although not entirely clear, a U.S. Holder should recognize foreign currency gain or loss equal to the difference between the U.S. dollar value of the bond premium amortized with respect to a period, determined on the date the interest attributable to such period is received, and the U.S. dollar value of the corresponding portion of the total bond premium, determined on the date of the acquisition of the Note.

U.S. Foreign Tax Credit

64 actually received by the U.S. Holder. A U.S. Holder may be able, subject to applicable limitations, to claim a foreign tax credit or a deduction for withholding taxes imposed on payments of stated interest and accrued OID (including Additional Amounts). Stated interest and OID (including Additional Amounts) generally will constitute "passive income" or, in the case of certain U.S. Holders, "financial services income" for United States foreign tax credit purposes; however, such income will constitute "high withholding tax interest" if the withholding tax is imposed at a rate of 5% or more. The calculation of United States foreign tax credits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability of deductions involves the application of complex rules that depend on a U.S. Holder’s particular circumstances. U.S. Holders should, therefore, consult their own tax advisors regarding the application of the United States foreign tax credit rules to interest income (including Additional Amounts) on the Notes.

Purchase, Sale, Retirement or Other Disposition of Foreign Currency Notes

A U.S. Holder’s adjusted tax basis in a Note will generally equal the cost of such Note to the U.S. Holder, increased by the U.S. dollar amount of any OID or market discount previously included in the U.S. Holder’s income with respect to such Note, and reduced by the U.S. dollar amount of any payments previously received on the Note, other than payments of qualified stated interest, and the amount of any amortized bond premium on the Note. A U.S. Holder that purchases a Note with Foreign Currency will generally recognize ordinary income or loss in an amount equal to the difference, if any, between such U.S. Holder’s tax basis in the Foreign Currency used to purchase the Note and the U.S. dollar fair market value of such Foreign Currency determined at the spot rate of exchange in effect on the date of purchase.

Upon the sale, retirement or other taxable disposition of a Note, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized (other than any amount attributable to accrued but unpaid stated interest, which will be taxable as such) and such U.S. Holder’s adjusted tax basis in the Note. If a U.S. Holder receives Foreign Currency on the sale, retirement or other disposition of a Note, the amount realized generally will be based on the spot rate of the Foreign Currency on the date of the sale, retirement or other disposition. However, if the Notes are traded on an established securities market, a cash basis U.S. Holder (or, upon election, an accrual basis U.S. Holder) will determine the U.S. dollar value of the amount realized by translating the Foreign Currency received at the spot rate of exchange on the settlement date of the sale or other disposition.

Gain or loss recognized on the sale or other disposition of a Note generally will be capital gain or loss (subject to the market discount, Short-Term Note and Contingent Payment Debt Regulation rules discussed above under “Notes Denominated and on which Interest is Payable in U.S. Dollars,” and subject to foreign currency exchange gain or loss rules discussed in the following paragraph). Net capital gains derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation in the case of individual U.S. Holders. Certain limitations exist on the deductibility of capital losses by both corporations and individual taxpayers. Gain recognized by a U.S. Holder on the sale or other disposition of a Note generally will be U.S. - source income and loss so recognized generally will be allocated to reduce U.S. - source income. U.S. Holders should consult their own tax advisors regarding the foreign tax credit implications of the sale or other disposition of a Note.

A U.S. Holder’s foreign currency exchange gain or loss on the sale or other disposition of a Note will be ordinary income or loss (but generally will not be treated as interest income or expense) and will generally be U.S.-source income if the residence of the U.S. Holder, as determined under Section 988 of the Code, is within the United States. Foreign currency exchange gain or loss will generally equal the difference in U.S. dollars between the remaining unpaid principal amount of the Note translated at (a) the spot rate of exchange on the date the Note is disposed of and (b) the spot rate of exchange on the date the Note was acquired. Similarly, on the sale or other disposition of a Note, the U.S. Holder will recognize exchange gain or loss on accrued interest or OID (to which prior payments on the Notes have not been allocated) equal to the difference in U.S. dollars between (a) the translation of such interest or OID into U.S. dollars at the spot rate on the date of disposition and (b) the U.S. dollar amount of such interest or

OID previously included in income pursuant to the rules described above. Such foreign currency exchange gain or loss will be recognized only to the extent of the total gain or loss realized by the U.S. Holder on the sale or other disposition of the Note.

Non-U.S. Holders

Except as otherwise described below and subject to the backup withholding rules discussed below under “United States Information Reporting and Backup Withholding”), a Non-U.S. Holder of a Note will generally not be subject to United States federal income tax (including the 30% branch profits tax) by withholding or otherwise on the payment of interest on a Note (including stated interest, Additional Amounts, OID and market discount, as adjusted by amortizable bond premium and acquisition premium) on a Note or gain realized in connection with the sale, retirement or other disposition of a Note.

United States Information Reporting and Backup Withholding

In general, payments of principal, premium and interest on a Note and the proceeds of sale or other disposition of a Note may be subject to U.S. information reporting and backup withholding. Thus, a U.S. Holder may be subject to U.S. information reporting and backup withholding at a rate of 30% (scheduled to be incrementally reduced to 28% by 2006) unless the recipient of such payment supplies an accurate taxpayer identification number, as well as certain other information, or otherwise establishes an exemption in the manner prescribed by law. U.S. backup withholding may also apply to a Non-U.S. Holder that fails to properly certify as to its status as a Non-U.S. Holder under penalties of perjury or otherwise fails to establish an exemption. Proceeds realized by a Non-U.S. Holder on a disposition of the Notes to or through a foreign office of a broker will generally not be subject to backup withholding or information reporting unless such broker has certain U.S. relationships. Any amount withheld under backup withholding is not an additional tax and is generally allowable as a credit against U.S. federal income tax liability upon the filing of a U.S. income tax return and the furnishing of required information to the IRS.

U.S. HOLDERS AND NON-U.S. HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING U.S. INFORMATION REPORTING AND THEIR QUALIFICATION FOR EXEMPTION FROM U.S. BACKUP WITHHOLDING AND THE PROCEDURE FOR OBTAINING SUCH AN EXEMPTION IF APPLICABLE.

DESCRIPTION OF THE NOTES

The Notes

The following summaries of certain provisions of the Fiscal Agency Agreement and the Notes do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Fiscal Agency Agreement and the Notes, including the definitions therein of certain terms. Capitalized terms not otherwise defined herein shall have the meanings given to them in the Fiscal Agency Agreement or the Notes. See "Terms and Conditions of the Notes."

Form of Registered Global Notes and Permanent Global Notes

Notes of a Tranche to be issued in bearer form and sold in offshore transactions outside the United States in reliance on Regulation S will initially be represented by a single temporary global Note without coupons (a "Temporary Global Note"), which will be deposited on or prior to the issue date of such Notes with a common depositary for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global Note without coupons representing Notes of the same Series (a "Permanent Global Note") on or after the Exchange Date upon certification of non-U.S. beneficial ownership. Notwithstanding the foregoing, if indicated in the applicable Pricing Supplement, bearer Notes with a maturity of not more than one year may initially be represented by a Permanent Global Note.

If an interest payment date for any Notes in bearer form occurs while such Notes are represented by a Temporary Global Note, the related interest payment will be made against presentation of the Temporary Global Note only to the extent that certification of non-U.S. beneficial ownership (in the form set out in the Fiscal Agency Agreement) has been received by Euroclear or Clearstream. No payments of interest will be made on a Temporary Global Note after the Exchange Date. Payments of principal of or interest (if any) on a Permanent Global Note will be made through Euroclear and Clearstream against presentation or surrender, as the case may be, of the Permanent Global Note without any requirement for certification.

The following legend will appear on all Temporary Global Notes, Permanent Global Notes and any other Notes issued in bearer form (except on certain Notes having a maturity of not more than one year) and on any coupons: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code." The sections referred to in the legend provide that, with certain exceptions, a United States taxpayer will not be permitted to deduct any loss, and will not be eligible for capital gain treatment with respect to any gain, realized on a sale, exchange or redemption of a Note issued in bearer form or any coupon.

Notes of a Series to be issued in registered form and sold in offshore transactions outside the United States in reliance on Regulation S will be represented by a single permanent global Note without coupons in fully registered form (a "Regulation S Global Note") and will be deposited on or prior to the date of issue of the first Tranche of the relevant Series with the Registrar as custodian for The Depository Trust Company ("DTC"), and registered in the name of Cede & Co. ("Cede") as nominee of DTC, for the accounts of Euroclear and Clearstream. On or prior to the 40th day after the completion of the distribution of the Tranche of which such Notes are a part, beneficial interests in the Regulation S Global Note may be held only through Euroclear or Clearstream.

Notes of a Series to be issued in registered form and sold in reliance on Rule 144A will be represented by a single permanent global Note without coupons in fully registered form and will be deposited on or prior to the date of issue of the first Tranche of the relevant Series with the Registrar as custodian for DTC, and registered in the name of Cede as nominee of DTC (a "Restricted Global Note" and, together with a

Regulation S Global Note, a "Registered Global Note" or the "Registered Global Notes"). The Restricted Global Note will be subject to certain restrictions on transfer set forth therein and in the Fiscal Agency Agreement and will bear the legend regarding such restrictions set forth under "Transfer Restrictions."

Transfers of Interests in Registered Global Notes and Permanent Global Notes

On or prior to the 40th day after the completion of the distribution of the Tranche of which such Notes are a part, a beneficial interest in a Regulation S Global Note may be transferred to a person who takes delivery in the form of an interest in a Restricted Global Note of the same Series of which such Tranche forms a part only upon receipt by the Registrar of a written certification from the transferor (in the form provided in the Fiscal Agency Agreement) to the effect that such transfer is being made to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. After such 40th day, such certification requirement will no longer apply to such transfers.

Beneficial interests in a Restricted Global Note of a Series may be transferred to a person who takes delivery in the form of an interest in a Regulation S Global Note of the same Series, whether before, on or after such 40th day, only upon receipt by the Registrar of a written certification from the transferor (in the applicable form provided in the Fiscal Agency Agreement) to the effect that such transfer is being made in accordance with Regulation S or Rule 144 under the Securities Act and that, if such transfer occurs on or prior to such 40th day, the interest will be held immediately thereafter only through Euroclear or Clearstream.

Any beneficial interest in a Registered Global Note that is transferred to a person who takes delivery in the form of an interest in another Registered Global Note of the same Series will, upon transfer, cease to be an interest in such Registered Global Note and become an interest in the other Registered Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to a beneficial interest in such other Registered Global Note for as long as it remains such an interest.

Transfer by a holder of an interest in a Registered Global Note to a transferee who wishes to take delivery of such interest through the same Registered Global Note may be made at any time without certification, subject to applicable transfer restrictions.

Transfers of interests in a Permanent Global Note will be made in accordance with the rules and procedures of Euroclear and Clearstream. Transfers of interests in a Registered Global Note within DTC, Euroclear and Clearstream will be in accordance with the rules and procedures of the relevant system.

Transfers of interests between a Registered Global Note and a Permanent Global Note are not permitted.

Ownership of Global Notes and Payments

So long as DTC, or its nominee, is the registered owner or holder of a Registered Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the Notes represented by such Note for all purposes under the Fiscal Agency Agreement and the Notes. Payments of principal, interest and additional amounts, if any, on Registered Global Notes will be made to DTC or Cede as its nominee, as the registered owner thereof. In addition, no beneficial owner of an interest in a Registered Global Note will be able to transfer that interest except in accordance with DTC’s applicable procedures (in addition to those described herein and in the Fiscal Agency Agreement and, if applicable, those of Euroclear and Clearstream). None of the Issuers, the Fiscal Agent, the Registrar or any Paying Bank will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership of interests in any Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

Payments of amounts due in respect of a Permanent Global Note will be made in immediately available funds to a common depositary for Euroclear and Clearstream, on behalf of Euroclear and Clearstream. Each of Euroclear and Clearstream will undertake in such circumstances to credit any such amounts received by it to the respective accounts of the persons who are the beneficial owners of such interests on the date on which such amounts are paid.

Exchange of Interests in Registered Global Notes for Definitive Registered Notes; Transfers of Definitive Registered Notes

If (i) DTC notifies the relevant Issuer that it is unwilling or unable to continue as a depositary for a Registered Global Note or if at any time DTC ceases to be a "clearing agency" registered under the Exchange Act and a successor depositary is not appointed by the relevant Issuer within 90 days of such notice, (ii) an Event of Default (as defined in Condition 13) has occurred and is continuing with respect to the Notes of any Tranche or (iii) a Brazilian Sovereign Risk Event (as defined in Condition 10) has occurred and is continuing with respect to the Notes of any Tranche, the relevant Issuer will deliver Notes in definitive registered form in exchange for the relevant Regulation S Global Note or Restricted Global Note, as the case may be.

In such circumstances, the relevant Issuer will cause sufficient definitive registered Notes to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant holders. The definitive registered Notes shall be registered in such names as DTC shall direct in writing. Definitive registered Notes issued in exchange for a Restricted Global Note shall bear, and be subject to, the legend referred to under "Transfer Restrictions."

The holder of a definitive registered Note may transfer such Note by surrendering it at the office or agency maintained by the relevant Issuer for such purpose in the Borough of Manhattan, New York City, which initially will be the office of the Registrar (as defined herein) or at any Paying Bank or Transfer Agent. Upon the transfer, exchange or replacement of any definitive registered Note, the relevant Issuer will deliver only definitive registered Notes that bear such legend, or will refuse to remove such legend, as the case may be, unless there is delivered to the relevant Issuer and the Registrar such satisfactory evidence, which may include an opinion of counsel, as may reasonably be required by the relevant Issuer and the Registrar that neither the legend nor the restrictions on transfer set forth therein are required to ensure compliance with the provisions of the Securities Act.

Neither the Registrar nor any Transfer Agent shall register the exchange of interests in Registered Global Notes for definitive registered Notes for a period of 15 days preceding the due date for any payment of principal of or interest on such Notes.

Exchanges of Interests in Permanent Global Notes for Definitive Bearer Notes

Interests in a Permanent Global Note will be exchangeable for definitive Notes in bearer form if (i) Euroclear or Clearstream has been closed for a continuous 30-day period or has announced an intention to permanently cease business, (ii) an Event of Default (as defined in Condition 13) has occurred and is continuing with respect to the Notes of any Tranche or (iii) a Brazilian Sovereign Risk Event (as defined in Condition 10) has occurred and is continuing with respect to the Notes of any Tranche, the relevant Issuer will deliver definitive bearer Notes in exchange for the relevant Permanent Global Note.

Clearing and Settlement

Book-Entry Ownership

The relevant Issuer will make applications to DTC for acceptance in its book-entry settlement system of the Notes represented by the Registered Global Notes. The relevant Issuer also will make application to

Euroclear and Clearstream for acceptance in their respective book-entry systems in respect of the Notes represented by the Regulation S Global Notes, the Temporary Global Notes and the Permanent Global Notes. Each Global Note will have, as applicable, a different common code, ISIN, CINS and/or CUSIP number. Furthermore, pursuant to the Fiscal Agency Agreement the Fiscal Agent or the Registrar shall arrange that, where a further Tranche of Notes is issued, the Notes of such Tranche shall be assigned, as applicable, a common code, ISIN, CINS and/or CUSIP number that is or are different from the common code, ISIN, CINS and/or CUSIP number assigned to the Notes of any other Tranche of the same Series until at least 40 days (as determined by the Fiscal Agent based on information certified by the relevant Dealer(s)) after the completion of the distribution of the Notes of such Tranche. Restricted Global Notes will be subject to restrictions on transfer set out under "Transfer Restrictions."

Upon issuance of the relevant Registered Global Note, DTC or its custodian will credit, on its internal system, the respective principal amounts of the individual beneficial interests represented by such Registered Global Note to the accounts of persons who have accounts with DTC ("DTC Participants"). Ownership of beneficial interests in a Registered Global Note will be limited to DTC Participants and persons who hold interests through DTC Participants. Ownership of beneficial interests in Registered Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee and the records of DTC Participants.

Until and including the 40th day after the completion of the distribution of the Tranche of which such Notes are a part, investors may hold their interests in a Regulation S Global Note only through Euroclear or Clearstream. Thereafter, investors having a beneficial interest in a Regulation S Global Note may hold such interests through DTC, Clearstream or Euroclear if they are participants in such systems, or indirectly through organizations which are participants in such system. Clearstream and Euroclear will hold interests in the relevant Regulation S Global Note on behalf of their participants through customers’ securities accounts in Clearstream’s or Euroclear’s respective names on the books of the respective depositories, which in turn will hold such interests in the relevant Regulation S Global Note in customers’ securities accounts in the depositaries’ names on the books of DTC. Beneficial owners will not receive certificates representing their ownership interests in Registered Global Notes, except in the event that the use of the book-entry system for Registered Global Notes is discontinued.

Payments of the principal of, and interest on, each Registered Global Note registered in the name of DTC or its nominee will be to or to the order of its nominee, Cede, as the registered owner of such Registered Global Note. The relevant Issuer expects that the nominee, upon receipt of any such payment from the Principal Paying Bank, will immediately credit DTC Participants’ accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the relevant Registered Global Note as shown on the records of DTC or the nominee. The relevant Issuer also expects that payments by DTC Participants to owners of beneficial interests in such Registered Global Note held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held in bearer form or registered in "street name" for the accounts of customers. Such payments will be the responsibility of such DTC Participants. Neither the relevant Issuer nor any Paying Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in Registered Global Notes or for maintaining, supervising or reviewing any records relating to such ownership interests.

Transfers of Notes

Transfers of interests in Registered Global Notes within DTC, Euroclear and Clearstream will be in accordance with the usual rules and operating procedures of the relevant system. The laws of some states in the United States require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Registered Global Note to such persons may be limited. Because DTC can act only on behalf of DTC Participants, who in turn act on behalf of indirect participants and certain banks, the ability of a person having an interest in a Registered Global Note to

70 pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate of such interest.

Subject to compliance with the transfer restrictions applicable to the Notes described above and under "Transfer Restrictions," cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary. However, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering in accordance with normal procedures for same-day funds settlement applicable to DTC. Clearstream participants and Euroclear participants may not deliver instructions directly to the depositories for Clearstream or Euroclear.

Because of time-zone differences, credits of securities received in Euroclear or Clearstream as a result of a transaction with a DTC Participant will be made during the securities settlement processing day dated the business day following the DTC settlement date and such credits of any transactions in such securities settled during such processing will be reported to the relevant Euroclear or Clearstream participant on such business day. Cash received in Euroclear or Clearstream as a result of sales of securities by or through a Euroclear participant or a Clearstream participant to a DTC Participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account only as of the business day following settlement in DTC.

Other

DTC will take any action permitted to be taken by a holder of Notes (including, without limitation, the presentation of Registered Global Notes for exchange as described below) only at the direction of one or more DTC Participants in whose account with DTC interests in the relevant Registered Global Note are credited and only in respect of such portion of the aggregate principal amount of such Registered Global Note as to which such DTC Participant or Participants has or have given such direction. However, in the circumstances described under "Exchanges of Interests in Registered Global Notes for Definitive Registered Notes; Transfers of Definitive Registered Notes," DTC will surrender the relevant Registered Global Note for exchange for definitive registered Notes (which will, in the case of Restricted Global Notes, bear the legends applicable to transfers pursuant to Rule 144A).

DTC has advised the relevant Issuer as follows: DTC is a limited-purpose trust company organized under the laws of the State of New York, a "banking organization" within the meaning of the New York Banking Law, a member of the U.S. Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations. Indirect access to the DTC system is available to others, such as banks, brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly.

Although DTC, Clearstream and Euroclear have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in the Registered Global Notes among participants of DTC, Clearstream and Euroclear, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued after reasonable notice. Neither the relevant Issuer nor any Paying Bank will have any responsibility for the performance by DTC, Clearstream or Euroclear or their respective

71 participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Foreign Currency Denominated Notes

The Notes may be denominated in U.S. dollars or in one or more foreign currencies (each a "Specified Currency"). Purchasers of Notes denominated in a Specified Currency are required to pay for such Notes in the Specified Currency. If any Notes denominated in a Specified Currency other than U.S dollars are held through DTC, the beneficial owners thereof will receive payments on those Notes in U.S. dollars unless the beneficial owner elects through DTC, in accordance with the applicable DTC procedures, to receive payment outside DTC in the Specified Currency.

Meetings of Noteholders

The relevant Issuer, the Guarantor, if applicable, and the holders of Notes of a Series representing at least 25.0% in aggregate principal amount of the Notes of such Series then Outstanding, or the Fiscal Agent (at the direction of such holders) may call a meeting of Noteholders of such Series or of all the Notes of such Issuer for the purpose of taking any action authorized to be taken by the relevant Issuer, the Guarantor or Noteholders, as the case may be, pursuant to the Conditions, including, without limitation, for the purpose of obtaining any Noteholder consents required in connection with any modifications, amendments or waivers to the Notes or the Fiscal Agency Agreement. See "Terms and Conditions of the Notes— Modifications, Waivers and Amendments." Such meeting shall be at such time and place reasonably acceptable to the Fiscal Agent as those calling the meeting shall determine. Notice of such meeting shall be given not less than 30 and not more than 60 days prior to any such meeting in accordance with the Conditions. See "Terms and Conditions of the Notes—Notices." To be entitled to vote at any such meeting, a person must be a holder of one or more Notes of the relevant Series or have been appointed in writing as proxy by such a holder. At any initial Noteholder meeting of Notes of a Series or of all the Notes of the relevant Issuer, the persons entitled to vote 50.0% in aggregate principal amount of the Notes of such Series outstanding, or of all the Notes outstanding, as the case may be, shall constitute a quorum. At any reconvened Noteholders meeting called due to a failure to obtain a quorum, the persons entitled to vote 25.0% in aggregate principal amount of the relevant Notes shall constitute a quorum.

Pricing Supplements

The Pricing Supplement for each Tranche of Notes will contain such of the following information as is applicable in respect of such Notes (all references to numbered Conditions being to the Terms and Conditions of the relevant Notes):

(i) the Issuers;

(ii) whether the Notes are guaranteed;

(iii) the Series number and the Tranche number;

(iv) the denominations of the Notes;

(v) the specified currency (which shall include British pound sterling, Japanese yen, Euro, and U.S. dollars or such other currency or currencies as may be agreed between the relevant Issuer, the Guarantor, if applicable, and the relevant Dealer(s) or syndicate of Dealers) in which the Notes will be denominated and, in the case of Dual Currency Notes (as defined below), the currency or currencies in which payment of interest and/or repayment or redemption in respect of the Notes is to be made (each a "Specified Currency");

(vi) the interest and/or payment ‘basis (the "Interest/Payment Basis") of the Notes, which may be one or more of the following:

a. Notes bearing interest on a fixed rate basis ("Fixed Rate Notes");

b. Notes bearing interest on a floating rate basis ("Floating Rate Notes");

c. Notes issued on a non-interest bearing basis ("Zero Coupon Notes");

d. Notes in respect of which principal and/or interest is calculated by reference to an index and/or a formula ("Indexed Notes"); or

e. Notes in respect of which principal and/or interest is or may be payable in one or more Specified Currencies other than the Specified Currency in which they are denominated ("Dual Currency Notes");

(vii) the date on which the Notes will be issued (the "Issue Date");

(viii) the aggregate principal amount of the Notes (the "Principal Amount") and the price (generally expressed as a percentage of the nominal amount of the Notes) at which the Notes will be issued (the "Issue Price");

(ix) in the case of interest-bearing Notes, the date from which such Notes bear interest (the "Interest Commencement Date") if other than the Issue Date;

(x) in the case of Notes other than Floating Rate Notes, the date on which such Notes (unless previously redeemed or purchased and canceled) will be redeemed (the "Maturity Date");

(xi) in the case of Floating Rate Notes, the month and year in which such Notes (unless previously redeemed or purchased and canceled) will be redeemed (the "Redemption Month");

(xii) the amount at which each Note will be redeemed (the "Final Redemption Amount"), generally expressed as a percentage of the Principal Amount and/or in the case of Indexed Notes, as specified in accordance with (xvi) below;

(xiii) in the case of Notes redeemable in installments:

a. the date on which each installment is payable (each an "Installment Date"); and

b. the amount, generally expressed as a percentage of the Principal Amount of the Notes, of each such installment (each an "Installment Amount");

(xiv) in the case of Fixed Rate Notes:

a. the rate, generally expressed as a percentage rate per annum, at which the Notes bear interest (the "Fixed Rate of Interest"), which may remain the same throughout the life of the Notes or increase and/or decrease;

b. the date(s) in each year on which interest is payable throughout the life of the Notes (each a "Fixed Interest Payment Date");

c. where the period from the Interest Commencement Date to the first Fixed Interest Payment Date differs from the period between subsequent Fixed Interest

Payment Dates, the amount of the first payment of interest (the "Initial Broken Amount"); and

d. where the Maturity Date is not a Fixed Interest Payment Date, the amount of the final payment of interest (the "Final Broken Amount");

(xv) in the case of Floating Rate Notes, unless specified otherwise:

a. the number of months or other period from (and including) the Interest Commencement Date to (but excluding) the first Floating Interest Payment Date (as defined in Condition 5(b)(i)) and from (and including) that and each successive Floating Interest Payment Date thereafter to (but excluding) the next following Floating Interest Payment Date (each an "Interest Period"), which may or may not be the same number of months or other period throughout the life of the Notes;

b. the reference rate (the "Reference Rate"), being a variable rate, which may or may not be the London Inter-Bank Offered Rate ("LIBOR"), and the method of computing the variable rate of interest for such Reference Rate (the "Reference Basis") by which the Rate of Interest will be determined, in each case, if different from that set out in Condition 5(b);

c. the margin(s) (the "Margin(s)"), if any (expressed as a percentage per annum), over or under the Reference Rate by which the Rate of Interest is determined (which Margin may remain the same throughout the life of the Notes or increase and/or decrease) specifying whether any such Margin(s) is/are to be added to, or subtracted from, the Reference Rate;

d. the appropriate pages of the Screen (if applicable) for the purpose of Condition 5(b)(iii)(e);

e. whether the Rate of Interest will be the ISDA Rate pursuant to Condition 5(b)(iv);

f. the dates on which the Rate of Interest is to be determined (each an "Interest Determination Date" for the purposes of Condition 5(b)(ii)(e)(2) which, if not specified in the applicable Pricing Supplement, will be the second Business Day prior to the commencement of the relevant Interest Period;

g. the Minimum Rate of Interest, if any, at which the Notes will bear interest, which may remain the same through the life of the Notes or increase and/or decrease; and

h. the Maximum Rate of Interest, if any, at which the Notes will bear interest, which may remain the same throughout the life of the Notes or increase and/or decrease;

(xvi) in the case of Zero Coupon Notes:

a. the accrual yield in respect of such Notes (the "Accrual Yield") expressed as a percentage rate per annum;

b. the reference price attributed to the Notes on issue (the "Reference Price"); and

c. any other formula or basis of determining the amount payable;

(xvii) in the case of Indexed Notes:

a. the index (the "Index") to which amounts payable in respect of principal and/or interest are linked and/or the formula (the "Formula") to be used in determining the amounts of principal and/or interest due;

b. the party responsible for calculating the amount of principal and/or interest due (if not the Fiscal Agent); and

c. the provisions regarding calculation of principal and/or interest in circumstances where such calculation by reference to the Index and/or the Formula is impossible and/or impracticable;

(xviii) in the case of Dual Currency Notes:

a. the exchange rate(s) or basis of calculating the exchange rate(s) to be used in determining the amounts of principal and/or interest due (the "Rate of Exchange");

b. the party responsible for calculating the amount of principal and/or interest due (if not the Fiscal Agent);

c. the provisions regarding calculating of principal and/or interest in circumstances where such calculation by reference to the Rate of Exchange is impossible and/or impracticable; and

d. the person at whose option any Specified Currency or Currencies is or are to be payable;

(xix) the Calculation Agent for purposes of Condition 6 and, if applicable, Condition 5(b)(iv);

(xx) whether the Notes are to be redeemable at the option of the relevant Issuer (other than for taxation reasons) and/or the Noteholders and, if so;

a. each date upon which redemption may occur (each an "Optional Redemption Date");

b. each redemption amount for the Notes (each an "Optional Redemption Amount") and/or the method, if any, of calculating the same; and

c. in the case of Notes redeemable by the relevant Issuer in part, the minimum principal amount of the Notes permitted to be so redeemed at any time (the "Minimum Redemption Amount") and any greater principal amount of the Notes permitted to be so redeemed at any time (each a "Higher Redemption Amount"), if any;

(xxi) the redemption amount (the "Early Redemption Amount") in respect of the Notes payable on redemption for taxation reasons or following an Event of Default and/or the method, if any, of calculating the same if required to be specified by, or if different from that set out in, Condition 7(g);

(xxii) whether talons for future interest coupons or receipts are to be attached to definitive bearer Notes on issue and, if so, the date on which such talons mature;

(xxiii) details of the relevant stabilizing manager, if any;

(xxiv) any additional selling restrictions that are required;

(xxv) details of any other relevant terms of such Notes or special conditions and of any modifications to the terms and conditions of the Notes as described below;

(xxvi) applicable definition of "Business Day" if different from that set out in the Conditions;

(xxvii) the relevant Euroclear and Clearstream Common Code, the relevant ISIN and the relevant CUSIP numbers;

(xxviii) details of any additional or alternative clearance system approved by the Issuer and the Fiscal Agent;

(xxix) whether the Notes are convertible automatically or at the option of the Issuer and/or the Noteholders into Notes of another Interest/Payment Basis and, if so, the date(s) upon which such conversion will occur or such option(s) as may be exercised and the Interest/Payment Basis and other relevant terms;

(xxx) whether or not the Notes are to be listed on the Luxembourg Stock Exchange or any other stock exchange;

(xxxi) the form/type of the Notes;

(xxxii) the method of distribution of the Notes (i.e., Regulation S or Rule 144A);

(xxxiii) the name(s) of the Dealer(s) or syndicate of Dealers that are to offer and sell the Notes to be issued and;

(xxxiv) terms of Brazilian Sovereign Risk Event (if different from terms set out in the Conditions); and

(xxxv) additional or other provisions relating to Euros (if different from terms set out in the Conditions), including, without limitation, whether Notes in affected Specified Currencies will be redenominated in, or exchanged for Notes denominated in, Euros.

TERMS AND CONDITIONS OF THE NOTES

The following are the terms and conditions of the Notes (the "Conditions") that (subject to completion and amendment) will be applicable to each Tranche of Notes; provided that the applicable Pricing Supplement in relation to any Tranche of Notes may specify other terms and conditions that shall, to the extent so specified or to the extent inconsistent with these conditions, replace the following conditions for the purposes of such Tranche of Notes. The conditions, as modified by the relevant Pricing Supplement, shall be attached to and incorporated by reference into each Note in global form and endorsed upon each Note in definitive form.

1. General

The Notes are issued pursuant to a fiscal agency agreement (the "Fiscal Agency Agreement," which expression shall include any amendments or supplements thereto) dated as of October 18, 1994, among BANKBOSTON, N.A., formerly known as The First National Bank of Boston (the "Guarantor"); BANKBOSTON BANCO MULTIPLO S.A., formerly known as Banco de Boston S.A. (the "Bank"); BANKBOSTON LEASING S.A. - ARRENDAMENTO MERCANTIL, formerly known as Leasing Bank of Boston S.A. - Arrendamento Mercantil ("BBL"); each other subsidiary of the Guarantor organized under the laws of the Federative Republic of Brazil (the "Additional Subsidiaries") which becomes a party to the Fiscal Agency Agreement and the Dealer Agreement (the Bank, BBL and the Additional Subsidiaries are individually referred to herein as the "Issuer" and, collectively, referred to as the "Issuers"); DEUTSCHE BANK AG, LONDON (formerly BANKERS TRUST COMPANY, LONDON), as Fiscal Agent, Paying Bank and Transfer Agent; BANKERS TRUST COMPANY, NEW YORK OFFICE, as Registrar, Paying Bank and Transfer Agent; DEUTSCHE TRUST BANK LIMITED (formerly JAPAN BANKERS TRUST COMPANY LIMITED), as Principal Paying Bank; and DEUTSCHE BANK LUXEMBOURG S.A. (formerly BANKERS TRUST LUXEMBOURG S.A.), as Listing Agent, Paying Bank and Transfer Agent.

All persons from time to time entitled to the benefit of obligations under any Notes and, if applicable, a Guarantee (as defined below) shall be deemed to have notice of and to be bound by all of the provisions of the Fiscal Agency Agreement, and shall be entitled to the benefit of all the provisions of the Fiscal Agency Agreement insofar as such provisions of the Fiscal Agency Agreement relate to the relevant Notes and a Guarantee (if any).

Words and expressions defined in the Fiscal Agency Agreement or used in the applicable Pricing Supplement (as defined below) shall have the same meanings where used in these Conditions unless the context otherwise requires or unless otherwise stated.

The Notes will be issued in series (each a "Series"), each of which Series may be issued in one or more Tranches (each a "Tranche" on one or more dates). Each Tranche will be the subject of a pricing supplement (each a "Pricing Supplement") prepared by or on behalf of the applicable Issuer and, if applicable, the Guarantor, and, in the case of a Tranche in relation to which application has been made for listing on the Luxembourg Stock Exchange, delivered to the Luxembourg Stock Exchange. A copy of such Pricing Supplement will be obtainable at the specified office of the Fiscal Agent, each of the Paying Banks and the Registrar.

Subject to Condition 10 hereof, the due and punctual payment of the principal and interest, if any, and any Additional Amounts as defined herein (the "Additional Amounts") payable by any Issuer under a Tranche of its Notes when and as the same become due and payable, whether at maturity, upon redemption or otherwise, may be unconditionally and irrevocably guaranteed as to commercial risk by the Guarantor, in each case if so specified in the applicable Pricing Supplement, and, if so guaranteed, such Notes shall

77 have attached thereto or endorsed thereon, as may be the case, a guarantee of the Guarantor substantially in the form set forth in Exhibit B to the Fiscal Agency Agreement (each, a "Guarantee").

2. Form, Denomination and Title

Notes of a Tranche to be issued in bearer form ("bearer Notes") and sold in transactions outside the United States in reliance on Regulation S ("Regulation S") under the U.S. Securities Act of 1933, as amended (the "Securities Act"), will initially be represented by a temporary global Note without coupons (the "Temporary Global Note"), which will be deposited on or prior to the Issue Date of such Notes with a common depositary for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") and Clearstream Banking, société anonyme ("Clearstream"). Interests in a Temporary Global Note will be exchangeable, in whole or in part, for interests in a permanent global Note without coupons (the "Permanent Global Note") on or after the date (the "Exchange Date") that is the 40th day after the completion of the distribution of the relevant Tranche upon certification of non-U.S. beneficial ownership as set forth in the Fiscal Agency Agreement.

If an interest payment date for any bearer Note occurs while such Note is represented by a Temporary Global Note, the related interest payment will be made against presentation of the Temporary Global Note only to the extent that certification of non-U.S. beneficial ownership (in the form set out in the Fiscal Agency Agreement) has been received by Euroclear or Clearstream. No payments of interest will be made on a Temporary Global Note after the Exchange Date. Payments of principal or of interest (if any) on a Permanent Global Note will be made through Euroclear and Clearstream against presentation or surrender, as the case may be, of the Permanent Global Note without any requirement for certification.

The following legend will appear on all Temporary Global Notes, Permanent Global Notes and any other bearer Notes (except on certain Notes having a maturity of not more than one year) and any coupons: "Any United States person who holds this obligation will be subject to limitations under the United States income tax laws including the limitations provided in sections 165(j) and 1287(a) of the Internal Revenue Code."

Notes of a Tranche to be issued in registered form ("registered Notes") and sold in transactions outside the United States in reliance on Regulation S will be represented by a permanent global Note in fully registered form without coupons (the "Regulation S Global Note") deposited with a custodian for, and registered in the name of a nominee of, The Depository Trust Company ("DTC") for the accounts of Euroclear and Clearstream. On or prior to the Exchange Date in respect of the Tranche of which such Notes are a part, beneficial interests in the Regulation S Global Note may be held only through Euroclear and Clearstream unless transfer and delivery is made in the form of an interest in a Restricted Global Note (as defined below) in accordance with the certification requirements set forth in the Fiscal Agency Agreement. Registered Notes of a Series sold in reliance on Rule 144A under the Securities Act will be represented by a permanent global Note in fully registered form without coupons (the "Restricted Global Note") deposited with a custodian for, and registered in the name of a nominee of, DTC.

Notes of a Tranche to be guaranteed, issued in registered form and sold in reliance on Section 3(a)(2) of the Securities Act will be represented by a permanent global Note in fully registered form without coupons (the "Section 3(a)(2) Global Note" and, together with the Regulation S Global Note and the Restricted Global Note a "Registered Global Note" or the "Registered Global Notes") deposited with a custodian for, and registered in the name of a nominee of DTC for the accounts of the Dealer(s) at DTC or such other accounts as they may direct in all cases with a Guarantee endorsed thereon.

Each registered Note will be numbered serially with an identifying number that will be recorded in the register (the "Register") which the Issuers and the Guarantor shall procure to be kept by the Registrar. Title to registered Notes passes by and upon registration in the Register. Title to bearer Notes passes by delivery. In these Conditions, "Noteholder" and "Holder" mean, in the case of a registered Note, the person in whose name a Note is registered in the Register, and in the case of a bearer Note, the bearer of

78 such Note. The Holder of any Note will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it, any writing on it, or its theft or loss), and no person will be liable for so treating the Holder.

Bearer Notes will be issued in such denominations as may be specified in the applicable Pricing Supplement, subject to compliance with all applicable legal and regulatory requirements. Registered Notes will be issued in the denominations specified in Condition 3.

The Notes may be issued (a) to bear interest on a fixed rate basis ("Fixed Rate Notes"), (b) to bear interest on a floating rate basis ("Floating Rate Notes"), (c) on a non-interest bearing basis ("Zero Coupon Notes"), or (d) in any combination thereof as specified in the applicable Pricing Supplement. Notes may also be issued with principal and/or interest payable in one or more currencies different from the currency in which such Notes are denominated ("Dual Currency Notes"), or linked to an index and/or a formula ("Indexed Notes"). Dual Currency Notes and Indexed Notes may be issued to bear interest on a fixed or floating rate basis or on a non-interest bearing basis or a combination of such bases, in which case provisions relating to Fixed Rate Notes, Floating Rate Notes, Zero Coupon Notes or a combination thereof, respectively, shall, where the context so admits, apply to such Dual Currency or Indexed Notes. References in these Conditions to a Note being denominated in a Specified Currency shall, unless the context otherwise requires, include a reference to such Note being payable in that Specified Currency.

3. Transfer of Registered Notes and Issue of Definitive Notes

Transferees of interests in one Registered Global Note may take delivery in the form of interests in another Registered Global Note of the same Tranche, subject to the certification requirements set forth in the Fiscal Agency Agreement.

If (i) DTC notifies the Issuers or the Guarantor that it is unwilling or unable to continue as a depositary or at any time ceases to be a "clearing agency" registered under the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), and a successor depositary so registered is not appointed by the Issuers and the Guarantor within 90 days of such notice, (ii) an Event of Default (as defined in Condition 13) has occurred and is continuing with respect to the Notes of any Tranche, or (iii) a Brazilian Sovereign Risk Event (as defined in Condition 10) has occurred and is continuing with respect to the Notes of any Tranche, interests in the Registered Global Notes of such Tranche will be issued in fully registered definitive form (a "definitive registered Note") without coupons in amounts of U.S.$250,000 (or the equivalent thereof in the currency in which such Note is denominated) and higher integral multiples of U.S.$50,000 (or the equivalent thereof in the Specified Currency in which such Note is denominated) or in such denominations as may be specified in the applicable Pricing Supplement, subject to compliance with all applicable legal and regulatory requirements. A definitive registered Note will be issued to each Noteholder of such Tranche in respect of its registered holding or holdings of Notes.

A definitive registered Note may be transferred in whole or in part in an authorized denomination upon the surrender of the Note, together with the form of transfer endorsed on it duly completed and executed, at the specified office of the Registrar and the Transfer Agent. In the case of a transfer of part only of a definitive registered Note, a new definitive registered Note in respect of the balance not transferred will be issued to the transferor. Each new definitive registered Note to be issued upon transfer of Notes will, within three Business Days (as defined herein) of receipt of such form of transfer, be delivered to the transferee at the office of the Registrar or mailed at the risk of the Holder entitled to the Note in respect of which the relevant definitive registered Note is issued to such address as may be specified in such form of transfer.

Definitive bearer Notes with coupons attached (except in the case of Zero Coupon Notes) will be issued in exchange for beneficial interests in Permanent Global Notes (i) if Euroclear or Clearstream has been closed for a continuous 30-day period or has announced an intention to permanently cease business, (ii)

79 with respect to any Tranche, if an Event of Default has occurred and is continuing with respect to the Notes of such Tranche, or (iii) with respect to any Tranche, if a Brazilian Sovereign Risk Event has occurred and is continuing with respect to the Notes of such Tranche. Definitive bearer Notes will be issued in amounts of U.S.$10,000 (or the equivalent thereof in the currency in which such Note is denominated) and integral multiples thereof, or in such denominations as may be specified in the applicable Pricing Supplement, subject to compliance with all applicable legal and regulatory requirements.

Transfers of Notes will be effected without charge by or on behalf of the relevant Issuer, the Guarantor (if applicable), any Paying Bank or the Registrar, but upon payment (or the giving of such indemnity as the relevant Paying Bank or the Registrar, as may be the case, may require) in respect of any tax or other governmental charges that may be imposed in relation to it. All transfers and exchanges of Notes will be made subject to the detailed regulations concerning transfer and exchanges of Notes set forth in the Fiscal Agency Agreement. Registered Notes may not be exchanged for bearer Notes, and bearer Notes may not be exchanged for registered Notes. At the option of a Holder on written request and subject to applicable laws and regulations, definitive registered Notes may be exchanged for definitive registered Notes of any authorized denominations and of equal aggregate principal amount upon surrender of the relevant Notes with the form of transfer endorsed thereon duly executed.

No Noteholder permitted to exchange interests in a Registered Global Note for a definitive registered Note or to transfer a registered Note under this Condition 3 may require such exchange or transfer during the period of 15 days ending on the due date for any payment of principal or interest on that Note (such fifteenth date being the "Record Date"). Unless otherwise specified in the applicable Pricing Supplement, the first payment of interest on any Note of a Series issued between a Record Date and the due date for any payment of interest will be made on the next succeeding Payment Date.

4. Status of the Notes and Guarantees

(a) The Notes will constitute direct, unsecured and unconditional obligations of the relevant Issuer and, except in the event of the occurrence of a Brazilian Sovereign Risk Event will rank at least pari passu in priority of payment with all other present and future unsecured indebtedness of such Issuer, subject to applicable law.

(b) The payment obligations of the Guarantor under each Guarantee shall be subject to the provisions regarding Brazilian Sovereign Risk Event, and to the extent provided by applicable legislation, rank behind the payment obligations owed by the Guarantor to its preferred creditors and depositors (including the Federal Deposit Insurance Corporation as receiver of the Guarantor and the Guarantor’s depositors) in the event of the liquidation of the Guarantor or other resolution by the Federal Deposit Insurance Corporation of the Guarantor but otherwise shall, save for such exceptions as may be provided by applicable legislation, at all times rank at least equally with all other present and future unsecured and unsubordinated obligations.

5. Interest

(a) Interest on Fixed Rate Notes

(i) Each Fixed Rate Note bears interest from and including the Issue Date or the Interest Commencement Date, if different from the Issue Date, at the Fixed Interest Rate(s) per annum specified in the applicable Pricing Supplement, payable in arrears on the Fixed Interest Payment Date(s) in each year and on the Maturity Date so specified if such Maturity Date does not fall on a Fixed Interest Payment Date. The first payment of interest will be made on the Fixed Interest Payment Date next following the Issue Date or the Interest Commencement Date, as the case may be, and, if the Issue Date or the Interest Commencement Date, as the case may be, is not a Fixed Interest Payment Date, will amount to the Initial Broken Amount specified in the applicable Pricing Supplement. If the Maturity Date is not a Fixed Interest Payment Date,

80 interest from and including the preceding Fixed Interest Payment Date (or the Interest Commencement Date, as the case may be) to but excluding the Maturity Date will amount to the Final Broken Amount specified in the applicable Pricing Supplement.

(ii) If interest is required to be computed for a period of other than a full year, such interest shall be computed on the basis of a 360-day year consisting of 12 months of 30 days each (or such other basis as may be specified in the applicable Pricing Supplement) and, in the case of an incomplete month, the number of days elapsed.

(iii) Interest will be paid subject to and in accordance with the provisions of Condition 8. Interest will cease to accrue on each Fixed Rate Note (or, in the case of the redemption of only part of a Note, that part of such Note) on the due date for redemption thereof unless, upon due presentation thereof, payment of principal is improperly withheld or refused, in which event interest will continue to accrue (to the extent permitted by law as well after as before any judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Fixed Rate Note up to that day are received by or on behalf of the Holder of such Fixed Rate Note, and (b) the day on which the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent has notified the Holder thereof (either in accordance with the provisions of Condition 18 or individually) of receipt of all sums due in respect thereof up to that date.

(b) Interest on Floating Rate Notes

(i) Floating Interest Payment Date. Each Floating Rate Note bears interest from the Issue Date or the Interest Commencement Date, if different from the Issue Date, and such interest will be payable on each interest payment date (each a "Floating Interest Payment Date") that (except as otherwise mentioned in these Conditions) falls the number of months (or such period(s) specified as the Interest Period(s) in the applicable Pricing Supplement) after the preceding Floating Interest Payment Date or, in the case of the first Floating Interest Payment Date, after the Issue Date or the Interest Commencement Date, as the case may be. Interest will be reset monthly, quarterly, semi-annually or annually, as specified in the relevant Pricing Supplement. Notwithstanding any contrary provisions of Condition 8, if any Floating Interest Payment Date would otherwise fall on a day that is not a Business Day (as defined below), it shall be postponed to the next day which is a Business Day (and interest will accrue to but excluding such Business Day) unless it would thereby fall into the next calendar month, in which event the Floating Interest Payment Date shall be made on the immediately preceding Business Day and, thereafter, each subsequent Floating Interest Payment Date shall be the last Business Day of each subsequent Interest Period.

In these Conditions, "Business Day" means a day other than a Saturday, Sunday or legal holiday on which commercial banks and foreign exchange markets are generally open for business in São Paulo, London and New York and (a) in relation to Notes denominated in a Specified Currency other than U.S. dollars or Euro, which is a day on which commercial banks and foreign exchange markets settle payment in the principal financial center of the country of the relevant Specified Currency, and (b) in relation to Notes denominated or payable in Euros, which is a day that the TARGET system (defined below) is open.

(ii) Interest Payments. Except as provided in the paragraph immediately above, interest will be paid subject to and in accordance with the provisions of Condition 8. Interest will cease to accrue on each Floating Rate Note (or, in the case of the redemption of part of a Note, that part only of such Note) on the due date for redemption thereof unless, upon due presentation thereof, payment of principal is improperly withheld or refused, in which event interest will continue to accrue (to the extent permitted by law after as well as before any judgment) until whichever is the earlier of (i) the day on which all sums due in respect of such Floating Rate Note up to that day are received by or on behalf of the Holder of such Floating Rate Note, and (ii) the day on which the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent has notified the Holder thereof (either in accordance with the provisions of Condition 18 or individually) of receipt of all sums due in respect thereof up to that date.

(iii) Screen Rate Determination. Where Screen Rate Determination is specified in the applicable Pricing Supplement, the rate of interest (the "Rate of Interest") payable from time to time in respect of the relevant Series or Tranche of Floating Rate Notes denominated in the relevant Specified Currency will be determined on the basis of the following provisions:

(a) The Rate of Interest for each Interest Period shall, subject as provided below, be:

(1) the rate, or

(2) if at least two rates appear, the arithmetic mean (rounded, if necessary, to the nearest 1/100 percent) of the offered rates,

for deposits in the relevant currency for a period equal to the Interest Period that appears or appear, as the case may be, on the appropriate page of the Screen (as defined below) as at 11:00 a.m. London time on the relevant Interest Determination Date (as defined below) plus or minus (as appropriate) the Margin (if any), as determined by the Fiscal Agent.

(b) If, on any Interest Determination Date, no such offered rate appears, or, in the case of a Screen that normally displays at least two rates for any relevant period, fewer than two of such offered rates appear at such time or if the offered rate or rates which appears or appear, as the case may be, as at such time do not apply to a period equal to the relevant Interest Period, the Rate of Interest for such Interest Period shall, subject as provided below, be the arithmetic mean (rounded, if necessary, to the nearest 1/100 percent) of the rates at which the Fiscal Agent is advised by all Reference Banks (as defined below) that deposits in the relevant Specified Currency for a period equal to such Interest Period are offered by the Reference Banks to leading banks in the London interbank market as at 11:00 a.m. London time on the Interest Determination Date plus or minus (as appropriate) the Margin (if any), all as determined by the Fiscal Agent.

(c) If on any such Interest Determination Date to which subparagraph (b) above applies two or three of the Reference Banks advise the Fiscal Agent of such rates, the Rate of Interest for the next Interest Period shall, subject as provided below, be determined as in subparagraph (b) above on the basis of the rates of those Reference Banks advising such rates.

(d) If on any such Interest Determination Date to which subparagraph (b) above applies only one or none of the Reference Banks advises the Fiscal Agent of such rates, the Rate of Interest for the next Interest Period shall, subject as provided below, be the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that the Fiscal Agent determines to be either (x) the arithmetic mean (rounded, if necessary, to the nearest 1/100 percent) of the lending rates for the relevant Specified Currency that banks selected by the Fiscal Agent in the principal financial center of the country of the relevant Specified Currency are quoting on the relevant Interest Determination Date for the next Interest Period to the Reference Banks or those of them (being at least two in number) to which such quotations are, in the opinion of the Fiscal Agent, being so made plus or minus (as appropriate) the Margin (if any), or (y) in the event that the Fiscal Agent can determine no such arithmetic mean, the lowest lending rate for the relevant currency that banks selected by the Issuer and, if applicable, the Guarantor in the principal financial center of the country of the relevant currency are quoting on such Interest Determination Date to leading European banks for the next Interest Period plus or minus (as appropriate) the Margin (if any); provided that if the banks selected as aforesaid by the Issuer and, if applicable, the Guarantor are not quoting as mentioned above, the Rate of Interest shall be the Rate of Interest in effect for the last preceding Interest Period to which subparagraphs (a), (b) and (c) above shall have applied (minus or plus (as appropriate),

where a different Margin is to be applied to the next Interest Period from that which applied to the last preceding Interest Period, the Margin relating to that last preceding Interest Period, plus or minus (as appropriate) the Margin for the next Interest Period).

(e) (1) The expression "the appropriate page of the Screen" means such page, whatever its designation, on which London interbank offered rates appear or, if there is only one such rate, that rate for deposits in the Specified Currency offered by prime banks that are for the time being displayed on the Reuters Monitor Money Rates Services or the appropriate Dow Jones Telerate Monitor as specified in the applicable Pricing Supplement.

(2) Unless otherwise specified in the applicable Pricing Supplement, the expression "the Interest Determination Date" means the second Business Day prior to the commencement of the relevant Interest Period.

(iv) International Swap Dealers Association, Inc. ("ISDA") Determination. Where ISDA Determination is specified in the applicable Pricing Supplement, the Rate of Interest payable for the relevant Series or Tranche of Floating Rate Notes for each Interest Period will be the relevant rate determined on the same basis as the floating rate under a notional interest rate swap transaction in the Specified Currency governed by an agreement incorporating the 1991 International Swap Dealers Association, Inc. Definitions (the "ISDA Definitions") (the "ISDA Rate"), as published by the International Swap Dealers Association, Inc. ("ISDA") plus or minus (as appropriate) the Margin (if any) as determined by the Calculation Agent (as designated in the relevant Pricing Supplement). The ISDA Rate shall be determined by the Calculation Agent in accordance with the following provisions:

(x) On the second Market Day or such other day that is the convention for a Specified Currency prior to the Issue Date (an "ISDA Rate Determination Date"), the Fiscal Agent will determine the ISDA Rate by reference to the Floating Rate (as defined in the ISDA Definitions) in accordance with clause (y) below.

(y) The ISDA Rate will be the equivalent of the rate determined if the applicable Issuer had entered into an interest rate swap transaction governed by an agreement in the form of the Interest Rate and Currency Exchange Agreement (an "ISDA Agreement") published by ISDA and evidenced by a Confirmation (as defined in the ISDA Agreement) incorporating the ISDA Definitions with the Holder of the relevant Note under which:

A) the applicable Issuer was the Floating Rate Payer;

B) the Calculation Agent set forth in the relevant Pricing Supplement was the Calculation Agent;

C) the Issue Date or the Interest Commencement Date was the Effective Date;

D) the aggregate principal amount of the Notes of the Series or Tranche of which such Note is a part was the Notional Amount;

E) the applicable Interest Period for such Note was the Designated Maturity;

F) the Floating Interest Payment Dates for such Note were the Floating Rate Payer Payment Dates; and

G) all other items were as specified in the applicable Pricing Supplement.

For purposes of this Condition 5(b)(iv), "Floating Rate Payer," "Calculation Agent," "Effective Date," "Notional Amount," "Designated Maturity," "Floating Rate Payer Payment Dates" and "Market Day" have the meanings given to those terms in the ISDA Definitions.

(v) Determination of Rate of Interest and Computation of Interest Amount. The Fiscal Agent will, as soon as practicable after 11:00 a.m. London time (or, if appropriate, such other time as is customary in the principal financial center of the country of the Specified Currency) on each Interest Determination Date, determine the Rate of Interest and compute the amount of interest payable in respect of each authorized denomination (each an "Interest Amount") for the relevant Interest Period. Each Interest Amount shall be computed by applying the Rate of Interest to an authorized denomination, multiplying such sum by the actual number of days in the Interest Period concerned divided by 360 (or such other denominator determined by the Fiscal Agent to be customary for such computation) and rounding the resultant figure to the nearest cent (or its approximate equivalent in the other relevant currency), half a cent (or its approximate equivalent in the other relevant currency) being rounded upwards. The determination of the Rate of Interest and computation of each Interest Amount by the Fiscal Agent shall (in the absence of manifest error) be final and binding upon all parties.

(vi) Minimum Interest Rate and Maximum Interest Rate. If the applicable Pricing Supplement specifies a Minimum Interest Rate, then the Rate of Interest shall in no event be less than such minimum, and if a Maximum Interest Rate is specified, then the Rate of Interest shall in no event exceed such maximum.

(vii) Notification of Rate of Interest and Interest Amount. The Fiscal Agent will cause the Rate of Interest and the Interest Amount for each Interest Period and the relevant Floating Interest Payment Date to be notified to the relevant Issuer, the Guarantor (if applicable), the Principal Paying Bank, the other Paying Banks, the Registrar and to the Luxembourg Stock Exchange (in the case of Notes listed on the Luxembourg Stock Exchange) and to be published in accordance with the provisions of Condition 18 as soon as possible but in any event not later than the fourth Business Day after their determination and in the case of Notes listed on the Luxembourg Stock Exchange, not later than the first Business Day of the Interest Period. Each Interest Amount and the Floating Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without publication as aforesaid in the event of an extension or shortening of the Interest Period. Any such amendment will be promptly notified by the Fiscal Agent to the relevant stock exchange.

(viii) Reference Banks. The initial Reference Banks (four or more) will be the principal London offices of the banks specified in the applicable Pricing Supplement. Each of the Issuers and, if applicable, the Guarantor reserves the right to terminate the appointment of any of the Reference Banks. Each of the Issuers and the Guarantor has agreed that, as long as any Floating Rate Note remains outstanding, in the event that any such bank is unable or unwilling to continue to act as a Reference Bank or the appointment of a Reference Bank is terminated, it shall appoint the London office of some other prime bank engaged in transactions in the London interbank market to act as such in its place.

Where a Zero Coupon Note becomes due and payable prior to the Maturity Date, the amount due and payable shall be the Amortized Face Amount of such Note as determined in accordance with the provisions of Condition 7(g)(iii). Any outstanding principal amount of such Note not paid when due shall bear interest from the Maturity Date at a rate per annum equal to the Accrual Yield set forth in the relevant Pricing Supplement. Such interest shall continue to accrue (to the extent permitted by applicable law as well after as before judgment) until the earlier of (i) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the Holder of such Note and (ii) the day on which the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent has notified the Holder thereof (either in accordance with the provisions of Condition 18 or individually) of receipt of all sums due in respect thereof up to that date.

(d) Indexed Notes and Dual Currency Notes

In the case of Indexed Notes or Dual Currency Notes, if the Rate of Interest or amount of interest or payment in respect of principal (at maturity or otherwise) is to be determined by reference to an index and/or formula or, as the case may be, an exchange rate, the Rate of Interest or amount of interest or payment in respect of principal (at maturity or otherwise) payable shall be determined by the computation agent specified in the applicable Pricing Supplement in the manner specified in the applicable Pricing Supplement.

(e) Accrual of Interest

Interest will be paid subject to and in accordance with the provisions of Condition 8 and Condition 10. Interest will cease to accrue on each Note (or, in the case of the redemption of only part of a Note, that part of such Note) on the due date for redemption thereof unless, upon due presentation thereof, payment of principal is improperly withheld or refused, in which event interest will continue to accrue (to the extent permitted by law as well after as before any judgment) until whichever is the earlier of (a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the Holder of such Note, and (b) the day on which the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent has notified the Holder thereof (either in accordance with the provisions of Condition 18 or individually) of receipt of all sums due in respect thereof up to that date.

6. Currency of Notes

(a) General

Notes may be denominated in any currency, including, without limitation, British pound sterling, Japanese yen, Euro and U.S. dollars (each, a "Specified Currency"), subject to compliance with all applicable legal or regulatory requirements.

(b) [INTENTIONALLY OMITTED.]

(d) [INTENTIONALLY OMITTED.]

(e) [INTENTIONALLY OMITTED.]

(f) Provisions Relating to Euros

(i) Notwithstanding anything to the contrary set forth herein and except as otherwise specified in the relevant Pricing Supplement, with respect to any Notes denominated in Euro:

(A) Payments in Euro Notes will be made in accordance with Condition 8 by credit or transfer to a Euro account (or any other account to which Euros may be credited or transferred) specified by the Noteholders or by a Euro check;

(B) If the Euro Notes are Fixed Rate Notes and interest is required to be calculated for a period of less than one year, it will be calculated on the basis of the actual number of days elapsed divided by 365 (or, if any of the days elapsed fall in a leap year, the sum of (x) the number of those days falling in a leap year divided by 366 and (y) the number of those days falling in a non-leap year divided by 365);

(C) If the Euro Notes are Floating Rate Notes, the applicable Pricing Supplement will specify any relevant changes to the provisions relating to interest; and

(D) Such other changes (whether or not relating to any of the above matters) shall be made to the Conditions as the relevant Issuer and, if applicable, the Guarantor may decide, after consultation with the Fiscal Agent, to conform them to conventions then applicable to instruments denominated in Euro or to enable the Notes to be consolidated with one or more issues of other Notes, whether or not originally denominated in Euros. Any such other changes will not take effect until after they have been notified to the Noteholders in accordance with Condition 18.

(ii) Redenomination of Notes in Affected Specified Currencies. Where the applicable Pricing Supplement specifies a redenomination of Notes into Euros as being applicable and unless such Pricing Supplement otherwise provides, the relevant Issuer or, if applicable, the Guarantor may, without the consent of any Noteholders and upon not less than 30 days’ prior notice to the (x) Fiscal Agent, (y) Euroclear, Clearstream and/or DTC, as applicable, and (z) the Noteholders in accordance with the provisions of Condition 18, elect that, beginning on the Redenomination Date (as defined below) specified in such notice, Notes denominated in any Specified Currency replaced by the Euro shall be redenominated in Euro.

The election will have effect as follows:

(A) The principal amount of each Note will be deemed to be an equivalent amount in Euros calculated at the Established Rate, rounded down to the nearest Euro 0.01;

(B) After the Redenomination Date, all payments in respect of the Notes, other than payments of interest in respect of periods commencing before the Redenomination Date, will be made solely in Euros as though references in the Notes to the Specified Currency were to Euros. Payments will be made in accordance with Condition 8 by credit or transfer to a Euro account (or any other account to which Euros may be credited or transferred) specified by the Noteholders or by a Euro check;

(D) If the Notes are Fixed Rate Notes and interest for any period ending on or after the Redenomination Date is required to be calculated for a period of less than one year, it will be calculated on the basis of the actual number of days elapsed divided by 365 (or, if any of the days elapsed fall in a leap year, the sum of (x) the number of those days falling in a leap year divided by 366 and (y) the number of those days falling in a non-leap year divided by 365);

(E) For purposes of the Conditions and the Fiscal Agency Agreement, "Business Day" shall mean a day other than a Saturday, Sunday or legal holiday on which commercial banks and foreign exchange markets are generally open for business in São Paulo, London and New York and (a) in relation to Notes denominated in a Specified Currency other than U.S. dollars or Euros, which is a day on which commercial banks and foreign exchange markets settle payment in the principal financial center of the country of the relevant Specified Currency and (b) in relation to any sum payable in Euros, a day on which the TARGET system is open; and

(F) Such other changes (whether or not relating to any of the above matters) shall be made to the Conditions as the relevant Issuer and, if applicable, the Guarantor may decide, after consultation with the Fiscal Agent, to conform them to conventions then applicable to instruments denominated in Euro or to enable the Notes to be consolidated with one or more issues of other Notes, whether or not originally denominated in the relevant

Specified Currency or Euros. Any such other changes will not take effect until after they have been notified to the Noteholders in accordance with Condition 18.

(iii) Exchange for Euro Notes. Where the applicable Pricing Supplement specifies an exchange for Notes denominated in Euros as being applicable and unless such Pricing Supplement otherwise provides, the relevant Issuer or, if applicable, the Guarantor may, without the consent of any Noteholders and upon not less than 30 days’ prior notice to the (x) Fiscal Agent, (y) Euroclear, Clearstream and/or DTC, as applicable, and (z) the Noteholders in accordance with the provisions of Condition 18, elect that, beginning on the Redenomination Date (as defined below) specified in such notice, Notes denominated in any Specified Currency replaced by the Euro shall be exchangeable for Notes denominated in Euros in accordance with such arrangements as the relevant Issuer and, if applicable, the Guarantor may decide, after consultation with the Fiscal Agent, and as may be specified in such notice, including arrangements under which any Coupons unmatured at the date so specified become void.

(iv) Definitions. Unless otherwise provided in the applicable Pricing Supplement, for purposes of this Condition 6(f), the following terms have the meanings set forth below:

(A) "Established Rate" means the rate for the conversion of the Specified Currency (including compliance with rules relating to roundings in accordance with applicable European Union regulations) into Euro established by the Council of the European Union pursuant to Article 109(4) of the Treaty of Rome as modified by the Treaty of European Communities.

(B) "Euro" means the single currency introduced on January 1, 1999 by the participating Member States of the European Union.

(C) "Redenomination Date" means a date for the payment of interest under the Notes specified by the relevant Issuer or, if applicable, the Guarantor in the notice given to the Noteholders pursuant to Condition 6(f)(ii) or (iii) above, as the case may be, which falls on or after January 1, 1999, the start of the third stage of European monetary union or, if the country of the relevant Specified Currency is not one of the countries then participating in such third stage, which falls on or after such later date as it does so participate.

(D) "TARGET system" means the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) System.

(g) Payment in Specified Currencies

Payments in respect of the Notes denominated in a Specified Currency other than U.S. dollars will be made in accordance with Condition 8 except as otherwise expressly provided herein and therein or otherwise specified in the Pricing Supplement for such Notes. Unless otherwise specified in the applicable Pricing Supplement, a beneficial owner of Notes held through DTC shall receive payments on such Notes in U.S. dollars unless such beneficial owner elects through DTC to receive payment in the Specified Currency or conversions into U.S. dollars of the payments made in a Specified Currency may not be made for any reason.

7. Redemption and Purchase

(a) At Maturity

Unless otherwise specified in the applicable Pricing Supplement and unless previously redeemed, or purchased and canceled, each Note will be redeemed at its final redemption amount specified in the applicable Pricing Supplement in the Specified Currency (subject to the provisions of Conditions 6 and

10) on the Maturity Date (in case of a Note other than a Floating Rate Note) or on the Floating Interest Payment Date falling in the Redemption Month specified in the applicable Pricing Supplement (in the case of a Floating Rate Note).

(b) Redemption for Tax Reasons

The Notes of any Tranche may be redeemed at the option of the relevant Issuer or, if applicable, the Guarantor in whole, but not in part, at any time, on giving not more than 60 nor less than 30 days’ notice to the Fiscal Agent at the Early Redemption Amount (as defined in Condition 7(g) below) thereof, together with any accrued but unpaid interest and any Additional Amounts (payable pursuant to Condition 11) to the date fixed for redemption, if, as a result of any change in, or amendment to, the laws (or any regulations or rulings promulgated thereunder) of Brazil or any political subdivision of or any taxing authority in Brazil, or any change in the application, administration or official interpretation of such laws, regulations or rulings, including the holding of a court of competent jurisdiction, the relevant Issuer or the Guarantor, as the case may be, has or will become obligated to pay Additional Amounts on such Notes in respect of Brazilian Taxes (as defined in Condition 11) which change or amendment becomes effective on or after the date of the agreement obligating the applicable Issuer to issue and the Guarantor to guarantee the relevant Tranche of Notes under the Program, or in the absence of any such agreement, the date of issuance of the Notes and such obligation cannot be avoided by the applicable Issuer or the Guarantor, as the case may be, taking reasonable measures available to it or them, as the case may be provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the relevant Issuer would be obliged to pay such Additional Amounts were a payment in respect of such Notes then due. Prior to the distribution of any notice of redemption to the Noteholders pursuant to this paragraph, the applicable Issuer and/or the Guarantor, as the case may be, shall deliver to the Fiscal Agent a certificate stating that it is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right so to redeem have occurred, and an opinion of counsel to the effect that the applicable Issuer has or will become obligated to pay such Additional Amounts as a result of such change or amendment. The Fiscal Agent shall notify the Noteholders at least 15 days prior to the date fixed for any such redemption.

The Pricing Supplement applicable to each Note will indicate that either:

(i) such Note cannot be redeemed prior to its Maturity Date or, in the case of a Floating Rate Note, the Floating Interest Payment Date falling in the relevant Redemption Month (in each case except as otherwise provided in paragraph (b) above and in Condition 12); or

(ii) such Note will be redeemable at the option of the applicable Issuer and/or the Holder of such Note prior to such Maturity Date or, as the case may be, the Floating Interest Payment Date falling in the relevant Redemption Month in accordance with the provisions of paragraphs (d) and/or (e) below on the date or dates and at the amount or amounts specified in the applicable Pricing Supplement.

(d) Redemption At the Option of the Issuer and the Guarantor

If so specified in the applicable Pricing Supplement, the relevant Issuer and, if applicable, the Guarantor may, on giving (unless otherwise specified in the applicable Pricing Supplement) not more than 60 nor less than 30 days’ notice to the Fiscal Agent (which notice shall be irrevocable), redeem all or only some of the Notes of the relevant Tranche then outstanding on the Optional Redemption Date(s) and at the Optional Redemption Amount(s) specified in the applicable Pricing Supplement together, if applicable, with accrued interest. The Fiscal Agent will notify the Noteholders at least 15 days prior to the Optional Redemption Date. In the case of a partial redemption of definitive Notes, the Notes to be repaid will be selected individually by lot not more than 60 days prior to the date fixed for redemption and a list of the

Notes called for redemption will, in the case of bearer Notes, be published in accordance with the provisions of Condition 18 and, in the case of registered Notes, be notified to such Holders, not less than 15 days prior to such date. In the case of a partial redemption of Notes that are represented by a Registered Global Note or a Permanent Global Note, the relevant Notes will be redeemed in accordance with the rules of DTC, Euroclear and/or Clearstream, as applicable.

(e) At the Option of the Noteholder

(i) If so specified in the applicable Pricing Supplement, upon the Holder of any Note of any Tranche giving to the Fiscal Agent or any Paying Bank in accordance with the provisions of Condition 18 not more than 60 nor less than 30 days’ notice (or as otherwise specified in the Pricing Supplement) (which notice shall be irrevocable), the relevant Issuer will, upon the expiry of such notice, redeem subject to, and in accordance with, the terms specified in the applicable Pricing Supplement in whole, but not in part, the Note on the Optional Redemption Date and at the Optional Redemption Amount specified in the applicable Pricing Supplement together, if applicable, with accrued interest.

(ii) Notwithstanding paragraph (i) above, upon the election by a Noteholder to redeem any Note, the relevant Issuer, in lieu of redeeming the relevant Note, with written notice to the Fiscal Agent, may identify a third party to purchase the Note on the relevant Optional Redemption Date under the same terms and conditions as if the Note was redeemed by the Issuer.

(f) Notices to Redeem

Notices to redeem Notes shall be irrevocable and shall be sent in accordance with the provisions of Condition 18 and shall specify the date fixed for redemption, the applicable redemption price, the place or places of payment, that payment will be made upon presentation and surrender of the Notes to be redeemed (or portion thereof in the case of a partial redemption of a registered Note), together, in the case of a definitive bearer Note, with appurtenant coupons, if any, maturing subsequent to the date fixed for redemption and that on and after said date interest thereon will cease to accrue. If the redemption is pursuant to Condition 7(b), such notice shall also state that the conditions precedent to such redemption have occurred and state that the relevant Issuer and, if applicable, the Guarantor has or have, as may be the case, elected to redeem all the Notes subject to the conditions of Condition 7(b).

(g) Early Redemption Amounts

For the purposes of paragraph (b), and unless otherwise specified in the applicable Pricing Supplement, Notes will be redeemed at an amount (the "Early Redemption Amount") computed as follows:

(i) in the case of Notes issued at an Issue Price of 100.0% of their principal amount, at their principal amount in the relevant currency, together with, in the case of Fixed Rate Notes, interest accrued to the date fixed for redemption;

(ii) in the case of Notes (other than Zero Coupon Notes) issued with an Issue Price greater or less than 100.0% of their principal amount, at the amount set forth in the applicable Pricing Supplement; or

(iii) in the case of Zero Coupon Notes, at an amount (the "Amortized Face Amount") equal to:

(a) the sum of (x) the Reference Price specified in the applicable Pricing Supplement and (y) the product of the Accrual Yield specified in the applicable Pricing Supplement (compounded annually) being applied to the Reference Price from (and including) the Issue Date to (but excluding) the date fixed for redemption pursuant to paragraphs 7(b), (d) or (e) above or (as the case may be) the date upon which such Note becomes due and repayable as provided in Condition 12; or

(b) if the amount payable in respect of any Zero Coupon Note upon redemption of such Note pursuant to paragraph 7(b),(d) or (e) above, or upon its becoming due and repayable as provided in Condition 12 is not paid when due, the amount due and repayable in respect of such Note shall be the Amortized Face Amount of such Note computed as provided above, except that subparagraph (a) shall have effect as though the references in subparagraph (a) to the date fixed for redemption or the date upon which the Zero Coupon Note becomes due and repayable were replaced by references to the date (the "Reference Date") that is the earlier of:

(1) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the Holder of such Note; and

(2) the date on which the full amount of the moneys repayable has been received by the Principal Paying Bank or, in the case of Principal Paying Bank Default, the Fiscal Agent and notice to that effect has been given (either in accordance with provisions of Condition 18 or individually).

The computation of the Amortized Face Amount in accordance with subparagraph (b) will continue to be made, to the extent permitted by applicable law after as well as before judgment, until the Reference Date unless the Reference Date falls on or after the Maturity Date, in which case the amount due and repayable shall be the principal amount of such Note together with interest at a rate per annum equal to the Accrual Yield and computed in accordance with the provisions of Condition 5(c).

(h) Indexed Notes

Where the amount payable in respect of principal of an Indexed Note upon redemption (the "Redemption Amount") is determined by reference to an index and/or a formula, the Redemption Amount shall be determined in accordance with the index and/or the formula specified in the applicable Pricing Supplement, and each such Indexed Note shall, unless previously redeemed or purchased and canceled as provided below, be redeemed at the applicable Redemption Amount on the Maturity Date or the Floating Interest Payment Date in the relevant Redemption Month, as the case may be. Where the amount payable on an Indexed Note on early redemption in respect of principal only, principal and interest or interest only (the "Early Redemption Amount") is to be determined in whole or in part by reference to an index and/or a formula, the applicable Pricing Supplement will set out details on the computation of the Early Redemption Amount.

(i) Purchase of Notes by the Issuers or the Guarantor

The Issuers or the Guarantor may, to the extent permitted by applicable law, at any time purchase Notes in the open market. Any Note so purchased by the Issuers or the Guarantor may be resold or may, at the option of the applicable Issuer or the Guarantor, as the case may be, be surrendered to the Fiscal Agent for cancellation.

8. Payments and Paying Bank

Payments of principal and interest, if any, payable at maturity or upon redemption in respect of registered Notes will be made, subject to Conditions 6 and 10, to the Holders by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as the case may be, in the relevant Specified Currency by check drawn on, or by transfer to an account maintained by the Holder with, a bank in the principal financial center of the country issuing the Specified Currency against presentation and surrender of such Note at the specified office of any of the Paying Banks. Payments of interest in respect of registered Notes (other than interest payable at maturity or upon redemption) will be made by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the

90 case, to the persons shown on the Register at the close of business on the Record Date. Payments of interest in respect of each registered Note will be made, subject to Conditions 6 and 10, in the Specified Currency by check drawn on a bank in the principal financial center of the country issuing the Specified Currency and mailed to the Holder (or to the first-named of joint holders) of such Note at such Holder’s address appearing in the Register maintained by the Registrar. Upon written application by any Holder of at least U.S.$1,000,000 principal amount of Notes (or in the case of Notes not denominated in U.S. dollars, the U.S. dollar equivalent as at the payment date) to the specified office of any Paying Bank not later than the Record Date preceding the relevant payment date, such payment of interest may be made by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, by wire transfer to an account maintained by the Holder with a bank in the principal financial center of the country issuing the relevant currency.

Payments of principal and interest in respect of a Registered Global Note shall be made, subject to Conditions 6 and 10, by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, to DTC or its nominee as the registered Holder of such Note. Payments of principal and interest in respect of a Temporary or Permanent Global Note shall be made, subject to Conditions 6 and 10, by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, to a common depositary for Euroclear and Clearstream, but in the case of a Temporary Global Note only upon receipt by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, of written certification as to the non-U.S. beneficial ownership thereof as set forth in the Fiscal Agency Agreement. Each of Euroclear and Clearstream will undertake to credit all amounts received by it with respect to such principal or interest to the respective accounts of the beneficial owners of interests therein on the date on which such amounts are paid to it.

Payments of principal and interest, if any, payable at maturity or upon redemption in respect of definitive bearer Notes will be made by, subject to Conditions 6 and 10, the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, in the Specified Currency by check drawn on, or by transfer to an account maintained by the Holder with, a bank in the principal financial center of the country issuing the Specified Currency against presentation and surrender of such Notes at the specified office of any of the Paying Banks outside the United States. Payments of interest in respect of definitive bearer Notes (other than interest payable at maturity or upon redemption) will be made, subject to Conditions 6 and 10, by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, against surrender of the relevant coupons at the specified office of any of the Paying Banks outside the United States or its possessions. Payments of interest in respect of each definitive bearer Note will be made, subject to Conditions 6 and 10, by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, in the Specified Currency by check drawn on a bank in the principal financial center of the country issuing the Specified Currency. Upon written application by any Holder of at least U.S.$1,000,000 principal amount of Notes (or in the case of Notes not denominated in U.S. dollars, the U.S. dollar equivalent as at the payment date) to the specified office of any Paying Bank not later than 15 days preceding the relevant payment date, such payment of interest may be made by the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, in the Specified Currency by wire transfer to an account maintained by the Holder with a bank in the principal financial center of the country issuing the Specified Currency; provided that such payment shall only be made against presentation and surrender of the relevant coupons at the specified office of any of the Paying Banks outside the United States. As used in this paragraph and in the following paragraph, the term "United States" means the United States of America, including the States and the District of Columbia, its territories, its possessions and other areas subject to its jurisdiction.

Definitive bearer Notes shall be presented for payment upon repayment prior to maturity together with all unmatured coupons appertaining thereto, failing which, in the case of Fixed Rate Notes, the amount of any missing unmatured coupon will be deducted from the sum due for payment, or, in the case of Floating Rate Notes or other Notes, the surrender of any such missing unmatured coupon or coupons may be

91 waived by the applicable Issuer and the Paying Bank if they are furnished with such security or indemnity as they may require to save each of them and each other Paying Bank of the relevant Issuer harmless. If a deduction is made from the redemption price in the case of any such missing unmatured coupon and thereafter, but prior to five years after the redemption date, the bearer of such coupon shall surrender such coupon at a place specified for redemption, such bearer shall be entitled to receive the amount so deducted. Except as provided in the preceding sentence, any unmatured coupons, whether attached to or missing from any Notes surrendered for redemption, will become void at the redemption date for such Notes.

Subject to Condition 11, all payments are subject in all cases to any applicable fiscal or other laws and regulations. No commissions or expenses shall be charged to the Noteholders in respect of such payments.

Unless otherwise provided herein, if the due date for payment of any amount in respect of any Note is not a Business Day at any place of presentation, then the Holder will not be entitled to payment at such place of the amount due until the next following business day at such place and will not be entitled to any further interest or other payment in respect of any such delay.

Except as otherwise specified in the applicable Pricing Supplement, a beneficial owner of Notes held in the book-entry settlement system of DTC denominated in a Specified Currency other than U.S. dollars electing to receive payments of principal or any premium or interest in such Specified Currency must notify the DTC Participant through which its interest is held on or prior to the applicable Record Date, in the case of a payment of interest, and on or prior to the sixteenth day prior to the Maturity Date, in the case of Fixed Rate Notes or Zero Coupon Notes, or on or prior to the sixteenth day prior to the final Floating Interest Payment Date, in the case of Floating Rate Notes, in the case of a payment of principal or premium, of such beneficial owner’s election to receive all or a portion of such payment in such currency. Such DTC Participant must notify DTC of such election prior to the third Business Day after such Record Date. DTC will notify the Fiscal Agent of such election on or prior to the fifth Business Day after such Record Date and the Fiscal Agent shall promptly (but no later than one Business Day thereafter) notify the relevant Issuer of each such election. If complete instructions, including wire transfer instructions to an account in the Specified Currency (other than U.S. dollars) in the country of such Specified Currency or an address to which a check in the Specified Currency drawn on a bank in the principal financial center of the country issuing such Specified Currency shall be sent, are received by a DTC Participant from the relevant Noteholder and forwarded by the DTC Participant to DTC, and by DTC to the Fiscal Agent, on or prior to such dates, the beneficial owner will receive payments in such Specified Currency. For those payments on Notes held through DTC for which no such election is made or for which complete instructions by the Fiscal Agent are not received on a timely basis, the Fiscal Agent shall, after a foreign exchange dealer has converted amounts in such Specified Currency into U.S. dollars, deliver such U.S. dollar amounts to DTC for payment through its settlement system to those DTC participants entitled to receive the relevant payment who did not elect to receive such payment in the Specified Currency. All costs of such conversion of any payment into U.S. dollars shall be deducted from such payment. The relevant Issuer, any affiliate of such Issuer or any Paying Bank (including the Registrar or the Fiscal Agent) may act as foreign exchange dealer for purposes of converting any Specified Currency to U.S. dollars as described in this Section 8 and, when acting as a foreign exchange dealer, it may derive profits from such activities, which profits may be, in the case of a Paying Bank, in addition to the fees earned by it for its services as Paying Bank. In the event a foreign exchange dealer is not able to convert the Specified Currency into U.S. dollars for any reason, including, without limitation, the existence of a Brazilian Sovereign Risk Event, the Fiscal Agent will notify DTC that the entire payment is to be made in the Specified Currency. DTC will thereafter ask its participants for payment instructions and will forward such instructions to the Fiscal Agent who will use such instructions to pay the DTC participants directly in the Specified Currency.

The initial Principal Paying Bank, Fiscal Agent, Registrar, other Paying Banks and Transfer Agents and their respective initial specified offices are set forth herein. The Issuers and the Guarantor reserve the

92 right at any time to vary or terminate the appointment of any Paying Bank and to appoint additional or other Paying Banks; provided that while Notes are outstanding they will at all times maintain (i) a Principal Paying Bank, (ii) a Fiscal Agent, (iii) a Registrar and Paying Bank in New York City, (iv) a Paying Bank with a specified office in a European city, and (v) so long as any Notes are listed on the Luxembourg Stock Exchange and the rules of the Exchange so require, a Paying Bank and a Transfer Agent with a specified office in Luxembourg, or if Notes are listed on another stock exchange, in the place where such stock exchange so requires.

In acting under the Fiscal Agency Agreement and in connection with the Notes, each of the Paying Banks is acting solely as agent of each of the Issuers and the Guarantor, as may be the case, and does not assume any obligation toward or relationship of agency or trust for or with the owner or Holder of any Note, except that any funds held by any such agent for payment of principal of or interest (or any Additional Amounts) on the Notes shall be held by it for the benefit of the relevant Noteholders and applied as set forth herein, but need not be segregated from other funds held by it, except as required by law. For a description of the duties and the immunities and rights of each of the Paying Banks under the Fiscal Agency Agreement, reference is made to the Fiscal Agency Agreement, and the obligations of each of the Paying Banks to the owners or Holders of Notes are subject to such immunities and rights.

All moneys paid by or on behalf of the applicable Issuer or the Guarantor, as may be the case, to the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent, as may be the case, for the payment of the principal of or interest on any Note that remain unclaimed at the end of two (2) years after such principal or interest shall have become due and payable will be repaid to the relevant Issuer or the Guarantor, as the case may be, and the holder of such Note will thereafter look only to the relevant Issuer or the Guarantor for payment. Upon such repayment, all liability of the Principal Paying Bank or the Fiscal Agent, as applicable, with respect thereto shall cease, without, however, limiting in any way the obligation of the applicable Issuer or the Guarantor, as the case may be, in respect of the amount so repaid.

9. Discharge of Issuer; Principal Paying Bank Default

(a) The Principal Paying Bank has undertaken for the benefit of the Holders of the Notes of each Tranche (and Coupons, if any) to observe and comply with and to perform its obligations under, the terms of the Fiscal Agency Agreement and the Notes which are expected to be applicable to it.

(b) Subject to paragraph (c) below, each payment in full (but not in part) of principal and/or interest in respect of any Note made by or on behalf of any Issuer or the Guarantor, if applicable, to or to the order of the Principal Paying Bank in the manner specified in the Fiscal Agency Agreement on a date on which principal and/or interest is due on the Notes shall be valid and effective to satisfy and discharge the obligation of the relevant Issuer or the Guarantor, as may be the case, to make payment of principal and/or interest on such date and the Holder of any such Note will thereafter be entitled to look only to the Principal Paying Bank for payment of such amount; provided, however, that the liability of the Principal Paying Bank under the Fiscal Agency Agreement shall not exceed any amounts from time received by it from the relevant Issuer or the Guarantor, as may be the case, and held by it on behalf of the Noteholders (and the holders of coupons, if any) under the Fiscal Agency Agreement. The provisions of this paragraph (b) shall not discharge or limit in any way any future obligations of any Issuer or the Guarantor, as may be the case, arising in respect of amounts subsequently becoming payable under the Notes (and coupons, if any).

(c) If any of the following events (each, a "Principal Paying Bank Default") occurs and is continuing with respect to the Notes of any Tranche:

(i) the Principal Paying Bank fails to pay any amount of interest or principal when due following receipt of such amount from the relevant Issuer or, if applicable, the Guarantor under the Fiscal Agency Agreement; or

(ii) any event described in Condition 13(v), (vi), (vii) or (viii) occurs with respect to the Principal Paying Bank, or any event occurs which under the laws of Japan has an effect analogous or similar to any of such events with respect to the Principal Paying Bank, then the provisions herein and in the Fiscal Agency Agreement relating to payments which would otherwise be made to the Principal Paying Bank on or after the date of such Principal Paying Bank Default shall terminate forthwith with respect to the Notes of the applicable Tranche and, thereafter, all payments in respect of the Notes of such Tranche shall be made by the relevant Issuer or the Guarantor, as may be the case, through the Fiscal Agent in the manner provided in these Conditions and in the Fiscal Agency Agreement. The foregoing provisions of this Condition 9(c) are without prejudice to the Principal Paying Bank’s obligation to make payment to Noteholders of amounts already paid to it by the relevant Issuer or the Guarantor, as may be the case, pursuant to the Fiscal Agency Agreement.

(d) Upon the occurrence of a Principal Paying Bank Default:

(i) the Principal Paying Bank shall forthwith give notice thereof to the relevant Issuer, the Guarantor, the Fiscal Agent and the other Paying Banks;

(ii) the Fiscal Agent shall, forthwith upon receipt of such notice, assume all obligations expressed to be obligations of the Principal Paying Bank under the Fiscal Agency Agreement and the Notes and shall, without further notice, be deemed to be substituted in the Notes and the Fiscal Agency Agreement in place of the Principal Paying Bank, and the Notes and Fiscal Agency Agreement shall thereupon be deemed to have been amended to give effect to such substitution and as though the Fiscal Agent were named therein as the Principal Paying Bank;

(iii) the relevant Issuer and, if applicable, the Guarantor shall appoint an additional Paying Bank in Japan; and

(iv) the relevant Issuer, at the expense of the Principal Paying Bank, shall give notice thereof to the Noteholders in accordance with Condition 18.

10. Brazilian Sovereign Risk Event

Unless otherwise specified in a Pricing Supplement with respect to a Tranche of Notes,

(i) For the purposes of this Condition 10, the following terms shall have the following meanings:

"Applicable Exchange Rate" for the purpose of calculating the amount of Brazilian Currency due to the relevant Holder as provided for in this Condition 10 and except as otherwise specified in the relevant Pricing Supplement, means:

(1) the foreign exchange sell rate in the commercial exchange market announced by the Brazilian Central Bank System – Sisbacen, Transaction PTAX 800, Option 5, the currency number allocated to the relevant Specified Currency of such Notes (Currency 220 in the case of U.S. Dollars), for the respective aggregate principal or face amount of the relevant Note(s) of any Tranche, for the negotiations held two (2) São Paulo Business Days before the originally scheduled due date of relevant amounts, whether of principal, interest or Additional Amounts, payable with respect to any such Note (the "Due Date") for settlement on such Due Date; provided that if no such rate of exchange is available, announced, published or quoted by the Central Bank (as defined below) or any other competent authority, then

(2) Applicable Exchange Rate shall mean the arithmetic mean of the Brazilian Currency/relevant Specified Currency exchange rates used by the Brazilian branch of BankBoston N.A., Banco do Brasil S.A., Banco Citibank S.A., Banco Itaú S.A. and Unibanco União de Bancos Brasileiros S.A. (or their successors) or such other leading Brazilian bank or banks as shall be selected by the Issuer, or if the Issuer shall be unable or fail to select any such bank or banks, such bank or banks as shall be selected by the Brazilian Paying Bank in its discretion (each such bank being a "Brazilian Reference Bank" and collectively, the "Brazilian Reference Banks"), in calculating the Brazilian Currency equivalent that obligors in Brazil would be required to pay for the purchase of the relevant Specified Currency in connection with the settlement of financial obligations denominated in or referenced to such Specified Currency, which financial obligations are of the same nature as the obligations under the Note(s) and which are payable or mature on the same date as the relevant Due Date of amounts in respect of the relevant Note(s). In selecting any Brazilian Reference Bank, the Brazilian Paying Bank shall be entitled to call for and rely upon a certificate of the relevant Issuer or the Guarantor, if applicable, as to which banks will be regarded as leading Brazilian banks.

"BankBoston" means BankBoston N.A., but not acting in its capacity as the Guarantor of any Notes.

"Brazilian Currency" means the lawful currency for the time being and from time to time of Brazil.

"Brazilian Government" means the federal government of Brazil, any of its subdivisions, the Central Bank or any other de facto or de jure office, agency or instrumentality of Brazil.

"Brazilian Paying Bank" shall have the meaning provided in paragraph (vii) of this Condition 10.

"Brazilian Sovereign Risk Event" means,

(a) the occurrence of:

(3) the commencement of any war (whether declared or undeclared), civil strife or other similar events or escalation thereof in which Brazil is involved;

(b) the occurrence of:

provided that such occurrence is not originated by a bankruptcy, insolvency or similar purely credit-related proceeding relating to the relevant Issuer.

"Central Bank" means the Central Bank of Brazil.

"Commercial Market" shall have the meaning provided in the definition of "Brazilian Sovereign Risk Event." "Expropriation Condition" means a Brazilian Sovereign Risk Event that is an event described in paragraph (b)(1) or (2) of the definition of Brazilian Sovereign Risk Event.

"Expropriation Condition Termination" means, with respect to the occurrence of any Expropriation Condition, that the events described in paragraph (b)(1) or (2) (as applicable) of the definition of Brazilian Sovereign Risk Event triggering such Expropriation Condition, and the effects of such events, have ceased to exist in the reasonable judgment of BankBoston (or any affiliate thereof).

"Libo Rate" means the rate per annum at which Dollar deposits are offered by the London branch of BankBoston to prime banks in the London Interbank Market at 11:00 A.M. (London time) two London banking days prior to any relevant Due Date for a period of six (6) months.

"Specified Currency Unavailability Condition" means a Brazilian Sovereign Risk Event that is an event described in paragraph (a) of the definition of Brazilian Sovereign Risk Event.

"Specified Currency Unavailability Condition Termination" means that the relevant Specified Currency Unavailability Condition no longer has the effect of, directly or indirectly, prohibiting or preventing the relevant Issuer from receiving and/or obtaining in Brazil and/or transferring from Brazil, or, if applicable, the Guarantor from procuring that the relevant Issuer receives and/or obtains in Brazil and/or transfers from Brazil, such Specified Currency, in accordance with normal commercial practice, in the Commercial Market, as defined above for the purpose of making payments of obligations of the same nature as those obligations under the relevant Notes.

(ii) If a Brazilian Sovereign Risk Event occurs or exists at the time that a payment is due in respect of any Note, then the obligations of the relevant Issuer and, if applicable, the Guarantor to make such payment in the relevant Specified Currency shall be affected as specified in this Condition 10.

(iii) Should a Brazilian Sovereign Risk Event occur, the relevant Issuer shall give or cause to be given to the Fiscal Agent, within five (5) São Paulo Business Days after the events constituting such Brazilian Sovereign Risk Event have occurred, a certificate signed by two of its Directors certifying as to the existence of the Brazilian Sovereign Risk Event. Any such certification shall be final and binding. The relevant Issuer shall, as soon as practicable thereafter, give or cause to be given notice of any such certification and its contents to the Noteholders in accordance with Condition 18.

(iv) (A) Neither the relevant Issuer nor, if applicable, the Guarantor, shall, except as expressly provided herein, be obligated to make any payment in any Specified Currency of any amount of principal, interest or Additional Amounts in respect of the Notes which would fall due on a date which is after the occurrence and during the continuation of a Brazilian Sovereign Risk Event.

(B) Notwithstanding anything to the contrary contained or implied herein, in no event shall any Issuer, Guarantor or any other person or entity be required to take any action (x) which is not lawful to be taken in any relevant jurisdiction or (y) outside of the normal course, including, but not limited to the taking of any action in any court or before any administrative body against the Brazilian Government and/or any other person or entity.

(v) If a Brazilian Sovereign Risk Event based upon a Specified Currency Unavailability Condition (and not also based on an Expropriation Condition or a Mandatory Remittance) has occurred and is continuing and on any relevant Due Date of any Note, then

(A) With respect to Note(s) with a maturity of less than 360 days: each of the relevant Issuer and, if applicable, the Guarantor shall have been for all purposes considered to discharge its obligations in respect of principal, interest or Additional Amounts payable with respect to any relevant Note(s) by transferring, in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations, the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s). In order to receive payment under this Condition 10 (v)(A), the Holder will be required to make such arrangements as it deems appropriate, at its own cost and risk, in order to receive payment in such manner as may be provided for in this Condition 10 (v)(A), and neither the Issuer nor the Guarantor, if applicable, shall be obligated to open any account or otherwise make arrangements other than those expressly set forth herein or in the Fiscal Agency Agreement, in order to effect any payment on behalf of any Noteholder in respect of such Noteholder’s rights under the relevant Note(s). The Holder will be obligated under these circumstances to deposit its Note, together (in the case of bearer Notes) with all coupons relating thereto which mature after the occurrence of such Brazilian Sovereign Risk Event, with a Paying Bank (in the case of bearer Notes) or Transfer Agent (in the case of registered Notes), together with the duly completed notice containing the details of the relevant Brazilian Currency account referred to in Condition 10(viii), in the form obtainable from any Paying Bank or Transfer Agent, such deposit and notice to be made after the occurrence and notification of such Brazilian Sovereign Risk Event but in no event later than 15 days prior to any relevant Due Date for any payment on such Note(s); provided, however, that if such Brazilian Sovereign Risk Event occurs later than 15 days prior to the Due Date for any payment on such Note(s) such deposit and notice shall be made no later than the tenth business day after such Due Date. No Note or coupon so deposited may be withdrawn unless if upon due presentation payment is improperly withheld or refused, or unless, after such payment, amounts are still owing in respect of the Notes or coupons, or unless the relevant Brazilian Sovereign Risk Event ceases prior to such payment being made provided no other Brazilian Sovereign Risk Event then exists and is continuing.

(B) With respect only to any Note(s) with a maturity of 360 days or more:

(AA) if the Holder has duly made the election to receive Brazilian Currency as described in this Condition 10(v)(B), the relevant Issuer and, if applicable, the Guarantor, shall not be required to effect payment of any amount of principal interest or Additional Amounts payable with respect to any relevant Note(s) in the Specified Currency under the relevant Note(s), and shall have been for all purposes considered to discharge its obligations in respect of any such payment due with respect to any such Note(s) by transferring, on the Due Date therefor (or, in the event notice of election of payment in Brazilian Currency as set forth herein has been duly made by the fifteenth day after such Due Date, promptly after such notice has been made) in Brazil, to the relevant Holder(s), in accordance with applicable Brazilian laws and regulations the amount in Brazilian Currency, calculated using the Applicable Exchange Rate, equivalent to the value of the corresponding Specified Currency amount due under the relevant Note(s).

(BB) if the Holder has duly made an election to receive Specified Currency (including upon failure duly to make an election to receive Brazilian Currency) as described in this Condition 10(v)(B), all payments of principal, interest or Additional Amounts, with respect to any relevant Note in the relevant Specified Currency shall be postponed until such time, if any, as there has been a Specified Currency Unavailability Condition Termination; provided that with respect to any such amount payable shall cease to accrue interest on such Due Date at the rate (if any) otherwise applicable under the terms and conditions of the relevant Notes, but interest shall accrue with respect to any such amount payable from (and including) such Due Date and to (but excluding) the date on which the payment in Specified Currency is made by the Issuer at the Libo Rate.

Any payment to be effected in accordance with the option mentioned in item (BB) above shall be effected as soon as practicable, but no later then 15 (fifteen) days after the Specified Currency Unavailability Condition Termination. In order to receive payment under this Condition 10(v)(B), the Holder will be required to make such arrangements as it deems appropriate, at its own cost and risk, in order to receive payment in such manner as may be provided for in this Condition 10(v)(B), and neither the Issuer nor the Guarantor, if applicable, shall be obligated to open any account or otherwise make arrangements other than those expressly set forth herein or in the Fiscal Agency Agreement, in order to effect any payment on behalf of any Noteholder in respect of such Noteholder’s rights under the relevant Note(s). To exercise its election to receive Specified Currency or Brazilian Currency under this Condition 10(v)(B), the Holder will be obligated to deposit its Note, together (in the case of bearer Notes) with all coupons relating thereto which mature after the occurrence of the relevant Brazilian Sovereign Risk Event, with a Paying Bank (in the case of bearer Notes) or Transfer Agent (in the case of registered Notes), together with a duly completed notice of the form of payment elected by the Holder in the form obtainable from a Paying Bank or Transfer Agent, such deposit and notice to be made after the occurrence and notification of such Brazilian Sovereign Risk Event but in no event later than 15 days prior to the Due Date for any relevant payment on such Note(s); provided, however, that if such Brazilian Sovereign Risk Event occurs later than 15 days prior to the Due Date for any relevant payment with respect to such Note(s) such deposit and notice shall be made no later than the tenth business day after such Due Date. If no such election is made to receive Brazilian Currency as provided in this Condition 10(v)(B), the Holder of such Note will be deemed irrevocably to have elected to receive payment in Specified Currency subject to the terms and conditions as provided above. Such irrevocable election to receive payment in Brazilian Currency shall bind all subsequent Holders of any Note or coupon in respect of which it has been made. No Note or coupon so deposited may be withdrawn unless upon due presentation payment is improperly withheld or refused, or unless, after such payment, amounts are still owing in respect of the Notes or coupons (if any), or unless there has been a Specified Currency Unavailability Condition Termination prior to such payment being made; provided that no other Brazilian Sovereign Risk Event then exists and is continuing.

(vi) During the existence of a Brazilian Sovereign Risk Event based upon a Specified Currency Unavailability Condition (and not also based on an Expropriation Condition or a Mandatory Remittance), each of the relevant Issuer and, if applicable, the Guarantor will take such steps (and will inform the Fiscal Agent of such action) as are lawful under the laws of Brazil to protect the rights of the Noteholders in any applicable restructuring, refinancing, rescheduling or similar arrangement (whether proposed or final), but excluding, for the avoidance of doubt, the taking of any action in any court or before any

administrative body against the Brazilian Government or any other person or entity. Notwithstanding anything to the contrary set forth herein, neither the relevant Issuer nor, if applicable, the Guarantor, will be obliged to take any protective step described in the preceding sentence as being required to be taken by it if, by doing so, it would be required to expend a greater amount of Brazilian Currency than it would be required to expend under Condition 10(v) above.

(vii) Upon giving notice to the Fiscal Agent of the occurrence of a Brazilian Sovereign Risk Event based upon a Specified Currency Unavailability Condition (and not also based on an Expropriation Condition or there is no Mandatory Remittance), the relevant Issuer and, if applicable, the Guarantor shall immediately appoint a paying bank with a specified office in São Paulo, Brazil (a "Brazilian Paying Bank") which may (but need not) be the Brazilian branch of BankBoston. All payments in Brazilian Currency shall be made by transfer to a Brazilian Currency account maintained by or on behalf of such Brazilian Paying Bank with a bank in São Paulo, Brazil.

(viii) To receive payment in Brazilian Currency a Noteholder or holder of a coupon must have specified by written notice the details of a Brazilian Currency account in São Paulo, Brazil to which the Brazilian Paying Bank shall make the relevant payment in Brazilian Currency.

(ix) If a Brazilian Sovereign Risk Event based on the existence of a Mandatory Remittance (whether or not together with a Specified Currency Unavailability Condition) occurs or exists on the Due Date in respect of any Note(s), and provided that no Expropriation Condition has occurred and is continuing, the obligations of the relevant Issuer and, if applicable, the Guarantor to make payments of such amounts as may be due shall be discharged by making any mandatory remittance of funds related to the amounts due under the relevant Note (s) to a financial institution designated or authorized by the Brazilian Government, as required by the Brazilian Government.

(x) In the event of the occurrence and continuation of a Brazilian Sovereign Risk Event based upon an Expropriation Condition (whether or not together with a Specified Currency Unavailability Condition and whether or not together with the occurrence of a Mandatory Remittance) on the Due Date in respect of any Note(s), any principal, interest or Additional Amounts payable with respect to the Notes but which was not paid due to the occurrence and continuance of such Expropriation Condition shall be payable in the relevant Specified Currency (without accruing any interest from the date of the occurrence of the Expropriation Condition) only upon an Expropriation Condition Termination; provided that on such date neither a Specified Currency Unavailability Condition nor a Mandatory Remittance has occurred and/or is continuing and provided further that the relevant Issuer receives, after the termination of such Expropriation Condition, all the assets the ownership of which the relevant Issuer had been deprived. Such payment shall be effected no later than 15 (fifteen) days from the date on which such Expropriation Condition Termination takes place.

(xi) Provided that each of the relevant Issuer and, if applicable, the Guarantor has at all times complied with its respective obligations under this Condition 10, neither the relevant Issuer nor, if applicable, the Guarantor will be in breach of any payment obligation relating to the Notes which is affected by a Brazilian Sovereign Risk Event and, accordingly, (a) the amount of the relevant payment shall not constitute an overdue amount for any purpose; (b) unless otherwise expressly provided hereunder, no interest should accrue with respect to such payment on or after the relevant Due Date; and (c) neither the Fiscal Agent, the Registrar nor any Noteholder or holder of a coupon shall have recourse to the Issuer or, if applicable, the Guarantor, or will be entitled to take any

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action against the relevant Issuer or, if applicable, the Guarantor to enforce any rights against the relevant Issuer or, if applicable, the Guarantor which the Fiscal Agent, the Registrar or such Noteholder or holder of a coupon would have had in respect of such payment save for the provisions of this Condition 10. Notwithstanding anything to the contrary contained in this Condition 10, neither the Issuer nor the Guarantor, if applicable, shall be required to make or obtain any payment in any Specified Currency other than through the Commercial Market.

11. Taxation

All payments by the applicable Issuer and, if applicable, the Guarantor in respect of any Notes and any Guarantee will be made after deduction or withholding for or an account of any present or future taxes, duties, assessments or other governmental charges of whatever nature imposed or levied by or on behalf of Brazil or by or within any political subdivision thereof or any authority therein having power to tax ("Brazilian Taxes"). The applicable Issuer or, if applicable, the Guarantor, as the case may be, will pay such additional amounts ("Additional Amounts") in respect of Brazilian Taxes as will result in the payment to the Noteholders of the Notes of any Tranche of the amounts that would otherwise have been receivable by them in respect of payments on such Notes or Guarantee in the absence of such withholding or deduction, except that no such Additional Amounts shall be payable:

(a) to or on behalf of a Noteholder or beneficial owner of a Note that is liable for Brazilian Taxes in respect of such Note by reason of its having some present or former connection with Brazil (or any political subdivision or taxing authority thereof or therein) otherwise than by the mere holding or owning of such Note or by the receipt of income or any payments in respect thereof;

(b) to or on behalf of a Noteholder or beneficial owner of a Note in respect of Brazilian Taxes that would not have been imposed but for the failure of the Noteholder or beneficial owner of such Note to comply with any certification, identification, information, documentation or other reporting requirement if (i) such compliance is required by law, regulation, administrative practice or an applicable treaty as a precondition to exemption from, or reduction in the rate of, deduction or withholding of, Brazilian Taxes and (ii) at least 30 days prior to the first Interest Payment Date with respect to which the applicable Issuer or, if applicable, the Guarantor, as the case may be, shall apply this clause (b), such applicable Issuer or Guarantor shall have notified the Noteholders that such Noteholders or beneficial owners of the Notes will be required to comply with such requirements;

(c) to or on behalf of a Noteholder of a Note in respect of Brazilian Taxes that would not have been imposed but for the failure of such Noteholder to present a Note or a Coupon for payment (where presentation is required) more than 30 days after the relevant payment is first made available for payment to the Noteholder; or

(d) any combination of (a), (b) or (c) above.

Notwithstanding the foregoing, the limitations on the applicable Issuer’s or, if applicable, the Guarantor’s obligation to pay Additional Amounts set forth in clause (b) above shall not apply if a certification, identification, information, documentation or other reporting requirement described in clause (b) would be materially more onerous, in form, in procedure or in the substance of information disclosed, to such Noteholders or beneficial owners (taking into account any relevant differences between U.S. and Brazilian law, regulation or administrative practice) than comparable information or other reporting requirements imposed under U.S. tax law, regulation and administrative practice (such as IRS Forms 1001, W-8 BEN, W-8ECI, and W-9, or any successor form). In addition, clause (b) above shall not be construed to require that a non-Brazilian pension or retirement fund register with the Brazilian Ministry of

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Finance for the purpose of establishing eligibility for an exemption from Brazilian withholding tax. Furthermore, compliance with any such requirements under clause (b) shall not require the disclosure to the applicable Issuer or, if applicable, the Guarantor, any Paying Bank or any governmental authority of the nationality, residence or identity of the beneficial owner of a Note that is not eligible for any exemption from, or reduction in the rate of, deduction or withholding of Brazilian Taxes (other than such a requirement that can be satisfied by a custodian, nominee or other agent of such beneficial owner certifying to the effect that such beneficial owner is not eligible for any exemption from, or reduction in the rate of, deduction or withholding of Brazilian Taxes; provided that payment by such custodian, nominee or agent to such beneficial owner is not otherwise subject to any such requirement).

Additionally, the obligation of the applicable Issuer and, if applicable, the Guarantors to pay Additional Amounts shall not apply with respect to (i) any estate, inheritance, gift, sales, transfer or personal property tax or any similar taxes, duties, assessments or other charges or (ii) any taxes, duties, assessments or other governmental charges that are payable otherwise than by deduction or withholding from payments on the Notes.

The Issuers or the Guarantor, as appropriate, will provide the Principal Paying Bank or, in the case of a Principal Paying Bank Default, the Fiscal Agent with documentation evidencing the payment of Brazilian Taxes. Copies of such documentation will be made available to any Noteholder or any Paying Bank, as applicable, upon request therefor.

References to payments in respect of Notes and/or, if applicable, any Guarantee in these Conditions shall be deemed also to refer to any Additional Amounts that may be payable as set forth in such Notes and described above.

In the event that Additional Amounts actually paid with respect to the Notes of any Series are based on rates of deduction or withholding of Brazilian Taxes in excess of the appropriate rate applicable to the Noteholder or beneficial owner of such Notes, and, as a result thereof, such Noteholder or beneficial owner is entitled to make a claim to the appropriate Brazilian taxing authority for a refund or credit of such excess, then such Noteholder or beneficial owner shall, by accepting the Notes, be deemed to have assigned and transferred all right, title and interest to any such claim for a refund or credit of such excess to the relevant Issuer. However, by making such assignment, the Noteholder or beneficial owner makes no representation or warranty that the applicable Issuer will be entitled to receive such claim for a refund or credit and incurs no other obligation with respect thereto.

12. Available Information

Each of the Issuers and the Guarantor will take all action necessary to provide information to permit resales of the Notes pursuant to Rule 144A under the Securities Act, including furnishing to any holder of a Note or beneficial interest in a global Note, or to any prospective purchaser designated by such a holder, upon request of such holder, financial or other information required to be delivered under paragraph (d)(4) of Rule 144A (as amended from time to time and including any successor provision) unless, at the time of such request, the relevant Issuer or the Guarantor is subject to the reporting requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is exempt from such requirements pursuant to Rule 12g3-2(b) under the Exchange Act (as amended from time to time and including any successor provision). For so long as any Notes are listed on the Luxembourg Stock Exchange and the rules of such exchange so require, the Issuer and, if applicable, the Guarantor will cause copies of the information (if any) required to be furnished pursuant to this Condition 12 to be made available, free of charge, at the office of the Luxembourg Paying Bank.

13. Events of Default

With respect to the Notes of any Issuer, the occurrence of one or more of the following events shall constitute an "Event of Default":

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Events of Default with respect to the Notes:

(i) default by the relevant Issuer in the payment of any principal of, or any interest or any Additional Amounts due on, any Note, and in the case of interest or Additional Amounts continuance of such default for a period of five Business Days;

(ii) default in the performance or observance of the obligations described in Condition 12;

(iii) default in the performance or observance of any other term, covenant or obligation of the relevant Issuer in the Notes or in the Fiscal Agency Agreement and if such default is capable of being remedied, continuance of such default for a period of more than 30 days after notice of such default has been sent to the relevant Issuer by the Fiscal Agent;

(iv) the relevant Issuer shall (A) default in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (as defined below) having a principal amount, individually or in the aggregate, in excess of U.S.$15,000,000 or more whether such Indebtedness now exists or shall hereafter be created (other than the Notes), or (B) a default shall occur in the performance or observance of any other terms and conditions relating to any such Indebtedness if the effect of such default is to cause such Indebtedness to become due prior to its stated maturity, or to permit the holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity, for purposes hereof "Indebtedness" means at any time, without duplication, with respect to any party, and whether actual or contingent (i) any obligation of such party for borrowed money, (ii) any obligation of such party evidenced by bonds, debentures, notes, guarantees or other similar instruments, (iii) any reimbursement obligation of such party with respect to letters of credit, bankers’ acceptances or similar facilities issued for the account of such party, (iv) any obligation of such party in respect of a lease or hire purchase contract which would be treated as a financial or capital lease, (v) any Indebtedness of others secured by a Lien on any asset of such party whether or not such Indebtedness is assumed by such party, and (vi) any obligations of such person to pay the deferred purchase price or fixed assets or services if such deferral extends for a period in excess of 60 days; provided, however, that the following liabilities shall be explicitly excluded from the definition of Indebtedness: (W) trade accounts payable; (X) expenses that accrue and become payable in the ordinary course of business; (Y) customer advance payments and customer deposits received in the ordinary course of business; and (Z) obligations for ad valorem taxes, value-added taxes, or any other taxes or governmental charges, and "Lien" means any mortgage, pledge, security interest, charge, encumbrance or other preferential arrangement including, without limitation, any equivalent right created or arising under the laws of Brazil;

(v) the Fiscal Agency Agreement for any reason ceases to be in full force and effect in accordance with its terms or the binding effect or enforceability thereof shall be contested by the relevant Issuer or the Issuer shall deny that it has any further liability or obligation thereunder or in respect thereof;

(vi) a decree or order by a court having jurisdiction shall have been entered adjudging the relevant Issuer, or any Material Subsidiary thereof as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization or suspension of payments of the relevant Issuer, or any Material Subsidiary thereof, and such decree or order of a court having jurisdiction for the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or insolvency of the relevant Issuer, or any Material Subsidiary thereof, or of the property of the relevant Issuer, or any Material Subsidiary thereof, or for the winding

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up or liquidation of the affairs of the relevant Issuer, shall have been entered, and such decree or order shall have continued undischarged and unstayed for a period of 60 days;

(vii) the relevant Issuer, or any Material Subsidiary thereof shall institute proceedings to be adjudicated a voluntary bankruptcy, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization, suspension of payments or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or insolvency of it or its property; or

(viii) a final judgment or final judgments for the payment of money shall have been entered by a court or courts of competent jurisdiction against the relevant Issuer, or any Material Subsidiary thereof and remains undischarged for a period (during which execution shall not be effectively stayed) of 60 days; provided that the aggregate amount of all such judgments at any time outstanding (to the extent not paid or to be paid by insurance) exceeds U.S.$15,000,000;

Events of Default with respect to guaranteed Notes:

(ix) default in the performance or observance of any other term, covenant or obligation of the Guarantor in the Notes or the Fiscal Agency Agreement, and if such default is capable of being remedied, continuance of such default for a period of more than 30 days after notice of such default has been sent to the Guarantor by the Fiscal Agent;

(x) failure of the Guarantor to maintain direct or indirect control of a majority of the outstanding shares of capital stock or other ownership interests having voting power under ordinary circumstances to elect a majority of the board of directors of the relevant Issuer;

(xi) the Guarantor is dissolved, fails or is unable to pay its debts generally as they become due, or the Federal Deposit Insurance Corporation has been appointed receiver of the Guarantor; or

(xii) the Guarantee is not, or is claimed by the Guarantor not to be, in full force and effect; then (A) if an Event of Default described in clauses (i), (vi), (vii), (xi) or (xii) above, shall occur and be continuing, any Holder of a Note may, by written notice to the relevant Issuer, the Guarantor (if applicable) and the Fiscal Agent, declare the principal of such Note, together with accrued interest and any unpaid Additional Amounts thereof, to be immediately due and payable, and unless such default shall have been cured by the relevant Issuer or Guarantor, if applicable, prior to receipt of any such written notice, the principal of such Note, together with accrued interest and any unpaid Additional Amounts thereon, to be immediately due and payable, and unless such default shall have been cured by the relevant Issuer prior to receipt of any such written notice, the principal of such Note, together with accrued interest and any unpaid Additional Amounts thereon, shall become and be immediately due and payable, and (B) if any other Event of Default shall occur and be continuing, the Fiscal Agent or the Holders of not less than 25.0% in principal amount of the Notes acting in concert for that purpose may, by written notice to the relevant Issuer or Guarantor, if applicable, and the Fiscal Agent, declare the principal of all of the Notes, together with accrued interest and any unpaid Additional Amounts thereon, to be immediately due and payable, and unless all such defaults shall have been cured by such Issuer or Guarantor, if applicable, prior to receipt of such written notice, the principal of all of the Notes, together with accrued interest and any unpaid Additional Amounts thereon, shall become immediately due and payable. Any such declaration shall be annulled if all amounts then due with respect to the Notes are paid (other than amounts due solely because of such declaration) and all other defaults with respect to the Notes are cured

104 or waived. In addition, any such declaration pursuant to the first sentence of this paragraph may be rescinded by the declaring Holder.

As used herein, the term "Material Subsidiary" shall mean, at any relevant time, any Subsidiary of the relevant Issuer or the Guarantor, as may be the case, that meets any of the following conditions:

(i) the applicable Issuer’s or Guarantor’s (if applicable), in each case together with its other subsidiaries’, investments in and advances to the relevant subsidiary exceed 10.0% of the total assets of such Issuer or Guarantor, as may be the case, and its respective consolidated subsidiaries as of the end of the most recently completed fiscal year; or

(ii) the applicable Issuer’s or Guarantor’s (if applicable), together with its other subsidiaries’, proportionate share of the total assets (after intercompany eliminations) of the relevant subsidiary exceeds 10.0% of the total assets of such Issuer or Guarantor, as may be the case, and its respective consolidated subsidiaries as of the end of the most recently completed fiscal year; or

(iii) the applicable Issuer’s or Guarantor’s (if applicable), together with its other subsidiaries’, equity in the earnings before income tax and employee statutory profit sharing of the relevant subsidiary exceeds 10.0% of such earnings of such Issuer or Guarantor, as may be the case, and its respective consolidated subsidiaries as of the end of the most recent fiscal year; all as calculated by reference to the then latest audited financial statements (or consolidated financial statements, as the case may be) of such subsidiary and the then latest audited consolidated financial statements of the applicable Issuer or Guarantor, as may be the case, and its subsidiaries.

14. Modifications, Waivers and Amendments

(a) The Fiscal Agency Agreement and the Notes of the relevant Series (including the Conditions) may be modified or amended without the consent of the Holder of any Note of the relevant Series for the purposes of curing any ambiguity, or of curing, correcting or supplementing any defective or inconsistent provisions contained therein or in any other manner which the parties thereto, the Issuer and the Guarantor may deem necessary or desirable and which will not adversely affect the interests of the Holders of Notes of such Series in any material respect. Any other modifications or amendments will be made in accordance with the procedures set forth in Condition 14(b) below.

(b) Modifications and amendments to the Notes of a Series (including the Conditions) may also be made, and future compliance therewith or past default by the applicable Issuer or, if applicable, the Guarantor may be waived with respect to Notes of such Series either with the consent of the Holders of at least a majority in aggregate principal amount of the Notes of such Series at the time outstanding or by the adoption of a resolution at a meeting of the Noteholders of such Series held in accordance with the provisions of the Fiscal Agency Agreement; provided, however, that no such modification or amendment and no such waiver may, without the written consent or the affirmative vote of the Holder of each Note of such Series affected thereby (i) change the stated maturity of the principal of or any installment of interest on any such Note; (ii) reduce the principal amount of, or interest on, any such Note; (iii) change the obligation of the Issuer and, if applicable, the Guarantor to pay Additional Amounts pursuant to Condition 11 with respect to any such Note; (iv) change the currency of payment of principal of or interest on any such Note; (v) reduce the percentage of the principal amount of Notes of such Series at the time Outstanding necessary to modify or amend the Notes of such Series, or to waive any future compliance or past default by the applicable Issuer or, if applicable, the Guarantor with respect to Notes of such Series or reduce the percentage of Notes of such Series required for the taking of action or the quorum required at any meeting of holders of Notes of such Series at which a resolution is adopted; or (vi) modify the applicable Issuer’s and, if applicable, the Guarantors’s obligation to maintain the Fiscal Agent, the

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Registrar or Paying Banks and Transfer Agents in accordance with Condition 8. Modifications and amendments to the Fiscal Agency Agreement may be made either with the consent of the Holders of at least the majority in aggregate principal amount of all the Notes of all Issuers for the time being Outstanding or by the adoption of a resolution at a meeting of all Noteholders held in accordance with the provisions of the Fiscal Agency Agreement. Any such modifications, amendments or waivers will be conclusive and binding on all Holders of Notes and coupons, if any, of such Series or of all the Notes, as applicable, whether or not they have given such consent or were present at such meeting, and on all future Holders of Notes and coupons of such Series or of all the Notes, as applicable, whether or not notation of such modifications, amendments or waivers is made upon such Notes or coupons. Any instrument given by or on behalf of any Holder of a Note of the relevant Series or of all the Notes outstanding, as applicable, in connection with any consent to any such modification, amendment or waiver will be irrevocable once given and will be conclusive and binding on all subsequent Holders of such Note and any coupons appertaining thereto.

(c) At any initial meeting of the Holders of the Notes of a Series or of all the Notes, as applicable, called for any of the above purposes, persons entitled to vote 50.0% in aggregate principal amount of the Notes of such Series or of all the Notes outstanding, as applicable, at the time outstanding shall constitute a quorum, it being understood that any Holder of a Note of such Series or of all the Notes outstanding, as applicable, entitled to more than one vote shall not be required to cast all such votes in the same manner. In the absence of a quorum at any such meeting, the meeting may be adjourned for a period of not less than 10 days; at any reconvened meeting the persons entitled to vote 25.0% in aggregate principal amount of the Notes of such Series or of all the Notes, as applicable, at the time outstanding shall constitute a quorum for the taking of any action set forth in the notice of the original meeting. At a meeting or an adjourned meeting duly convened and at which a quorum is present as aforesaid, any resolution to modify or amend, or to waive compliance with, any of the covenants, conditions or events referred to above shall be effectively passed if passed by the persons entitled to vote a majority in aggregate principal amount of the Notes of such Series or of all the Notes outstanding, as applicable, represented and voting at the meeting.

15. Replacement of Notes

If any Note or coupon shall become mutilated or defaced or be destroyed, lost or stolen, the Fiscal Agent shall authenticate and deliver a new Note (with appropriate coupons attached), on such terms as the applicable Issuer and the Fiscal Agent may require, in exchange and substitution for the mutilated or defaced Note or the Note to which the mutilated or defaced coupon was attached or in lieu of and in substitution for the destroyed, lost or stolen Note or the Note to which the destroyed, lost or stolen coupon was attached. In every case of mutilation, defacement, destruction, loss or theft, the applicant for a substitute Note shall furnish to the Issuer and the Fiscal Agent such indemnity as the applicable Issuer and the Fiscal Agent may require and evidence to their satisfaction of the destruction, loss or theft of such Note or coupon and of the ownership thereof. In every case of mutilation or defacement of a Note or coupon, the Holder shall surrender to the Fiscal Agent the Note or coupon so mutilated or defaced. In addition, prior to the issuance of any substitute Note, the Issuer may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Fiscal Agent and its counsel and counsel to the applicable Issuer connected therewith). If any Note that has matured or will mature within 30 days or any coupon that has become due and payable or will become payable within 30 days shall become mutilated or defaced or be apparently destroyed, lost or stolen, the Issuer may pay or authorize payment of the same without issuing a substitute Note or coupon, as applicable.

16. Governing Law

This Note and any coupon appertaining hereto shall be governed by and construed in accordance with, the laws of the State of New York, United States of America, without regard to conflict of laws principles.

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17. Descriptive Headings

The descriptive headings appearing in these Conditions are for convenience of reference only and shall not alter, limit or define the provisions hereof.

18. Notices

All notices to Holders of registered Notes (i) will be in writing and mailed first class, postage prepaid, to their registered addresses appearing on the Register and shall be deemed to have been given on the date of such mailing, and (ii) for so long as any registered Notes are listed on the Luxembourg Stock Exchange, will also be published in a daily newspaper of general circulation in Luxembourg. All notices to Holders of bearer Notes will be published in (a) an English language daily newspaper of general circulation in London, England, (b) for so long as the Notes are listed on the Luxembourg Stock Exchange, a daily newspaper of general circulation in Luxembourg, and (c) in each such other place as may be specified in the applicable Pricing Supplement. It is expected that such publication will be made in the Financial Times and the Luxemburger Wort. Any notice published in a newspaper as aforesaid shall be deemed to have been given on the date of such publication, or if published more than once, on the date of the first such publication. If publication as aforesaid is not practicable, notice will be validly given if made in accordance with the requirements of the rules of the Luxembourg Stock Exchange.

Notwithstanding the foregoing, so long as a Registered Global Note, Temporary Global Note or Permanent Global Note representing Notes of a Series or Tranche is held on behalf of DTC, Euroclear and Clearstream, there may be substituted for such publication in such newspapers the delivery of the relevant notice to DTC, Euroclear and Clearstream for communication by them to the holders of interests in the relevant Registered Global Note, Temporary Global Note or Permanent Global Note; provided that, for so long as the relevant Notes are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, publication will still be made in a daily newspaper of general circulation in Luxembourg. Neither the failure to give notice nor any defect in any notice given to any particular Holder of a Note shall affect the sufficiency of any notice with respect to other Notes.

Notice to be given by any Noteholder shall be in writing and given by forwarding the same, together with the related Note or Notes, to the Fiscal Agent. While any Notes are represented by a global Note, such notice may be given by any holder of an interest in such global Note to the Fiscal Agent via DTC Euroclear and/or Clearstream, as the case may be, in such manner as the Fiscal Agent and DTC, Euroclear and/or Clearstream, as the case may be, may approve for this purpose.

19. Prescription

The Notes and coupons (if any) will become void unless presented for payment within a period of five years (in the case of interest and principal) from the due date for payment thereof.

20. Consent to Service; Jurisdiction

The Issuers, the Guarantor and the Fiscal Agent have each submitted to the jurisdiction of any federal or state court in the City of New York for purposes of any legal suit, action or proceeding arising out of or related to the Fiscal Agency Agreement, the Notes or any Guarantee. The Issuers and the Guarantor have each appointed CT Corporation System, with its address on the date hereon on 1633 Broadway, New York, New York 10019, as its authorized agent upon which process may be served in any such suit, action or proceeding. Each of the Issuers and the Guarantors has also further submitted to the jurisdiction of the courts of its corporate domicile in any legal suit, action or proceeding arising out of or relating to the Fiscal Agency Agreement, the Notes or any Guarantee.

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21. Further Issues

Each of the Issuers and the Guarantor may from time to time, without the consent of the holders of the Notes of this Series, coupons or talons (if any) appertaining thereto, create and issue further notes having the same terms and conditions as the Notes of this Series or that are the same in all respects except for the amount and date of the first payment of interest thereon and so that the same shall be consolidated and form a single Series with the outstanding Notes of this Series.

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SUBSCRIPTION AND SALE

The following is subject to change in the applicable Pricing Supplement. In addition, the Dealers who have agreed to purchase Notes of a Series from the Issuer of that Series will be specified in the applicable Pricing Supplement.

The Dealers, with the Issuers and the Guarantor, in an amended and restated dealer agreement (the "Dealer Agreement") dated as of June 5, 1998, have agreed on a basis upon which any of them may from time to time agree to purchase Notes. Any such agreement will extend to the form and terms and conditions of the relevant Notes, the price at which such Notes will be purchased by the Dealers, the commissions or other agreed deductibles (if any) payable or allowable by the Issuers in respect of such purchase and any reimbursement of expenses of the Dealers in connection with the establishment of the Program. The Dealer Agreement makes provision for resignation of existing Dealers and the appointment of additional Dealers. Pursuant to the Dealer Agreement, the Issuers, and, if applicable, the Guarantor, have agreed to indemnify the Dealers against certain liabilities in connection with the offering of the Notes under the Program, including liability under the Securities Act, and to contribute to the payments that such Dealers may be required to make in respect thereof.

United States

The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold (i) outside the United States to or for the account of non-U.S. persons in reliance upon Regulation S, and (ii) in the United States to qualified institutional buyers (as defined in Rule 144A) ("QIBs") in accordance with Rule 144A purchasing Notes for their own account or for the account of one or more QIBs.

Each purchaser of Notes that is a QIB will be deemed to have made the representation set forth under "Transfer Restrictions." Each purchaser of Notes sold outside the United States in reliance on Regulation S will be deemed to have represented that purchaser is not a U.S. person and is not purchasing the Notes with a view to the resale, distribution or other disposition thereof to a U.S. person or in the United States.

Each Dealer has agreed and each further Dealer appointed under the Program will be required to agree that, except as set forth below and as permitted by the Dealer Agreement, it will not offer, sell or deliver Notes of any Tranche (i) as part of their distributions at any time, or (ii) otherwise until 40 days after the completion of the distribution of all Notes of the Tranche of which such Notes are a part, as notified to the Fiscal Agent by such Dealer (or, in the case of a sale of a Tranche of Notes to or through more than one Dealer, by each of such Dealers as to Notes of such Tranche purchased by or through it, in which case the Fiscal Agent shall notify each such Dealer when all such Dealers have so notified the Fiscal Agent), within the United States or to, or for the account or benefit of, U.S. persons and it will have sent to each dealer to which it sells Notes during the distribution compliance period a confirmation or other notice setting forth the restrictions on offers and sales of the Notes within the United States or to, or for the account or benefit of, U.S. persons. Each Dealer has also agreed that neither it, nor any of its affiliates nor any person acting on its or their behalf will engage in any directed selling efforts with respect to any Note and that it and they will comply with the offering restrictions requirements of Regulation S. Terms used in the preceding paragraph and in this paragraph have the meanings given to them by Regulation S under the Securities Act.

Except as otherwise provided herein, until 40 days after the commencement of the offering of any Tranche of Notes, an offer or sale of Notes of such Tranche within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

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In compliance with United States federal tax laws and regulations, Notes in bearer form may not be offered or sold during any applicable restricted period (as defined in United States Treasury Regulation Section 1.163- 5(c)(2)(i)(D)(7)) within the United States or its possessions or to United States Persons (each as defined below), other than to an office of a United States financial institution (as defined in United States Treasury Regulation Section 1.165-12(c)(1)(v)) located outside the United States and its possessions, purchasing for its own account or for resale or for the account of certain customers, that provides a certificate stating that it agrees to comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the United States Internal Revenue Code (the "Code") and the United States Treasury Regulations thereunder, or to certain other persons described in United States Treasury Regulations Section 1.163-5(c)(2)(i)(D)(1)(iii)(B).

Accordingly, each Dealer has represented and agreed, and each further Dealer appointed under the Program will be required to represent and agree:

(a) except to the extent permitted under United State Treasury Regulation Section 1.163- 5(c)(2)(i)(D) (the "D Rules"), it has not offered or sold, and agrees that during the restricted period it will not offer or sell, bearer Notes to a person who is within the United States or its possessions or to a United States person, and (b) it has not delivered and agrees that it will not deliver within the United States or its possessions definitive bearer Notes that are sold during the restricted period;

(b) it has and throughout the restricted period will have in effect procedures reasonably designed to ensure that its employees or agents who are directly engaged in selling bearer Notes are aware that such Notes may not be offered or sold during the restricted period to a person who is within the United States or its possessions or to a United States person, except as permitted by the D Rules;

(c) if it is a United States person, that it is acquiring bearer Notes for purposes of resale in connection with their original issuance and if it retains such Notes for its own account, it will only do so in accordance with the requirements of U.S. Treas. Reg. Section 1.163- 5(c)(2)(i)(D)(6); and

(d) with respect to each affiliate that acquires bearer Notes from such Dealer for the purpose of offering or selling such Notes during the restricted period, to repeat and confirm the representations and agreements contained in clauses (a), (b) and (c) above on such affiliate’s behalf.

The bearer Notes may not be delivered in definitive form in connection with their sale during the restricted period within the United States or its possessions. In addition, if applicable, an interest in a Permanent Global Note or coupon appertaining thereto may not be delivered in exchange for an interest in a Temporary Global Note, nor may any interest be paid with respect to any Permanent Global Note, until the person entitled to receive such interest or coupon furnishes a certificate of non-U.S. beneficial ownership.

Bearer Notes and any bearer coupons will bear the following legend: "Any United States Person who holds this obligation will be subject to limitations under the United States income tax laws, including the limitations provided in Sections 165(j) and 1287(a) of the Internal Revenue Code." For purposes of this paragraph, "United States" means the United States of America (including the States and the District of Columbia), and "possessions" of the United States means Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands. As used in this paragraph, the term "United States Person" means (a) a beneficial owner of a bearer Note that is (i) an individual who is a citizen or resident of the United States, (ii) a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof, or (iii) an estate (other than a foreign estate within the meaning of Section 7701(a)(31) of the Code) or trust that is otherwise subject to U.S. federal income tax on a net basis with respect to its worldwide income, or (b) a beneficial owner who is not a United States Person but whose income from a bearer Note is effectively connected with such owner’s conduct of a United States trade or business. The term also includes certain former

110 citizens of the United States whose income and gain on bearer Notes will be subject to United States federal income taxation.

Notwithstanding the foregoing, such Dealers as may be specified in the relevant Pricing Supplement (the "U.S. Dealers") may offer and sell registered Notes in accordance with Rule 144A under the Securities Act ("Rule 144A Resales"). Each Rule 144A Resale shall be made in accordance with the procedures described in "Transfer Restrictions." In connection with each Rule 144A Resale, each U.S. Dealer has represented and agreed, and each further Dealer appointed under the Program will be required to represent and agree, that (a) neither it nor any person acting on its behalf has made or will make offers or sales of Notes in the United States by any form of general solicitation or general advertising (as those terms are defined in Rule 502(c) under the Securities Act), including (i) any advertisement, article, notice or other communication in any newspaper, magazine or similar medium or any television or radio broadcast, or (ii) any seminar or meeting whose participants have been invited by a general solicitation or advertising, and (b) it will deliver an Offering Circular to each QIB purchasing a Note or Notes from it.

Each Tranche of Notes will also be subject to such additional United States selling restrictions as the Issuer and the relevant Dealer or Dealers may agree upon and as indicated in the applicable Pricing Supplement. Each of the Dealers has agreed or will agree that it will offer, sell or deliver such Notes only in compliance with such additional selling restrictions.

United Kingdom

Each Dealer has represented and agreed and each new Dealer appointed under the Program will be required to represent and agree that:

(i) it has not offered or sold and prior to the expiry of six months from the issue date of a Tranche of Notes, will not offer or sell any Notes to persons in the United Kingdom, except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;

(ii) it has complied and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom; and

(iii) it has only issued or passed on and it will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the Notes to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom the document may otherwise lawfully be issued or passed on.

Brazil

Each Dealer has agreed that it has not offered or sold, and will not offer or sell, any Notes in Brazil, except as permitted under Brazilian laws and regulations. The Notes have not been and will not be registered with the CVM, the Brazilian Agency equivalent to the SEC. Any public offering or distribution, as defined under Brazilian laws and regulations, of the Notes in Brazil is not legal without such prior registration under Law No. 6385/76. Subsequent trading of the Notes in private transactions is not subject to registration with the CVM to the extent such trading does not qualify as a public offering or distribution. The seller, however, may have to comply with procedural requirements to evidence previous title to the documents, as well as be subject to withholding tax on capital gains. Persons wishing to offer or acquire Notes within Brazil should consult with their own legal counsel as to the applicability of these registration requirements or any exemption therefrom.

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TRANSFER RESTRICTIONS

Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or transfer of Notes offered and sold in reliance on Rule 144A.

Each prospective purchaser of Notes offered in reliance on Rule 144A (a "144A Offeree"), by accepting delivery of this Offering Circular, will be deemed to have represented and agreed as follows:

(1) Such 144A Offeree acknowledges that this Offering Circular is personal to such 144A Offeree and does not constitute an offer to any other person or to the public generally to subscribe for or otherwise acquire the Notes other than pursuant to Rule 144A or in offshore transactions in accordance with Regulation S. Distribution of this Offering Circular, or disclosure of any of its contents to any person other than such 144A Offeree and those persons, if any, retained to advise such 144A Offeree with respect thereto and other persons meeting the requirements of Rule 144A or Regulation S is unauthorized, and any disclosure of any of its contents, without the prior written consent of the relevant Issuer, is prohibited. (2) Such 144A Offeree agrees to make no photocopies of this Offering Circular or any documents referred to herein and, if such 144A Offeree does not purchase the Notes or the offering is terminated, to return this Offering Circular and all documents referred to herein to the relevant Dealer. Each purchaser of Notes offered and sold in reliance on Rule 144A will be deemed to have represented and agreed as follows (terms used in this paragraph that are defined in Rule 144A or in Regulation S used herein as defined therein):

(1) The purchaser (A) is a qualified institutional buyer, (B) is aware that the sale to it is being made in reliance on Rule 144A, and (C) is acquiring such Note for its own account or for the account of a qualified institutional buyer. (2) The Notes are being offered only in a transaction not involving any public offering in the United States within the meaning of the Securities Act, the Notes have not been and will not be registered under the Securities Act, and that, if in the future the purchaser decides to offer, resell, pledge or otherwise transfer such Notes, such Notes may be offered, sold, pledged or otherwise transferred only in a transaction exempt from the registration requirements of the Securities Act and in accordance with any applicable securities laws of any state of the United States or any other jurisdiction. (3) Each Restricted Global Note, and any definitive registered restricted Note issued in accordance with the Fiscal Agency Agreement, will bear a legend to the following effect unless the relevant Issuer determines otherwise in compliance with applicable law: THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR (C) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF APPLICABLE), IN EACH CASE IN ACCORDANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER JURISDICTION.

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(4) It understands that the Notes offered in reliance on Rule 144A will be represented by the Restricted Global Note and transfers of interests in such Restricted Global Note will be subject to certain restrictions. See "Description of the Notes—Transfers of Beneficial Interests in the Registered Global Notes and Permanent Global Notes."

(5) Any information the purchaser desires concerning the relevant Issuer, the Notes or any other matter relevant to its decision to purchase the Notes is or has been made available to it.

Transfers of Beneficial Interests in the Registered Global Notes

Any beneficial interest in one type of Registered Global Note that is transferred to a person who takes delivery in the form of a beneficial interest in the other type of Registered Global Note will, upon transfer, cease to be a beneficial interest in such former type of Registered Global Note and become a beneficial interest in the other type of Registered Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Registered Global Note for as long as it remains such an interest.

Secondary Market Transfers Within and Between DTC, Euroclear and Clearstream. No owner of a beneficial interest in a Global Registered Note will be able to transfer that interest except in accordance with the relevant depositary’s or its nominees’ applicable procedures.

Transfers between DTC Participants will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. Because DTC can only act on behalf of its participants, who in turn act on behalf of indirect participants, the ability of a person having a beneficial interest in a Global Registered Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate evidencing such interest. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the Notes described in this Section, in the case of Notes represented by a Restricted Global Note and a Regulation S Global Note or Unrestricted Global Note both held by a custodian on behalf of DTC, crossmarket transfers of such Notes between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected in DTC in accordance with DTC rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparts in such system in accordance with its rules and procedures and within its established deadlines (Brussels time). Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving beneficial interests in the relevant Global Registered Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC.

Subject to compliance with the transfer restrictions applicable to the Notes described in this Section, in the case of Notes represented by a Restricted Global Note held by a custodian on behalf of DTC and a Regulation S Global Note or Unrestricted Global Note held by a depositary on behalf of Euroclear and Clearstream, crossmarket transfers of such Notes between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream participants, on the other, will be effected by DTC, Euroclear and Clearstream, as the case may be, in accordance with their respective rules and procedures and their established deadlines and by, in the case of Euroclear and Clearstream, its respective depositary. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving beneficial interests in the relevant Global Registered Note registered in the name of the nominee of such depositary, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC, Euroclear and Clearstream.

113

Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream.

Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing a beneficial interest in a Global Registered Note from a DTC participant will be credited during the securities settlement processing day immediately following the DTC settlement date and such credit of any transactions in beneficial interests in such Global Registered Note settled during such processing will be reported to the relevant Euroclear or Clearstream participant on such processing day. Cash received in Euroclear or Clearstream as a result of sales of beneficial interests in a Global Registered Note by or through a Euroclear or Clearstream participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account only as of the Business Day following settlement in DTC.

Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in the Global Registered Notes among participants in DTC and participants in Euroclear and Clearstream, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Issuer, the Guarantor the Registrar nor the Fiscal Agent will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

The Restricted Global Note. A Holder of a beneficial interest in a Restricted Global Note may transfer such interest to a QIB without the provision of a written certification to the Fiscal Agent, the Registrar and the Issuer if the transfer is in the form of a beneficial interest in the Restricted Global Note in a transaction pursuant to Rule 144A.

A Holder of a beneficial interest in a Restricted Global Note may transfer such interest in the form of a beneficial interest in a Regulation S Global Note or an Unrestricted Global Note only if such Holder has provided the Registrar, the Fiscal Agent and the Issuer with written certification in the form provided in the Fiscal Agency Agreement (a "Regulation S Transfer Certificate") to the effect that such transfer is being made in accordance with Regulation S or Rule 144 under the Securities Act (only in the case of a transfer for an interest in an Unrestricted Global Note) and provided that, if such exchange or transfer occurs prior to the expiration of the applicable restricted period, the newly issued interest will be held only through Euroclear or Clearstream.

The Regulation S Global Note and Unrestricted Global Note. Prior to the expiration of the applicable restricted period, a Holder of a beneficial interest in a Regulation S Global Note may transfer such interest in the form of a beneficial interest in a Restricted Global Note only if such Holder has provided the Registrar, the Fiscal Agent and the Issuer with a written certification in the form provided in the Fiscal Agency Agreement to the effect that the transferee is a person reasonably believed to be holding or purchasing for its own account or accounts as to which it exercises sole investment discretion and that such person and each such account is a QIB within the meaning of Rule 144A (a "Rule 144A Transfer Certificate"). After the expiration of the applicable restricted period, a Holder of a beneficial interest in an Unrestricted Global Note may exchange or transfer such interest in the form of a beneficial interest in the Restricted Global Note without the provision of written certification, provided that any such exchange or transfer is made only by a QIB (in the case of an exchange) or to a QIB in a transaction pursuant to Rule 144A (in the case of a transfer).

A Holder of a beneficial interest in an Unrestricted Global Note may transfer such interest in the form of a beneficial interest in an Unrestricted Global Note without the provision of written certification to the Fiscal Agent and the Issuer, provided that prior to the expiration of the applicable restricted period such transfer is not made to a United States Person or for the account or benefit of a United States person and is effected through Euroclear and Clearstream in an offshore transaction as required by Regulation S.

114

LISTING AND GENERAL INFORMATION

1. Application may be made to list certain of the Notes issued under the Program on the Luxembourg Stock Exchange. Prior to any listing, a legal notice relating to such issue of the Notes and the constituent documents of the relevant Issuer will be deposited with the Chief Registrar of the District Court of Luxembourg (Greffier en Chef du Tribunal d’Arrondissement de et à Luxembourg), where such documents may be examined and copies obtained. The Luxembourg Stock Exchange has attributed the number 12176 to the Program.

2. The Issuers and the Guarantor have obtained all necessary consents, approvals and authorizations in connection with the issuance and performance of the Notes. The establishment of the Program and the issuance of Notes thereunder was authorized by resolutions adopted by the shareholders of the Bank at the Shareholders Extraordinary General Meeting of the Bank dated October 15, 1994, and by the shareholders of BBL at the Shareholders Extraordinary General Meeting of BBL dated October 15, 1994, and the issuance of the Guarantee was authorized by resolutions adopted by the Board of Directors of the Guarantor on March 24, 1994. The most recent increase in the aggregate nominal amount of the Program from U.S.$600 million to U.S.$1.0 billion was authorized by resolutions adopted by the shareholders of the Bank at the Shareholders Extraordinary General Meeting of the Bank dated September 16, 1996 and by the shareholders of BBL at the Shareholders Extraordinary General Meeting of BBL dated September 16, 1996.

3. For so long as Notes may be issued pursuant to this Offering Circular and are listed on the Luxembourg Stock Exchange:

(a) copies of this Offering Circular, the applicable Pricing Supplement relating to such Notes, any other supplements or amendments to this Offering Circular and the Issuers’ and the Guarantor’s constituent documents will be available, during normal business hours, at the offices of the Fiscal Agent and the Luxembourg Paying Bank;

(b) copies of the Fiscal Agency Agreement and the Dealer Agreement, will be available for inspection, during normal business hours, at the offices of the Fiscal Agent and the Luxembourg Paying Bank; and

(c) copies of the most recent current annual and latest interim financial statements of the Issuers and the Guarantor (if applicable) will be available, during normal business hours, at the offices of the Fiscal Agent and the Luxembourg Paying Bank. Each Issuer publishes its respective interim financial statements on a semiannual basis, prepared in accordance with Brazilian Corporate law. The Guarantor publishes interim financial statements on a quarterly basis. The annual and quarterly financial statements of FleetBoston Financial Corporation include the Guarantor. The Guarantor does not publish separate annual financial statements prepared in accordance with U.S. GAAP.

4. This final Offering Circular, dated June 19, 2002, is only valid for the period of one year and will be updated no later than one year from the date hereof.

5. Application will be made to have Notes represented by a Regulation S Global Note, Temporary Global Note and Permanent Global Note accepted for clearance through Euroclear and Clearstream. Applications will also be made for Notes represented by a Restricted Global Note (insofar as it is necessary for such Notes to be settled through DTC) to be accepted as eligible for trading through PORTAL. The common code, ISIN, CUSIP and/or CINS numbers, as applicable, for the relevant Global Note, and, as the case may require, the common code, ISIN, CUSIP and/or CINS numbers, as applicable, for each further Tranche of Notes issued in respect of the same Series as is represented by the relevant Global Note, will be specified in the relevant Pricing Supplement. If any Notes are to be cleared and

115 settled through an additional or alternative clearing system, the appropriate information will be specified in the applicable Pricing Supplement.

6. In the opinion of the management of each of the Issuers and the Guarantor, there are no pending actions, suits or proceedings against or affecting the Issuers or the Guarantor which will individually or in the aggregate have a material adverse effect on the financial condition, results of operations or general financial affairs of the Issuers or, as the case may be, the Guarantor and to the best of the Issuers’ and the Guarantor’s knowledge, no such actions, suits or proceedings are threatened or contemplated.

7. Except as disclosed herein or in the documents incorporated by reference herein, since December 31, 2001, the date of the latest audited reports filed by the Corporation with the SEC, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the financial condition, results of operations or general affairs of the Guarantor and its subsidiaries, viewed as a whole, or in the financial condition, results of operations or general affairs of any Issuer.

8. Bearer Notes and any Coupon appertaining thereto will bear a legend substantially to the following effect:

"ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE."

9. The independent certified public accountants of the Corporation are PricewaterhouseCoopers LLP and the independent certified public accountants of the Issuers are PricewaterhouseCoopers Auditores Independentes.

116 BankBoston Banco Múltiplo S.A. Financial Statements at December 31, 2001, 2000 and 1999 and Report of Independent Accountants

F-1

F-1 Report of Independent Accountants

January 31, 2002

To the Board of Directors and Stockholders BankBoston Banco Múltiplo S.A.

1 We have audited the accompanying balance sheets of BankBoston Banco Múltiplo S.A. (the "Bank") as of December 31, 2001, 2000 and 1999 and the related statements of income, of changes in stockholders' equity and of changes in financial position of BankBoston Banco Múltiplo S.A. for the years then ended. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements.

2 We conducted our audits in accordance with approved Brazilian auditing standards which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures: (a) planning our audit taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Bank, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements and (c) assessing the accounting principles used and significant estimates made by the Bank's management, as well as evaluating the overall financial statement presentation.

3 In our opinion, the financial statements examined by us present fairly, in all material respects, the financial position of BankBoston Banco Múltiplo S.A. at December 31, 2001, 2000 and 1999 and the results of its operations, the changes in stockholders' equity and the changes in financial position of BankBoston Banco Múltiplo S.A. for the years then ended, in conformity with accounting principles prescribed by Brazilian Corporate Legislation.

PricewaterhouseCoopers Edison Arisa Pereira Auditores Independentes Partner CRC 2SP000160/O-5 Contador CRC 1SP127241/O-0

F-2 BankBoston Banco Múltiplo S.A.

Balance Sheets at December 31 In thousands of reais

Assets 2001 2000 1999 Liabilities and stockholders' equity 2001 2000 1999

Current assets 10,700,634 9,739,686 7,855,067 Current liabilities 12,345,942 11,035,163 9,571,187

Cash and cash equivalents 58,591 42,287 167,419 Deposits 5,157,433 4,464,486 3,908,824 Demand deposits 650,192 508,126 530,104 Interbank investments 4,434,033 5,083,674 4,481,392 Savings accounts 809,158 790,915 631,657 Open market 3,824,101 4,743,341 4,247,733 Interbank deposits 3,613,164 3,060,126 2,528,803 Interbank deposits 609,932 340,333 233,659 Time deposits 84,919 105,319 218,260

Securities 1,209,244 1,032,214 625,712 Deposits received under security repurchase Own portfolio 240,547 555,348 598,977 agreements 4,387,158 4,295,320 3,275,542 Subject to repurchase agreement 363,635 131,005 Own portfolio 706,062 408,081 Subject to negotiation and intermediation of Third-party portfolio 3,681,096 3,887,239 3,275,542 Securities 67,628 11,233 3,502 Restricted deposits – BACEN 67,395 71,379 23,233 Interbank accounts 875,679 363,115 340,825 F

- Subject to guarantees 470,039 263,249 Unsettled payments and receipts 5,281 57,983 76,070 3 Interbank onlendings 870,398 305,132 264,755 Interbank accounts 475,709 496,484 255,791 Unsettled payments and receipts 14,064 67,850 18,197 Interdepartmental accounts 10,425 11,585 12,963 Restricted deposits 443,324 427,221 220,763 Third-party funds in transit 7,882 9,650 11,689 Interbank onlendings 18,321 1,413 16,831 Internal transfer of funds 2,543 1,935 1,274

Interdepartmental accounts 431 600 1,732 Borrowings and onlendings 443,463 966,248 243,573 Internal transfer of funds 431 600 1,732 Local onlendings – official institutions - FINAME 213,428 241,528 128,610 Credit operations 3,530,039 2,629,378 1,594,914 Foreign onlendings 184,818 478,986 69,187 Private sector 3,647,915 2,682,422 1,612,268 Foreign borrowings 45,217 245,734 45,776 Allowance for loan losses (117,876) (53,044) (17,354) Other liabilities 1,471,784 934,409 1,789,460 Leasing operations 6,081 18,944 23,161 Collection of taxes and contributions 1,573 115,261 3,693 Acquisition of leasing operations 6,081 18,944 23,161 Social and statutory 18,165 22,291 3,851 Taxes and social security 180,963 28,132 73,704 Other receivables 974,252 424,026 697,111 Negotiation and intermediation of securities 506,558 96,979 475,636 Foreign exchange portfolio 1,020 604 38 Foreign exchange portfolio 11,271 9,034 470,659 Income receivable 3,870 2,829 5,390 Other 753,254 662,712 761,917 Negotiation and intermediation of securities 736,600 102,399 246,963 Other 232,762 318,194 444,720

F-3 F-3 BankBoston Banco Múltiplo S.A.

Balance Sheets at December 31 In thousands of reais (continued)

Assets 2001 2000 1999 Liabilities and stockholders' equity 2001 2000 1999

Other assets 12,254 12,079 7,835 Long-term liabilities 1,474,051 978,684 901,288 Other assets 8,298 8,878 2,145 Prepaid expenses 3,956 3,201 5,690 Deposits 55,961 1,753 12,442 Time deposits 55,961 1,753 12,442 Long-term assets 3,320,971 2,308,939 2,725,520 Borrowings and onlendings 681,431 657,735 871,184 Interbank investments 140,871 221,043 42,604 Local onlendings – official institutions - FINAME 244,715 216,291 145,225 Interbank accounts 140,871 221,043 42,604 Foreign onlendings 436,716 417,054 725,959 Foreign borrowings 24,390 Securities 2,099,026 1,386,435 2,108,980 Own portfolio 232,336 784,296 1,632,535 Other liabilities 691,278 319,196 17,662 Subject to repurchase agreements 339,273 Taxes and social security 38,439 19,088 17,662 Subject to negotiation and intermediation of Negotiation and intermediation of securities 612,625 258,561 Securities 546 Other 40,214 41,547 Restricted deposits – BACEN 159,238 315,076 476,445 F

- Subject to guarantees 1,367,633 287,063 Deferred income 2,373 1,327 787 4 Credit operations 760,808 550,999 488,962 Stockholders' equity 1,483,017 882,527 697,309 Private sector 786,213 562,115 504,062 Capital - local residents 605,708 605,708 605,708 Allowance for loan losses (25,405) (11,116) (15,100) Capital increase 58,050 Capital reserves 225 225 225 Leasing operations 4,677 21,380 Revenue reserves 62,512 35,390 26,129 Acquisition of leasing operations 4,677 21,380 Retained earnings 756,522 241,204 65,247

Other receivables 320,266 145,785 62,465 Negotiation and intermediation of securities 231,517 86,286 Other 88,749 59,499 62,465

Other assets - Prepaid expenses 1,129

Permanent assets 1,283,778 849,076 589,984

Investments 908,834 579,191 426,632 Investments in subsidiaries 903,007 569,726 422,410 Other investments 5,827 9,465 4,222

The accompanying notes are an integral part of these financial statements.

F-4 BankBoston Banco Múltiplo S.A.

Balance Sheets at December 31 In thousands of reais (continued)

Assets 2001 2000 1999 Liabilities and stockholders' equity 2001 2000 1999

Fixed assets in use 312,903 223,333 124,939 Fixed assets under construction 200,635 116,651 75,111 Buildings in use 46,118 48,237 14,629 Furniture, fixtures and equipment in use 36,366 29,602 17,678 Other fixed assets in use 52,403 46,951 27,980 Accumulated depreciation (22,619) (18,108) (10,459)

Deferred assets 62,041 46,552 38,413 Organization and expansion costs 98,317 67,927 56,388 Accumulated amortization (36,276) (21,375) (17,975)

15,305,383 12,897,701 11,170,571 15,305,383 12,897,701 11,170,571 F - 5

The accompanying notes are an integral part of these financial statements.

F-5 BankBoston Banco Múltiplo S.A.

Statements of Income In thousands of reais, except amounts per thousand shares

2001 2000 1999

Income from financial intermediation 3,043,510 1,965,548 2,209,567 Credit operations 951,024 580,584 704,744 Leasing operations 267 567 Securities 2,054,606 1,337,641 1,299,299 Foreign exchange portfolio 26,602 38,622 193,647 Compulsory deposits 11,278 8,434 11,310

Expenses from financial intermediation (2,118,366) (1,444,155) (1,637,866) Deposits (1,603,236) (1,170,769) (1,073,236) Borrowings, credit assignments and onlendings (419,126) (219,375) (532,704) Provision for loan losses (96,004) (54,011) (31,926)

Gross profit from financial intermediation 925,144 521,393 571,701

Other operating income (expenses) (216,267) (281,772) (334,226) Commissions and fees from services rendered 266,992 263,923 201,893 Personnel expenses (174,918) (216,147) (340,147) Other administrative expenses (277,938) (293,124) (223,232) Tax expenses (64,386) (40,165) (56,850) Equity in the earnings of subsidiaries 278,607 142,827 193,479 Other (244,624) (139,086) (109,369)

Operating income 708,877 239,621 237,475

Non-operating expenses, net (9,054) (13,674) (11,042)

Income before income tax, social contribution and employee profit sharing 699,823 225,947 226,433 Income tax and social contribution (137,248) (11,642) (43,168) Employee profit sharing (20,135) (29,087) (7,771)

Net income 542,440 185,218 175,494

Net income per thousand shares - R$ 1.02 0.35 0.33

The accompanying notes are an integral part of these financial statements.

F-6 BankBoston Banco Múltiplo S.A.

Statements of Changes in Stockholders' Equity In thousands of reais, except amounts per thousand shares

Revenue Interest attributed to own capital (R$ 0.09 per thousand shares) Capital reserves reserve

Capital Fiscal Retained Capital increase Incentives Other Legal Earnings Total

At December 31, 1998 349,959 102,629 203 22 17,355 22,672 492,840 Capital increase 255,749 (102,629) 153,120 Reversal of proposed dividends 26,000 26,000 Net income 175,494 175,494 Appropriation of net income Legal reserve 8,774 (8,774) Dividends proposed (R$ 0.20 per thousand shares) (107,194) (107,194) Interest attributed to own capital (R$ 0.08 per thousand shares) (42,951) (42,951)

At December 31, 1999 605,708 203 22 26,129 65,247 697,309 Net income 185,218 185,218

F Appropriation of net income -

7 Legal reserve 9,261 (9,261)

At December 31, 2000 605,708 203 22 35,390 241,204 882,527 Capital increase 58,050 58,050 Net income 542,440 542,440 Appropriation of net income Legal reserve 27,122 (27,122)

At December 31, 2001 605,708 58,050 203 22 62,512 756,522 1,483,017

The accompanying notes are an integral part of these financial statements.

F-7 BankBoston Banco Múltiplo S.A.

Statement of Changes in Financial Position In thousands of reais

2001 2000 1999

Financial resources were provided by 3,451,175 2,711,556 5,643,665

Adjusted net income (loss) 294,890 71,419 (6,651) Net income 542,440 185,218 175,494 Depreciation and amortization 31,057 29,028 11,334 Equity in the earnings of subsidiaries (278,607) (142,827) (193,479)

Deferred Income 1,046 538

Resources from stockholders 58,050 179,120 Capital increase 58,050 153,120 Reversal of proposed dividends 26,000

Dividends received from subsidiaries 28,420

Decrease in capital of subsidiary 66,889

Resources provided by third-parties 3,097,189 2,639,599 5,375,887

Increase of current and long-term liabilities 2,305,235 2,094,888 5,206,915 Deposits 747,155 544,972 2,044,076 Deposits received under security repurchase agreements 137,219 1,019,778 1,638,657 Interbank and interdepartmental accounts 511,404 20,913 12,618 Borrowings and onlendings 509,225 416,981 Other liabilities 909,457 1,094,583

Decrease of current and long-term assets 768,297 526,730 162,787 Interbank and interdepartmental accounts 729,813 162,787 Securities 316,043 Interbank and interdepartmental accounts 20,944 Leasing operations 17,540 20,921 Other receivables 189,766

Sales of permanent assets 23,657 17,981 6,185 Investments 4,686 Fixed assets 15,612 17,981 6,185 Deferred charges 3,359

F-8 BankBoston Banco Múltiplo S.A.

Statement of Changes in Financial Position In thousands of reais (continued)

2001 2000 1999

Financial resources were applied in 3,434,871 2,836,688 5,520,071

Dividends proposed/paid 107,194

Interest attributed to own capital 42,951

Deferred income 2,074

Applications in 210,809 163,271 119,402 Investments 55,722 9,729 9,558 Fixed assets 149,498 125,274 78,031 Deferred assets 5,589 28,268 31,813

Increase of current and long-term assets 2,724,973 2,119,900 5,248,450 Interbank investments 780,721 1,972,588 Securities 889,621 1,912,990 Interbank and interdepartmental accounts 239,563 Leasing operations 43,557 Credit operations 1,110,470 1,096,501 835,657 Other receivables 724,707 480,635 Other assets 175 3,115 3,023

Decrease of current and long-term liabilities 499,089 553,517 Repurchase agreements Borrowings and onlendings 499,089 Other liabilities 553,517

Increase (decrease) in cash and cash equivalents (16,304) (125,132) 123,594

Changes in cash and cash equivalents

Cash and cash equivalents At the beginning of the year 42,287 167,419 43,825 At the end of the year 58,591 42,287 167,419

Increase (decrease) in cash and cash equivalents (16,304) (125,132) 123,594

The accompanying notes are an integral part of these financial statements.

F-9 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

1 Operations

BankBoston Banco Múltiplo S.A. is authorized by the Brazilian Central Bank to operate with commercial, credit, financing and investment and housing loan portfolios. The Bank's operations are conducted within the context of a group of institutions which are jointly active in the Brazilian and international financial markets. As a result, certain operations involve the co- participation or intermediation of the institutions comprising the BankBoston Group. The benefits of services rendered among these associated institutions and normal operating and administrative costs are absorbed jointly, or individually, as is most practical and reasonable in the circumstances, by the institutions.

2 Significant Accounting Policies

The accounting policies adopted for recording the transactions and preparing the financial statements comply with the requirements of Brazilian Corporation Law, as well as the rules and instructions of the Brazilian Central Bank (BACEN).

(a) Determination of net income

Net income is determined on the accrual basis of accounting.

(b) Current and long-term assets

These assets are stated at cost, including accrued earnings, monetary (on a pro rata basis) and exchange variations and, where applicable, adjusted to their corresponding market or realizable values. The allowance for losses is based on management's analysis of outstanding receivables and is established at an amount sufficient to cover credit risks considering the current economic environment, past experience and specific and overall portfolio risks, as well as the requirements of BACEN. Deferred tax assets are calculated based on their expected realizable value and mainly comprise timing differences between income tax and social contribution calculation bases (Note 5(b)) and were recorded at a rate of 15% plus an additional 10% for income tax and at a rate of 9% for social contribution.

F-10 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

Permanent assets are stated at cost, plus price-level restatement through December 31, 1995 and take into consideration the following:

. Investments in subsidiaries, accounted for based on the equity method of accounting. . Depreciation of fixed assets in use, computed on the straight-line basis, at rates which take into consideration the economic useful lives of the assets as follows: building in use - 4%, machinery, equipment, installations, furniture and fixtures - 10% and data processing equipment - 20%. . Deferred assets, mainly comprising leasehold improvements, are amortized based on the corresponding contract periods.

(d) Current and long-term liabilities

These liabilities are stated at their known or estimated amounts, less corresponding unexpired expenses and including accrued charges and monetary (on a daily pro rata basis) and exchange variations. The provision for federal income tax was calculated at a rate of 15%, plus an additional 10% for income over specific limits and the provision for social contribution was calculated at a rate of 9% (2000 - 12% in January and February to December - 9%; January through April 1999 – 8% and May through December 1999 – 12%), of taxable income before income tax.

F-11 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

3 Securities

2001 2000 1999

Own portfolio Central Bank Notes (NBC) 570,978 988,524 1,467,377 Financial Treasury Notes (LFT) 1,168 15,683 4,973 National Treasury Bonds (LTN) 36,464 244,689 9,484 National Treasury Notes (NTN) 213,993 17,206 98,512 Bank Certificates of Deposit (CDB) 30,860 205,070 Debentures 161,313 107,944 320,819 Mortgage notes 89,624 55,882 66,615 Promissory notes 69,908 35,816 60,263 Shares of listed companies 3,602 22,963 41,423 Provision for lower of cost and market (2,119) (18,058) (43,024)

1,175,791 1,470,649 2,231,512

Subject to negotiation and intermediation of Securities Unexercised option premiums 70,899 11,521 8,439 Provision for lower of cost and market (2,725) (288) (4,937)

68,174 11,233 3,502

Restricted deposits – BACEN NBC 158,838 398,042 488,972 NTN 67,795 21,427 Provision for lower of cost and market (11,587) (10,721)

226,633 386,455 499,678

Subject to guarantees NBC 1,027,370 561,966 NTN 810,302 Provision for lower of cost and market (11,654)

1,837,672 550,312

3,308,270 2,418,649 2,734,692

F-12 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

Restricted deposits - BACEN consists of compulsory central bank placements on demand and savings account deposits and also on funds obtained under Resolution 63. Securities subject to collateral provided comprise mainly guarantee margin requirements at the Mercantile and Futures Exchange - BM&F.

In November 2001, the Brazilian Central Bank published Circular 3068, amended by Circular 3082, which established the adoption, from June 30, 2002, of new criteria for recording and classifying securities comprising the portfolios of financial institutions. In accordance with these instructions, the securities must be classified by management in one of the following three categories: (i) trading securities – will be recorded based on their expected realizable values as a counter-entry to results for the year; (ii) securities available for sale - will be recorded based on their expected realizable values as a counter-entry to a specific account in stockholders' equity; and (iii) securities held in portfolio up to maturity - will be recorded based on the intrinsic rate of the securities as a counter-entry to results for the year. The management of BankBoston Banco Múltiplo S.A. will classify its securities' portfolio in compliance with these instructions up to June 30, 2002, at which time, any accounting effects arising from the change in accounting policy will be determined and the corresponding adjustments made to the retained earnings or accumulated deficit account, pursuant to the provisions of Article 10 of the aforementioned circular. The securities portfolio at December 31, 2001 is calculated at restated cost, less of the provision for adjustment to expected realizable value, when this is lower.

4 Credit Operations and Allowance for Loan Losses

The National Monetary Council - CMN and BACEN, through Resolution 2682 of December 21, 1999, introduced the following principal guidelines for classifying credit operations and recording the corresponding allowance for loan losses from March 2000:

. Credit operations are classified according to nine risk levels.

. The allowance for loan losses is recorded based on the individual rating of each customer at the risk levels defined by the resolution. This rating takes into consideration, among others, a periodic analysis of the operation, late payments, the customer's creditworthiness and underlying guarantees, where appropriate.

F-13 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(a) Composition of the Bank's credit portfolio by type of operation

Details 2001 2000

Credit operations Discount of trade receivables and other loans 3,205,653 2,034,893 Financing of infrastructure and development 328,224 415,068 Rural and agribusiness loans 324,189 158,865 Housing loans 352,579 227,352 Other financing 223,483 408,359

Total credit operations 4,434,128 3,244,537

Other receivables 23

Total credit portfolio 4,434,128 3,244,560

F-14 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Total credit portfolio concentration by activity sector

Details 2001

Private Sector Manufacturing Electrical, electronic and communication materials 53,392 Transport material 194,638 Chemical 348,117 Printing and publishing 8,068 Petrochemical 15,568 Wood products 2,414 Paper, cardboard and pulp 22,802 Food products 387,630 Civil construction 81,156 Machinery and equipment 267,111 Metallurgical 23,074 Mineral 20,760 Textile 56,817 Other industries 145,027

1,626,574

Commerce Retail 396,749 Wholesale 175,084

571,833

Individuals 276,903

Real estate and housing 352,579

Services 1,238,286

Other sectors 367,953

4,434,128

F-15 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

Details 2001

Falling due from 1 to 180 days 3,132,876 from 181 to 365 days 393,968 More than 365 days 786,213

4,313,057

Overdue From 1 to 30 days 53,350 From 31 to 90 days 17,476 From 91 to 180 days 21,836 More than 180 days 28,409

121,071

4,434,128

(d) Concentration of credit risk

Details 2001 2000

Largest borrower 98,792 82,771 Percentage of total credit operation portfolio 2.23 2.55 20 largest borrowers 1,114,315 852,184 Percentage of total credit operation portfolio 25.13 26.27

F-16 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(e) Composition of the credit portfolio and of the corresponding allowance for loan losses distributed by the risk levels established under Resolution 2682

2001 Total Allowance Risk level operations recorded

AA 614,564 A 1,707,085 8,535 B 1,143,714 11,437 C 640,732 19,222 D 109,820 10,982 E 166,237 49,871 F 9,641 4,821 G 13,074 9,152 H 29,261 29,261

Total 4,434,128 143,281

Details 2001 2000

Total operations renegotiated in the year 23,858 8,344 Total operations written-off as loss in the year 16,883 22,305 Total recoveries in the year 2,867 4,615

F-17 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(f) Movement of Allowance for loan losses

The allowance for loan losses presented the following movement during the years ended December 31, 2001, 2000 and 1999:

2001 2000 1999

Opening balance 64,160 32,454 21,244 Provision for losses 96,004 54,011 31,926 Amount written off (16,883) (22,305) (20,716)

Closing balance 143,281 64,160 32,454

Recovery of credits previously written-off as losses 2,887 4,615 263

5 Other Receivables

2001 2000 1999

(a) Negotiation and intermediation of securities Swap - difference receivable 941,723 184,474 237,761 Sundry 26,394 4,211 9,202

968,117 188,685 246,963

(b) Others

Other sundry receivables – comprised mainly by: credits arising from export contracts in the amount of R$ 15,522 (2000 – R$ 56,313 ; 1999 – R$ 140,029), credits arising from the acquisition of receivables in the amount of R$ 189,020 (2000 – R$ 96,257 ; 1999 – R$ 78,634), deferred tax assets in the amount of R$ 73,279 (2000 – R$ 49,553; 1999 - R$ 54,114) and taxes recoverable in the amount of R$ 64,656 (2000 – R$ 134,817 ; R$ 50,449), less of R$ 91,473 for amounts received on account of associated companies. Deferred tax assets calculated based on their expected realizable value are recorded on timing differences relating to temporarily non- deductible additions and expenses to provisions for income tax and social contribution determination purposes.

F-18 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

6 Investments in Subsidiaries

BankBoston Latino- BankBoston BankBoston Americano Boston BankBoston BankBoston Distribuidora de Leasing S.A. - (Sociedade Negócios e BankBoston Administradora Corretora de Câmbio Títulos e Valores Arrendamento Unipessoal) Participações Companhia de Cart. de Créd. - Títulos e Valores Boston Previd. Boston Gestão Mobiliários S.A. (3) Privada S.A(4)4 Empres. Ltda. Total Description Mobiliários S.A. Mercantil S.A. (1) Ltda. (1) Hipotecária S/C Ltda. (2)

Number of shares/quotas held: Common Nominative Shares/Quotas 33,732,789 3,604,282 330,359,801 4,950,000 44,312,511 7,999,997 4,469,218 Percentage holding 99,99 99,99 99,99 99,00 99,99 99,99 99,99 F Stockholders' equity -

19 At December 31, 2001 18,827 181,645 626,305 6,974 55,182 9,181 4,968 At December 31, 2000 14,235 136,781 407,139 7,173 4,469 At December 31, 1999 11,037 107,583 296,784 7,077 Net Income (loss) At December 31, 2001 4,226 44,864 219,166 (199 ) 14,204 329 499 At December 31, 2000 2,899 29,198 110,346 96 At December 31, 1999 1,829 30,414 (33,576) 643 Book value of investment: At December 31, 2001 18,827 181,645 626,305 6,904 55,177 9,181 4,968 903,007 At December 31, 2000 14,235 136,781 407,139 7,102 4,469 569,726 At December 31, 1999 11,037 107,583 296,784 7,006 422,410 Equity in the earnings of subsidiaries At December 31, 2001 4,592 44,864 219,166 (198 ) 8,504 1,180 499 278,607 At December 31, 2000 3,198 29,198 110,346 95 (10 ) 142,827 At December 31, 1999 2,049 30,414 193,956 (33,576) 636 193,479

(1) On December 6, 1999, BankBoston Banco Múltiplo S.A. incorporated Boston Negócios e Participações Ltda through its investment in BankBoston Latino-Americano (Sociedade Unipessoal) S.A. (2) On March 1, 2001, BankBoston Banco Múltiplo S.A. acquired from Boston Comercial e Participações Ltda., at book value, BankBoston Administradora de Cartões de Crédito S/C Ltda. (3) On January 12, 2001, BankBoston Banco Múltiplo S.A. subscribed the capital of BankBoston Corretora de Câmbio, Títulos e Valores Mobiliários S.A., which commenced activities on that date. (4) On June 20, 2000, BankBoston Banco Múltiplo S.A. formed Boston Previdência Privada S.A., subject to approval by the Superintendency of Private Insurance – SUSEP, and subscribed 50% of its capital on the same date. The remaining amount was paid in on August 21, 2000. This institution is currently at the pre-operating stage.

F-19 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

7 Foreign Borrowings and Onlendings

Foreign borrowings and onlendings mainly consist of funds raised with BankBoston, N.A. – Nassau Branch for investment in foreign exchange operations relating to export and import and interbank financing operations, bearing interest at annual rates based on the London Interbank Offered Rate - LIBOR. These borrowings fall due through January 2011 (2000 – October 2007; 1999 – October 2007), with interest and charges at LIBOR plus yearly interest of up to 3.63% (2000 – 4,70% ; 1999 – 3,63%) plus any foreign exchange variation.

8 Other Liabilities

2001 2000 1999

(a) Foreign exchange portfolio Exchange sales pending settlement 10,165 8,403 470,659 Exchange purchases payable 554 603 Others 552 28

11,271 9,034 470,659

(b) Negotiation and intermediation of securities Swaps – difference payable 1,059,089 339,948 465,913 Premiums received on options 5,382 4,584 Other 54,712 11,008 9,723

1,119,183 355,540 475,636

(c) Other Guaranteed checks issued pending settlement 70,342 118,670 120,244 Liabilities arising from acquisition of assets/rights 27,845 132,686 228,402 Collections pending settlement 594,818 381,419 272,207 Provision for contingent liabilities 40,214 40,017 55,428 Provision for accrued liabilities 24,448 12,796 22,728 Other 35,801 18,671 62,908

793,468 704,259 761,917

F-20 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

Liabilities for acquisition of assets and rights comprise transactions falling due through September 2002, bearing foreign exchange variation.

The provision for contingent liabilities at December 31, 2001 in the amount of R$ 40,214 (2000 - R$ 40,017; 1999 – R$ 55,428) includes the provision for tax risks in the amount of R$ 34,809 (2000 - R$ 34,753; 1999 – R$ 32,481) (Note 12(e)) and the provision for labor liabilities in the amount of R$ 5,405 (2000 - R$ 5,264; 1999 – R$ 22,947). The provision for contingent liabilities is reviewed, on a periodic basis, by the Bank's management considering, among other factors, the opinion of its legal counsel and are considered sufficient to cover any future losses which may be incurred by the Bank.

9 Stockholders' Equity

(a) Capital

Fully subscribed and paid-up capital comprises 580,576,124,221 (2000 - 529,800,913,068; 1999 - 529,800,913,068) common nominative shares, with no par value.

At the Extraordinary General Meeting held on December 28, 2001, approval was given to increase the Bank’s capital by an amount of R$ 58,050, through the issue of 50,775,211,153 common shares, with no par value, pending approval by BACEN.

(b) Dividends

In accordance with the Bank's statutes, stockholders are entitled to a minimum dividend of 25% of net income for the year, adjusted in accordance with Brazilian corporate legislation. Based on the unanimous decision of the stockholders, management has not proposed the distribution of dividends for the years ended December 31, 2001 and 2000 and the corresponding income determined is being maintained in the accumulated earnings account. During 1999, the Bank distributed dividends to its stockholders in the total amount of R$ 107,194 relating to current and prior year income. The Extraordinary General Meeting of stockholders approved this distribution.

F-21 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

In accordance with the provisions of Law 9249/95, the Bank calculated interest attributed to own capital based on the Long-Term Interest Rate (TJLP), in force during 1999, in the amount of R$ 68,177, which was accounted for in other operating expenses. Interest attributed to own capital paid and proposed during the year decreased the Bank's tax liability by R$ 25,226. For the purpose of these financial statements, in conformity with BACEN Circular 2739/97, this interest is not considered as an expense for the year, but presented as an appropriation of retained earnings.

10 Transactions and Balances with Related Parties Belonging to the Financial BankBoston Group in Brazil

2001 2000 1999

Asset Income Asset Income Asset Income (liability) (expense) (liability) (expense) (liability) (expense)

Interbank investments 1,664 119 736 11,360 Securities - Own portfolio 124,960 15,758 86,003 75,979 493,254 73,662 Interbank accounts 1,412 16,605 9,826 Leasing operations 267 Other receivables 34 652 Amounts received on account of associated companies (91,473) Demand deposits (1,071) (882) Interbank deposits (3,584,256) (529,949) (3,034,271) (455,707) (2,495,176) (257,131) Deposits received under security repurchase agreements (595,186) (293,535) (1,907,775) (184,900) (1,167,541) (94,439) Other liabilities – Foreign exchange portfolio (470,701) (8,719) Other liabilities – Negotiation and Intermediation of securities (253,055) (486,313) (181,713) (170,105) (2,268) Other liabilities – Other (4,148) (8,367) (68) (4,641) (404)

Transactions with related parties were carried out at the average rates offered to third parties on the dates of the transactions, considering the reduced risk of intra-group transactions.

F-22 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

11 Financial Instruments

The Bank engages in operations involving financial instruments recorded in balance sheet or memorandum accounts for its own account and for customers in order to maximize its results and manage its market, currency and interest rate exposures. These risks are controlled through specific policies, the establishment of operating strategies and limits and various techniques for monitoring the positions.

The notional values of these financial instruments are recorded in memorandum accounts and the adjustments and premiums in balance sheet accounts. The notional amount of these transactions at December 31, 2001, was as follows:

Notional amount

Futures contracts 7,465,295

Purchase commitments 3,466,279 Foreign exchange coupon 3,458,821 Interest rate 7,458

Sale commitments 3,999,016 Foreign exchange coupon 1,030,093 Dollar 2,968,923

Options contracts 246,450

Purchased 234,000 Foreign currency 234,000

Sold 12,450 Foreign currency 12,450

F-23 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

Notional amount

Forward contracts 283,820

Purchased – Interest rate 152,255 Sale – Interest Rate 131,565

Swaps contracts

Asset positions 19,843,652 Foreign currency 7,835,670 Interbank market 7,617,678 Pre-fixed 3,987,678 Indexes 402,626

Liability positions 19,843,652 Foreign currency 10,803,403 Interbank market 7,654,801 Pre-fixed 767,515 Indexes 617,933

Net positions Foreign currency (2,967,733) Interbank market (37,123) Pre-fixed 3,200,163 Indexes (215,307)

Differences receivable and payable on swaps total R$ 941,723 and R$ 1,059,089, respectively, and are recorded in Negotiation and intermediation of securities in other receivables and other liabilities.

F-24 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

The securities' portfolio in the amount of R$ 3,308,270 is comprised substantially by federal government securities with a book value of R$ 2,886,443 and market value of R$ 2,941,291. The other financial instrument contracts were entered into at market-compatible prices, rates and conditions and the book value of these financial instruments, considering overall assets and liabilities, is approximately equivalent to their market value.

12 Other Information

(a) At December 31, 2001, guarantees granted on behalf of third parties totaled R$ 1,465,686 (2000 - R$ 1,199,207 ; 1999 - R$ 388,087) and the responsibility for the custody of third-party securities corresponded to R$ 3,188,599 (2000 - R$ 1.445.025; 1999 – R$ 10,160).

(b) The net assets of the investment funds managed by the Bank at December 31, 2001, totaled R$ 26,980,518 (2000 - R$ 23,469,452; 1999 - R$ 19,381,032) of which R$ 11,947,392 (2000 - R$ 10,550,964; 1999 - R$ 8,777,803) of FAQs (Funds of Investments in Quotas of Financial Investments Funds) is invested in R$ 14,504,749 (2000 - R$ 12,413,973; 1999 - R$ 10,168,688) of Financial Investments Funds (FIFs).

(c) Other operating income in the amount of R$ 31,068 (2000 - R$ 11,159; 1999 – R$ 6,541) comprises: income arising from credit assignments in the amount of R$ 6,299 (2000 - R$ 5,742), monetary variation in the amount of R$ 5,262 (2000 - R$ 2,801; 1999 – R$ 5,126) and at December 31, 2001, income from receivables in the amount of R$ 15,191. Other operating expenses in the amount of R$ 275,692 (2000 - R$ 150,245; - 1999 – R$ 102,828) comprise substantially: expenses with interbank fees in the amount of R$ 12,911 (2000 - R$ 15,732; 1999 – R$ 13,382) and sundry expenses with customer portfolio management in the amount of R$ 174,702 (2000 - R$ 107,030; 1999 – R$ 83,872).

F-25 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(d) BankBoston Banco Múltiplo S.A. is a co-sponsor of BankBoston Sociedade de Previdência Privada, a private pension plan incorporated in 1998 and designed to supplement retirement pensions and provide assistance to the sponsors' employees. The plan's accrued actuarial liability at December 31, 2001 in the amount of R$47,018 (2000 – R$ 33,300 ; 1999 - R$ 20,387) is the responsibility of the sponsors. The plan does not present an actuarial deficit at December 31, 2001. During the year ended December 31, 2001 expenses for plan contributions by BankBoston Banco Múltiplo S.A. totaled R$ 1,325 (2000 – R$ 2,796 ; 1999 - R$ 2,869).

(e) The Bank's management is disputing the constitutionality of certain federal tax legislation and is also a defendant in other legal proceedings. The Bank's management, based on the opinion of its legal counsel, considers that the provisions for tax contingencies recorded at December 31, 2001 in the amount of R$ 42,334 (2000 – R$ 15,485 ; 1999 – R$ 17,662), classified in Other liabilities - Taxes and Social Security in long-term liabilities, and the amount of R$ 34,809 (2000 – R$ 34,753; 1999 – R$ 32,481) classified in Other liabilities – other, are sufficient to cover these legal suits.

(f) Non-operating expenses in the amount of R$ 9,054 (2000 - R$ 13,674; 1999 – R$ 11,042) consist mainly of losses on the sale of permanent asset items.

* * *

F-26 BankBoston Leasing S.A. - Arrendamento Mercantil Financial Statements at December 31, 2001, 2000 and 1999 and Report of Independent Accountants

F-27 Report of Independent Accountants

January 31, 2002

To the Board of Directors and Stockholders BankBoston Leasing S.A. - Arrendamento Mercantil

1 We have audited the accompanying balance sheets of BankBoston Leasing S.A. - Arrendamento Mercantil (the "Company") as of December 31, 2001, 2000 and 1999 and the related statements of income, of changes in stockholders' equity and of changes in financial position of BankBoston Leasing S.A. - Arrendamento Mercantil for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements.

2 We conducted our audits in accordance with approved Brazilian auditing standards which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures: (a) planning our audit taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Company, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements and (c) assessing the accounting principles used and significant estimates made by the Company's management, as well as evaluating the overall financial statement presentation.

3 The Company records its operations and prepares its financial statements in accordance with the accounting policies established by the Brazilian Central Bank (BACEN), which requires the adjustment of the present value of the leasing operations to be classified as excess depreciation of leased assets (Note 2(c)). These accounting policies do not require the reclassification of the leasing operations, which are recorded in accordance with Law 6099/74, to current and long-term assets. However, the application of these accounting policies results in a presentation of the net income and stockholders' equity in conformity with accounting principles prescribed by Brazilian Corporate Legislation.

F-28 January 31, 2002 BankBoston Leasing S.A. - Arrendamento Mercantil

4 In our opinion, except for the non-reclassification mentioned in paragraph 3, the financial statements examined by us present fairly, in all material respects, the financial position of BankBoston Leasing S.A. - Arrendamento Mercantil at December 31, 2001, 2000 and 1999, and the results of its operations, the changes in stockholders' equity and the changes in financial position of BankBoston Leasing S.A. - Arrendamento Mercantil for the years then ended in conformity with accounting principles prescribed by Brazilian Corporate Legislation.

PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5

Edison Arisa Pereira Partner Contador CRC 1SP127241/O-0

F-29 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at December 31 In thousands of reais

Assets 2001 2000 1999

Current assets 1,029,199 957,159 1,006,755

Cash and cash equivalents 629 779 1,307

Short-term interbank investments 395,934 518,332 983,775 Interbank deposits 395,934 518,332 983,775

Securities 538,978 397,599 Own portfolio 538,978 397,599

Interbank accounts 84 77

Leasing operations 73,181 10,432 995 Leasing operations receivable - private sector 152,402 121,154 132,123 Advances to suppliers on behalf of lessees 73,072 9,472 2,285 Unearned lease income receivable – private sector (144,493) (109.367) (126,304) Allowance for losses (7,800) (10,827) (7,109)

Other receivables 17,443 25,894 7,907 Other receivables 17,443 25,894 7,907

Other assets 3,034 4,039 12,694 Assets not for own use 12 2,730 2,769 Prepaid expenses 3,022 1,309 9,925

F-30 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at December 31 In thousands of reais (continued)

2001 2000 1999

Long-term assets 30,701 28,355 1,508

Leasing operations (9,061) (11,090) (35,866) Leasing operations receivables - private sector 177,054 124,089 75,573 Unearned lease income receivable - private sector (177,054) (124,089) (75,573) Allowance for losses (9,061) (11,090) (35,866)

Other receivables 34,779 32,254 36,810 Other 34,779 32,254 36,810

Other assets 4,983 7,191 564 Prepaid expenses 4,983 7,191 564

Permanent assets 393,007 342,155 453,277

Fixed assets in use 140 128 52

Leased assets 392,797 342,027 453,202 Leased assets 449,489 406,203 488,885 Accumulated depreciation (139,985) (158,730) (210,928) Losses on leasing operations 20,370 19,818 20,878 Accumulated amortization of losses on leasing operations (11,222) (10,484) (9,895) Excess depreciation 74,145 85,220 164,262

Deferred assets 70 23 Organization and expansion costs 206 124 174 Accumulated amortization of organization and expansion costs (136) (124) (151)

1,452,907 1,327,669 1,461,540

The accompanying notes are an integral part of these financial statements.

F-31 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at December 31 In thousands of reais (continued)

Liabilities and stockholders' equity 2001 2000 1999

Current liabilities 137,472 195,525 189,332

Deposits 737 Interbank deposits 737

Borrowings and onlendings 69,998 96,611 72,608 Local borrowings - other institutions 924 3,434 16,807 Foreign borrowings 69,074 93,177 55,801

Other liabilities 67,474 98,914 115,987 Social and statutory 842 46 25 Taxes and social security 28,147 30,372 13,649 Other liabilities 38,485 68,496 102,313

Long-term liabilities 1,133,789 995,351 1,164,575

Proceeds from securities issuance 505,422 440,516 539,399 Debentures 505,422 440,516 539,399

Borrowings and onlendings 512,360 434,593 456,565 Local borrowings - other institutions 18,276 13,715 10,800 Foreign borrowings 494,084 420,878 445,765

Other liabilities 116,007 120,242 168,611 Taxes and social security 37,922 53,122 64,864 Collection of taxes and contributions 4,198 3,908 3,604 Other liabilities 73,887 63,212 100,143

Deferred income 11250

The accompanying notes are an integral part of these financial statements.

F-32 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at December 31 In thousands of reais (continued)

2001 2000 1999

Stockholders' equity 181,645 136,781 107,583 Capital - local residents 105,000 70,685 70,685 Capital reserve 226 226 226 Revenue reserve 8,537 6,294 4,834 Retained earnings 67,882 59,576 31,838

1,452,907 1,327,669 1,461,540

The accompanying notes are an integral part of these financial statements.

F-33 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Income Years Ended December 31 In thousands of reais, except amounts per share

2001 2000 1999

Income from financial intermediation 474,407 405,063 671,615 Leasing operations 240,861 215,221 400,097 Securities operations 233,521 189,834 271,493 Compulsory deposits 25 8 25

Expenses from financial intermediation (390,434) (334.501) (587,544) Deposits (64,906) (76,545) (114,804) Borrowings, credit assignments and onlendings (158,861) (101,117) (253,996) Leasing operations (163,906) (162,558) (180,277) Provision for losses (2,761) 5,719 (38,467)

Gross profit from financial intermediation 83,973 70,562 84,071

Other operation income (expense) (16,207) (24,703) (38,287) Commissions and fees from services rendered 2 8 20 Personnel expenses (4,785) (2,530) (2,854) Other administrative expenses (4,019) (8,275) (4,671) Tax expenses (9,947) (9,129) (13,388) Other 2,542 (4,777) (17,394)

Operating income 67,766 45,859 45,784

Non operating income, net (20) 26

Income before income tax, social contribution And employee profit sharing 67,766 45,839 45,810 Income tax and social contribution (21,441) (16,575) (15,358) Employee profit sharing (1,461) (66) (38)

Net income 44,864 29,198 30,414

Net income per share - R$ 12.45 8.10 8.44

The accompanying notes are an integral part of these financial statements.

F-34 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Changes in Stockholders' Equity In thousands of reais, except amounts per share

Revenue Capital Capital reserve - Retained Capital increase reserve Legal earnings Total

At December 31, 1998 40,982 96,592 226 3,313 26,745 167,858 Reversal of proposed dividends 1,200 1,200 Capital increase 96,592 (96,592) Dividends paid (R$ 6.94 per share) (25,000) (25,000) Capital decrease (66,889) (66,889) F -

35 Net income 30,414 30,414 Appropriation of net income Legal reserve 1,521 (1,521)

At December 31, 1999 70,685 226 4,834 31,838 107,583 Net income 29,198 29,198 Appropriation of net income Legal reserve 1,460 (1,460)

At December 31, 2000 70,685 226 6,294 59,576 136,781

F-35 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Changes in Stockholders' Equity In thousands of reais, except amounts per share

Revenue Capital Capital Reserve - Retained Capital increase reserve Legal earnings Total

At December 31, 2000 70,685 226 6,294 59,576 136,781 Capital increase 34,315 (34,315) Net income 44,864 44,864 Appropriation of net income Legal reserve 2,243 (2,243) F - 36 At December 31, 2001 105,000 226 8,537 67,882 181,645

The accompanying notes are an integral part of these financial statements.

F-36 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Changes in Financial Position Years Ended December 31 In thousands of reais

2001 2000 1999

Financial resources were provided by 462,796 796,312 667,820

Adjusted net income 160,154 212,584 117,678 Net income 44,864 29,198 30,414 Depreciation and amortization 104,215 113,018 151,503 Excess of depreciation 11,075 70,368 (64,239)

Resources from stockholders 1,200 Reversal of dividends 1,200 Capital increase

Resources provided by third-parties 302,642 583,728 548,942

Increase of current and long-term liabilities 116,060 2,032 332,375 Proceeds from securities issuance 64,906 170,162 Borrowings and onlendings 51,154 2,032 116,034 Other liabilities 46,179

Decrease of current and long-term assets 131,621 467,473 151,093 Short-term interbank accounts 122,397 465,445 Securities 109,296 Leasing operations 41,797 Interbank accounts 84 Other receivables 5,927 Other assets 3,213 2,028

Sales of permanent assets 54,961 114,160 65,467 Fixed assets 86 Leased assets 54,875 114,169 65,467

Increase in deferred income 63 7

F-37 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Changes in Financial Position Years Ended December 31 In thousands of reais (continued)

2001 2000 1999

Financial resources were applied in 462,946 796,840 668,750

Dividends paid/proposed 25,000

Changes in deferred income 11 38

Capital decrease 66,889

Applications in 221,103 186,491 115,182 Leased assets 220,901 180,282 106,990 Fixed assets 125 82 Deferred assets 77 6,127 8,192

Increase of current and long-term assets 206,157 445,249 125,833 Short-term interbank investments 119,232 Securities 141,379 397,599 Interbank accounts 7 25 Lease financing 64,778 34,211 Other receivables 13,432 6,311 Other assets 265

Decrease of current and long-term liabilities 35,675 165,062 335,846 Deposits 736 335,846 Funds borrowed and onlendings 98,883 Other liabilities 35,675 65,443

Decrease in cash and cash equivalents (150) (528) (930)

Changes in the cash and cash equivalents Cash and cash equivalents At the beginning of the year 779 1,307 2,237 At the end of the year 629 779 1,307

Decrease in cash and cash equivalents (150) (528) (930)

The accompanying notes are an integral part of these financial statements.

F-38 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

1 Operations

The main activities of BankBoston Leasing S.A. - Arrendamento Mercantil comprise leasing operations, substantially in the vehicle, data processing equipment and machinery and equipment segments, among others.

The Company’s operations are conducted within the context of a group of institutions which are jointly active in the Brazilian and international financial markets. As a result, certain operations involve the co-participation or intermediation of the institutions comprising the BankBoston Group. The benefits of services rendered among these associated institutions and normal operating and administrative costs are absorbed jointly, or individually, as is most practical and reasonable in the circumstances, by the institutions.

2 Significant Accounting Policies

(a) Determination of net income

Net income is determined on the accrual basis of accounting.

F-39 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Current assets and long-term receivables

These assets are stated at cost, including accrued earnings, monetary (on a pro rata basis) and exchange variations and, where applicable, adjusted to their corresponding market or realizable values. Leasing operations are recorded at the amounts obtained and applied, plus accrued income and charges through the date of the financial statements. Unearned income from leasing operations is recorded as income from financial intermediation on the date it becomes due, in accordance with the provisions of Ministry of Finance (MF) Ordinance 140/80. The allowance for losses is recorded in an amount sufficient to cover estimated losses and is based upon current economic conditions, past experience, specific and general portfolio risks and BACEN requirements and instructions.

Permanent assets are stated at cost, plus price-level restatement through December 31, 1995. Depreciation of property and equipment in use is calculated on the straight-line method, based on annual rates which consider the economic useful lives of the assets as follows: property - 4%, vehicles - 20%, machinery and equipment and other assets - 10% and data processing system - 20%. Leased assets are depreciated at normal rates, calculated in accordance with the provisions of MF Ordinance 140/84, with a 30% decrease in useful life, where applicable. Insufficient depreciation recorded during the year totals R$ 11,075 (2000 - R$ 70,368 ; 1999 – income on excess depreciation of R$ 64,239) and comprises the adjustment determined on the results of leasing operations, based on the present value of the leasing installments, calculated based on the specific internal interest rate of each transaction, in accordance with BACEN Circular 1429/89 and CVM Instruction 58/86. The accumulated balance of excess depreciation is separately disclosed in the Leased assets account and totals R$ 74,145 at December 31, 2001 (2000 - R$ 85,220; 1999 – R$ 164,262). Losses determined on expiry of the lease agreements are recorded in leased assets and amortized over the remaining useful lives of the assets. Gains are taken directly to income.

(d) Current and long-term liabilities

These liabilities are stated at their known or estimated amounts, less corresponding unexpired expenses and including accrued charges and monetary (on a daily pro rata basis) and exchange variations.

F-40 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(e) Income tax and social contribution

The provision for federal income tax was calculated at 15%, plus an additional rate of 10% for income over specific limits and the provision for social contribution was recorded at a 9% rate (2000 - 12% in January and February to December - 9%; January through April 1999 – 8% and May through December 1999 – 12%), both calculated based on taxable income before income tax. Deferred tax assets are calculated based on their expected realizable value and mainly comprise timing differences between income tax and social contribution calculation bases (Note 10(a)) and were recorded at a rate of 15% plus an additional 10% for income tax and at a rate of 9% for social contribution. The deferred income tax liability mainly arises on excess depreciation and is classified in Other liabilities - Taxes and social security contributions.

3 Securities

2001 2000

Own portfolio - unrestricted Financial investment fund quotas 538,978 Central Bank Notes (NBC) 400,504 Allowance for mark-to-market (2,905)

538,978 397,599

In November 2001, the Brazilian Central Bank published Circular 3068, amended by Circular 3082, which established the adoption, from June 30, 2002, of new criteria for recording and classifying securities comprising the portfolios of financial institutions. In accordance with these instructions, the securities must be classified by management in one of the following three categories: (i) marketable securities – will be recorded based on their expected realizable values as a counter-entry to results for the year; (ii) securities available for sale – will be recorded based on their expected realizable values as a counter-entry to a specific account in stockholders' equity; and (iii) securities held in portfolio up to maturity – will be recorded based on the intrinsic rate of the securities as a counter-entry to results for the year. The Company's management will classify the securities' portfolio in compliance with these instructions up to June 30, 2002, at which time, any accounting effects arising from the change in accounting

F-41 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

policy will be determined and the corresponding adjustments made to the retained earnings or accumulated deficit account, pursuant to the provisions of Article 10 of the aforementioned circular. The securities portfolio at December 31, 2001 is calculated at restated cost, less of the provision for adjustment to expected realizable value, when this is lower.

4 Leasing Operations and Allowance for Losses

The National Monetary Council - CMN and BACEN, through Resolution 2682 of December 21, 1999, introduced the following principal guidelines for classifying leasing operations and recording the corresponding allowance for losses subsequent to March 2000:

. Leasing operations are classified according to nine risk levels.

. The allowance for losses is recorded based on the individual rating of each customer at the risk levels defined by the resolution. This rating takes into consideration, among others, a periodic analysis of the operation, late payments, the customer's creditworthiness and underlying guarantees, where appropriate.

(a) Composition of the institution's leasing portfolio by type of operation

The institution's credit portfolio is comprised entirely by leasing operations in the total amount of R$ 340,253.

F-42 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Total leasing portfolio concentration by activity sector

December 31 Details 2001 Private Sector Manufacturing Food products 30,869 Civil construction 10,924 Chemical 21,763 Paper, cardboard and pulp 11,061 Metallurgical 3,119 Machinery and equipment 2,194 Printing and publishing 561 Transport material 8,613 Other industries 8,591

97,695

Commerce Retail 41,753 Wholesale 12,791

54,544

Financial intermediation 56,713

Services 90,757

Individuals 13,566

Other sectors 26,978

340,253

F-43 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

December 31 Details 2001

Falling due from 1 to 180 days 84,449 from 181 to 365 days 70,982 More than 365 days 177,417

332,848 Overdue From 1 to 30 days 1,194 From 31 to 90 days 2,135 From 91 to 180 days 2,154 More than 180 days 1,922

7,405

340,253

(d) Concentration of credit risk

Details 2001 2000

Largest borrower 26,626 16,134 Percentage of total leasing operation portfolio 7.83% 6.45% 20 largest borrowers 179,947 101,533 Percentage of total leasing operation portfolio 52.89% 40.62%

F-44 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(e) Composition of the leasing operation portfolio and of the corresponding allowance for losses distributed by the risk levels established under Resolution 2682

2001 Total Allowance Risk level operations Recorded

AA 80,211 A 56,765 284 B 111,025 1,110 C 48,753 1,462 D 5,806 580 E 34,255 10,277 F 443 222 G 229 160 H 2,766 2,766

Total 340,253 16,861

(f) Movement of Allowance for losses

The allowance for losses presented the following activity for the years ended December 31, 2001 and 2000:

2001 2000 1999

Opening balance 21,917 42,975 4,508 Provision for losses 2,761 38,467 Amount written off (7,817) (21,058)

Closing balance 16,861 21,917 42,975

F-45 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

4 Leased Assets

2001 2000 1999

Depreciatio Net Cost n Net Net

Vehicles 129,111 (46,516) 82,595 107,756 167,316 Machinery and equipment 164,100 (51,035) 113,065 78,653 73,055 Data processing equipment 147,326 (36,334) 110,992 54,092 22,853 Property 6,986 (4,693) 2,293 5,347 11,772 Other leased assets 1,966 (1,407) 559 1,625 2,961

Subtotal 449,489 (139,985) 309,504 247,473 277,957

Excess depreciation 74,145 85,220 164,262 Losses on leasing operations 9,148 9,334 10,983

392,797 342,027 453,202

During the year ended December 31, 2001, the Company recognized expense on insufficient depreciation in the amount of R$ 11,075 (2000 - R$ 70,368 ; 1999 – income on excess depreciation of R$ 64,239) which is recorded as income on leasing operations. Leased assets are insured by the lessees with benefit clauses in favor of the lessor.

F-46 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

5 Funds for Leasing

(a) Non-convertible debentures in the total amount of R$ 505,422 (2000 - R$ 440,516; 1999 - R$ 539,399) have a floating guarantee and are indexed to the Reference Rate (TR) plus interest of 12% year (2000 and 1999 - TR-indexed plus interest of 12% to 15% per year and/or prefixed with interest at 31% per year) and fall due through August, 2016. (2000 and 1999 - fall due through March 5, 2008).

(b) Borrowings and onlendings comprise the following:

Average yearly Falling interest due Type rate - % Through 2001 2000 1999

Commercial paper 7.35 01/2011 93,714 117,137 141,424 Import financing 8.61 04/2006 31,927 28,007 19,466 Resolution 63 17.00 08/2003 18,276 15,127 27,607 Fixed rate notes 9.63 10/2013 437,517 368,911 336,952 Fund for Financing the Acquisition of Industrial Machinery and Equipment (FINAME) 13.39 10/2002 924 2,022 3,724

582,358 531,204 529,173

F-47 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

6 Stockholders' Equity

(a) Capital

Fully subscribed and paid-up capital comprises 3,604,285 (2000 and 1999 – 3,604,285) common nominative shares, with no par value. At the Extraordinary and Ordinary General Meetings held jointly on April 30, 2001, approval was given for a capital increase of R$ 34,315, with no new issue of shares and through the partial utilization of the balance of retained earnings, approved by BACEN on July 6, 2001. On December 22, 1999 the Extraordinary General Meeting of stockholders approved the Company's capital decrease in the amount of R$ 66,889, which was subsequently approved by BACEN on December 29, 1999.

(b) Dividends

In accordance with the Company's statutes, stockholders are entitled to a minimum dividend of 25% of net income, adjusted in accordance with Brazilian Corporate Legislation. Based on the unanimous decision of the stockholders, management has not proposed the distribution of dividends for the years ended December 31, 2001 and 2000 and the corresponding income determined is being maintained in the accumulated earnings account. On September 20, 1999, the Company paid R$ 25,000 of dividends to its stockholders relating to the current year's profit. This decision was approved on September 17, 1999 by the Extraordinary General Meeting of stockholders.

F-48 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

7 Transactions and Balances with Related Parties Belonging to the Financial BankBoston Group in Brazil

2001 2000 1999

Assets Income Assets Income Assets Income (liabilities) (expenses) (liabilities) (expenses) (liabilities) (expenses) Cash and cash equivalents 629 603 Short-term interbank investments 395,934 72,565 518,331 116,838 983,775 171,603 Debentures (147,061) (18,578) (95,218) (59,840) (268,884) (37,948) Interbank deposits (128) (737) (11,524) Borrowings and onlendings (18,276) (4,853) (15,903) (3,218) (29,018) (21,032) Other liabilities – others (23) (371) (21) (346) (1,626) (2,442)

Transactions with related parties were carried out at the average rates offered to third parties on the dates of the transactions, considering the reduced risk of intra- group transactions.

8 Financial Instruments

The Company engages in operations involving financial instruments recorded in balance sheet or memorandum accounts for its own account and for customers in order to maximize its results and manage its market, currency and interest rate exposures. These risks are controlled through specific policies, the establishment of operating strategies and limits and various techniques for monitoring the positions. Pursuant to CVM Circular 1, the Company is not required to determine the market value of leasing operations, which are recorded in the Company's official accounting records in compliance with Law 6099/74, substantially as leased assets.

Securities at December 31, 2001 comprise applications in investment funds with a book value of R$ 538,978 and market value of R$ 538,978. Short-term interbank investments at December 31, 2001 consist of transactions carried out with BankBoston Múltiplo S.A. substantially with short-term maturities, with a market value of R$ 395,392 and book value of R$ 395,934. The other financial instrument contracts recorded in balance sheet accounts were entered into at market-compatible prices, rates and conditions and the book value of these financial instruments, considering overall assets and liabilities, is approximately equivalent to their market value.

F-49 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

9 Other Information

(a) Other receivables comprise the following:

2001 2000 1999

Deferred tax assets 26,133 24,244 28,243 Judicial deposits 8,646 8,010 7,715 Taxes recoverable 15,989 23,213 7,251 Other receivables 1,409 1,689 1,470 Sundry 45 992 38

52,222 58,148 44,717

Deferred tax assets were recorded on tax losses and on timing differences relating to temporarily non-deductible additions to provisions.

(b) Other liabilities - others comprise the following:

2001 2000 1999

Prepaid guaranteed residual value 55,373 100,833 184,036 Provision for contingent liabilities 52,545 29,260 Other 4,454 1,615 18,420

112,372 131,708 202,456

(c) Other operating income in the amount of R$ 9,513 (2000 - R$ 16,244 ; 1999 - R$ 7,313) mainly consists of monetary variation in the amount of R$ 7,488 (2000 - R$ 11,261 ; 1999 - R$ 6,543) and other operating expenses in the amount of R$ 6,971 (2000 - R$ 21,021; 1999 - R$ 24,707) mainly consist of monetary variation in the amount of R$ 3,513 (2000 - R$ 12,822; 1999 - R$ 24,468).

F-50 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at December 31, 2001, 2000 and 1999 Amounts expressed in thousands of reais, unless otherwise indicated

(d) BankBoston Leasing S.A. - Arrendamento Mercantil is a co-sponsor of BankBoston Sociedade de Previdência Privada, a private pension plan incorporated in 1998 and designed to supplement retirement pensions and provide assistance to the sponsors' employees. The plan's accrued actuarial liability in the amount of R$ 47,018 (2000 – R$ 33,300 ; 1999 - R$ 20,387), is the responsibility of the sponsors. The plan does not present an actuarial deficit at December 31, 2001. During the year ended December 31, 2001, expenses for plan contributions by BankBoston Leasing S.A. - Arrendamento Mercantil totaled R$ 220 (20000 – R$ 170 ; 1999 - R$ 105).

(e) The Company's management is disputing the constitutionality of certain federal tax legislation and is also a defendant in other legal proceedings. The Company's management, based on the opinion of its legal counsel, considers that the provisions for tax contingencies recorded at December 31, 2001 in the amount of R$ 23,184, classified in "Other liabilities - taxes and social security" in long-term liabilities and the amount of R$ 52,545 classified in “Other liabilities – other”, are sufficient to cover these legal suits.

* * *

F-51 BankBoston Banco Múltiplo S.A. Financial Statements at March 31, 2002 and 2001 and Report of Independent Accountants

F-52 Report of Independent Accountants on Limited Review

May 10, 2002

To the Board of Directors and Stockholders BanKBoston Banco Múltiplo S.A.

1 We have carried out a limited review of the balance sheet of BankBoston Banco Múltiplo S.A. as of March 31, 2002 and 2001 and the related statements of income, of changes in stockholders’ equity and of changes in financial position for the quarters then ended. This financial information is the responsibility of the Bank's management and was prepared in connection with the Bank's corresponding quarterly information.

2 Our review were carried out in accordance with specific standards established by the IBRACON – Brazilian Institute of Independent Auditors and mainly comprised (a) inquiries of and discussions with company officials, responsible for the accounting, financial and operating areas of the Bank, regarding the criteria used to prepare the statements, referred to in paragraph 1 and (b) a review of the significant information and subsequent events which have, or could have, a significant effect on the Bank's financial position and operations.

3 Based on our limited reviews, we are not aware of any material modifications which should be made to the balance sheet of BankBoston Banco Múltiplo S.A. at March 31, 2002 and 2001 and to the related statements of income, of changes in stockholders’ equity and of changes in financial position for the quarters then ended referred to in paragraph 1, for these statements to comply with accounting principles determined in Brazilian corporate legislation and applicable to the preparation of quarterly information.

PricewaterhouseCoopers Edison Arisa Pereira Auditores Independentes Partner CRC 2SP000160/O-5 Contador CRC 1SP127241/O-0

F-53 BankBoston Banco Múltiplo S.A.

Balance Sheets at March 31 In thousands of reais

Assets 2002 2001 Liabilities and stockholders' equity 2002 2001

Current assets 11,205,240 12,691,710 Current liabilities 12,477,821 14,353,052

Cash and cash equivalents 60,254 46,435 Deposits 5,074,102 4,552,119 Demand deposits 628,387 501,856 Interbank investments 5,513,276 7,472,456 Savings accounts 804,608 872,339 Open market 4,894,865 7,308,918 Interbank deposits 3,482,238 3,049,165 Interbank deposits 618,411 163,538 Time deposits 158,869 128,759

Securities 981,023 941,157 Deposits received under security repurchase Own portfolio 368,865 429,139 Agreements 4,368,924 5,435,928 Subject to repurchase agreement 185,530 68,656 Own portfolio 298,952 297,308 Subject to negotiation and intermediation of Third-party portfolio 4,069,972 5,138,620 securities 28,738 10,662 F

- Restricted deposits - BACEN 68,941 Interbank accounts 574,345 916,502 54 Subject to guarantees 397,890 363,759 Unsettled payments and receipts 123,230 449,918 Interbank onlendings 451,115 466,584 Interbank accounts 454,541 474,518 Unsettled payments and receipts 12,612 18,391 Interdepartmental accounts 28,626 4,690 Restricted deposits 423,136 455,169 Third-party funds in transit 2,183 3,475 Interbank onlendings 18,793 958 Internal transfer of funds 26,443 1,215

Interdepartmental accounts 1,061 269 Borrowings and onlendings 277,451 1,442,760 Internal transfer of funds 1,061 269 Local onlendings – official institutions - FINAME/BNDES 196,436 179,878 Credit operations 3,147,955 2,607,533 Foreign onlendings 43,821 544,959 Private sector 3,271,504 2,670,540 Foreign borrowings 37,194 717,923 Allowance for loan losses (123,549) (63,007) Other liabilities 2,154,373 2,001,053 Leasing operations 3,801 15,665 Collection of taxes and contributions 170,438 43,758 Acquisition of leasing operations 3,801 15,665 Social and statutory 2,493 2,617 Taxes and social security 66,160 112,576 Other receivables 1,028,912 1,120,083 Negotiation and intermediation of securities 683,025 208,346 Foreign exchange portfolio 83,591 675,404 Foreign exchange portfolio 94,846 684,525 Income receivable 4,131 2,534 Other 1,137,411 949,231 Negotiation and intermediation of securities 572,561 164,925 Other sundry receivables 368,866 277,220 Allowance for loan losses (237)

F-54 BankBoston Banco Múltiplo S.A.

Balance Sheets at March 31 In thousands of reais (continued)

Assets 2002 2001 Liabilities and stockholders' equity 2002 2001

Other assets 14,417 13,594 Long-term liabilities 1,577,301 1,451,838 Other assets 8,233 8,691 Prepaid expenses 6,184 4,903 Deposits 358,102 51,092 Interbank deposits 297,796 30,439 Time deposits 60,306 20,653 Long-term assets 3,013,356 3,175,693 Deposits received under security repurchase Interbank investments 134,363 457,305 Agreements 14,837 207,960 Interbank deposits 134,363 457,305 Own portfolio 14,837 207,960

Securities 1,889,898 1,612,261 Own portfolio 397,478 198,104 Borrowings and onlendings 671,696 759,394 Local onlendings – official institutions –

F Subject to repurchase agreements 30,740 219,500 FINAME/BNDES 242,906 308,245 - 55 Subject to negotiation and intermediation of Foreign onlendings 428,790 435,923 Securities 546 546 Foreign borrowings 15,226 Restricted deposits - BACEN 170,524 666,302 Subject to guarantees 1,290,610 527,809 Other liabilities 532,666 433,392 Collection of taxes and contributions 721 Credit operations 710,310 803,824 Taxes and social security 31,487 Private sector 730,360 815,587 Negotiation and intermediation of securities 458,031 433,392 Allowance for loan losses (20,050) (11,763) Other 42,427

Leasing operations 3,754 Deferred income 2,207 1,485 Acquisition of leasing operations 3,754

Other receivables 278,785 298,549 Stockholders' equity 1,516,503 1,065,432 Negotiation and intermediation of securities 261,631 240,642 Capital - local residents 663,758 605,708 Other sundry receivables 17,154 57,907 Capital reserves 224 224 Revenue reserves 62,513 35,391 Permanent assets 1,355,236 1,004,404 Retained earnings 790,008 424,109

Investments 936,283 716,523 Investments in subsidiaries 928,245 711,698 Other investments 8,038 4,825

The accompanying notes are an integral part of these financial statements.

F-55 BankBoston Banco Múltiplo S.A.

Balance Sheets at March 31 In thousands of reais (continued)

Fixed assets in use 355,463 225,715 Fixed assets under construction 225,45 108,789 Buildings in use 46,117 48,237 Furniture, fixtures and equipment in use 53,444 39,933 Other fixed assets in use 62,602 49,418 Accumulated depreciation (32,245) (20,662)

Deferred assets 63,490 62,166 Organization and expansion costs 104,360 87,310 Accumulated amortization (40,870) (25,144)

15,573,832 16,871,807 15,573,832 16,871,807 F - 56

The accompanying notes are an integral part of these financial statements.

F-56 BankBoston Banco Múltiplo S.A.

Statements of Income Three-months period ended March 31 In thousands of reais, except amounts per thousand shares

2002 2001

Income from financial intermediation 546,788 723,645 Credit operations 228,962 228,544 Securities 298,780 488,338 Foreign exchange portfolio 16,586 4,472 Compulsory deposits 2,460 2,291

Expenses from financial intermediation (409,572) (468,642) Deposits (356,117) (298,249) Borrowings, credit assignments and onlendings (33,599) (158,535) Foreign exchange portfolio (9,827) Provision for loan losses (10,029) (11,858)

Gross profit from financial intermediation 137,217 255,003

Other operating income (expenses) (96,888) (18,225) Commissions and fees from services rendered 63,912 74,725 Personnel expenses (51,089) (40,458) Other administrative expenses (66,798) (74,504) Tax expenses (10,480) (16,128) Equity in the earnings of subsidiaries 25,239 87,299 Other (57,672) (49,159)

Operating income 40,329 236,778

Non-operating income (expenses), net 110 (963)

Income before income tax, social contribution and Employee profit sharing 40,439 235,815 Income tax and social contribution (4,584) (50,813) Employee profit sharing (2,369) (2,097)

Net income 33,486 182,905

Net income per thousand shares - R$ 0.000058 0.000345

The accompanying notes are an integral part of these financial statements.

F-57 BankBoston Banco Múltiplo S.A.

Statements of Changes in Stockholders' Equity In thousands of reais, except amounts per thousand shares

Capital Capital Revenue Retained Capital increase Reserves Reserves Earnings Total

At December 31, 2000 605,708 224 35,391 241,204 882,527 Net income 182,905 182,905

At March 31, 2001 605,708 224 35,391 424,109 1,065,432

At December 31, 2001 605,708 58,050 224 62,513 756,522 1,483,017 Capital Increase 58,050 (58,050)

F Net income 33,486 33,486 - 58

At March 31, 2002 663,758 224 62,513 790,008 1,516,503

The accompanying notes are an integral part of these financial statements.

F-58 BankBoston Banco Múltiplo S.A.

Statement of Changes in Financial Position In thousands of reais

2002 2001

Financial resources were provided by 1,652,346 3,956,917

Adjusted net income (loss) 16,719 102,545 Net income 33,486 182,905 Depreciation and amortization (25,239) (87,299) Equity in the earnings of subsidiaries 8,472 6,939

Deferred Income (166) 158

Resources provided by third-parties 1,635,793 3,854,214

Increase of current and long-term liabilities 742,790 3,791,046 Deposits 218,812 136,973 Deposits received under security repurchase agreements 1,348,568 Interbank and interdepartmental accounts 546,493 Borrowings and onlendings 578,173 Other liabilities 523,978 1,180,839

Decrease of current and long-term assets 892,748 26,497 Securities 437,347 Interbank and interdepartmental accounts 20,539 22,296 Credit operations 432,582 Leasing operations 2,280 4,201

Sales of permanent assets 255 36,671 Investments 4,686 Fixed assets 255 31,985

F-59 BankBoston Banco Múltiplo S.A.

Statement of Changes in Financial Position Period of Three Months Ended March 31 In thousands of reais (continued)

2002 2001

Financial resources were applied in 1,650,683 3,952,769

Applications in 54,945 111,640 Investments 2,211 54,720 Fixed assets 52,485 37,537 Deferred assets 249 19,383

Increase of current and long-term assets 1,088,078 3,841,129 Interbank investments 1,072,736 2,625,045 Securities 134,768 Credit operations 230,980 Other receivables 13,179 848,821 Other assets 2,163 1,515

Decrease of current and long-term liabilities 507,660 Deposits received under security repurchase agreements 48,779 Interbank and Interdepartmental accounts 283,134 Borrowings and onlendings 175,747

Increase in cash and cash equivalents 1,663 4,148

Changes in cash and cash equivalents

Cash and cash equivalents At the beginning of the period 58,591 42,287 At the end of the period 60,254 46,435

Increase in cash and cash equivalents 1,663 4,148

The accompanying notes are an integral part of these financial statements.

F-60 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

1 Operations

2 Significant Accounting Policies

(a) Determination of net income

Net income is determined on the accrual basis of accounting.

(b) Current and long-term assets

F-61 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

Permanent assets are stated at cost, plus price-level restatement through December 31, 1995 and take into consideration the following:

(d) Current and long-term liabilities

F-62 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

3 Securities 2002 2001

Own portfolio Central Bank Notes (NBC) 275,383 69,695 Financial Treasury Notes (LFT) 1,525 10,070 National Treasury Bonds (LTN) 23,034 287,585 National Treasury Notes (NTN) 75,717 6,398 Bank Certificates of Deposit (CDB) 32,216 Financial investment fund quotas 5,035 Debentures 195,767 109,276 Mortgage notes 80,295 74,343 Promissory notes 73,090 62,263 Shares of listed companies 12,250 14,837 Provision for lower of cost and market (7,969) (7,224)

766,343 627,243

Subject to repurchase agreement LFT 2,426 LTN 34,665 NTN 10,052 916 NBC 206,250 251,767 Provision for lower of cost and market (32) (1,618)

216,270 288,156

Subject to negotiation and intermediation of securities Unexercised option premiums 30,356 16,361 Provision for lower of cost and market (1,072) (5,153)

29,284 11,208

Restricted deposits – BACEN NBC 100,819 734,194 NTN 69,705 1,049

170,524 735,243

F-63 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

2002 2001 Subject to guarantees NBC 1,048,667 887,672 NTN 639,833 3,896

1,688,500 891,568

2,870,921 2,553,418

In November 2001, the Brazilian Central Bank published Circular 3068, amended by Circular 3082, which established the adoption, from June 30, 2002, of new criteria for recording and classifying securities comprising the portfolios of financial institutions. In accordance with these instructions, the securities must be classified by management in one of the following three categories: (i) trading securities – will be recorded based on their expected realizable values as a counter-entry to results for the year; (ii) securities available for sale - will be recorded based on their expected realizable values as a counter-entry to a specific account in stockholders' equity; and (iii) securities held in portfolio up to maturity - will be recorded based on the intrinsic rate of the securities as a counter-entry to results for the year. The management of BankBoston Banco Múltiplo S.A. will classify its securities' portfolio in compliance with these instructions up to June 30, 2002, at which time, any accounting effects arising from the change in accounting policy will be determined and the corresponding adjustments made to the retained earnings or accumulated deficit account, pursuant to the provisions of Article 10 of the aforementioned circular. The securities portfolio at March 31, 2002 is calculated at restated cost, less of the provision for adjustment to expected realizable value, when this is lower.

F-64 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

4 Credit Operations and Allowance for Loan Losses

. Credit operations are classified according to nine risk levels.

(a) Composition of the Bank's credit portfolio by type of operation

Details 2002 2001

Credit operations Discount of trade receivables and other loans 2,998,653 2,487,452 Financing of infrastructure and development 316,073 317,995 Rural and agribusiness loans 181,111 174,186 Housing loans 299,069 249,177 Other financing 206,959 257,317

Total credit operations 4,001,865 3,486,127

Advance on export contracts (*) 843 236

Total credit portfolio 4,002,708 3,486,363

(*) The Advance on Export Contracts are classified on Other liabilities – foreign exchange portfolio by historical value.

F-65 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Total credit portfolio concentration by activity sector

Details 2002

Private Sector Manufacturing Electrical, electronic and communication materials 48,032 Transport material 111,575 Chemical 370,259 Printing and publishing 7,377 Petrochemical 14,621 Wood products 1,934 Paper, cardboard and pulp 17,744 Food products 316,141 Civil construction 103,240 Machinery and equipment 248,105 Metallurgical 23,012 Mineral 30,809 Textile 51,948 Other industries 175,132

1,519,929

Commerce Retail 340,202 Wholesale 142,694

482,896

Individuals 289,194 Real estate and housing 299,069 Services 1,094,741 Other sectors 316,879

4,002,708

F-66 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

Details 2002

Falling due from 1 to 180 days 2,779,255 from 181 to 360 days 342,390 More than 360 days 730,360

3,852,005

Overdue From 1 to 30 days 61,659 From 31 to 90 days 23,959 From 91 to 180 days 28,849 More than 180 days 36,236

150,703

4,002,708

(d) Concentration of credit risk

Details 2002

Largest borrower 101,941 Percentage of total credit operation portfolio 2.55 20 largest borrowers 964,772 Percentage of total credit operation portfolio 24.10

F-67 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(e) Composition of the credit portfolio and of the corresponding allowance for loan losses distributed by the risk levels established under Resolution 2682 2002 2001 Total Allowance Total Allowance Risk level operations recorded operations recorded

AA 697,311 1,462,516 A 1,196,460 5,982 678,624 3,393 B 1,322,437 13,224 686,849 6,868 C 530,971 15,929 539,057 16,171 D 54,889 5,489 27,061 2,706 E 122,864 36,859 55,742 16,723 F 14,526 7,263 10,864 5,432 G 13,868 9,708 7,245 5,072 H 49,382 49,382 18,405 18,405

Total 4,002,708 143,836 3,486,363 74,770

(f) Movement of Allowance for loan losses

The allowance for loan losses presented the following movement during the period of three-months period ended on March 31, 2002:

2002 2002

Opening balance 143,281 64,160 Provision for losses 10,029 11,858 Amount written off (9,474) (1,248)

Closing balance 143,836 74,770

F-68 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

5 Other receivables 2002 2001

(a) Negotiation and intermediation of securities Swap – difference receivable 768,717 405,377 Sundry 65,475 190

834,192405,567

(b) Others

Other sundry receivables – comprised mainly by: credits arising from export contracts in the amount of R$ 13,303 (2001 – R$ 30,943), credits arising from the acquisition of receivables in the amount of R$ 120,524 (2001 – R$ 85,068), transactions in CETIP pending settlement in the amount of R$ 50,777 (2001 – 38,764), deferred tax assets in the amount of R$ 77,795 (2001 – R$ 45,086) and taxes recoverable in the amount of R$ 7,354 (2001 – R$ 90,545). Deferred tax assets calculated based on their expected realizable value are recorded on timing differences relating to temporarily non-deductible additions and expenses to provisions for income tax and social contribution determination purposes.

F-69 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

6 Investments in Subsidiaries

BankBoston BankBoston Boston BankBoston BankBoston Distribuidora de Leasing S.A. - Negócios e BankBoston Administradora Corretora de Câmbio Títulos e Valores Arrendamento Participações Companhia de Cartões de Títulos e Valores Boston Previd. Description Mobiliários S.A. Mercantil Ltda. Hipotecária Crédito - S/C Ltda. Mobiliários S.A. Privada S.A.(1) Total

Number of shares/quotas held: F Common Nominative Shares/Quotas 33,732,789 3,604,282 330,359,801 4,950,000 44,312,511 7,999,997 4,469,218 - 70 Percentage holding 99.99 99.99 99.99 99.00 99.99 99.99 99.99 Stockholders' equity At March 31, 2002 20,097 188,641 639,662 7,139 58,991 9,224 4,969 At March 31, 2001 Net Income (loss) At March 31, 2002 1,272 6,595 13,356 165 3,809 43 At March 31, 2001 Book value of investment: At March 31, 2002 20,097 188,241 639,662 7,067 58,985 9,224 4,969 928,245 At March 31, 2001 Equity in the earnings of subsidiaries At March 31, 2002 1,272 6,595 13,356 164 3,809 43 25,239 At March 31, 2001

(1) On June 20, 2000, BankBoston Banco Múltiplo S.A. formed Boston Previdência Privada S.A., subject to approval by the Superintendency of Private Insurance – SUSEP, and subscribed 50% of its capital on the same date. The remaining amount was paid in on August 21, 2000. This institution is currently at the pre-operating stage.

F-70 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

7 Foreign Borrowings and Onlendings

Foreign borrowings and onlendings mainly consist of funds raised with BankBoston, N.A. – Nassau Branch for investment in foreign exchange operations relating to export and import and interbank financing operations, bearing interest at annual rates based on the London Interbank Offered Rate - LIBOR. These borrowings fall due through January 2011, with interest and charges at LIBOR plus yearly interest of up to 11.00% plus any foreign exchange variation.

8 Other Liabilities

2002 2001

(a) Foreign exchange portfolio Exchange sales pending settlement 43,745 441,403 Exchange purchases payable 51,067 243,262 Advance on export contracts (843) (236) Others 877 96

94,846 684,525

(b) Negotiation and intermediation of securities Swaps – difference payable 1,070,615 632,866 Premiums received on options 2,331 5,385 Other 68,110 3,487

1,141,056 641,738

(c) Other Guaranteed checks issued pending settlement 13,301 42,155 Liabilities arising from acquisition of assets/rights 16,265 7,116 Collections pending settlement 934,435 824,609 Provision for contingent liabilities 42,427 40,328 Provision for accrued liabilities 25,746 24,046 Other 147,664 10,977

1,179,838 949,231 Liabilities for acquisition of assets and rights comprise transactions falling due through September 2002, bearing foreign exchange variation.

F-71 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

The provision for contingent liabilities at March 31, 2002 in the amount of R$ 42,427 includes the provision for tax risks in the amount of R$ 37,639 (Note 12(e)) and the provision for labor liabilities in the amount of R$ 4,788. The provision for contingent liabilities is reviewed, on a periodic basis, by the Bank's management considering, among other factors, the opinion of its legal counsel and are considered sufficient to cover any future losses which may be incurred by the Bank.

9 Stockholders' Equity

(a) Capital

Fully subscribed and paid-up capital comprises 580,576,124,221 (2000 – 529,800,913,068) common nominative shares, with no par value.

At the Extraordinary General Meeting held on December 28, 2001, approval was given to increase the institution's capital by an amount of R$ 58,050, through the issue of 50,775,211,153 common shares, with no par value, pending approval by BACEN.

(b) Dividends

In accordance with the Bank's statutes, stockholders are entitled to a minimum dividend of 25% of net income for the year, adjusted in accordance with Brazilian corporate legislation.

F-72 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

10 Transactions and Balances with Related Parties Belonging to the Financial BankBoston Group in Brazil

2002 2001

Asset Income Asset Income (liability) (expense) (1) (liability) (expense) (2

Interbank investments 101 Securities - Own portfolio 159,503 6,471 80,723 3,374 Other receivables 34 102 Interbank deposits (3,681,475) (151,093) (3,065,536) (111,123) Deposits received under security repurchase agreements (275,585) (12,417) (4,559,910) (64,236) Other liabilities – Negotiation and intermediation of securities (184,803) 509 (372,270) (331,058) Other liabilities – Other (4,006) (2,328) (2,412)

(1) Three-month period ended March 31, 2002. (2) Three-month period ended March 31, 2001.

Transactions with related parties were carried out at the average rates offered to third parties on the dates of the transactions, considering the reduced risk of intra-group transactions.

11 Financial Instruments

F-73 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

Notional amount

Futures contracts 6,912,083

Purchase commitments 3,212,039 Foreign currency 3,127,289 Interbank market 84,750

Sale commitments 3,700,044 Foreign currency 1,497,177 Dollar 2,192,879 Indexes 9,988

Options contracts 76,750

Purchased 76,750 Foreign currency 76,750

Forward contracts 269,717

Purchased – Foreign currency 229,250 Sale – Foreign currency 40,467

Swaps contracts

Asset positions 18,560,802 Foreign currency 7,896,696 Interbank market 7,269,167 Pre-fixed 3,072,464 Indexes 322,475

Liability positions 18,560,802 Foreign currency 9,974,048 Interbank market 7,602,274 Pre-fixed 456,029 Indexes 528,451

F-74 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

Notional amount

Net positions Foreign currency (2,077,352) Interbank market (333,107) Pre-fixed 2,616,435 Indexes (205,976)

Differences receivable and payable on swaps total R$ 768,717 and R$ 1,070,615, respectively, and are recorded in Negotiation and intermediation of securities in Other receivables and Other liabilities.

The securities' portfolio in the amount of R$ 2,870,923 is comprised substantially by federal government securities with a book value of R$ 2,450,753 and market value of R$ 2,538,026. The other financial instrument contracts were entered into at market-compatible prices, rates and conditions and the book value of these financial instruments, considering overall assets and liabilities, is approximately equivalent to their market value.

12 Other Information

(a) At March 31, 2002, guarantees granted on behalf of third parties totaled R$ 2,945,262 (2001 – R$ 1,669,621) and the responsibility for the custody of third-party securities corresponded to R$ 3,499,781 (2001 – R$ 6,145,536).

(c) The net assets of the investment funds managed by the Bank at March 31, 2002, totaled R$ 27,434,404 (2001 – R$ 24,162,651) of which R$ 12,366,687 (2001 – R$ 10,915,915) of FAQs (Funds of Investments in Quotas of Financial Investments Funds) is invested in R$ 15,067,717 (2001 – R$ 13,246,736) of Financial Investments Funds (FIFs).

F-75 BankBoston Banco Múltiplo S.A.

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(c) Other operating income in the amount of R$ 7,585 (2001 – R$ 6,759) comprises: income arising from credit assignments in the amount of R$ 6,216 (2001 – R$ 2,231). Other operating expenses in the amount of R$ 65,255 (2001 – R$ 55,918) comprise substantially sundry expenses with customer portfolio management in the amount of R$ 41,305 (2001 – R$ 16,120).

(e) BankBoston Banco Múltiplo S.A. is a co-sponsor of BankBoston Sociedade de Previdência Privada, a private pension plan incorporated in 1998 and designed to supplement retirement pensions and provide assistance to the sponsors' employees. The plan's accrued actuarial liability at March 31, 2002 in the amount of R$ 48,596 (2001 – approximately R$ 36,000) is the responsibility of the sponsors. The plan does not present an actuarial deficit at March 31, 2002. During the period of three months ended March 31, 2002 expenses for plan contributions by BankBoston Banco Múltiplo S.A. totaled R$ 1,118 (2001 – R$ 857).

(e) The Bank's management is disputing the constitutionality of certain federal tax legislation and is also a defendant in other legal proceedings. The Bank's management, based on the opinion of its legal counsel, considers that the provisions for tax contingencies recorded at March 31, 2002 in the amount of R$ 42,263 (2001 – R$ 21,147), classified in Other liabilities - Taxes and Social Security in long-term liabilities, and the amount of R$ 37,639 (2001 – R$ 34,887) classified in Other liabilities – other (Note 8(c)), are sufficient to cover these legal suits.

* * *

F-76 BankBoston Leasing S.A. - Arrendamento Mercantil Financial Statements at March 31, 2002 and 2001 and Report of Independent Accountants

F-77 Report of Independent Accountants on Limited Review

May 10, 2002

To the Board of Directors and Stockholders BanKBoston Leasing S.A. – Arrendamento Mercantil

1 We have carried out a limited review of the balance sheet of BanKBoston Leasing S.A. – Arrendamento Mercantil as of March 31, 2002 and 2001 and the related statements of income, of changes in stockholders’ equity and of changes in financial position for the quarters then ended. This financial information is the responsibility of the Company's management and was prepared in connection with the Company's corresponding quarterly information.

2 Our review were carried out in accordance with specific standards established by the IBRACON – Brazilian Institute of Independent Auditors and mainly comprised (a) inquiries of and discussions with company officials, responsible for the accounting, financial and operating areas of the Company, regarding the criteria used to prepare the statements, referred to in paragraph 1 and (b) a review of the significant information and subsequent events which have, or could have, a significant effect on the Company's financial position and operations.

3 The Company records its operations and prepares its financial statements in accordance with the accounting procedures established by the Brazilian Central Bank, which require that the adjustment of the leasing portfolio to present values be classified in permanent assets as excess or insufficient depreciation (Note 2(c)). These procedures do not require the reclassification of leases to current and long-term assets and leasing income, which remain recorded in accordance with Law 6099/74, but do result in the presentation of net income for the quarter and stockholders’ equity in conformity with accounting principles determined by Brazilian corporate legislation.

F-78 May 10, 2002 BankBoston Leasing S.A. - Arrendamento Mercantil

4 Based on our limited reviews, except for the non-reclassification mentioned in paragraph 3, we are not aware of any material modifications which should be made to the balance sheet of BanKBoston Leasing S.A. – Arrendamento Mercantil at March 31, 2002 and 2001 and to the related statements of income, of changes in stockholders’ equity and of changes in financial position for the quarters then ended referred to in paragraph 1, for these statements to comply with accounting principles determined in Brazilian corporate legislation and applicable to the preparation of quarterly information.

PricewaterhouseCoopers Edison Arisa Pereira Auditores Independentes Partner CRC 2SP000160/O-5 Contador CRC 1SP127241/O-0

F-79 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at March 31 In thousands of reais

Assets 2002 2001

Current assets 641,548 956,880

Cash and cash equivalents 3,258 1,001

Short-term interbank investments 57,691 489,600 Interbank deposits 57.691 489,600

Securities 552,014 447,068 Own portfolio 552.014 447,068

Interbank accounts 92

Leasing operations 20,980 11,161 Leasing operations receivable - private sector 174,085 120,835 Advances to suppliers on behalf of lessees 30,347 17,184 Unearned lease income receivable – private sector (175,383) (121,388) Allowance for losses (8,069) (5,470)

Other receivables 4,903 4,183 Other receivables 4,903 4,183

Other assets 2,702 3,775 Assets not for own use 10 248 Prepaid expenses 2,692 3,527

F-80 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at March 31 In thousands of reais (continued)

2002 2001

Long-term assets 339,546 68,456

Short-term interbank investments 297,796 30,439 Interbank deposits 297,796 30,439

Securities 143 Own portfolio 143

Leasing operations 897 4,679 Leasing operations receivables - private sector 222,425 131,185 Unearned lease income receivable - private sector (211,218) (121,307) Allowance for losses (10,310) (5,199)

Other receivables 35,621 28,166 Other 35,621 28,166

Other assets 5,089 5,172 Prepaid expenses 5,089 5,172

Permanent assets 463,710 343,571

Fixed assets in use 139 126

Leased assets 463,506 343,445 Leased assets 528,655 400,755 Accumulated depreciation (152,080) (153,079) Losses on leasing operations 19,951 18,233 Accumulated amortization of losses on leasing operations (11,700) (9,187) Excess depreciation 78,680 86,723

Deferred assets 65 Organization and expansion costs 206 124 Accumulated amortization of organization and expansion costs (141) (124)

1,444,804 1,368,907

The accompanying notes are an integral part of these financial statements.

F-81 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at March 31 In thousands of reais (continued)

Liabilities and stockholders' equity 2002 2001

Current liabilities 89,004 168,563

Borrowings and onlendings 50,651 101,034 Local onlendings – official institutions - FINAME 607 Local borrowings - other institutions 947 Foreign borrowings 50,044 100,087

Other liabilities 38,353 67,529 Social and statutory 16 Taxes and social security 3,131 3,544 Other liabilities 35,222 63,969

Long-term liabilities 1,167,560 1,044,693

Proceeds from securities issuance 522,828 454,732 Debentures 522,828 454,732

Borrowings and onlendings 522,791 471,279 Local onlendings – official institutions - FINAME 2,083 Local borrowings - other institutions 18,794 15,442 Foreign borrowings 503,997 453,754

Other liabilities 121,941 118,682 Taxes and social security 43,474 53,713 Social and statutory 850 Collection of taxes and contributions 3,972 Other liabilities 77,617 60,997

Deferred income 7

The accompanying notes are an integral part of these financial statements.

F-82 BankBoston Leasing S.A. - Arrendamento Mercantil

Balance Sheets at March 31 In thousands of reais (continued)

2002 2001

Stockholders' equity 188,240 155,644 Capital - local residents 105,000 70,685 Capital reserve 226 226 Revenue reserve 8,537 6,294 Retained earnings 74,477 78,439

1,444,804 1,368,907

The accompanying notes are an integral part of these financial statements.

F-83 BankBoston Leasing S.A. - Arrendamento Mercantil

Statements of Income Three-month period ended March 31 In thousands of reais, except amounts per share

2002 2001

IIncome from financial intermediation 83,394 144,477 Credit operations 172 Leasing operations 54,791 56,442 Securities operations 28,431 88,027 Compulsory deposits 8

Expenses from financial intermediation (69,776) (114,982) Deposits (17,406) (14,216) Borrowings, credit assignments and onlendings (13,736) (63,189) Leasing operations (36,673) (34,728) Provision for losses (1,961) (2,849)

Gross profit from financial intermediation 13,618 29,495

Other operation income (expense) (3,951) (2,975) Commissions and fees from services rendered (1) 5 Personnel expenses (1,193) (878) Other administrative expenses (636) (730) Tax expenses (2,348) (2,574) Other 227 1,202

Operating income 9,667 26,520

Income before income tax, social contribution And employee profit sharing 9,667 26,520 Income tax and social contribution (3,055) (7,056) Employee profit sharing (17) (601)

Net income 6,595 18,863

Net income per share – R$ 1.829797 5.233557

The accompanying notes are an integral part of these financial statements.

F-84 BankBoston Leasing S.A. – Arrendamento Mercantil

Statement of Changes in Financial Position In thousands of reais

Revenue reserve Capital Retained Capital reserves Legal earnings Total

At December 31, 2000 70,685 226 6,294 59,576 136,781 Net income 18,863 18,863

At March 31, 2001 70,685 226 6,294 78,439 155,644 F - 85

At December 31, 2001 105,000 226 8,537 67,882 181,645 Net income 6,595 6,595

At March 31, 2002 105,000 226 8,537 74,477 188,240

The accompanying notes are an integral part of these financial statements.

F-85 BankBoston Leasing S.A. – Arrendamento Mercantil

Statement of Changes in Financial Position In thousands of reais

Three-month Three-month period ended period ended March 31, 2002 March 31, 2001

Financial resources were provided by 151,582 137,115

Adjusted net income (loss) 32,070 42,633

Deferred Income (5)

Resources provided by third-parties 119,512 94,487

Increase of current and long-term liabilities 17,406 55,326 Proceeds from securities issuance 17,406 14,216 Borrowings and onlendings 41,110

Decrease of current and long-term assets 94,613 28,081 Interbank investments 40,448 Leasing operations 42,241 Other receivables 11,699 25,799 Other assets 225 2,282

Sales of permanent assets 7,493 11,080 Leased assets 7,493 11,080

F-86 BankBoston Leasing S.A. – Arrendamento Mercantil

Statement of Changes in Financial Position In thousands of reais (continued)

Period of Three Period of Three Months ended Months ended March 31, 2002 March 31, 2001

Financial resources were applied in 148,953 136,893

Applications in 103,672 36,265 Fixed assets in use 5 Leased assets 103,214 34,808 Deferred assets 453 1,457

Increase of current and long-term assets 13,180 67,684 Interbank investments 1,708 Securities 13,180 49,470 Interbank and interdepartmental accounts 8 Leasing operations 16,498

Decrease of current and long-term liabilities 32,101 32,944 Borrowings and onlendings 8,913 Other liabilities 23,188 32,944

Increase (decrease) in cash and cash equivalents 2,629 222

Changes in cash and cash equivalents

Cash and cash equivalents At the beginning of the period 629 779 At the end of the period 3,258 1,001

Increase (decrease) in cash and cash equivalents 2,629 222

The accompanying notes are an integral part of these financial statements.

F-87 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

1 Operations

Its operations are conducted within the context of a group of institutions which are jointly active in the Brazilian and international financial markets. As a result, certain operations involve the co-participation or intermediation of the institutions comprising the BankBoston Group. The benefits of services rendered among these associated institutions and normal operating and administrative costs are absorbed jointly, or individually, as is most practical and reasonable in the circumstances, by the institutions.

2 Significant Accounting Policies

(a) Determination of net income

Net income is determined on the accrual basis of accounting.

(b) Current assets and long-term receivables

These assets are stated at cost, including accrued earnings, monetary (on a pro rata basis) and exchange variations and, where applicable, adjusted to their corresponding market or realizable values. Leasing operations are recorded at the amounts obtained and applied, plus accrued income and charges through the date of the financial statements. Unearned income from leasing operations is recorded as income from financial intermediation on the date it becomes due, in accordance with the provisions of Ministry of Finance (MF) Ordinance 140/80. The allowance for losses is recorded in an amount sufficient to cover estimated losses and is based upon current economic conditions, past experience, specific and general portfolio risks and BACEN requirements and instructions.

F-88 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

Permanent assets are stated at cost, plus price-level restatement through December 31, 1995. Depreciation of property and equipment in use is calculated on the straight-line method, based on annual rates which consider the economic useful lives of the assets as follows: property - 4%, vehicles - 20%, machinery and equipment and other assets - 10% and data processing system - 20%. Leased assets are depreciated at normal rates, calculated in accordance with the provisions of MF Ordinance 140/84, with a 30% decrease in useful life, where applicable. Excess depreciation recorded during the period totals R$ 4,742 (2001 - R$ 1,504) and comprises the adjustment determined on the results of leasing operations, based on the present value of the leasing installments, calculated based on the specific internal interest rate of each transaction, in accordance with BACEN Circular 1429/89 and CVM Instruction 58/86. The accumulated balance of excess depreciation is separately disclosed in the Leased assets account and totals R$ 78,680 at March 31, 2002 (2001 - R$ 86,723). Losses determined on expiry of the lease agreements are recorded in leased assets and amortized over the remaining useful lives of the assets. Gains are taken directly to income.

(d) Current and long-term liabilities

These liabilities are stated at their known or estimated amounts, less corresponding unexpired expenses and including accrued charges and monetary (on a daily pro rata basis) and exchange variations.

(e) Income tax and social contribution

The provision for federal income tax was calculated at 15%, plus an additional rate of 10% for income over specific limits and the provision for social contribution was recorded at a 9% rate, both calculated based on taxable income before income tax. Deferred tax assets are calculated based on their expected realizable value and mainly comprise timing differences between income tax and social contribution calculation bases (Note 9(a)) and were recorded at a rate of 15% plus an additional 10% for income tax and at a rate of 9% for social contribution. The deferred income tax liability mainly arises on excess depreciation and is classified in Other liabilities - Taxes and social security contributions.

F-89 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

3 Securities 2002 2001

Own portfolio - unrestricted Financial investment fund quotas 552,014 Financial Treasury Notes (LFT) 143 Central Bank Notes (NBC) 447,068

552,157 447,068

In November 2001, the Brazilian Central Bank published Circular 3068, amended by Circular 3082, which established the adoption, from June 30, 2002, of new criteria for recording and classifying securities comprising the portfolios of financial institutions. In accordance with these instructions, the securities must be classified by management in one of the following three categories: (i) marketable securities – will be recorded based on their expected realizable values as a counter-entry to results for the year; (ii) securities available for sale – will be recorded based on their expected realizable values as a counter-entry to a specific account in stockholders' equity; and (iii) securities held in portfolio up to maturity – will be recorded based on the intrinsic rate of the securities as a counter-entry to results for the year. The Company's management will classify the securities' portfolio in compliance with these instructions up to June 30, 2002, at which time, any accounting effects arising from the change in accounting policy will be determined and the corresponding adjustments made to the retained earnings or accumulated deficit account, pursuant to the provisions of Article 10 of the aforementioned circular. The securities portfolio at March 31, 2002 is calculated at restated cost, less of the provision for adjustment to expected realizable value, when this is lower.

Circular 3082 published by Brazilian Central Bank established a new criteria for recording and classifying the financial instruments, including derivatives, which will become effective from June 30, 2002. Circular 3082 published by Brazilian Central Bank established a new criteria for recording and classifying the financial instruments, including derivatives, which will become effective from June 30, 2002.

F-90 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

4 Leasing Operations and Allowance for Losses

. Leasing operations are classified according to nine risk levels.

(a) Composition of the institution's leasing portfolio by type of operation

The institution's credit portfolio is comprised entirely by leasing operations in the total amount of R$ 414,044 (2001 – R$ 256,835).

F-91 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Total leasing portfolio concentration by activity sector

March 31, Details 2002

Private Sector

Manufacturing Food products 36,282 Civil construction 10,759 Chemical 28,937 Paper, cardboard and pulp 11,422 Metallurgical 18 Machinery and equipment 10,602 Printing and publishing 497 Transport material 7,922 Eletric components 50 Petrochemical 1,170 Mineral 81 Textile 1,388 Other industries 10,141

119,269

Commerce Retail 43,042 Wholesale 13,452

56,494

Services 116,560 Individuals 10,601 Financial intermediation 110,563 Agribusiness 557

Other sectors 238,281

414,044

F-92 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

March 31, Details 2002

Falling due From 1 to 180 days 96,287 From 181 to 360 days 83,173 More than 360 days 227,492

406,952 Overdue From 1 to 30 days 1,473 From 31 to 90 days 1,816 From 91 to 180 days 1,460 More than 180 days 2,343

7,092

414,044

(d) Concentration of credit risk

Details 2002

Largest borrower 77,231 Percentage of total leasing operation portfolio 18.65% 20 largest borrowers 247,796 Percentage of total leasing operation portfolio 59,85%

F-93 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(f) Composition of the leasing operation portfolio and of the corresponding allowance for losses distributed by the risk levels established under Resolution 2682

2002 Total Allowance Risk level operations recorded

AA 139,186 A 82,337 411 B 106,054 1,061 C 33,595 1,008 D 26,610 2,661 E 16,791 5,037 F 683 341 G 3,093 2,165 H 5,695 5,695

Total 414,044 18,379

(f) Movement of Allowance for losses

The allowance for losses presented the following activity for the periof of three months ended March 31, 2002 and 2001:

2002 2001

Opening balance 16,861 21,917 Provision for losses 1,961 Amount reversed (7,190) Amount written off (443) (4,058)

Closing balance 18,379 10,669

F-94 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

4 Leased Assets

2002 2001

Cost Depreciation Net Net

Vehicles 132,539 (48,066) 84,473 106,690 Machinery and equipment 172,894 (51,347) 121,547 82,466 Data processing equipment 214,297 (46,032) 168,265 52,214 Property 6,986 (5,175) 1,811 4,849 Other leased assets 1,939 (1,460) 479 1,457

Subtotal 528,655 (152,080)

Excess depreciation 78,680 86,723 Losses on leasing operations 8,251 9,046

463,506 343,445

During the period of three months ended March 31, 2002, the Company recognized income on excess depreciation in the amount of R$ 4,742 (2001 - R$ 1,504) which is recorded as income on leasing operations. Leased assets are insured by the lessees with benefit clauses in favor of the lessor.

5 Funds for Leasing

(a) Non-convertible debentures in the total amount of R$ 522,828 (2001 - R$ 454,732) have a floating guarantee and are indexed to the Reference Rate (TR) plus interest of 12% per year (2001 - TR-indexed plus interest of 12% to 15% per year and/or prefixed with interest at 31% per year) and fall due through August, 2016. (2001 - fall due through March, 2080).

F-95 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Borrowings and onlendings comprise the following:

Average yearly Falling interest due Type rate - % through 2002 2001

Commercial paper 5.71 01/2011 74,933 110,085 Import financing 8.63 04/2006 31,321 31,284 Resolution 63 17.00 08/2003 18,794 16,389 Fixed rate notes 9.64 10/2013 447,788 412,472 Fund for Financing the Acquisition of Industrial Machinery and Equipment (FINAME) 13.39 10/2002 606 2,083

573,442 572,313

Borrowings and onlendings

Short-term 50,651 101,034 Long-term 522,791 471,279

573,442 572,313

6 Stockholders' Equity

(a) Capital

Fully subscribed and paid-up capital comprises 3,604,285 (2001 – 3,604,285) common nominative shares, with no par value. At the Extraordinary and Ordinary General Meetings held jointly on April 30, 2001, approval was given for a capital increase of R$ 34,315, with no new issue of shares and through the partial utilization of the balance of retained earnings, approved by BACEN on July 6, 2001.

F-96 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Dividends

In accordance with the Company's statutes, stockholders are entitled to a minimum dividend of 25% of net income, adjusted in accordance with Brazilian Corporate Legislation.

7 Transactions and Balances with Related Parties Belonging to the Financial BankBoston Group in Brazil

2002 2001

Assets Income Assets Income (liabilities) (expenses) (*) (liabilities) (expenses) (*) Cash and cash equivalents 3,258 961 Short-term interbank investments 355,487 15,393 520,039 21,320 Debentures (176,907) (5,587) (91,858) (5,185) Borrowings and onlendings (18,794) (519) (16,805) (1,892) Other liabilities – others (23 ) (68 ) (21 ) (102)

(*) Period of three months ended March 31.

Transactions with related parties were carried out at the average rates offered to third parties on the dates of the transactions, considering the reduced risk of intra-group transactions.

F-97 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

8 Financial Instruments

Securities at March 31, 2002 comprise substantially by applications in investment funds with a book value and market value of R$ 552,014. Short-term interbank investments at March 31, 2002 consist of transactions carried out with BankBoston Múltiplo S.A. substantially with short-term maturities, with a market value and book value of R$ 355,487. The other financial instrument contracts recorded in balance sheet accounts were entered into at market-compatible prices, rates and conditions and the book value of these financial instruments, considering overall assets and liabilities, is approximately equivalent to their market value.

9 Other Information

(a) Other receivables comprise the following:

2002 2001

Deferred tax assets 26,898 19,165 Judicial deposits 8,722 8,061 Taxes recoverable 3,369 3,781 Other receivables 1,499 1,310 Sundry 36 32

40,524 32,349

Deferred tax assets were recorded on tax losses and on timing differences relating to temporarily non-deductible additions to provisions.

F-98 BankBoston Leasing S.A. - Arrendamento Mercantil

Notes to the Financial Statements at March 31, 2002 and 2001 Amounts expressed in thousands of reais, unless otherwise indicated

(b) Other liabilities - others comprise the following:

2002 2001

Prepaid guaranteed residual value 53,205 91,248 Provision for contingent liabilities 55,272 31,553 Sundry 4,362 2,165

112,839 124,966

(c) Other operating income in the amount of R$ 1,717 (2001 - R$ 2,644) mainly consists of monetary variation and other operating expenses in the amount of R$ 1,490 (2001 - R$ 1,442) mainly consist of monetary variation.

(d) BankBoston Leasing S.A. - Arrendamento Mercantil is a co-sponsor of BankBoston Sociedade de Previdência Privada, a private pension plan incorporated in 1998 and designed to supplement retirement pensions and provide assistance to the sponsors' employees. The plan's accrued actuarial liability in the amount of R$ 48,596 (2001 – aproximated amount of R$ 36,000), is the responsibility of the sponsors. The plan does not present an actuarial deficit at March 31, 2002. During the period of three months ended March 31, 2002, expenses for plan contributions by BankBoston Leasing S.A. - Arrendamento Mercantil totaled R$ 72 (2001 – R$ 63).

(e) The institution’s management is disputing the constitutionality of certain federal tax legislation and is also a defendant in other legal proceedings. The Company's management, based on the opinion of its legal counsel, considers that the provisions for tax contingencies recorded at March 31, 2002 in the amount of R$ 19,132 (2001 – R$ 24,506), classified in "Other liabilities - taxes and social security" in long-term liabilities and the amount of R$ 52,272 (2001 – R$ 31,553) classified in “Other liabilities – other”, are sufficient to cover these legal suits.

(g) Total unrealized residual values amount to R$ 131.318 at March 31, 2002 (2001 – R$ 156,062).

* * *

F-99 APPENDIX A

SUMMARY OF PRINCIPAL DIFFERENCES IN ACCOUNTING POLICIES BETWEEN BRAZIL AND THE UNITED STATES

Accounting principles and standards generally applicable in Brazil are established by Brazilian corporate law (the "Corporate Law") and interpretation statements issued by the Instituto Brasileiro de Contadores - IBRACON (Brazilian Institute of Accountants). Such standards differ in certain material aspects from the accounting principles and standards generally accepted in the United States.

In addition, the Brazilian Central Bank (the "Central Bank") provides additional industry specific guidelines.

The following summary of certain of the differences between Brazilian Corporate Law and U.S. GAAP does not purport to be complete and is subject and qualified in its entirety by reference to the respective pronouncements of the Brazilian and United States accounting professional bodies. The U.S. accounting principles referred to or described herein do not include any additional accounting adjustments or disclosure which might be required by the U.S. Securities and Exchange Commission (SEC).

Restatement of Financial Statements for General Price-level Changes

Under Brazilian Corporate Law, because of the highly inflationary conditions which have prevailed in the past, a form of inflation accounting, referred to as monetary correction, has been in use for many years to minimize the impact of the distortions in financial statements caused by inflation. Two methods of inflation accounting were developed: one required under the Corporate Law (the "Corporate Law Method") and the other the integral restatement method (the "Constant Currency Method") required by the CVM. Financial statements prepared in accordance with the Corporate Law Method have been, and continue to be required of all Brazilian corporate entities and are used by the Brazilian tax authorities in determining taxable income. However, as from 1996 no inflation accounting adjustments are permitted for financial statements prepared under the Corporate Law Method (for example, for tax and dividend determination purposes). As from March 1997, the CVM no longer permits companies to present financial statements prepared in accordance with the Constant Currency Method.

The Corporate Law Method through December 31, 1995

This method, required from 1977 through 1995 under the Corporate Law, helped to provide a fairer presentation of a company’s financial position and results of operations for both comparative and taxation purposes by recognizing the effects of changes in the purchasing power of the Brazilian currency, utilizing a government sanctioned index. The monetary correction of property, plant and equipment, investments in affiliated and subsidiary companies and deferred charges (known collectively as "permanent assets"), inter-company current accounts and certain other assets was charged to the net carrying value of each asset and credited to the income statement. Likewise, opening stockholders’ equity was adjusted and the amount of that adjustment was charged to the income statement. The net monetary correction gain or charge was considered in the determination of taxable income. This system did not provide for restatement of individual line items in the income statement, or any recognition of the effects of inflation expectations included in receivables and payables subject to settlement at future dates.

Moreover, this system did not require restatement of previous years’ financial statements. Therefore, when more than one year’s financial statements are presented, comparison difficulties were significant due to the effects of inflation.

The Corporate Law Method as from January 1, 1996

As a consequence of the recent low levels of inflation in the Brazilian economy, with effect from January 1, 1996, monetary correction was abolished in the Corporate Law Method by Law 9,249, of

A-1A-1

December 26, 1995. In addition, pursuant to CVM Instruction No. 248, of March 29, 1996, the Constant Currency Method is no longer required to be used by listed companies registered with CVM, which companies, as of March 1996, have been required to present their primary financial statements prepared in accordance with the Corporate Law Method. However, the IBRACON determined that, if the effects of inflation were material to the 1996 financial statements, such effects vis a vis proforma net income (loss) and stockholders equity, should be disclosed on a supplemental basis.

The Constant Currency Method

One of the main objectives of the Constant Currency Method was to facilitate comparison between periods by restating the Corporate Law Method financial statements to the price level parity prevailing as at the date of the latest balance sheet presented. The income statement of each period was first adjusted by the corresponding monthly cumulative inflation indices to represent a number of index units. These units were then multiplied by the period and cumulative inflation index to restate the income statement to the same purchasing power parity as the current balance sheet. The effect of this restatement was to allocate the monetary adjustments, as determined under the Corporate Law Method through to December 31, 1995, to their respective accounts within the income statement, and to include such adjustments when no longer contemplated by the Corporate Law Method as from January 1, 1996.

Under U.S. GAAP, in most cases, the price level restatement of financial statements is not permitted. Account balances and transactions are generally stated in the units of currency of the period/year when the transactions originated. This accounting model is commonly known as the historical cost basis of accounting. However, the Constant Currency Method described in the preceding paragraphs is substantially similar to the methodology prescribed by Accounting Principles Board Statement ("APB") No. 3, "Financial Statements restated for General Price-Level Changes" for companies operating in hyper-inflationary environments in which inflation has exceeded 100 percent over the last three years and which report in local currency. As from 1998, the Brazilian economy is no longer highly-inflationary as the increase in general price index measured less than 100 percent over the preceding three years.

Foreign Currency Translation

Under Brazilian Corporate Law, the financial statements of subsidiaries operating in strong currency environments are translated using the current exchange rate. Financial statements presented in weak currencies are adjusted for the effects of inflation prior to translation. Translation gains and losses are taken to the income statement.

Under U.S. GAAP, SFAS 52 requires the translation of foreign currency financial statements be made using the current exchange rate, except for enterprises operating in highly inflationary environments (a cumulative inflation rate of approximately 100 percent or more over a three-year period); in this case the functional currency is considered to be the reporting currency. Translation gains and losses are reported as a separate component of stockholders’ equity, except those relating to financial statements of enterprises operating in highly inflationary environments, which are taken to the income statement.

Cash and Cash Equivalents

Cash equivalents are not defined under Brazilian Corporate Law.

Under U.S. GAAP, SFAS No. 95, "Statement of Cash Flows," defines cash equivalents as short-term highly liquid investments that are both (i) readily convertible to known amounts of cash and (ii) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only investments with original maturities of three months or less qualify under that definition.

A-2A-2

Investments in Debt and Equity Securities

Under Brazilian Corporate Law, marketable debt and equity securities are generally stated at the lower of monetarily adjusted (up to December 31, 1995) cost or market value less interest or dividends received. Gains and losses are reflected in earnings. Certain specialized industries state such securities at market with gains and losses recognized in income. Additionally, certain specific investments, such as mutual fund investments, may be carried at market,

Under U.S. GAAP, in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," for enterprises in industries not having specialized accounting practices, the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities is as follows:

(I) debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and are reported at amortized cost;

(II) debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; and

(III) debt and equity securities not classified as either held to maturity or trading securities are classified as available for sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in a separate component of stockholders’ equity.

Revaluation of Property, Plant and Equipment

Revaluations may be recorded under Brazilian Corporate Law providing certain formalities are complied with. The revaluation increment, normally net of deferred tax effects, is credited to a reserve account in stockholders’ equity. As from July 1, 1995 companies may opt to carry property, plant and equipment at cost, monetarily adjusted up to December 31, 1995, or at appraised values, in which case the revaluations must be performed at least every four years and should not result in an amount higher than the value expected to be recovered through future operations. Deferred taxes must be recognized on revaluation increments as from July 1, 1995. Amortization of the asset revaluation increments are charged to income and an offsetting portion is taken out of the revaluation reserve in shareholders equity and transferred to retained earnings as the related assets are depreciated or upon disposal.

Under U.S. GAAP, property, plant and equipment are reported as their historical cost less accumulated depreciation. Voluntary revaluations are not permitted, except in the case of certain business combinations.

Business Combinations and Purchase Accounting

Under Brazilian Corporate Law, combinations are not specifically addressed by accounting pronouncements. Application of the purchase method is based on book values. Goodwill or negative goodwill recorded on the acquisition of a company is computed by the difference between the cost of acquisition and the underlying book value of the acquiree.

Under U.S. GAAP, in accordance with APB No. 16, "Business Combinations," business combinations are accounted for as either purchases or poolings of interests. However, these two methods are not alternatives for the same transaction and distinctive conditions must be met to require poolings of interests. All other business combinations must be treated as the acquisition of one company by another and accounted for by the purchase method. The combination of entities under common control is accounted for in a manner similar to a pooling of interests. Under this method, the recorded assets and

A-3A-3 liabilities of the separate enterprises generally become the recorded assets and liabilities of the combined enterprise. Additionally, the combined enterprise records as capital, the capital stock and capital in excess of par or stated value of outstanding stock of the separate enterprises. Similarly, retained earnings or deficits of the separate enterprises are combined and recognized as retained earnings or deficits of the combined enterprise. Any assets or liabilities exchanged to effect the transfer are accounted for as a capital dividend to, or capital contribution by, the transferor. Under the pooling of interests method, the financial statements of the combined enterprise for periods prior to the combination are restated to present the previously separate enterprises as if they had always been combined.

The purchase method is applicable for a business combination in which one company acquires an unrelated company. The acquiring company records at its cost the assets acquired less liabilities assumed. The acquired company’s assets and liabilities are adjusted to give effect to their fair market value. If, after the assets and liabilities of the acquired companies have been adjusted to their fair values at the acquisition date, the purchase price exceeds the amount of such fair value, the excess is recorded as goodwill (intangible asset) in the books of the acquiring company and is amortized over the period of benefit, not to exceed forty years. The amount of goodwill is evaluated periodically, and in the case of impairment its value is adjusted accordingly. Excess of fair value of net assets acquired over the purchase price, referred to as negative goodwill, must be applied to reduce the noncurrent assets until they are reduced to zero, and if any balance remains it is considered as a deferred credit and amortized over the estimated period to be benefited, not to exceed forty years. Under the purchase method, the financial statements of the acquiring company for periods prior to the acquisition date are not restated. APB No. 16 requires the presentation of pro forma results of operations for the current and comparative periods for business combinations accounted for as purchases.

Goodwill

Under Brazilian Corporate Law, the excess of cost over the net book value of an acquired company is recorded as goodwill, which is then amortized to income over a period not to exceed 10 years. When the purchase consideration is lower than the net book value of a purchased company, the negative goodwill may be recorded in income over a period consistent with the period over which the investee is expected to incur losses.

Under U.S. GAAP, APB No. 16 requires the application of the purchase method of accounting to the company’s acquisition transactions, in which the cost of an investment is assigned to the tangible and identified intangible assets acquired and liabilities assumed on the basis of their fair values at the date of acquisition. Any excess of cost over the fair value of net assets acquired is recorded as goodwill, which may then be amortized over a period not exceeding 40 years based on the expected period of future benefit. If an excess of acquired net assets over cost arises, the excess should be allocated to reduce proportionally the values assigned to noncurrent assets (except long-term investments in marketable securities) in determining their fair values. If the allocation reduces the noncurrent assets to zero value, the remainder of the excess over cost (negative goodwill) should be classified as a deferred credit and amortized systematically to income over the period estimated to be benefited, but not in excess of 40 years.

Consolidation

Under Brazilian Corporate Law, up to December 1, 1996, consolidation of subsidiaries is required in the case of publicly traded companies if the aggregate amount of such investments, valued on the equity basis of accounting, plus inter company receivables, exceeds 30 percent of the parent company’s stockholders’ equity.

As per CVM Instruction No. 247 of March 27, 1996, for fiscal years ending after December 1, 1996, inclusive, the definition of subsidiary was extended to include overseas branches, companies under common control or controlled by shareholders’ agreements. All subsidiaries must be consolidated

A-4A-4 irrespective of the 30 percent test and joint ventures, (including investees in which the company exerts significant influence through its participation in a stockholders’ agreement in which such group controls the investee) are to be accounted for under the proportional consolidation method.

Under U.S. GAAP, the basic rule is that when a company has a controlling interest (either through a majority voting interest or through the existence of other control factors) in an entity, such entity’s financial statements should be consolidated with those of the parent. The minority stockholders’ share of the subsidiaries’ earnings is deducted from (or losses added to) the parent’s consolidated results of operations. Losses applicable to the minority interest which exceed its interest in consolidated stockholders’ equity should be applied to the majority interest.

Equity Method of Accounting

Under Brazilian Corporate Law, a company is required to record An original investment in the equity of another entity at cost which is thereafter periodically adjusted to recognize the investor’s share of the investee’s earnings or losses after the date of original investment. A Brazilian parent company is required to use the equity method of accounting to record investments in its subsidiaries (companies that are controlled by the parent company) and its affiliates (companies in which the parent company owns at least 10 percent of the issued share capital without controlling it) over whose management it exerts influence or in which it owns 20 percent or more of the capital, if the aggregate book value of all such investments is equal to or greater than 15 percent of the stockholders’ equity of the parent company or, if the book value of an investment in any single subsidiary or affiliate is equal to or greater than 10 percent of the stockholders’ equity of the parent company.

Under U.S. GAAP, the equity method of accounting is used for investments, based on U.S. GAAP underlying financial statements, in which the company has a 20 percent to 50 percent ownership interest and significant influence over the operations of the investee and in joint-ventures in which neither party has control. Investments under 20 percent are carried at the lower of cost or market.

Contingent Assets

Under Brazilian Corporate Law, contingent assets with a high probability of recovery and which can be quantified may be recorded.

Under U.S. GAAP, in accordance with SFAS No. 5 "Accounting for Contingencies," contingent gains are generally not reflected in the financial statements though adequate disclosure must be made of contingencies which might result in gains, taking due care to avoid misleading implications as to the likelihood of realization.

Loan Receivables

Under Brazilian Corporate Law, loans receivable are generally carried at cost and footnote disclosure is minimal.

Under U.S. GAAP, loan accounting and footnote disclosures are more complex as loans may be carried at cost, market value or present or future cash flow, and are governed by various accounting standards, including SFAS No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring," SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," and SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" as amended by SFAS No. 118. The Bank enters into arrangements with certain loan customers which may include modification of the maturity date and the requirement of further guarantees, such as mortgages and liens. The Bank accounts for such arrangements as new loans. Prior to January 1, 1995, certain of these arrangements qualified as troubled debt restructurings under U.S. GAAP, which required the effects of the restructuring to be accounted for prospectively and the carrying amount of the loan not be changed unless the amount exceeds the total

A-5A-5 cash receipts specified by the new loan agreement. Such loans now are considered impaired and are accounted for as described below under "Allowance for Overdue Credits." Brazilian Corporate Law does not distinguish restructured loans from other loans.

Gains and losses on the early extinguishment of the Bank’s debt would be required to be disclosed as an extraordinary item under U.S. GAAP. There is no similar accounting standard in Brazil.

Under U.S. GAAP, recognition of interest on commercial loans is generally discontinued when loans are 90 days or more in arrears on payments of principal or, interest, or when management believes that principal or interest is not likely to be paid in accordance with the terms of the loan agreement.

Under Brazilian Corporate Law, previously accrued but uncollected interest on delinquent loans is not reversed at the time the loan ceases to accrue interest. Additionally, Central Bank regulations require not only that interest not be accrued on loans in arrears more than 60 days (depending of guarantees available), but also that the loan principal be maintained in nominal currency, plus monetary correction through to the date a loan is in arrears. In periods of high inflation, non-indexing of loan principal will result in such balance being rapidly written off to income. Recoveries from past due loans, previously written off, are credited to Income from Credit Operations under Brazilian Corporate Law.

Leasing Operations

The Bank’s leasing operations are recorded on the basis of accounting principles prescribed by the Central Bank. These accounting principles differ significantly from Brazilian Corporate Law. Leased assets are recorded at cost and, through December 31, 1995, adjusted for inflation, less depreciation calculated on the straightline method over 70 percent of the assets’ useful lives. Gains on sale of leased assets are recognized as income in the period in which the purchase, options relating to such assets are exercised. Losses on sales of leased assets are deferred and amortized over the remaining useful lives of the assets, at rates determined by applicable tax legislation. Central Bank regulations require that an adjustment be made to the book value of the leasing portfolio corresponding to present value, utilizing the internal rate of return of each contract. The amount of the adjustment is recorded as an excess/insufficiency of depreciation in the property for lease balance sheet account and credited/charged to other operating income/expenses. Lease financing receivables are recorded at initial contract amounts and adjusted for inflation in conformity with the criteria and indices established by each contract. Corresponding adjustments to unearned lease income are amortized to income over the life of respective contracts.

Under U.S. GAAP, in the case of capital leases, gross lease receivables are reported at the principal amount outstanding plus lease income receivable and guaranteed residual value. Unearned lease income is shown separately as a deduction from the gross lease receivables.

Loan Origination Fees

A-6A-6 assets are recorded at cost and, through December 31, 1995, adjusted for inflation, less depreciation, calculated on the straightline method over 70 percent of the assets’ useful lives. Gains on sale of leased assets are recognized as income in the period in which the purchase, options relating to such assets are exercised. Losses on sales of leased assets are deferred and amortized over the remaining useful lives of the assets, at rates determined by applicable tax legislation. Central Bank regulations require that an adjustment be made to the book value of the leasing portfolio corresponding to present value, utilizing the internal rate of return of each contract. The amount of the adjustment is recorded as an excess/insufficiency of depreciation in the property for lease balance sheet account and credited/charged to other operating income/expenses. Lease financing receivables are recorded at initial contract amounts and adjusted for inflation in conformity with the criteria and indices established by each contract. Corresponding adjustments to unearned lease income are amortized to income over the life of respective contracts.

Discounting

Brazilian Corporate Law does not generally require long-term receivables and non-debt related long-term liabilities to be discounted to their net present value as at the balance sheet date. As from 1995, the CVM requires discounting of certain long term items for listed companies only.

Under U.S. GAAP, APB No. 21, "Interest on Receivables and Payables," such discounting in certain cases is normally required to eliminate the effects of implicit interest income or expense.

Non-interest Bearing Debt Instruments

Under Brazilian Corporate Law, non-interest bearing debt instruments are not generally presented with an imputed rate of interest in order to recognize the economic substance of the underlying transaction.

Under U.S. GAAP, APB No. 21, "Interest on Receivables and payables," requires the imputation of a reasonable, market-based, rate of interest for non-interest bearing debt instruments over the maturity period of the note. Additionally, the carrying value of the debt instrument is reported net of any resulting discount or premium.

Debt Restructuring

Under Brazilian Corporate Law, restructured loans are not distinguished from normal financing activities.

Under U.S. GAAP, certain effects of the restructuring of debt are accounted for prospectively and the carrying amount of the loan is changed and a gain or loss recognized if the future cash flows are not substantially similar to those under the old loan agreement.

Extinguishment of Debt

Under Brazilian Corporate Law, the gain or loss on extinguishment is only recognized on settlement of the debt and a surrender of complete control over the assets transferred to settle such debt.

A-7A-7

Under U.S. GAAP, the gain or loss on the extinguishment of debt is the difference between the reacquisition price and the net carrying amount of the debt on the date of the extinguishment. The gain or loss is recognized immediately and recognized in income. As from 1997, SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," is more restrictive, as debt may only be extinguished if (i) the debt is paid and (ii) the company is no longer liable, and provides for specific guidance on this matter.

Mortgage Servicing

Brazilian Corporate Law and Central Bank rules do not provide specific guidelines for the treatment of such matters.

Under U.S. GAAP, SFAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," eliminates the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and those acquired through purchase transactions.

Interest Recognition - Non accrual Loans

Under Brazilian Central Bank regulations, the accrual of interest is generally suspended when loans are classified as doubtful (créditos em liquidação), and at the discretion of the Bank, when classified as overdue. Under Brazilian banking industry practices, interest income from overdue credits and doubtful loans is recognized on a cash basis for non-performing loans.

Under U.S. GAAP, allowances for loan losses should be provided in amounts adequate to cover inherent losses in the loan portfolio at the respective balance sheet dates. Accrued interest is generally charged against income when the loan is placed on non-accrual and accrual of interest is discontinued when delays are for between 90 and 120 days, depending on the type of loan. If the collectibility of the principal of the non-accrual loan is in doubt, cash payments should be applied to reduce the principal to the extent necessary to remove such doubt.

Employee Termination Costs in Restructuring Plan

Under Brazilian Corporate Law, a provision is made for estimated employee termination costs arising from the decision to restructure industrial and administrative operations.

Under U.S. GAAP, this liability should be recorded only when several conditions are met, including: (i) the benefit arrangements have to have been communicated to the employees and (ii) the planned termination has to be completed within a reasonable period from the date of approval of the plan of termination by management.

Provision for Dividends

Under Brazilian Corporate Law, at each balance sheet date the Directors are required to propose a dividend distribution from earnings and accrue for this in the financial statements.

Under U.S. GAAP, since this proposal may be ratified or modified at the annual Stockholders’ Meeting, such dividends would not be considered as declared at the balance sheet date and would therefore not be accrued.

Employee Pension Costs and Other Post-employment Benefits

Under Brazilian Corporate Law, employee pension costs and other benefits are expensed as they fall due.

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Under U.S. GAAP, employee pension costs are recognized in accordance with SFAS No. 87, "Employers’ Accounting for Pensions." In addition to the differences in cost recognition the disclosures required with respect to employee pensions are considerably more detailed under U.S. GAAP than under Brazilian Corporate Law.

SFAS No. 87 does not apply to government established social security systems under which the government pays pensions to retirees and obtains funds through payroll taxes or levies on employees. Under such systems, employers normally have no responsibility to make the pension payments and there is no relationship between the taxes paid and recorded by the employer and pensions paid by the government.

SFAS No. 87 requires the use of an actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specific corridor) that result from changes in assumptions or actual experience differing from that assumed. SFAS No. 87 also provides for the prospective amortization of costs related to changes in the benefit plan, as well as the obligation resulting from transition and requires disclosure of the components of periodic pension costs and the funded status of pension plans.

Under U.S. GAAP, SFAS No. 106, "‘Employers’ Accounting for Post-retirement Benefits other than Pensions" applies to all post-retirement benefits related to life insurance provided outside a pension plan or to other post-retirement health care and welfare benefits expected to be provided by an employer to current and former employees. SFAS No. 106 is similar to SFAS No. 87 in that the cost of a post- retirement benefits plan should be recognized over the employees’ service periods and that actuarial assumptions are used to project the cost of health care benefits and the present value thereof. Under SFAS No. 106 a company is required to describe the plan, employee groups covered, type of benefits provided, funding policy, types of assets held, and any matter affecting comparability, among other disclosures.

Under U.S. GAAP, SFAS No. 112, "Employers’ Accounting for Post-employment Benefits" establishes accounting standards for employers, who provide benefits to former or inactive employees after employment but before retirement. Post-employment benefits include, but are not limited to, salary continuation, severance benefits, disability, counseling and continuation of benefits such as health care benefits and life insurance coverage. SFAS No. 112 requires employers to recognize the obligation to provide postemployment benefits in accordance with SFAS No. 43, "Accounting for Compensated Absences," if the obligation is attributable to employees’ services already rendered, employees’ rights to those benefits accumulated or vested, payment of the benefits is probable, and the amount of the benefit can be reasonably estimated. If those four conditions are not met, the employer should account for postemployment benefits when it is probable that a liability has been incurred and the amount can be reasonably estimated in accordance with SFAS No. 5 "Accounting for Contingencies."

Income Taxes

Under Brazilian Corporate Law, the methods adopted for the recording of income taxes are similar to U.S. GAAP but their practical application may lead to different results in certain circumstances. The criteria for recognition of the tax benefit of tax loss carryforwards under Brazilian Corporate Law are not as well defined as under U.S. GAAP.

Under U.S. GAAP, the liability method is used to calculate the income tax provision, as specified in SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred tax assets or liabilities are recognized with a corresponding charge or credit to income for differences between the financial and tax basis of assets and liabilities to each year/period end. In accordance with paragraph 9(f) of SFAS No. 109, insofar as it relates SFAS No. 52 for entities operating in highly inflationary environments, deferred taxes are not recorded for differences relating to certain assets and liabilities that are remeasured into U.S. dollars at historical exchange rates and that result from changes in exchange

A-9A-9 rates or indexing to inflation in local currency for tax purposes. Net operating loss carryforwards arising from tax losses are recognized as assets and valuation allowances are established to the extent it is not more likely than not such assets will be recovered. There may be differences in timing with respect to the recognition of the effects of changes in tax rates.

Forward and Repurchase Agreements and Unsettled Spot Transactions

Under Brazilian Corporate Law, with respect to forward securities and foreign exchange contracts, repurchase agreements, spot securities and foreign exchange transactions with future settlement, the Bank recognizes both a receivable and a payable at the time of the agreement, which reflect the amount of cash, currency or listed securities to be exchanged at the closing date. The receivable or payable representing the receipt or delivery of securities or currency is stated at the quoted market value of such securities or currency. Under Brazilian Corporate Law, the Bank values forward exchange contracts at the daily spot rate of exchange and the resulting gains or losses are recognized in income. The discount or premium on a forward contract is deferred and included in determining net income over the life of the contract.

Under U.S. GAAP, accounting for forward foreign exchange contracts and futures contracts is governed by SFAS No. 52, "Foreign Currency Translation" and SFAS No. 80, "Accounting for Futures Contracts," respectively. Under either standard, entities generally would not recognize a particular receivable or payable but would recognize the differences arising from changes in the market price of securities or currency to be received or delivered if the transaction did not qualify as a hedge. Gains or losses resulting from the valuation of these forward exchange contracts would be included in the determination of net income with no separate accounting recognition given to the discount or premium.

Accrued Interest and Indexation Adjustments

Under Brazilian Corporate Law accrued interest and indexation adjustments are presented with the principal amounts. Under U.S. GAAP accrued interest and indexation adjustments would be separately recorded.

Recoveries of Loans Previously Charged-off

Under Brazilian Corporate Law, recoveries of loans previously charged-off are reflected in income on a cash basis. Under U.S. GAAP, recoveries of loans previously charged-off are reflected as additions to the reserve for loan losses.

Fees on Automatic Teller Machines (ATM)

Under Brazilian Corporate Law, the Bank recognizes fees on Automatic Teller Machines (ATM) cards on a cash basis.

Under U.S. GAAP, recognition of income from ATM cards is recorded on an accrual basis.

Treasury Stock

Under Brazilian Corporate Law, the acquisition of treasury stock is accounted for by reducing capital by its nominal amount and both the excess or the shortfall compared to par is taken against reserves, as designated by the executive Board Of Directors.

Under U.S. GAAP, both the cost method and par value method of accounting for treasury stock are acceptable. Under the cost method, each acquisition is accounted for at cost. Under the par value method the treasury stock account is increased by only the par value of each share, with any excess being offset firstly against any additional paid capital that arose on the issue of the shares, with any remaining excess being set off against reserves. Any excess of par value over purchase price paid in is credited to paid in

A-10A-10 capital from treasury stock. When treasury stock is acquired with the intent of retiring the stock, the excess of the price paid for the stock over its par value may be allocated between paid in capital and retained earnings.

Accounting Changes

Under Brazilian Corporate Law, the cumulative effect of changes in accounting principles is generally applied as an adjustment to the current year’s opening equity balance. In certain instances, changes in estimates may be accounted for as changes in accounting principles.

Under U.S. GAAP, the cumulative effect of changes in accounting principles is generally disclosed as an adjustment to earnings in the year of the change, along with pro forma disclosure of the effects of such change on prior years’ financial statements. The effects of changes in accounting estimates are generally reflected prospectively.

Prior Period Adjustments

Under Brazilian Corporate Law, prior period adjustments encompass corrections of errors in previously issued financial statements and the effects of changes in accounting principles. Brazilian Corporate Law does not permit restatement of previous financial statements to provide consistency in reporting, which is required under U.S. GAAP in certain circumstances. The CVM has required that such prior period adjustments arising from accounting errors be recorded as an extraordinary item in the results of operations of the current year.

Under U.S. GAAP, prior period adjustments are effectively limited to correction of errors which are effected by adjusting current and prior periods financial statements and appropriate footnote disclosure regarding the effects of the error on current and prior periods.

However, for the purposes of U.S. GAAP, paragraph 29 of APB No. 20 allows the retroactive restatement of the financial statements to reflect the effects of a newly adopted accounting principle, in the case of an initial public distribution, in order to provide better information to the potential investors. Under this paragraph all prior financial statements may be restated in the case of: (a) obtaining additional equity capital from investors, (b) effecting a business combination, or (c) registering securities.

Stock-based Compensation

Under Brazilian Corporate Law, no such expense in relation to stock-based compensation is recognized in the financial statements.

Under U.S. GAAP, SFAS No. 123, "Accounting for Stock-based Compensation," encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments based on a fair value method of accounting. Companies not recording such expense are required to provide pro forma disclosure of the compensation expense computed under SFAS No. 123 and continue to report under APB No. 25, which requires the use of the intrinsic value method.

Notional Interest Charge on Own Capital

Under Brazilian Corporate Law, companies are permitted to distribute or capitalize an amount of interest, subject to certain limitations, calculated based on a government interest rate, on stockholders equity. Such amounts are deductible for tax purposes and are presented as a deduction from stockholders’ equity. Although not affecting net income, in certain cases, companies include this notional charge in interest expense and reverse out the same amount before the net income tota1. Under U.S. GAAP, no similar concept exists.

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Segment Information

Under Brazilian Corporate Law, there is no requirement for financial reporting for segments.

Under U.S. GAAP, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," applicable to financial statements for periods beginning after December 15, 1997, requires public companies to report both financial and descriptive information about its reportable operating segments. Reportable operating segments are defined as those about which separate financial information is available and is regularly evaluated by the chief decision maker. Generally, financial information to be reported will be on the basis used internally for evaluating segment performance. Financial information to be disclosed includes segment profit or loss, certain specific revenue and expense items and segment assets, as well as a reconciliation of total segment revenues, profit or loss and assets to the corresponding amounts in the consolidated financial statements.

Contingent Liabilities

Under Brazilian Corporate Law, the accounting and disclosure requirements are generally not as comprehensive as found under U.S. GAAP.

Related Parties

Under Brazilian Corporate Law, related parties are generally defined in a more limited manner and require fewer disclosures than U.S. standards. As a result, many of the disclosures required in the United States are not required under Brazilian generally accepted accounting principles.

Financial Instruments and Concentration of Credit Risk

Under Brazilian Corporate Law, there are less detailed requirements regarding the disclosure of information on financial instrument not reflected on the balance sheet or on concentration on financial instruments with credit risk.

Under U.S. GAAP, the applicable accounting practice for financial instruments depends on management’s intention for their disposition and may require adjustments to their market or fair values. In addition, U.S. GAAP requires more detailed disclosures prescribed by SFAS No. 105 “Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Concentration of Credit Risk”, SFAS No. 107 “Disclosure about Fair Market Value of Financial Instruments” SFAS No.119 “Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments” and SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.”

SFAS 105, with certain exceptions, requires disclosure of the following in regard to financial instruments with off-balance-sheet risk:

• face or contract or notional principal amount;

• nature and terms including (i) credit and market risk, (ii) cash requirements and (iii) accounting policy followed;

• amount of loss, if any party to the financial instrument fails to perform; and

• policy as to requiring collateral.

As to concentration of credit risk arising from all financial instruments, including accounts receivable, SFAS 105 requires:

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• information about the activity, region or other characteristic that identifies the concentration;

• amount of loss if parties to the concentrated risk fail to completely perform; and

• policy as to requiring collateral.

SFAS 119 amended SFAS 105 to require disclosures about amounts, nature and terms of derivative financial instruments that are not subject to SFAS 105 because they do not result in off-balance sheet risk of accounting loss. Derivative financial instruments include futures, forward, swap or option contracts.

SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, and available-for-sale security, or a foreign- currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

Financial Statement Note Disclosure

Brazilian Corporate Law in general requires less information to be disclosed in financial statement footnotes than U.S. GAAP. Disclosures required under U.S. GAAP not typically found in Brazilian Corporate Law financial statements include, but are not limited to, the following:

• general business, political and economic risks

• off-balance sheet risks and commitments, concentration of credit risk and major customers

• details of guarantees provided to third parties

• irrevocable commitments such as take-or-pay or minimum sales contracts

• reconciliation of the statutory tax rate to the effective tax rate

• advertising expense and assets

• research and development costs

• environmental related costs, liabilities and proceedings

• analysis of sales by geographical area

• financing facilities and terms

• footnote disclosure of summarised financial statements of affiliated companies which meet certain tests of significance

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Brazilian Corporate Law generally requires more disclosure than U.S. GAAP with respect to insurance coverage, parent company financial statements and details of investments in affiliated and subsidiary companies.

Earnings Per Share

Under Brazilian Corporate Law, disclosure of earnings per share is computed based on the number of shares outstanding at the end of the year.

Under U.S. GAAP, in accordance with SFAS No. 128, "Earnings per Share," the presentation of earnings per share is required for public companies, including earnings per share from continuing operations and net income per share on the face of the income statement, and the per share effect of changes in accounting principles, discontinued operations and extraordinary items either on the face of the income statement or in a note. A dual presentation is required: basic and diluted. Computations of basic and diluted earnings per share data should be based on the weighted average number of common shares outstanding during the period and all dilutive potential common shares outstanding during each period presented, respectively.

Comprehensive Income

Brazilian Corporate Law does not recognize the concept of comprehensive income.

Under U.S. GAAP, SFAS No. 130, "Reporting Comprehensive Income," effective for years beginning after December 15, 1997, requires the disclosure of comprehensive income. Comprehensive income is comprised of net income and "other comprehensive income" that include charges or credits directly to equity which are not the result of transactions with owners. Examples of other comprehensive income items are cumulative translation adjustments under SFAS No. 52, unrealized gains and losses under SFAS No. 115 and minimum pension liabilities under SFAS No. 87, amongst others.

Use of Estimates

Under Brazilian Corporate Law, there are no requirements to disclose the use of estimates in the preparation of financial statements.

Under U.S. GAAP, Statement of Position (SOP) No. 94-6 requires financial statement disclosure about the nature of a company’s operations and the use of estimates in the preparation of financial statements. In addition, if certain criteria are met, it requires the disclosure of significant estimates affecting the financial statements and sensitivity to certain concentrations of business transactions, revenue and supply resources and area of operation.

A-14A-14 APPENDIX B

THE FEDERATIVE REPUBLIC OF BRAZIL

The following information regarding Brazil is included for information only. The information set forth herein with respect to Brazil has been obtained from information and data publicly released by official sources in Brazil and other sources indicated herein which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and it is not to be construed as a representation of the Issuers, the Guarantor or the Dealers. In addition, none of the Issuers, the Guarantor or any of their respective affiliates or advisers in connection with the offering of the Notes have independently verified the information contained herein. Prospective purchasers of the Notes should not rely only upon the following information in making any investment decision with respect to the Notes and are encouraged to consult independent sources as to the condition of Brazil. The information set out in the tables below and in the tables contained elsewhere in this Offering Circular has been derived from various sources which, in certain cases, use different methodologies for calculating the information presented. As a result, information of the same general category may vary depending on its source.

General

Brazil, a nation consisting of 26 states and a Federal District, is the fifth largest country in the world, with an area of approximately 3.3 million square miles. It is the largest country in Latin America and occupies nearly half of the land area of South America. Brazil shares a border with every country in South America except Chile and Ecuador. The capital of Brazil is Brasília, and the official language of the country is Portuguese.

At August 31, 2000, Brazil’s population was estimated at 169.5 million, making it the fifth most populous country in the world. Approximately 81.2% of the population lives in urban areas. The largest states in Brazil, in terms of gross domestic product (“GDP”), are São Paulo, Rio de Janeiro and Minas Gerais, with populations in excess of 37.0 million, 14.4 million and 17.8 million, respectively. The largest city in Brazil is São Paulo, with a population of more than 10.4 million.

Form of Government

Brazil is a federative republic with a representative form of federal government (the “Brazilian Government” or the “Government”). 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. An amendment to the Brazilian Constitution adopted in June 1997 permits the reelection for a second term of the President and certain other elected officials. The President has a broad range of powers including the right to appoint ministers and key executives in selected administrative and political posts.

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The legislative branch consists of a bicameral National Congress composed of the Senate and the Chamber of Deputies. The Senate is composed of 81 Senators, elected for staggered eight-year terms, and the Chamber of Deputies is composed of 513 deputies, elected for concurrent four-year terms.

The judicial power is exercised by the Federal Supreme Court (composed of 11 Justices), the Superior Court of Justice (composed of 33 Justices), the Federal Regional Courts (appeals courts), military courts, labor courts, electoral courts and the several lower federal courts. The Federal Supreme Court, whose members are appointed for life by the President, has ultimate appellate jurisdiction over decisions rendered by lower federal and state courts on constitutional matters.

Additional government authority is exercised by 26 states and a Federal District and various municipal governments. At the state level, executive power is exercised by governors elected for four-year terms and legislative power by state deputies also elected for four years. Judicial power at the state level is vested in state courts and appeals of state court judgments may be taken to the Superior Court of Justice (on federal law matters) and the Federal Supreme Court (on constitutional matters).

Recent Political History

The Brazilian military ruled the country from 1964 to 1985. In 1985, a series of political reforms were enacted, including the reintroduction of direct elections for the President and the calling of a Constitutional Assembly. A new Constitution was promulgated in October 1988.

In December 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 when Congress initiated an investigation into charges of corruption involving the President. In December 1992, President Collor resigned from the Presidency in the midst of his impeachment trial. Consequently, Itamar Augusto Cautiero Franco, the Vice President under Collor, who had become acting President in October 1992 during the impeachment proceedings, assumed the Presidency for the remainder of that term, which ended December 31, 1994.

In April 1993, President Franco appointed as Finance Minister Fernando Henrique Cardoso, the former Minister of Foreign Affairs. As Finance Minister, Mr. Cardoso was the primary advocate for a new program of macroeconomic policies based on the reduction of public expenses, an increase in federal tax collections, tighter control over state-owned banks, an improvement in the financial relationship between the Brazilian Government and the states and municipalities and an acceleration of the Brazilian Government’s privatization program. That program evolved into the Real Plan. See “—The Brazilian Economy.”

After the introduction of the Unit of Real Value (Unidade Real de Valor, or “URV”), the new inflation index, in March 1994, Mr. Cardoso resigned and announced his intention to run for President. After winning the first round of votes in the presidential election held on October 3, 1994 with approximately 54.3% of the total valid votes, Mr. Cardoso was sworn in as President on January 1, 1995. Mr. Cardoso was reelected to a second term of office as President of Brazil in national elections that occurred on October 5, 1998. Mr. Cardoso’s second four- year term of office began on January 1, 1999. Since assuming office, the Cardoso administration has taken steps to further Brazil’s economic liberalization process and has pursued a number of constitutional amendments and legislative measures designed to further deregulate the Brazilian

B-2B-2 economy, reduce the Government’s fiscal deficit and encourage foreign capital investment. These reforms focus on Brazil’s tax system, privatization programs and foreign investment regulations. See “—Privatization.”

Several constitutional amendments have also been enacted to modify rules regarding the electoral process, citizenship, judicial powers, administrative principles, and legislative rights of Congress, its members, and the state legislatures.

Foreign Relations and International Organizations

Brazil maintains diplomatic and trade relations with almost every nation in the world. It is a member of the United Nations, the Organization of American States, the InterAmerican Development Bank, the World Bank, the International Development Association, the International Finance Corporation, the International Monetary Fund, the General Agreement on Tariffs and Trade, the World Trade Organization and the Latin American Integration Association and the Mercado Comum do Sul (“Mercosul”), a common market organization.

Mercosul was formally established in March 1991, when Argentina, Brazil, Paraguay and Uruguay signed the Treaty of Asunción. The Treaty and subsequent agreements provide for the gradual economic integration of the member countries and the reduction of tariff barriers and non-tariff restrictions on trade. In December 1994, the four member countries signed an agreement establishing the date of January 1, 1995 for the implementation of a Common External Tariff (“CET”) intended to transform the region into a customs union. However, because each member country was permitted a list of 450 exceptions (399 in the case of Paraguay) to the CET, the full implementation of a customs union has not been achieved. In December 1995, Mercosul and the European Union signed a framework agreement for the development of free trade between them. On October 1, 1996, Chile became an associate member of Mercosul. On February 28, 1997, Bolivia became an associate member of Mercosul.

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The Brazilian Economy

Overview

The Brazilian economy is the largest in Latin America. In recent years, it has had a record of erratic growth, largely because of the large Brazilian Government fiscal deficits and inflation. Structural reforms in recent years have opened the economy to international competition. A program initiated in 1991 has led to the privatization of several government- controlled companies.

The following table sets forth selected economic indicators for Brazil for the six years ended December 31, 2000, as expressed in U.S. dollars:

As of and for the Years ended December 31,

1996 1997 1998 1999 2000 2001

(billions of U.S.$, except percentages)

Gross domestic product(1)...... 749.1 803.0 775.4 529.5 601.9 508.9

Real gross domestic product growth(2) ...... 2.7% 3.53% -0.2% 0.8% 4.5% 1.5%

Inflation IGP-DI(3) ...... 9.3% 7.7% 1.7% 20.0% 9.8% 10.4%

Trade balance...... (5.5) (8.3) (6.4) (1.2) (0.7) 2.6

Gross external debt 94.3 85.7 95.7 100.7 92.7 93.2 (nominal)(4) ...... Total official reserves ...... 60.1 52.2 44.6 36.3 33.0 35.9

Certificates: (1) Converted into dollars based on the weighted average exchange rate for each year. 1999, 2000 and 2001 are BankBoston estimates. (2) Calculated based upon constant average reais. (3) The IGP-DI is a widely used indicator of inflation in Brazil published by the Fundação Getúlio Vargas, a leading independent Brazilian economic research organization. (4) Not including external private debt. Consolidated external private debt as of December 31, 2001 was U.S.$116.7 billion. Sources: Fundação Instituto Brasileiro de Geografia e Estatística (“IBGE”), the Banco Central (Central Bank) and Bank Boston.

Recent Economic Performance

Throughout the 1980s and the early 1990s, the Brazilian economy suffered through periods of high inflation and recession. Until the fourth quarter of 2001, the Brazilian economy showed improvement in a number of areas. GDP grew in real terms by 1.5% in 2001, 4.2% in 2000, 0.8% in 1999, 0.2% in 1998, 3.6% in 1997, 2.7% in 1996, 4.2% in 1995 and 5.9% in 1994. The industrial sector grew in real terms by 0.6% in 2001, 4.8% in 2000, -1.6% in 1999, -1.4% in 1998, 5.8% in 1997, 3.3% in 1996, 1.9% in 1995 and 6.7% in 1994. The service sector grew in real terms by 2.2% in 2001, 3.6% in 2000, 1.9% in 1999, 1.1% in 1998, 2.7% in 1997, 2.3% in 1996, 4.5% in 1995 and 4.7% in 1994.

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Brazil’s exports grew almost each year from 1991 to 1997. In the nine-year period ending December 31, 2001, exports rose from U.S.$38.6 billion in 1993 to U.S.$58.2 billion in 2001. Exports grew as a percentage of GDP from 9.0% of GDP in 1993 to 11.4% in 2001. Imports to Brazil also rose during that period, both in nominal terms and as a percentage of GDP. Imports to Brazil rose from U.S.$25.3 billion in 1993 to U.S.$ 55.6 billion in 2001, after having reached U.S.$61.4 billion in 1997, an increase from 5.9% of GDP in 1993 to 10.9% of GDP in 2001. The rise in imports contributed to trade deficits of U.S.$3.5 billion in 1995, U.S.$5.6 billion in 1996, U.S.$8.4 billion in 1997, U.S.$6.8 billion in 1998, U.S.$ 1.2 billion in 1999 and U.S.$ 691.0 million in 2000; by contrast, in 1992, 1993, and 1994, Brazil registered trade surpluses of U.S.$15.2 billion, U.S.$13.3 billion and U.S.$10.5 billion, respectively. In 2001 Brazil was once again able to register a surplus, with a trade balance of U.S.$ 2.7 billion. See “Foreign Trade.”

Over the four years ended December 31, 1996, Brazil generally experienced growth in international reserves, reaching U.S.$60.1 billion at the end of December 1996, corresponding to approximately 14 months of imports of goods.

As a result of the Asian financial crisis in 1997, however, the Government used a portion of its international reserves to intervene in the foreign exchange markets following a sell-off of Brazilian securities in late October 1997 and related declines in the Brazilian stock markets, causing international reserves to fall to approximately U.S.$52.2 billion at December 31, 1997. In addition, the Central Bank took temporary measures designed to provide long-term stability in the Brazilian capital markets and to moderate surges in capital outflows. The sell-off of Brazilian securities and related declines in the Brazilian stock markets had an adverse effect on foreign investment flows to Brazil in 1997. Brazil ended the year with total net foreign investment of U.S.$26.2 billion, a 17.5% decline from 1996, with net foreign portfolio investment down 58.1% to U.S.$9.1 billion. However, net foreign direct investment reached U.S.$17.1 billion in 1997, a 71.3% increase over 1996.

Brazil’s international reserves recovered during the first four months of 1998, reaching a historical high of U.S.$74.7 billion at April 30, 1998. At July 31, 1998, Brazil’s international reserves stood at approximately U.S.$70.2 billion, corresponding once again to approximately 14 months of imports. In the ensuing months, however, international reserves came under pressure again. The Government believes that the pressure was, in part, the result of investors’ decisions to reduce their exposure to emerging markets after expectations regarding emerging markets in general changed based on adverse developments in Russia. Although outflows in August 1998 were partially offset by net foreign direct investment, primarily resulting from the privatization of Telecomunicações Brasileiras S.A. (“Telebrás”), Brazil’s international reserves declined to U.S.$67.3 billion at August 31,1998, U.S.$45.8 billion at September 30, 1998 and U.S.$42.4 billion at October 31, 1998, In 1998 international reserves fell again to US$ 41.2 billion in November. In November of 1998, Brazil commenced a three-year financing package program with the International Monetary Fund (“IMF”). The IMF loans permitted international reserves at the end of 1998 to equal US$ 44.6 billion. In 1999, international reserves fell to US$ 36.3 billion and fell again in 2000 to US$ 33.0 billion. In 2001 international reserves increased to US$ 35.9 billion.

In response to this outflow of international reserves, the Government, among other things, (i) raised the Central Bank’s assistance rate (“TBAN”) to 49.75% from 29.75% per annum, (ii) temporarily eliminated financial institutions’ access to funds at the Central Bank’s basic rate (“TBC”), (iii) reduced the minimum term for new foreign currency debt to one year from two years, and (iv) reduced the minimum term for the rollover of foreign currency debt to six months from one year. In addition, on October 28, 1998, the Government announced a set of measures, collectively referred to as the Fiscal Stabilization Program, intended to produce a primary surplus of 2.6% of GDP in 1999, 2.8% of the GDP in 2000 and 3.0% of GDP in 2001. The Fiscal Stabilization Program had two components: (1) structural measures to address the roots of fiscal disequilibrium and (2) the Action Plan for 1999-2001. The structural measures included: (a) the implementation of the measures included in the Constitutional Amendment No. 19 relating to administrative reform; (b) the proposal and enactment of a fiscal

B-5B-5 responsibility law that, among other things, established ceilings on public expenditure and indebtedness for all three levels of government and imposed sanctions for noncompliance; (c) the simplification of the tax system through, among other things, a reduction in the number of taxes collected; and (d) the reform of the budgetary process. The Action Plan for 1999-2001 included, among other things, (i) spending cuts for state enterprises for 1999 of approximately R$2.7 billion; (ii) extending to retired civil servants the obligation to make social security contributions in an amount equal to 11% of their pensions; (iii) imposing a 9% supplemental social security contribution on persons earning salaries or receiving pensions over R$1,200 per month for a period of five years; (iv) extending the provisional financial contribution transaction levy (Contribuição Provisória sobre Movimentação Financeira or “CPMF”), which was due to expire on December 1, 1998, and increasing that tax from the rate of 0.20% to 0.38% in 1999, and thereafter decreasing that tax to a rate of 0.30% in 2000 and 2001; (v) increasing the contribution for social purposes (Contribuição para o Financiamento da Seguridade Social, or “COFINS”) by one percentage point (to 3% from 2%) and extending the application of that tax to the financial sector, which had previously been exempt; and (vi) extending the term of the Fiscal Stabilization Fund (Fundo de Estabilização Fiscal, or “FEF”) to 2006 and increasing the amount retained by the Government from 20% of certain tax revenues to 40% of such tax revenues during the period from 2000 to 2006.

Government estimates for the Fiscal Stabilization Program had assumed a reduced GDP growth of 0.5% in 1998 and negative 1.0% in 1999. GDP grew 0.2% in 1998 and grew 0.8% in 1999.

The Government made some initial progress in implementing the Fiscal Stabilization Program and Action Plan. On November 18, 1998, the National Congress approved four fiscal measures, including the proposed extension to retirees of the obligation to make social security contributions, the proposed increase to 3% of the COFINS rate and the extension of that tax to the financial sector, which previously had been exempt. On November 26, 1998, the Government delivered to the National Congress legislation to simplify the tax system by, among other things, eliminating six existing taxes (including COFINS, the federal tax on industrial products (IPI) and the state tax on the circulation of goods and services (ICMS) and replacing them with a single value-added tax. The bill also proposed to introduce a permanent federal tax on financial transfers (IMF) to replace the provisional financial CPMF.

In addition, on November 13, 1998, the International Monetary Fund (the “IMF”) announced a U.S.$41.5 billion support package for Brazil, approximately U.S.$18.3 billion of which would be provided by the IMF and U.S$4.5 billion by each of the World Bank and the Inter-American Development Bank. An additional U.S.$14.5 billion would be provided by 20 countries through a credit facility coordinated by the Bank for International Settlements and the Ministry of Finance of Japan. Of the support package resources, U.S.$32.2 billion would be available to Brazil during the first 12 months, if needed. Brazil received the first installment of approximately U.S.$9.3 billion in two disbursements, following the approval of the IMF’s component of the support package by its Executive Board on December 2, 1998 and the ratification of the package by the Brazilian Senate.

Brazil’s international reserves stabilized following the announcement of the support package, reaching U.S.$41.2 billion at November 30, 1998. The Central Bank also lowered the TBAN rate during this time from 49.75% to 42.25% on November 12, 1998 and 36% on December 17, 1998. In December 1998, however, there were significant outflows following the Government’s failure to secure passage of a key social security reform bill by the Chamber of Deputies in a December 3, 1998 vote and delays in the voting on the increase of the CPMF rate. After giving effect to such outflows and the U.S.$9.3 billion inflow from the IMF-led support package, reserves stood at U.S.$44.6 billion at December 31, 1998. On December 31, 1998, the real-U.S. dollar exchange rate (sell side) in the commercial exchange market, as published by the Central Bank, stood at R$1.2087 to U.S.$1.00.

In January 1999, Brazil’s international reserves came under significant pressure once again as a result of a series of events that month. On January 6, 1999, the newly inaugurated governor of the State of Minas Gerais announced that the State would suspend, for 90 days, payments in respect of the State’s

B-6B-6 approximately R$18.3 billion debt to the Government. A week later, on January 13, 1999, Gustavo H.B. Franco, the president of the Central Bank and one of the architects of the Real Plan, resigned and was replaced by Francisco Lopes, who attempted a controlled devaluation of the real by widening the band within which the real was permitted to trade. Subsequent Central Bank intervention failed to keep the real-U.S. dollar exchange rate within the new band. On January 15, 1999, the Central Bank announced that the real would be permitted to float, with Central Bank intervention to be made only in times of extreme volatility. Following that announcement, the value of the real against the U.S. dollar declined approximately 21% from its level on January 12, 1999.

To minimize excessive exchange rate volatility and reduce the inflationary effects of the devaluation of the real, the Central Bank raised the TBAN rate to 41% from 36% on January 19, 1999, and the Central Bank intervened in the market to adjust the Federal Funds Rate (taxa Over/Selic, or “Over/Selic rate”) to 32% on January 19, 1999 from 29.8% the previous day. The Over/Selic rate was further increased to 35.5% on January 28, 1999 and 37.0% on January 29, 1999. Both the level of international reserves and the value of the real continued to decline, however, so that, as of January 31, 1999, Brazil’s international reserves were U.S.$36.1 billion, and the real-U.S. dollar exchange rate (sell side) in the commercial exchange market, as published by the Central Bank, was R$1.9832 to U.S.$1.00.

In the weeks following the decision to permit the real to float, the Government continued its efforts to implement the expense reduction and revenue enhancement measures under its Fiscal Stabilization Program. On January 20, 1999, the Chamber of Deputies, reversing its December 3, 1998 vote, approved legislation to extend to retired civil servants the obligation to make social security contributions in respect to their monthly pensions at tax rates ranging from 11% to 25% of their amount of the monthly pensions in excess of R$600. The bill also increased the social security contribution of active civil servants earning more than R$1,200 per month. This legislation, which was approved by the Senate on January 26, 1999, became law on January 28, 1999. The Congress also approved an austerity budget on January 25, 1999 that provided for spending cuts of approximately R$8.7 billion. In addition, the Chamber of Deputies approved on March 18, 1999, in the second round of voting, a bill that would increase the CPMF tax rate to 0.38% from 0.20%. This measure had previously been approved by the Senate. The increased CPMF tax was to be collected during the second half of 1999.

On February 2, 1999, when the cumulative devaluation (since January 13, 1999) of the real against the U.S. dollar exceeded 40%, the Government designated Armínio Fraga Neto to replace Francisco Lopes as president of the Central Bank. Following Mr. Fraga’s confirmation on March 3, 1999, the Central Bank eliminated the TBC and TBAN rates, giving primacy to the Over/Selic rate. Since the Central Bank can influence the Over/Selic rate on a daily basis through its participation in auctions, repurchase transactions and reverse repurchase transactions, the Over/Selic rate permits the Central Bank to react more quickly to changes in market conditions. The Central Bank also increased the Over/Selic rate to 45% from 39%. The Central Bank gradually reduced the Over/Selic rate over the course of 1999, citing lower-than-expected inflation and improved expectations for the economy. As of July 20, 2000, the Over/Selic rate had been reduced to 16.5%. As of January 17, 2001, the Over/Selic rate had been reduced to 15,15%. As of March 21, the over/Selic rate had started to be raised as a consequence of a big devaluation of exchange rate in na international environment of reduction in U.S. economic growth and deterioration in Argentina economic situation. As of July 18, 2001, the Over/Selic had been risen to 19%. As of March 21, the Over/Selic had been reduced to 18.5% and maintained unchanged so far.

In 1999, Brazil also began negotiations with the IMF on adjustments to the 1999-2001 economic program agreed in November 1998 and new economic targets in light of the new foreign exchange regime were introduced in January 1999. On March 5, 1999, Brazil and the IMF announced that they had reached agreement. Under the agreement, Brazil has undertaken to adopt measures designed to achieve primary surpluses, excluding debt payments, of at least 3.1% of GDP in 1999, 3.25% of GDP in 2000 and 3.35% of GDP in 2001, substantially greater than the 2.6%, 2.8% and 3.0% of GDP surpluses for 1999, 2000, and 2001, respectively, under the November 13, 1998 agreement with the IMF. The public debt/GDP ratio, currently in excess of 50%, is also targeted to fall below 46.5% at year-end 2001. The

B-7B-7

Memorandum of Economic Policy annexed to the IMF letter of intent noted that certain of the measures intended to produce the agreed upon primary surpluses had already been approved or announced, including (i) the suspension until the end of 1999 of PIS/COFINS credits for exports, (ii) an increase in the tax on financial transactions (“IOF”) for consumer lending and (iii) the submission to the Congress of legislation to require military personnel to make contributions to the social security system. Brazil has also agreed to reduce the investment budgets of state-owned companies by 0.9% of GDP, accelerate the privatization of state enterprises and promote the independence of the Central Bank through, among other things, the introduction of fixed terms for the president and directors of the Central Bank. The new agreement anticipated a decline in GDP of approximately 3.5% to 4.0% for 1999, while inflation was expected to increase initially above a 10% per annum rate in the first part of 1999, decreasing gradually during the second half to result in an average monthly inflation rate of 0.5% to 0.7% at year-end 1999. Under the revised program, the trade deficit, which had been projected to be U.S.$6.4 billion for 1999, was expected to revert to a surplus of approximately U.S.$11.0 billion, and the current account deficit was targeted to fall from 4.5% of GDP to 3.0% of GDP.

On April 6, 1999, Brazil received a second disbursement, of approximately U.S.$4.9 billion, from the IMF, which was followed by an additional U.S.$4.9 billion in bilateral loans on April 9, 1999 under the IMF-led support package.

After giving effect to the inflows from the IMF-led support package and an offering of debt securities by the Federative Republic of Brazil in April 1999, Brazil’s international reserves stood at U.S.$44.3 billion on April 30, 1999, up from U.S.$33.8 billion at March 31, 1999. The real-U.S. dollar exchange rate (sell side) in the commercial exchange market on April 30, 1999, as published by the Central Bank, stood at R$1.6607 to U.S.$1.00, up from R$1.722 to U.S.$1.00 on March 31, 1999, and the average real-U.S. dollar exchange rate during January 1999 and February 1999 was R$1.5019 to U.S.$1.00 and R$1.9137 to U.S.$1.00, respectively, versus R$1.2106 to U.S.$1.00 immediately prior to the widening of the trading band.

On June 18, 1999, the Government repaid approximately 30% of the initial disbursement by the Bank for International Settlements and the Ministry of Finance of Japan under the U.S.$41.8 billion IMF- led support plan, together with approximately U.S.$221.8 million in interest. The remaining 70% was rolled over for another six months.

On July 5, 1999, the Government released the Memorandum of Economic Policy resulting from the IMF’s third review of Brazil’s performance under the IMF-led support program established in December 1998. The Memorandum reported that the Brazilian economy was performing better than originally forecast. According to the Memorandum, GDP growth fell less rapidly than predicted during the first quarter of 1999, reflecting significant increases in agricultural production; GDP was expected to decline by approximately 1% or less in 1999, versus the 3.5% to 4.0% decline forecast in the March 8, 1999 Memorandum of Economic Policy. In addition, the inflation rate (as measured by IGP-DS) during the first five months of 1999 was 7.4%, versus the 11% rate that had been previously forecast. However, the trade balance continued to show a slight deficit during the first five months of 1999, and the surplus was therefore likely to be lower than projected (approximately U.S.$4.0 billion versus the U.S.$10.8 billion previously forecast). The Memorandum left unchanged the primary surplus targets described in the March 8, 1999 Memorandum of Economic Policy but included inflation targets of 8% in 1999, 6% in 2000 and 4% in 2001, as measured by the IBSE’s IPCA index. The Government also undertook to continue its efforts to implement fiscal and structural reforms intended to meet the targets under the March 8, 1999 Memorandum of Economic Policy.

On October 12, 1999, Brazil repaid approximately U.S.$1.477 billion to the Bank for International Settlements and the Ministry of Finance of Japan, representing approximately 30% of the second disbursement under the U.S.$41.8 billion IMF-led support plan, together with approximately U.S.$258 million in accrued interest. The remaining 70% was rolled over for another six months.

B-8B-8

On December 9, 1999, Brazil received additional disbursements from the IMF totaling U.S.$1.1 billion under the November 1998 IMF-led support package. Brazil used the proceeds of the new loan and a portion of its international reserves to repay approximately U.S.$5.1 billion previously advanced under the support program. After giving effect to such disbursements and repayment, U.S.$2.1 billion remained outstanding under the support program as of May 31, 1999.

Brazil accomplished all fiscal targets of IMF program in 1999, 2000 and 2001. In 1999, the primary fiscal surplus was 3.13% of GDP, 3.56% of GDP in 2000 and 3.75% of GDP in 2001.

Foreign Trade

Brazil’s trade surplus averaged approximately U.S.$13.7 billion from 1988 to 1994. For 1995, Brazil had a trade deficit of U.S.$3.4 billion, with imports of U.S.$49.9 billion and exports of U.S.$46.5 billion. For 1996, the trade deficit was U.S.$5.5 billion, with imports of U.S.$53.3 billion and exports of U.S.$47.7 billion. For 1997, the trade deficit was U.S.$8.3 billion, with imports of U.S.$61.3 billion and exports of U.S.$53.0 billion. Brazil’s current account recorded deficits in 1995, 1996 and 1997 as a result of such trade deficits and increases in net service expenditures. Brazil’s capital account, however, recorded a surplus during two of those years as a result of net capital inflows. Therefore, in 1995 and 1996, the balance of payments registered a surplus of U.S.$13.0 billion and U.S.$8.7 billion, respectively. By contrast, the balance of payments registered a deficit of U.S.$7.9 billion in 1997, primarily as a consequence of the Asian turmoil.

For 1998, Brazil’s trade deficit was U.S.$6.4 billion, with imports of U.S.$57.5 billion and exports of U.S.$51.1 billion. The current account recorded a deficit for that period of U.S.$34.9 billion as a result of the trade deficit and an increase in net service expenditures for that period of U.S.$30.4 billion. In 1998, the balance of payments registered a deficit of approximately U.S.$8.49 billion, primarily as a consequence of the capital outflows suffered in the second half of 1998.

For 1999, Brazil’s trade deficit was U.S.$1.2 billion, with imports of U.S.$49.2 billion and exports of U.S.$48.0 billion. The current account recorded a deficit for that period of U.S.$25.0 billion as a result of the trade deficit despite a decrease in net service expenditures for that period of U.S.$5.5 billion. In 1999, the balance of payments registered a deficit of approximately U.S.$7.8 billion, primarily as a consequence of an outflow of U.S.$9.7 billion of short term capital. For 2000, Brazil’s trade deficit was U.S.$ 691.0 million, with imports of U.S.$ 55.8 billion and exports of U.S.$ 55.1 billion. The current account deficit recorded U.S.$ 24.9 billion. For 2001, the trade balance was a surplus of U.S.$ 2.6 billion, with imports of U.S.$ 55.6 billion and exports of U.S.$ 58.2 billion. The current account deficit was U.S.$ 23.1 billion for 2001.

Brazil has generally been lifting import restrictions gradually since 1990, when quantitative restrictions on imports were abolished. The average duty and maximum tariff in 1989, 35.5% and 85.0%, respectively, were reduced to 14.2% and 40.0%, respectively, as of July 1, 1993. Average tariffs are also being reduced as a result of Brazil’s implementation of a schedule of preferences from its current tariffs applicable to imports from Mercosul countries. In addition, Brazil is a signatory of the Final Act of the GATT Uruguay Round, pursuant to which it committed to staged reductions in tariffs beginning in 1995 over five years with respect to industrial products and over ten years with respect to agricultural products. Nonetheless, tariffs on some goods remain high. In May 1995, for example, the Government increased to 70.0% the import tariff on roughly 100 durable consumer goods, including passenger cars, home appliances and electric and electronic equipment, for a period of one year. In December 1997, the Government changed the mechanism that permitted imports under special rates of machines and equipment of a type not manufactured in Brazil and established a 5% rate for capital goods, telecommunications and computer-related goods.

The following table sets forth Brazil’s trade balance and total official reserves for the six years ended December 31, 2001:

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Year ended December 31,

1996 1997 1998 1999 2000 2001

(billions of U.S.$)

Exports...... 47.7 53.0 51.1 48.0 55.1 58.2

Imports...... 53.3 61.3 57.5 49.2 55.8 55.6

Trade balance ...... (5.5) (8.3) (6.4) (1.2) (0.7) 2.6

Total official reserves..... 60.1 52.2 44.5 36.3 33.0 35.9

Source: Central Bank.

Foreign Investment

Foreign investment in Brazil has traditionally focused on direct investment in the manufacturing sector. Beginning in 1991, however, foreign investment rose substantially, surpassing the levels reached during the period from 1973 to 1982 (before the debt crisis), with much of the increase occurring in portfolio investments. In 1994, the year in which Brazil completed its Brady Plan-type restructuring, net inflows from foreign investments in 1994 declined slightly to U.S.$13.5 billion. Net portfolio investment (excluding bonds issued in Brazil’s Brady Plan-type restructuring) dropped 10.6% to U.S.$11.6 billion in 1994 reflecting in part the effects of the Mexican liquidity crisis in December 1994, while net direct investment (excluding intercompany loans) increased 176.1% to U.S.$2.0 billion.

Concerns about potential currency devaluation led to a further net outflow of U.S.$3.7 billion of portfolio investments in the first quarter of 1995. This situation was reversed in the second, third and fourth quarters of 1995, with net inflows of U.S.$3.7 billion, U.S.$7.1 billion and U.S.$3.0 billion, respectively, in portfolio investments. Total net foreign investment in 1995 reached U.S.$14.3 billion, a 5.9% increase over the U.S.$13.5 billion recorded in 1994. Total net foreign investment more than doubled in 1996, amounting to U.S.$31.8 billion. Net portfolio investment inflows reached U.S.$21.8 billion in 1996, a 117.9% increase over the amount of such inflows in 1995, and net direct investment inflows totaled U.S.$10.0 billion in 1996, a 130.1% increase from the previous year.

Foreign investment remained strong during the first nine months of 1997. Total net inflows during that period amounted to U.S.$27.8 billion, of which U.S.$16.1 billion represented net portfolio investments, and U.S.$11.7 billion represented net direct investments. A sell-off of Brazilian securities in late October 1997 and related declines in the Brazilian stock markets resulted in net portfolio outflows of approximately U.S.$7.0 billion in the last quarter of 1997. Brazil ended the year with total net foreign investment of U.S.$26.2 billion, a 17.5% decline from 1996. Net foreign direct investment reached U.S.$17.1 billion, a 71.3% increase over 1996. However, net foreign portfolio investments declined 58.1% to U.S.$9.1 billion in 1997, largely as a result of net bond amortization in an aggregate amount of U.S.$49 billion in, and a reduction to U.S.$9.0 billion from U.S.$14.7 billion in aggregate net inflows from, note placements abroad.

In August 1998, adverse developments in Russia led to another sell-off of Brazilian securities, as investors sought to reduce their exposure to emerging markets. Nevertheless, total net foreign investment increased 69.2% in 1998 to U.S.$44.4 billion. Net portfolio investment almost doubled in 1998 to U.S.$18.2 billion, but was still lower than the U.S.$21.8 billion recorded in 1996. Foreign direct investment inflows increased 53.0% in 1998, totaling U.S.$26.1 billion. Of that amount, 23.4%, or U.S.$6.1 billion, resulted from foreign participation in the national privatization program. By December 31, 1999, foreign direct investment inflows totaled U.S.$30.0 billion (29.3% being due to privatizations)

B- 10 and by December 31, 2000, foreign direct investment inflows totaled U.S.$30.6 billion (23.1% being due to privatization). For 2001, foreign direct investment inflows recorded were U.S.$ 22.7 billion (5.1% being due to privatization).

The Government has periodically taken measures to control the inflow of foreign capital in order to facilitate the conduct of monetary policy and to regulate the level of Brazil’s international reserves. In 1993 and 1994, such measures were intended to reduce the inflow of private capital attracted by high interest rates in Brazil. The liquidity crisis in Mexico beginning at the end of December 1994 and the subsequent deterioration of Brazil’s current account led the Government to reverse certain of such measures and to take others to reduce domestic consumption and stem the decline in international reserves. With the strong rate of growth in international reserves in July and early August 1995, the Government reimposed measures intended to restrict the inflow of foreign capital. The measures were bolstered by other initiatives in September and December 1995, which, among other things, gradually reduced the IOF tax rate on medium-term foreign currency loans, eliminated the discount applied to certain securities and foreign loans when tendered as consideration in the privatization program and eliminated taxes on income from direct foreign investment and reduced taxes on capital gains from such investments from 25% to 15%.

On February 8, 1996, the Government adopted several measures intended to direct inflows of foreign capital toward investments that promoted the Government’s monetary policy objectives. Under the new measures, foreign capital subject to regulation under Resolution No. 1,289 dated March 20, 1987 (“Resolution No. 1,289”) of the National Monetary Council (the “CMN”) is no longer permitted to be invested in certain instruments having fixed yields, such as Agrarian Debt Bonds (TDA), Obligations of the National Fund for Development (OFND) and debentures issued by Siderurgia Brasileira S.A. (Siderbrás). Instead, longer term investments in loans having greater maturities and certain investment funds were encouraged through the imposition of IOF at a rate which declined with the duration of the loan or investment. Amounts made available to Brazilian banks for relending under Resolution No. 63 which were not so reloaned were no longer permitted to be invested in National Treasury Notes, series D (NTN-D) for borrowings authorized after February 8, 1996. In addition, those amounts not reloaned or not used for interbank onlending or leasing transactions and acquisition of credit rights, pursuant to Circular No. 2,670 of March 1996, were required to be deposited in the Central Bank without any interest payable to the Brazilian bank.

In order to promote foreign investment, on April 25, 1997, the Government announced revised rates for the IOF. The revised rates included (i) a 0% rate on foreign currency transactions relating to loans and issuances of debt securities, and investments in non-fixed income securities and privatization funds and (ii) a 2% rate on foreign currency transactions related to investments in fixed income investment funds, interbank transactions with institutions abroad and inflows of short-term funds from non-residents of Brazil. After increasing IOF rates in December 1998, the Government again reduced such rates to 0% for the transactions described in clause (i) and 0.5% for the transactions described in clause (ii). The IOF may be increased to up to 25.0% under existing legal authority.

On March 26, 1998, the CMN adopted measures to control short-term inflows of foreign capital. Under the new rules, a maximum of 50% from external funds borrowed by banks to make loans to the agricultural sector, entering the country under Resolution No. 2,843 dated March 26, 1998 of the CMN, may be applied for investments in U.S. dollar-indexed National Treasury Notes.

Total net foreign investment totaled approximately $31.5 billion in 1999, of which $1.5 billion consisted of net portfolio investment and $30 billion consisted of net direct investment. Total net foreign investment in 1998, by contrast, totaled approximately $44.4 billion, of which $18.2 billion consisted of net portfolio investment and $26.1 billion consisted of net direct investment.

The CMN adopted two resolutions intended to promote foreign investment in Brazil. Resolution No. 2,683 of December 29, 1999 (“Resolution No. 2,683”) eliminated the ninety day minimum term for

B-11B-11 foreign loan transactions involving a Brazilian resident. Prior to the adoption of Resolution No. 2,683, the minimum term for such loan transactions had been 90 days. A second resolution, Resolution No. 2,689 of January 26, 2000 (“Resolution No. 2,689”) aimed at simplifying the procedures for registering foreign investments in the domestic capital markets with the Central Bank by, among other things, eliminating the so-called “Annex IV” and “Annex VI” investment vehicles established under Resolution No. 1,289. The changes introduced by Resolution No. 2,689 became effective March 31, 2000.

Resolution No. 63 was revoked and replaced with Resolution No. 2,770 on August 30, 2000. Resolution No. 2,770 permits financial institutions residing in Brazil to raise funds abroad, without prior Central Bank approval, for the purpose of investing such funds in the Brazilian markets.

Brazilian Foreign Exchange Rates, Foreign Exchange Controls and Remittances Abroad

The Brazilian foreign exchange system has been structured to enable the Government, through the Central Bank, to regulate and control foreign exchange transactions carried out in Brazil. There are two foreign exchange markets in Brazil: the commercial exchange market, on which most trade and financial transactions are carried out, and the floating exchange market.

The commercial exchange market consists primarily of (i) foreign currency transactions relating to export proceeds, which must be converted into reais through this market, since exporters are not allowed to maintain such proceeds outside Brazil; (ii) foreign currency transactions relating to import payments, which must be converted from reais through this market; and (iii) the conversion of reais and remittance of foreign currency from Brazil, which are permitted if the inflow is conducted through the commercial exchange market and registered at the Central Bank, a requirement applicable to capital investments in Brazil and to all types of foreign loans, as well as to any related dividend and interest remittances.

The floating exchange market was established in December 1988 with the objective of liberalizing certain transactions. Banks bought and sold currency in this market at freely negotiated rates. Transactions carried out through this market were mainly related to travel, unilateral transfers, certain services and gold operations. Since its creation, the premium of this market over the commercial exchange market declined. After reaching values higher than 160.0% in 1989, the premium over the commercial exchange market rate at the end of July 1998 stood at 0.8%.

Until January 15, 1999, whenever the supply and demand for foreign currency established exchange rates incompatible with the Government’s economic policy goals, the Central Bank could intervene in the market to adjust liquidity conditions by means of auctions for the purchase, sale or simultaneous purchase and sale (so-called spread auctions) of foreign currency. Under Resolution No. 2,110 of the CMN, the Central Bank had an obligation to sell U.S. dollars in the foreign exchange market whenever the real reached parity with the U.S. dollar. In response to deterioration in Brazil’s current account, on March 6, 1995 the Central Bank formalized an exchange band system for both the commercial foreign exchange market and floating foreign exchange market, pursuant to which the real was permitted to float against the U.S. dollar within bands established by the Central Bank. The Central Bank periodically adjusted the exchange band to permit the gradual devaluation of the real against the U.S. dollar.

As a result of the loss of international reserves and pressures on the exchange band system, on January 15, 1999, the Central Bank announced that the real would be permitted to float, with Central Bank intervention to be made only in times of extreme volatility. Following that announcement, the value of the real against the U.S. dollar declined approximately 21% from its level on January 12, 1999. See “The Brazilian Economy—Recent Economic History.”

Recently, pursuant to Resolution No. 2,588 dated January 22, 1999 of the Central Bank, currency positions in each of the floating rate exchange market and the commercial exchange market were unified,

B-12B-12 resulting in similar foreign currency prices in each of the two markets. The respective rules applicable to the making of foreign exchange contracts in these markets were not otherwise altered.

Public Debt

Net public sector debt in Brazil is composed of the internal and external debt of the federal Government, State and local governments and public sector enterprises. Net public sector debt totaled U.S.$259.2 billion, or 34.4% of GDP, as of December 31, 1996, U.S.$276.6 billion, or 34.5% of GDP, as of December 31, 1997, U.S.$319.2 billion, or 42.4% of GDP, as of December 31, 1998 and U.S.$288.8 billion, or 49.4% of GDP as of December 31, 1999, U.S.$288.0 billion, or 49.4% of GDP as of December 31, 2000 and US$ 284,9 billion or 53.1% of GDP as of December 31, 2001. The average maturity of Brazil’s public-sector external debt was 8.8 years as of December 31, 1996, 7.7 years as of December 31, 1997 and 6.9 years as of December 31, 1998. Net external public sector debt as a percentage of GDP declined from 8.1% in 1994 to 4.3% as of December 31, 1997 before rising again to 6.3% as of December 31, 1998 and 10.4% as of December 31, 1999, 9.8% of GDP as of December 31, 2000 and 10.5% as of December 31, 2001. Total gross public sector debt as a percentage of GDP increased from 41.4% in 1994 to 58.9% of GDP as of December 31, 1999, 65.4% of GDP as of December 31, 2000 and 71.1% of GDP as of December 31, 2001. This increase was due primarily to the fact that a substantial portion of the public debt was comprised of floating rate securities, which automatically absorbed the interest rate increase announced in September 1998 as a result of the international fiscal crisis experienced at that time, thereby accelerating the growth of the gross debt.

Federal Domestic Debt

Federal domestic (internal) debt is primarily in the form of bills and notes issued by the National Treasury or the Central Bank with an average maturity of about 31.0 months as of September 29, 2000. The average maturity was about 35.6 months as of February 28, 2002

The aggregate amount of federal domestic securities debt held outside the Central Bank rose from U.S.$73.0 billion on December 31, 1994 to U.S.$267.9 billion on December 31, 1998, representing real growth of 165.2% in the aggregate amount of federal marketable securities and an increase from 13.4% of GDP to 34.5% of GDP. As of March 31, 1999, the aggregate amount of federal domestic securities debt was U.S.$365.6 billion, or 37.5% of GDP. The aggregate amount of federal domestic securities was U.S.$ 211.9 billion as of December 31, 1999, U.S.$ 203.2 billion as of December 31, 2000 and U.S.$ 206.0 billion as of December 31, 2001. As of February 28, 2002, the aggregate amount was U.S.$ 207.8 billion

Following the implementation of the Real Plan in July 1994, the level of inflation was sharply reduced and the financial markets began to accept fixed-rate federal Government paper with longer maturities. As of March 31, 2000, such paper represented 12.9% of the total internal treasury instruments in circulation. As of December 31, 2000, such paper represented 14.8% and as of December 31, 2001 represented 7.8% and as of February 28, 2002 such paper represented 7.5% of the total internal domestic papers issued by National Treasury and Central Bank.

In addition to federal domestic securities debt in the form of bills and notes issued by the National Treasury or the Central Bank, the Brazilian Government from time to time has issued securities that may be redeemed at face value in connection with the privatization of Brazilian Government assets (“Privatization Currencies”). Privatization Currencies include, among others, Siderbrás debentures, Eletrobrás securitized credits and various credits extended to the agricultural sector. The aggregate amount of Privatization Currencies outstanding and not yet utilized for privatization purchases, as of December 31, 1999, was R$33.4 billion (U.S.$18.7 billion), R$28.1 billion (U.S.$14.4 billion) as of December 31, 2000 and R$ 20.1 billion (U.S.$ 8.6 billion) as of December 31, 2001. In addition, the FCVS securities proposed to be issued under Provisional Measure No. 1,520 will be eligible for use as a domestic privatization currency.

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Beginning in 1967, the Brazilian Government introduced a series of measures designed to provide subsidies to homeowners to address the effects of high inflation on mortgage rates. These subsidies were implemented in the form of the Fundo de Compensação de Variações Salariais (“FCVS”), which was used to provide mortgage lenders in Brazil with a credit in an amount equal to the difference between the lender’s actual cost of funds and the amounts that the mortgagor/borrower was legally obligated to pay under the terms of his mortgage. Under the FCVS program, the mortgagor/borrower was absolved of the responsibility to pay the amount guaranteed by the Brazilian Government, and the lending institution recorded as an asset the amount of the FCVS subsidy receivable. The FCVS program has not covered any mortgages entered into after March 1990. The aggregate amount of the FCVS subsidy constitutes a liability of the Brazilian Government; the FCVS subsidy is not accounted for as borrowed money and, therefore, is not reflected in the amount of Brazil’s outstanding domestic public indebtedness. Although the macroeconomic effects of the FCVS subsidies (among others, the expansion of credit in the housing market and the continued growth of the housing sector) were largely absorbed by the Brazilian economy during the periods of high inflation during which the FCVS subsidy accumulated, a number of Brazilian financial institutions now hold large, illiquid stocks of FCVS assets (which, in turn, represent a liability of the Brazilian Government on account of the subsidy).

In furtherance of the Real Plan’s goals of restructuring the monetary and fiscal policies of the Government to ensure long-term economic stability and growth, the Government announced, in September 1996, a plan to issue securities in exchange for the accumulated liability attributable to the FCVS subsidy. This measure was intended to provide financial institutions holding FCVS assets with an opportunity to exchange such assets for newly issued, liquid, government securities.

The average rate of interest on such new securities were approximately TR+5.1%, representing a significant reduction from the average rate of interest applicable to the existing FCVS liabilities. The new securities provided for an eight-year grace period on interest payments and a twelve- year grace period on payments of principal and could be usable as domestic Privatization Currencies for purchases in privatization transactions. Because the amount of the new FCVS securities ultimately issued will depend in part on the results of the Government’s auditing process and on concluding satisfactory exchange agreements with the current holders of FCVS credits, it is not currently possible to predict the fiscal impact of the issuance of such new securities over the next few years. Although the issuance of security in exchange for FCVS liabilities could, over time, require the recognition of domestic public sector debt, the Government has indicated its belief that effective implementation of the auditing and verification procedures required by the new measure should result in a reduction in the aggregate amount of FCVS liabilities eligible for exchange for new securities.

Public Sector External Debt

The following table sets forth details of Brazil’s external debt for the five years ended December 31, 2000:

Year Ended December 31, 1997 1998 1999 2000 2001 (billions of U.S.$, except percentages)

Gross external debt (nominal).... 85.7 95.7 100.7 92.7 93.2

Percentage of nominal GDP...... 10.9% 12.3% 19.0% 15.4% 18.3%

Percentage of exports ...... 161.7% 187.3% 209.8% 168.2% 160.1%

Source: Central Bank.

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In November 1993, Brazil and its foreign creditors reached a debt and debt service reduction agreement under the auspices of the Brady initiative covering U.S.$43.1 billion of debt to the commercial banks. Pursuant to this agreement, on April 15, 1994, the creditor banks exchanged an aggregate amount of U.S.$47.1 billion of eligible debt and related interest arrears for a combination of bond options. Under the terms of this agreement, lenders are to be paid over a period of 12 to 30 years. As of May 31, 2000, U.S.$30.9 billion aggregate principal amount of bonds issued pursuant to that restructuring remained outstanding due to the capitalization of interests in the principal of the C-Bond. As of April 2002, the amount was approximately US$ 22.5 billion.

State and Municipal Debt

The Constitution reallocated public resources from the Brazilian Government to the states and municipalities without a corresponding shift of the responsibility to provide certain essential public services, which remained with the Brazilian Government. The imbalance of resources and responsibilities has been exacerbated by state and local borrowing, particularly during state election campaigns.

The trend in aggregate growth of public sector debt is attributable in large part to the substantial increase in the net debt of state and local governments, which stood at U.S.$72.3 billion (10.1% of GDP) in 1995, U.S.$87.0 billion (11.2% of GDP) in 1996, U.S.$103.9 billion (13.3% of GDP) in 1997, U.S.$10.3 billion ( 13.67% of GDP) in 1998 and U.S.$90.2 billion (14.67% of GDP) in 1999. The total debt of the state and local governments was U.S.$ 89.1 billion (15.3% of GDP) in 2000 and U.S.$ 93.3 billion (17.4% of GDP) as of December 31, 2001.

In the recent past, supervision of the state banks was intensified as part of the effort to curtail abuses in state and local borrowing. Because of the measures taken to reduce liquidity in the domestic market, certain state-owned and privately owned banks that were dependent on readily available overnight interbank funds faced liquidity difficulties. On December 30, 1994, authorities from the Central Bank assumed responsibility for the operation of two large state- owned banks, Banco do Estado de São Paulo (“Banespa”) and Banco do Estado do Rio de Janeiro (“Banerj”). Banerj remained under the temporary supervision of the Central Bank, and the State of Rio de Janeiro contracted a private bank to manage Banerj for one year and prepare it for privatization. On June 26, 1997, Banerj was sold to Banco Itaú for R$311.1 million. On November 27, 1996, the Federal Government and the state of São Paulo signed an agreement that provided for, among other things, the restructuring of the state’s R$16.8 billion debt to Banespa as part of a larger restructuring of the state’s debt pursuant to Provisional Measure No. 1,560 dated December 19, 1996, which is described below. Under that agreement, 20.0% of the state’s debt restructured thereunder is to be repaid through the transfer by the state to the Brazilian Government of certain assets to be privatized. The remaining 80.0% of such state debt is to be paid in monthly installments over a 30-year period. In 1997, the State of São Paulo concluded its negotiation with Banespa for debts of approximately R$50 billion. On November 20, 2000, Banco Santander Central Hispanico ("BSCH") paid the largest amount ever paid in reais in connection with a privatization in Brazil. BSCH obtained voting control of Banespa for R$7.050 billion, or U.S.$3.671 billion, based upon an exchange rate of R$1.92 per dollar.

On December 20, 1995, the Brazilian Government implemented the Support Program for the Restructuring and Fiscal Adjustment of the states which is aimed at correcting chronic imbalances in the finances of the state and local governments. The State and local governments

B-15B-15 are required to comply with targets relating to fiscal balance as a condition for receiving federal Government financing. The fiscal adjustments required to be implemented by the states included the following: (i) reduction and control of personnel costs; (ii) compliance with privatization programs for state enterprises and certain public services in cooperation with BNDES and the appropriate federal ministries; (iii) reform of tax collection systems and implementation of financial controls and budgetary limitations at the state level; (iv) reduction of high levels of state-level indebtedness through restructuring facilities with the National Treasury; and (v) the commitment to meet certain minimum fiscal targets (including satisfactory debt/net revenue ratios) as a step towards the balancing of state budgets. The total amount of financing disbursed under this program was R$94.2 billion. Between November 30, 1997 and December 31, 1999, 24 state governments signed agreements with the Brazilian Government undertaking to implement policy changes in return for financial assistance and had requested further financial assistance from the Federal Government. On December 19, 1996, the Federal Government adopted Provisional Measure No. 1560, which authorized the federal Government to assist in the refinancing of (i) the public securities debt of the states; (ii) loans made by the Federal Savings Bank to the states under various federal measures authorizing temporary financial assistance to the states; and (iii) the debt of the states owed to banks controlled by such states. Each refinancing arrangement was subject to the previous approval of both the federal Senate and the respective State Assembly. The refinancing arrangements were required to conform to the guidelines approved by the Federal Government in its Support Program for the Restructuring and Fiscal Adjustment of the states. In addition to specific targets for each state or the Federal District, the refinancing contracts required: (i) improvements in the primary fiscal results; (ii) reduction in the expenditures pertaining to civil servants; (iii) achievement of a specific “financial debt/actual net revenue” ratio; (iv) improvement in the collection of state revenues; (v) adoption of privatization programs, concession of public services and administrative reform; and (vi) limitation of the ratio of investment expenditure to actual net revenue.

On January 6, 1999, the newly inaugurated governor of the State of Minas Gerais announced that the State would suspend, for 90 days, payments on its approximately R$18.3 billion debt to the Government. The governor of the State of Rio Grande do Sul subsequently sought and obtained an injunction permitting that State to make payments into an escrow account, pending the resolution of the request of seven States to renegotiate refinancing agreements reached with the Government under Law No. 9,496 of September 11, 1997. The Government responded by withholding constitutionally mandated transfers payable to the State of Minas Gerais and, on February 10, 1999, paid approximately half of an approximately U.S.$85 million due in respect of that State’s Eurobonds that matured on that date to ease investor concerns about the risk of default by State governments. The Government also notified certain international financial institutions that it would no longer guarantee these States’ obligations to these financial institutions, leading the World Bank to suspend loans to the States of Minas Gerais and Rio Grande do Sul.

In a meeting with the President on February 26, 1999, certain of the governors pressed for a renegotiation of the refinancing agreements. The President offered instead to make loans to the States to cover the costs of layoffs and pension reform and promised to review a law exempting exports from State taxes. The Government has initiated negotiations with the World Bank to secure funding for these loans.

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Monetary Policy and Money Supply

The CMN’s current policy is to maintain a tight credit policy in an attempt to control liquidity and maintain a low rate of inflation. The current monetary policy reflects, in part, a substantial increase in the demand for base money due in large part to the significant remonetization following the issuance of the real. Accordingly, the CMN establishes a target for the average monetary base for each quarter. For the fourth quarter of 1999, the target was set at a range between R$43.4 billion and R$50.9 billion; the average monetary base as of December 31, 1999 was R$45.4 billion. For the fourth quarter of 2000, the target was set at a range between R$42.1 billion and R$49.4 billion; the average monetary base as of December 31, 2000 was R$46.3 billion.

In April 1995, the CMN implemented a number of measures to restrain domestic demand, including: (i) an increase in the reserve requirement for banks; (ii) an increase in the IOF tax on bank loans (including negative balances, credit card debts and promissory notes) to individuals to 18.0% annually from 6.0%; (iii) a limitation on the purchase and trading of commercial paper by banks; and (iv) a prohibition on accepting checks as security for short-term bank loans. The IOF on bank loans has since been reduced to 1.5%. Since July 1994, in its efforts to support the Real Plan and contain inflation, the Central Bank has taken a number of steps to control credit and monetary aggregates. The maturity of consumer credit extended by financial institutions has been restricted to 90 days, reserve requirements have been imposed on several types of transactions, and other credit restrictive measures have been adopted. See “— Reserve Requirements.”

The Brazilian Government has also attempted to control liquidity and regulate the monetary impact of increases and reductions in its international reserves through issuances and repurchases of its domestic debt securities. When international reserves decline, the Brazilian Government can provide liquidity by repurchasing its domestic debt securities, thereby increasing the monetary base. As its international reserves increase, the Brazilian Government may counteract the monetary impact of that increase by issuing new domestic debt securities, thereby reducing the supply of base money.

Open-Market Transactions. The Central Bank’s open-market transactions began over 20 years ago and became the most important instrument of monetary policy as the domestic government securities market experienced significant development in trading volume, operating capacity and sophistication. At the end of each day, the Central Bank, through open-market transactions, consisting primarily of the use of repurchase agreements, seeks to ensure that its interest rate objective is achieved and that financial institutions are provided with sufficient liquidity. The main instruments used in open-market transactions are Brazilian Government and Central Bank bonds.

Indexation and Interest Rates. Prior to January 31, 1991, Brazil used a system of monetary correction, or indexation, designed to correct some of the distortions caused by inflation. Such indexation involved periodic adjustments in accordance with the movements of price indices for financial assets. Rents, past due taxes, fees and other social contributions, corporate assets, liabilities and net worth accounts, among others, were also readjusted by indexation.

On June 20, 1996, the Central Bank created the TBC, which was calculated monthly and established by the Central Bank’s Monetary Policy Committee. In this role as the successor to

B-17B-17 the Brazilian prime rate, the TBC served as a guidepost for daily intervention by the monetary authorities in the open market. In August 1996, the Monetary Policy Committee instituted a second rate, the TBAN. Both the TBAN and the TBC applied to discount window operations and performed a signaling function for the markets as to the Central Bank’s policy intentions. The Over/Selic rate—a market-determined overnight rate for operations with federal bonds which determines the interest rate on debt issued by the Central Bank and the Government in a manner similar to the U.S. federal funds rate—floated in the range between the TBAN (upper limit) and the TBC (lower limit) in a scheme similar to that used by the German Bundesbank.

Following the decision to permit the real to float freely, on March 3, 1999, the Central Bank eliminated the TBC and TBAN rates, giving primacy to the Over/Selic rate as that rate gave it greater flexibility to intervene in the market on a daily basis. See “The Brazilian Economy—Recent Economic Performance.” The Government also announced that it intends to pursue a monetary policy based on inflation targeting. In June 1999, the Government announced inflation targets of 8% in 1999, 6% in 2000 and 4% in 2001, as measured by the IBGE’s IPCA index.

Time Deposits. From September 1996, there has been a gradual reduction in the percentage of reserves required to be invested in Government securities, and the cash components of the reserve requirement has been increased in the same proportion. In February 1997, the requirement to hold reserves in Government securities was eliminated and the cash reserve requirement was set at 20.0%. In March 1999, the percentage of reserves required to be invested in Government securities was increased to 30.0%. As of August 2000, there was neither a cash reserve requirement nor a requirement to hold reserves in Government securities.

Formerly, the Brazilian monetary authorities relied on short-term National Treasury Bonds (Bônus do Tesouro Nacional) as the principal instrument for indexation. As that instrument was phased out, the Taxa Referencial (“TR”) was created for purposes of indicating the prevailing interest rate. The TR is calculated by the authorities periodically, based on the average daily rate for bank certificates of deposit. Based on current rates rather than historical rates, the TR was intended to reduce the influence of past inflation and more accurately reflect future inflation than predecessor indices. In January 1994, the Government revised the methodology for the calculation of the TR in order to increase the incentive to deposit money in savings accounts. The TR is currently derived from the Basic Financial Rate (Taxa Básica Financeira, or “TBF”), which is calculated by the Central Bank from the weighted average of the rates offered by financial institutions on their certificates of deposit. The TBF, so calculated, is adjusted by a reduction factor in determining the TR. The reduction factor may occasionally be modified as a consequence of the changes in the real interest rate and the tax rate on the gross earnings of the certificates of deposit.

Reserve Requirements. All depositary institutions, commercial banks, multiple-service banks, investment banks, development banks, savings and loans and financial institutions are required to meet reserve requirements set by the Central Bank. These reserve requirements are applied to a wide range of banking activities and transactions, such as demand deposits, savings deposits, time deposits, debt assumption transactions, automatic reinvestment deposits, funding transactions, repurchase agreements and export notes. Generally, banks are required to deposit in a non-interest-bearing account at the Central Bank 45% of the average daily balance of demand deposits in excess of R$2.0 million. In addition, banks are required to deposit in an interest-bearing account at the Central Bank, on a weekly basis, an amount in cash equal to 15% of the average daily balance of savings accounts, calculated on a weekly basis.

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Beginning on January 1, 1995, the Brazilian banking system became subject to the risk- based capital adequacy system of the Basle Accord adopted under the auspices of the Bank for International Settlements.

The following table sets forth selected information regarding percentage increases, or, in the case of M1, the percentage change in the monetary base and money supply for the periods indicated:

Percentage Increases in Monetary Base and Money Supply

As of and for the Year ended December 31, 1996 1997 1998 1999 2000 2001 Monetary Base(1) ...... (8.7)% 60.8% 23.1% 23.6% -1.5% 11.7% M1(2)...... 4.6 58.9 7.1 23.7% 18.5% 11.2% M2(3)...... 5.6 27.0 6.3 7.8% 3.3% 13.1%

(1) Monetary base represents Central Bank liabilities, including currency and deposits held by commercial banks. (2) Ml is currency plus demand deposits. (3) M2 is Ml plus saving accounts and private securities Source: Central Bank.

In July 1995, the CMN adopted new measures governing certain investment funds. The Central Bank authorized the formation of new mutual funds, called financial investment funds (FIFs). The FIFs were created with the aim of lengthening the term of financial investments. To accomplish this goal, reserve requirements are levied on the net worth of FIF. Short-term FIFs (up to 29 days) have a reserve requirement of 40%; 30- to 59-day-FIFs, 5%; and 60-day-plus FIFs, 0%. Between August and December 1996, the reserve requirement on short-term FIF’s net worth was gradually increased from 42% to 50% in accordance with Circular No. 2,703, dated July 3, 1996.

In order to strengthen the financial system and assist distressed financial institutions, the Government adopted PROER on November 3, 1995. The PROER program seeks to ensure the liquidity and solvency of the financial system while safeguarding the interests of depositors and investors. It creates special lines of credit and defines measures aimed at encouraging administrative, capital and operational reorganization of financial institutions through mergers, consolidation and asset shrinkage. Among the incentives included in the program are tax rules governing the treatment of capital gains and recognition of losses on problem credits. Participating institutions may obtain Central Bank financing at below-market rates. In addition, to help support the financial system, the Government instituted a deposit insurance system in Brazil through the creation of the Credit Guaranty Fund (“FGC”) in November 1995.

Privatization

The objectives of the Government’s privatization program are to (i) reduce the role of the state in the economy and allocate more resources to social investment, (ii) reduce public sector debt, (iii) encourage increased competition and thereby raise the standards and efficiency of Brazilian industry and (iv) strengthen the capital markets and promote wider share ownership. In 1993, the federal Government proposed constitutional amendments to permit private

B-19B-19 participation in the state-controlled petroleum and telecommunication sectors. The proposed amendments were not adopted during the constitutional review that concluded on May 31, 1994, but amendments similar in substance were approved by Congress in 1995.

The Privatization Council (Conselho Nacional de Privatização), a body [which] directly [subordinated] [reports] to the President, along with BNDES, is responsible for administering the privatization program. The privatizations have, for the most part, been effected through share auctions conducted on Brazil’s stock exchanges. Through December 31, 1998, a total of 66 state enterprises or divisions thereof had been privatized, and several minority interests held by government companies had been sold, for consideration totaling U.S.$46.2 billion.

The legal measures establishing the Real Plan provided that Government-held shareholdings in public companies not included in the national privatization program be transferred to the custody of an entity called the Public Debt Amortization Fund to the extent that such shareholdings are not needed to maintain Government monopolies or national control of such companies. Proceeds from the sale of these shares are to be applied directly to the repayment of internal debt of the National Treasury.

In 1995, the Government initiated planning for privatization of electric utilities and rail transport services. In February 1995, the Public Services Concessions Law (Lei de Concessões de Serviços Públicos) was enacted, permitting investment in the electricity sector and other sectors considered public services by private companies or individuals. In addition, the Government enacted a law permitting independent, third-party producers of electricity to compete with the State monopolies. Within the electricity sector, controlling interests in Escelsa and Light were sold on July 11, 1995 and May 21, 1996, respectively. Banco Meridional, the first federal bank slated for privatization, was sold in December 1997 for U.S.$240.0 million.

During 1996, the Government (i) began the privatization of 17 hydroelectric projects and certain ports, (ii) approved the privatization of Companhia Nordestina de Sondagens a Perfurações (CONESP), (iii) created the National Agency of Electric Energy (Agência Nacional de Energia Elétrica, or “ANEEL”) which was charged with regulation of the electricity sector and the preparation of this sector for privatization and (iv) leased or auctioned over 10,000 kilometers of its railway lines.

In 1996, federal privatization revenues totaled R$4.1 billion, of which the Light sale accounted for 58% and the RFFSA networks accounted for 36%. The 1996 proceeds represented nearly 30% of the aggregate privatization proceeds obtained since the implementation of the program in 1991. Also, for the first time, foreign capital played an important role in the privatization process. Almost U.S.$1.4 billion of foreign capital was invested, more than the aggregate amount of the foreign investment previously received on account of privatizations since 1991.

The Government has continued its efforts to reduce its role in the Brazilian economy. On May 6, 1997, the Government sold 41.73% of the voting shares of Companhia Vale do Rio Doce (“CVRD”), the world’s largest producer and exporter of iron ore, to a consortium led by the Brazilian steelmaker, Companhia Siderúrgica Nacional (CSN), for approximately R$3.3 billion, approximately 20% more than the minimum price established by the Government. An additional 5.1% of the total capital stock of CVRD having a value of R$179.0 million was subsequently offered to employees in the second stage of the CVRD privatization. In addition, the Government sold approximately 10% of the total capital stock of Light to the company’s

B-20B-20 employees for R$254.1 million in May 1997. The Government also completed, in July 1997, the privatization of RFFSA with the sale of Rede Ferroviária Federal S.A.—Malha Nordeste. A consortium led by the Vicunha group agreed to pay R$15.8 million for the right to operate Malha Nordeste, a 37.8% premium over the minimum price established by the Government. Of that amount, R$6.6 million was paid in cash on July 25, 1997, with the remainder of the purchase price to be paid in 108 four-month installments, beginning July 25, 2000. In August 1997, the remaining Ecelsa shares were sold for R$119.0 million, and in September 1997, Terminal 1 of the Port of Santos was privatized for R$254.0 million.

The Government’s 1997 budget proposal projected privatization revenues of U.S.5.5 billion during the 1997 fiscal year. Actual privatization revenues for 1997 exceeded expectations, totaling more than U.S.$26.0 billion, surpassing aggregate privatization revenues for the period from 1991 through 1996. For the 1998 fiscal year, the Government’s budget proposal projected privatization revenues of U.S.$13.0 billion. Actual privatization revenues for 1998 totaled U.S.$37.5 billion.

In addition to the privatization program, the Government has sought to reduce the regulation of economic activity generally. Important developments in this regard include the establishment of a free foreign exchange market, the reduction of tariffs and elimination of most non-tariff trade barriers and the termination of most price controls. The Government has also acted to deregulate certain segments of the economy, including fuel and oil derivatives, airlines, shipping and steel, and is considering introducing additional measures designed to increase competition in areas such as steel, highway maintenance and transportation, areas which were previously controlled, in most cases, by government enterprises.

In July 1997, the National Congress enacted a new telecommunications law which, among other things, provided for the establishment of a bidding process for concessions for telecommunications services, created a National Telecommunications Agency to regulate and control the telecommunications sector, permits companies awarded such concessions to set prices after three years of operation and authorizes the President of the Republic to establish by decree limits on the participation of foreign capital in the newly created companies resulting from the privatization of Telebrás. As of June 30, 2000, no such presidential decree had been issued.

The Government also ended the 44-year monopoly by Petrobrás in oil exploration with the passage of Law No. 9,478 of August 6, 1997. On June 16, 1999, the Government completed a two-day auction of licenses to explore for oil, mainly off Brazil’s Atlantic Coast. The winning bidders in the auction—which included the AGIP unit of ENI Spa of Italy, BP Amoco P.L.C., British Borneo and Shell of Great Britain, Exxon, Texaco, Amerada Hess Ltd. and Unocal Latin American Ventures Ltd. of the United States, YPF Sociedade Anónima of Argentina and Petrobrás—agreed to pay a total of U.S.$181 million for the licenses awarded in the auction.

The Memorandum of Economic Policy of March 8, 1999 describes a continuing effort to reduce the role of public sector financial institutions in the Brazilian economy. In addition to previously announced plans for the privatization of Banespa, the Bank of the State of São Paulo currently under federal administration, and of the state-owned bank of Bahia, the Government has requested a report on the future role of the federal banks, including Banco do Brasil S.A., CEF and BNDES.

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On November 20, 2000, Banco Santander Central Hispanico ("BSCH") paid the largest amount ever paid in reais in connection with a privatization in Brazil. BSCH obtained voting control of Banespa for R$7.050 billion, or U.S.$3.671 billion, based upon an exchange rate of R$1.92 per dollar. The premium paid was of 281.02% over the minimum price of R$1.85 billion set by the Central Bank for the portion auctioned. The 11,232,000,000 shares that were acquired by BSCH represent approximately 60% of the voting capital and approximately 30% of the total capital, of Banespa. As a result of this acquisition, BSCH became the third largest bank in Brazil.

Privatization of State-Owned Enterprises. The process of privatization in the various States began in 1996. Although the aggregate privatization proceeds from the State privatization programs were relatively modest at U.S.$1.13 billion in 1996, as of December 31, 1998, fifteen states had enacted privatization legislation: Alagoas, Bahia, Espírito Santo, Goiás, Maranhão, Mato Grosso, Mato Grosso do Sul, Pará, Paraiba, Piaui, Rio de Janeiro, Rio Grande do Sul, Rondônia, São Paulo and Sergipe. The State of Rio de Janeiro completed the sale of a 70.26% interest in its electricity company (Companhia Energética do Rio de Janeiro, or “CERJ”), on November 20, 1996 for U.S.$587.4 million. In December 1996, the State of Paraná also completed auctions for the concession of the load transportation service in the Paraná Oeste Railroad for U.S.$24.8 million. Also in 1996, the State of Rio Grande do Sul sold a 35% interest in its telecommunications company (Companhia Riograndense de Telecomunicações, or “CRT”) for U.S.$654.4 million.

The States have continued to privatize public-sector enterprises. On July 14, 1997, the State of Rio de Janeiro sold controlling interests in Companhia Estadual de Gás (“CEG”) and Riogás for R$622.2 million, representing a 74.9% premium over the minimum price set by the State. CEG was purchased by a consortium composed of two Spanish companies (Gas Natural SDG and Iberdrola Investimentos). Enron International, a U.S. concern, and Pluspetrol, an Argentine company. Riogás, a subsidiary of CEG, was purchased by Gas Natural SDG and two subsidiaries of Enron International, which will share control of Riogás with BR Distribuidora, a subsidiary of Petrobrás. In addition, on July 31, 1997, the State of Bahia completed the sale of 65.4% of the voting shares of its electricity company (Companhia Eléctrica da Bahia, or “Coelba”) for approximately R$1.73 billion, about 77.4% more than the minimum price fixed by Bahia’s government. Moreover, on November 5, 1997, a consortium known as VBC purchased a controlling interest in Companhia Paulista de Força e Luz (“CPFL”) for approximately R$3.02 billion, approximately 70.1% above the minimum price set by BNDES and the highest price paid for a single State-owned company. CPFL, which is Brazil’s fourth largest distributor of electricity, serves the State of São Paulo. In 1997, privatization revenues from the sale of State- controlled enterprises totaled $11.2 billion, approximately 89% of which arose from dispositions of companies in the energy sector.

State privatization revenues from the inception of the State privatization program through May 31, 2000 totaled R$26.4 billion, which includes R$3.7 billion in revenues arising from the sale by States of minority interests in government companies.

On April 14, 1999, in the first privatization auction following the decision of the Government to permit the value of the real to float against that of the dollar, the State of São Paulo sold a controlling interest in Companhia de Gás de São Paulo (“Comgás”) for R$1.6 billion, representing a premium of approximately 119% over the minimum price set by the State. Comgás was purchased by a consortium composed of British Gas PLC and Royal Dutch/Shell Group.

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Other privatizations of State-owned assets included the sale of Baneb, the State-owned Bank of Bahia, to Banco Bradesco S.A. for R$260 million on June 22, 1999 and the sale of Paranapanema, an electricity generation company owned by the State of São Paulo, to Duke Energy on July 28, 1999 for R$1.24 billion, a 90% premium over the minimum price set by the State.

On February 17, 2000, the State of Pernambuco sold a controlling interest in Companhia Energetica de Pernambuco (“Celpe”) for approximately R$1.8 billion, the minimum price set by the State. Celpe was purchased by a consortium led by Iberdrola S.A., the Spanish energy group.

As of February 31, 2001 the federal government sold at auction three band D mobile telephony licenses for a total of U.S.$ 1.3 billion. As of March 31, 2001 another auction sold one band E mobile license for U.S.$ 480.0 million.

B-23B-23 APPENDIX C

THE BRAZILIAN FINANCIAL SYSTEM AND BANKING REGULATION

The basic institutional framework of the Brazilian financial system was established in 1964 through Law No. 4,595 (the "Banking Reform Law"). The following is a brief description of the Brazilian financial system as it currently exists under the framework established by the Banking Reform Law and is not intended to cover every and all aspects of such financial system.

Principal Regulatory Agencies

The CMN

The Banking Reform Law created the National Monetary Council (Conselho Monetário Nacional or "CMN") which is the authority responsible for currency and credit policies in Brazil. Among other things, the CMN sets Brazilian monetary, credit, budgetary, fiscal and public debt policies. The CMN is comprised of the President of the Central Bank, the Minister of Planning and Budget (Ministério do Orçamento e Gestão) and the Minister of Finance (Ministro de Estado da Fazenda), who is also the president of the CMN. The CMN to regulates credit operations involving Brazilian financial institutions, the Brazilian currency, and foreign exchange policy, including the purchase of gold and transactions with foreign currency. In this regard, the CMN also oversees the activities of the Central Bank, the Brazilian Securities Commission (Comissão de Valores Mobiliários or the "CVM"), the SUSEP (Superintendência de Seguros Privados) and the SPC (Secretaria de Previdência Complemantear).

The Central Bank

The Central Bank is responsible for implementing the rules of the CMN. The Central Bank exercises control over all forms of credit and foreign capital, inspects financial institutions and issues penalties. The President of the Central Bank is appointed by the President of Brazil for an indefinite term of office subject to ratification by the Brazilian Senate. The current President of the Central Bank is Mr. Armínio Fraga, whose appointment was confirmed by the Senate on March 3, 1999.

The CVM is responsible for regulating the Brazilian securities markets in accordance with the general regulatory framework (primarily Laws 6,385/76 and 6,404/76, as amended) and the policy determined by the CMN. The CVM also regulates companies whose securities are traded on the Brazilian stock exchange and on organized over-the-counter markets.

Principal Limitations and Restrictions on Financial Institutions

The principal restrictions on banking activities established by Law No. 4,595 are as follows:

• financial, banking or credit institutions may not operate in Brazil without prior authorization from the Central Bank. In addition, foreign banks may not operate in Brazil unless they are expressly authorized to do so by presidential decrees;

• financial, banking or credit institutions may not invest in the equity of any other company except where such investment receives Central Bank approval based upon certain standards established by the CMN. Law 4,595 provides for an exception for such investments when made by investment banks.

• financial, banking or credit institutions may not own real estate except where they occupy such property. Where a financial, banking or credit institution receives real estate in satisfaction of a debt, such property must be sold within one year;

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• financial, banking or credit institutions may not lend more than 25.0% of their net worth (patrimônio de referencia) to any single person or group. This percentage is determined by CMN and may be altered from time to time;

• financial, banking or credit institutions may not grant loans or advances to, or guarantee transactions of, any company which holds more than 10.0% of its shares, except (subject to prior approval of the Central Bank) in certain limited circumstances;

• financial, banking or credit institutions may not grant loans or advances to, or guarantee transactions of, any company in which it holds more than 10.0% of the share capital; and

• financial, banking or credit institutions may not grant loans or advances to, or guarantee transactions of, their executive officers and directors (including the immediate and extended family of such executive officers or directors) or to any company in which such executive officers and directors (including the immediate and extended family of such executive officers or directors) hold more than 10.0% of the share capital.

Principal Financial Institutions

Public Sector

The Federal and State governments of Brazil control several commercial banks and financial institutions devoted to fostering economic development, primarily with respect to the agriculture and industry sectors. State development banks act as independent regional development agencies in addition to performing commercial banking activities. In recent years several State banks have been privatized. The remaining State banks are expected to be privatized in the near future. Government-controlled banks include:

• Banco do Brasil S.A. ("Banco do Brasil"), which is the federal government- controlled multiple-service bank. Banco do Brasil provides a full range of banking products to the public and private sectors, is the largest bank in Brazil and is the primary financial agent of the federal government.

• Banco Nacional de Desenvolvemento Econômico e Social (“BNDES”), which is the federal government-controlled development bank engaged in the provision of medium- and long-term finance to the Brazilian private sector, particularly to industry, either directly or indirectly, through other public and private sector financial institutions. BNDES is currently engaged in implementing the federal government’s privatization program.

• Caixa Econômica Federal (“CEF”), a financial institution controlled by the federal government which is the principal agent of the National Housing Finance System. CEF is involved in deposit-taking and finances housing and urban infrastructure.

• Other public sector development banks, commercial banks, multiple services banks, as well as a number of multiple-service banks controlled by the various state governments.

Private Sector

The private financial sector includes commercial banks, investment, finance and credit companies, investment banks, multiple-service banks, securities dealers, stock brokerage firms, credit cooperatives,

C-2C-2 leasing companies, insurance companies and others. In Brazil, the largest participants in the financial markets are financial conglomerates involved in commercial banking, investment banking, financing, leasing, securities dealing, brokerage and insurance. As of April 2002, there were approximately 7,911 financial companies operating in the private sector, including:

• Commercial banks – approximately 24 private sector commercial banks operated in Brazil as of April 2002. Retail banks are particularly active in taking demand deposits and lending for working capital purposes.

• Investment banks – approximately 21 investment banks operated in Brazil as of April 2002 Investment banks primarily engage in taking time deposits, specialized lending and underwriting.

• Multiple-service banks (bancos múltiplos) – approximately 145 private sector multiple-service banks operated in Brazil as of April 2002. Such banks may, through different departments, carry out the activities of two or more different kinds of financial institutions. Multi-service banks are licensed to provide a full range of commercial banking, investment banking (including securities underwriting and trading), consumer financing and other services including fund management and real estate financing.

• In addition to the above, the Central Bank also supervises the operations of consumer credit companies (financeiras), securities dealerships (distribuidoras de títulos e valores mobiliários), stock brokerage companies (corretoras de valores), leasing companies (sociedades de arrendamento mercantil), savings and loan associations (associações de poupança e empréstimo) and real estate credit companies (sociedades de crédito imobilário).

Regulation by the Central Bank

The Banking Reform Law empowered the Central Bank to implement the currency and credit policies laid down by the CMN and to control and supervise all public sector and private sector financial institutions. All corporate documents of a financial institution, and any amendments thereto, as well as any increase in capital, the setting up or transfer of its principal place of business or any branch (whether in Brazil or abroad) and changes of control must be approved by the Central Bank, which is also responsible for determining the minimum capital requirements of financial institutions. Financial institutions must submit annual and semi-annual financial statements reviewed by the institution’s independent auditors, and a formal audit opinion, as well as monthly unaudited financial statements prepared in compliance with the standard accounting rules promulgated by the Central Bank for each type of financial institution. In addition, as part of the Central Bank’s control over their activities, financial institutions are required to make full disclosure of credit transactions, foreign exchange transactions, destination of proceeds raised from export and import transactions and any other related economic activity. Such data is usually supplied to the Central Bank on a daily basis through computer systems and written reports and statements.

The Central Bank regulations impose, among others, the following specific requirements:

Capital Adequacy and Leverage

On August 17, 1994, the CMN passed Resolution No. 2,099, creating a new capital measurement and standards methodology for Brazilian financial institutions based on a risk asset ratio which requires that, as of January 1, 1995, a financial institution must have a minimum capital of 8.0% of its total risk- weighted assets. Resolution No. 2,399 of June 25, 1997, which came into effect on August 1, 1991, increase the minimum capital requirement, generally, from 8.0% to 10.0% (with the ratio applicable to

C-3C-3 certain credit exposures relating to swap transactions being set at 16.0%). Such level was increased by Circular No. 2,784, of November 27, 1997 from 10.0% to 11.0% as of March 1, 1998. Circular No. 2,784 also increased the risk-weighted factor of swap transactions from 16.0% to 20.0% as of January 1, 1999. The framework of such methodology is similar to the international framework for capital measurement adopted by the Basle Committee on Banking Regulations and Supervisory Practices in July 1988 (the "Basle Accord"), which includes the supervisory authorities of twelve major industrial countries. The Basle Accord established a risk asset ratio as the principal measure of capital adequacy. The framework provides (i) definitions for "Tier I" (core) capital and "Tier II" (supplemental) capital, (ii) a system for weighing assets and off-balance-sheet items according to credit risk, and (iii) as of the end of the second year after adoption, a requirement that affected banks engaged in international operations maintain Tier I capital of at least 4.0% of risk-weighted assets and "total" capital (Tier I capital plus up to an equal amount of Tier II capital) of at least 10.0% of risk-weighted assets.

Brazilian financial institutions may elect to calculate their capital requirements on either a consolidated or unconsolidated basis.

Reserve and Other Requirements

The Central Bank currently imposes several compulsory reserve and related requirements upon Brazilian financial institutions such as the Bank.

The first requirement applies to demand deposits, bank drafts, collection of receivables, collection of tax receipts (other than federal taxes) and proceeds from the realization of guarantees granted to the financial institutions. Until June 1994, banks were required to deposit an amount in cash equal to up to 50.0% (in the case of demand deposits) and 50.0% (in the case of other receipts) of such amounts in non-interest- bearing accounts at the Central Bank. From July until December 1994, these reserve requirements were increased to 100.0% and 60.0%, respectively. Effective December 1994, through promulgation of Circular No. 2,521 issued by the Central Bank, the reserve requirements applicable to demand deposits were lowered to 90.0%. In July 1995, pursuant to Circular No. 2,593 of July 20, 1995 and Circular No. 2,603 of August 17, 1995, banks were required to deposit with the Central Bank funds in an amount equal to: (i) 83.0% of the daily average balance of demand deposits in excess of R$2 million, and (ii) 60.0% of the daily average balance of banal drafts; collection of receivables; collection of tax receipts and proceeds from the realization of guarantees granted to financial institutions in excess of R$2 million.

Pursuant to Circular No. 2,700 of June 28, 1996, as of the first week of August 1996, banks were required to deposit (i) 82.0% (such percentage decreased monthly, according to a schedule prepared by the Central Bank, and reached its current rate of 75.0% at the end of the 1996) of the daily average balance of the bank deposits in excess of R$2 million and (ii) 60.0% of the daily average balance of the bank drafts; collection of receivables; collection of tax receipts and proceeds from the realization of guarantees granted to financial institutions in excess of R$2 million, with Brazilian Central Bank on a non-interest- bearing basis.

Currently, according to Circular No. 3.097 of March 6, 2002, banks are required to deposit 45% of the daily average balance of demand deposits and drafts, collection of receivables, collection of tax receipts and proceeds from the realization of guarantees granted to financial institutions in excess of R$2 million.

The second requirement applies to savings accounts. The Central Bank, pursuant to Resolution No. 2,458 of December 18, 1990, Circular No. 2,608 of August 24, 1995 and Circular 3,093 of March 1, 2002, currently requires Brazilian banks to place in an interest bearing deposit with the Central Bank, on a weekly basis, an amount in cash equivalent to 15.0% of the daily average balance of savings accounts, calculated on a weekly basis. In addition, a minimum of 65.0% of the total amount deposited in savings accounts held by financial institutions must be used to finance the federal housing program, according to Resolution 2,519 of 1998.

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The third requirement applies to time deposits. Pursuant to Circulars No. 2,759 of June 4, 1997, No. 2,839 of 1998, No. 2,842 of 1,998, No. 2,843 of 1998, No. 2,867 of 1999, No. 2,498 of October 20, 1994, as amended by Circular No. 2,507 of November 11, 1994, No. 3,091 of 2002 and No. 3,127 of June 17, 2002, the Central Bank currently imposes a 15.0% reserve requirement on the daily average balance of time deposits received by financial institutions in excess of R$30.0 million, which shall be maintained in Brazilian government securities.

The fourth requirement, established by Circular No. 2,563 of April 27, 1995, imposed a reserve requirement which requires that, as from May 5, 1995, financial institutions must deposit in a non- interest-bearing account with the Central Bank 60.0% of the total amount of guarantees given by such financial institution in relation to loans entered into between non-financial institutions. Such percentage was reduced to zero pursuant to Circular No. 2,704 of July 3, 1996. Currently, according to Circular No. 3,092, financial institutions are required to deposit in an interest bearing account with the Central Bank the amount equal to the lesser of: (i) 100% of the difference between the outstanding amount of guarantees issued by such institution at the end of each month and the amount of outstanding guarantees at May 8, 1992; and (ii) 60% of the outstanding amount of such guarantees issued by such financial institution at the end of each month.

Asset Composition Requirements

Pursuant to Central Bank Resolution No. 2,283, as amended by Resolution No. 2,385 of May 22, 1997, permanent assets of Brazilian financial institutions may not exceed 90.0% of the sum of their Adjusted Shareholders’ Equity, calculated in accordance with the criteria established by the Central Bank. Such Resolution has also established a schedule pursuant to which the limit set forth above would be reduced by 10.0% every two years, until it reaches 60.0%, on June 30, 2002 and to 50.0% on December 31, 2002.

Brazilian financial institutions may not have more than 30.0% of its Adjusted Shareholders’ Equity allocated to credit transactions (including guarantees) extended to the same client (including its parent, affiliates and subsidiaries) or in securities of any one issuer, and may not act as underwriter (excluding best efforts underwriting) of securities issued by any one issuer representing more than 30.0% of its Adjusted Shareholders’ Equity.

Permanent Assets are made up primarily of fixed assets, including investments in nonconsolidated subsidiaries, and do not include commercial leasing operations.

Repurchase transactions involving private securities are limited to two times the amount of Adjusted Shareholders’ Equity. Limits on repurchase operations involving securities backed by Brazilian governmental authorities vary in accordance with the type of security involved in the transaction and the perceived risk of the issuer as established by the Central Bank.

Foreign Currency Loans Pursuant to Resolution No. 63

CMN Resolution No. 2,770, dated August 30, 2000, contains provisions governing loans between persons or corporations resident or domiciled in Brazil and such entities resident or domiciled abroad. It is applicable whether it is a direct loan or whether an issuer issues one or more debt instruments to any number of creditors abroad. Private sector loans under Resolution 2,770 must be registered with the Central Bank, but no prior approval by the Central Bank is necessary.

Financial institutions are permitted to on-lend funds lent pursuant to Resolution No. 2,770 in Brazil to non-financial Brazilian corporations as well as individual resident in Brazil. Moreover, financial institutions and leasing corporations may on-lend such funds to other financial institutions and leasing corporations. With respect to these on-lending transactions, financial institutions must pass to the final borrower the effects of the variation of the foreign currency corresponding to the original cross-border

C-5C-5 debt obligation. Furthermore, the following charges of such obligations may be passed on to the final borrower in Brazil: debt cost (principal, interest and related costs) and any applicable taxation.

Not only did Resolution No. 2,770 provide for such rules but it also revoked a number of CMN and Central Bank’s regulations such as CMN Resolution No. 63 which permitted financial institutions in Brazil to borrow funds in the international markets for the purpose of on-lending such funds in Brazil.

This section is not intended to provide a complete full explanation of Resolution No. 2,770 and investments in Brazil.

Foreign Currency Position

Pursuant to Central Bank regulations, transactions involving the sale and purchase of foreign currency in Brazil can only be conducted by institutions duly authorized by the Central Bank to operate in the foreign exchange market. The Central Bank currently imposes certain limits on short positions of institutions authorized to operate in the foreign exchange markets. These limits vary according to the particular foreign exchange market in which the transactions are carried out, as well as in relation to the shareholders’ equity of the relevant institution, as adjusted in accordance with Central Bank regulations. Currently, banking institutions, including the Company, are not subject to limits on their long positions, but any amount in excess of U.S.$5.0 million, with respect to transactions carried out in the Commercial Market (as defined in "Foreign Exchange Rates and Foreign Exchange Controls"), and U.S.$1.0 million, with respect to the Floating Rate Market (as defined in "Foreign Exchange Rates and Foreign Exchange Controls"), as applicable, must be deposited with the Central Bank.

Penalties for noncompliance with foreign currency position limits range from compulsory sale of foreign currency to revocation of authorization to operate in the foreign exchange market. At the date of this Offering Circular, the Company was in full compliance with all applicable foreign currency regulations.

Treatment of Doubtful Loans

Financial institutions are required to classify their loans into nine categories, ranging from AA to H, on the basis of their risk. These credit classifications are determined in accordance with Central Bank criteria relating to:

• the conditions of the debtor and the guarantor, such as their economic and financial situation, level of indebtedness, capacity for generating profits, cash flow, delay in payments, contingencies and credit limits; and

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• the conditions of the transaction, such as its nature and purpose, the sufficiency of the collateral, the level of liquidity and the total amount of the credit.The regulations specify a minimum provision for each category of loan, which is measured as a percentage of the total amount of the credit operation, as follows:

Minimum Classification of Loan Provision AA — A 0.5% B 1.0 C 3.0 D 10.0 E 30.0 F 50.0 G 70.0 H(1) 100.0%

(1) Banks must write off any loan 6 months after it is ranked H.

A loan may be upgraded if it has a credit support or downgraded if in default.

In the case of transactions with individuals, we grade the credit based on data including the individual’s income, net worth and credit history (as well as other personal data).

Financial institutions must make monthly loan loss provisions in amount considered sufficient to credit risks based on management’s analysis of outstanding receivables.

For past due loans, the regulations establish maximum risk classifications, as follows:

Maximum Number of Days Past Due(1) Classification 15 to 30 days ...... B 31 to 60 days ...... C 61 to 90 days ...... D 91 to 120 days ...... E 121 to 150 days ...... F 151 to 180 days ...... G More than 180 days...... H

(1) The period should be doubled in the case of loans with maturity in excess of 36 months.

Financial institutions are required to determine, on a monthly basis, whether any loans must be reclassified as a result of these maximum classifications, and if so, they must adjust their provisions accordingly.

Loans of up to R$50,000 may be classified either by the financial institution’s own evaluation method or according to the delay in payments criteria described above.

Financial institutions must make their lending and loan classification policies available to the Central Bank. They also have to submit to the Central Bank information relating to their loan portfolio, along with their financial statements. Such information must include:

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• a breakdown of lending activities and the nature of the borrowers;

• maturities of their loans;

• amounts of rolled-over, written-off and recovered loans;

• loan portfolio diversification in accordance with the loan classification; and

• overdue loans.

Pre-2000 Regulations and Policies

The current system of classification of loans into nine risk categories entered into effect in March 2000. Prior to March 2000, the Central Bank required all Brazilian banks to classify non-performing loans as either in arrears or defaulted. Loans in arrears were loans on which payment of principal or interest was more than 60 days overdue. When a loan was classified as in arrears, we were required to provide for 20.0% of the loan amount as a provision for potential loss if the loan was fully secured by collateral, 50.0% if the loan was partially secured by collateral and 100.0% if the loan was not secured. Defaulted loans were loans which were at least 360 days past due if fully secured by collateral, 180 days past due if they were partly secured by collateral or 60 days past due if the loan was not secured. Depending on the value and type of security, loans may have been deemed to be in default at an earlier date. When a loan moved into the defaulted category, we were required to make a provision of 100.0% of the loan amount. Loans entered into by financial institutions with the public-sector borrowers were considered to be in default 60 days after falling into arrears. We were required to make a 100.0% provision for export financings 20 days (in case of pre-export financing) and 30 days (in case of post-shipment financing) after the financing became overdue.

Our internal policies were in fact more stringent, since we considered any loan as non-performing if it was 60 days overdue.

During the period when a loan was due and unpaid, we only recognized interest as income for the first 60 days it was in arrears and, thereafter, when actually received.

Foreign Bank

Prior to the enactment of the Federal Constitution of 1988, in order to operate a branch, subsidiary, agency or office in Brazil, a foreign corporation was required to apply for permission from the federal government. As provided for in applicable legislation, only the President of Brazil could authorize a branch operation. A foreign bank duly authorized to operate in Brazil through a branch or a subsidiary is subject to the same rules, regulations and requirements that are applicable to any other Brazilian financial institution. In accordance with the terms of the Federal Constitution (Article 192), the process of obtaining authorization to operate a financial institution in Brazil shall be regulated through a law yet to be enacted. Until the implementation of such law, but subject to certain exceptions, the establishment in Brazil of new agencies of foreign financial institutions and the increase in their equity interest in the Brazilian financial institutions are prohibited by Article 52 of the Transitory Provisions of the Federal Constitution. Such restriction, however, does not apply to foreign investments in the Brazilian financial system, which are considered by the Federal Government to be in the national interest. On August 24, 1995, President Fernando Henrique Cardoso published a notice generally considering the foreign participation in the Brazilian financial system to be of national interest and therefore lifting the restrictions imposed by Article 52 of the Transitory Provisions of the Federal Constitution. Notwithstanding, any increase in the foreign participation in the Brazilian financial market remains subject to the prior approval of the President of Brazil.

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Transactions with Affiliates

Law No. 7,492 of June 16, 1986 prohibits the extension of credit by a financial institution to an entity controlled directly or indirectly by such financial institution or subject to common control with such financial institution. Violations of Law No. 7,492/86 are punishable by two to six years of imprisonment and a fine. On June 30, 1993, the Central Bank issued Resolution No. 1,996, which requires any such transaction to be reported to the Attorney General’s Office. The enactment by the Central Bank of February 25, 1999 of Resolution No. 2,309 indicated that such prohibition will be applicable to credit transaction between a bank and its leasing subsidiary, solving a then existing controversy among Brazilian banks on the matter.

Brazilian Payment System

On April 22, 2002 a new payment system (“NPS”) became effective in Brazil. Pursuant to the NPS, financial transactions are settled by a transfer system operating on a real time gross settlement system.

One benefit of the NPS is the reduction of Central Bank credit risk. Previously, the Central Bank bore the financial burden of any potential losses in the event of an insolvency. Another significant improvement of the NPS is the implementation of risk management mechanisms in each settlement subsystem, such as the Exchange System (Câmbio) and Special System of Settlement and Custody (SELIC - Sistema Especial de Liquidação e Custódia). Another characteristic of the NPS is the reduced delay between the execution of a transaction and its completion. Law 10.214 of March 27, 2001 supports the adoption of the NPS.

Although the NPS has been in effect since April 22, 2002, it is being implemented gradually in order to minimize the risk of failure. From April 22, 2002 to May 10, 2002, only on-line transactions over R$5,000,000.00 could be made through the NPS. Subsequently, such amount was reduced to R$1,000,000.00 and, from June 10, 2002 such amount was reduced to R$100,000.00. Beginning in August 2002, no minimum limit will be required. The reduction in this limit along with other measures related to the use of checks in the settlement subsystem, are expected to considerably increase the number of on-line and real time transactions.

Amendments to Taxation of Corporations

On December 26, l995, Law No. 9,249 was passed amending, as of January 1, 1996, the income tax legislation applicable to corporations. Until December 31, 1995, corporations were subject to income tax at a rate of 25.0% plus an additional tax of (i) 12.0% on income between R$180,000 and R$780,000 and (ii) 18.0% on income exceeding R$780,000. Law No. 9,249 reduced the income tax rate to 15.0% and imposed an additional tax of 10.0% on income exceeding R$240,000. Law No. 9,249 also eliminated the requirement of monetarily correcting corporations’ financial statements.

Another relevant change introduced by Law No. 9,249 is that corporations are now taxed based on their worldwide income rather than on income produced solely in Brazil. As of January 1, 1996, profits, capital gains and other income obtained abroad by Brazilian entities will be included in the determination of their net profits when they become available. In addition, profits, capital gains and other income obtained by foreign branches or income obtained from subsidiaries or foreign corporations controlled by a Brazilian entity will also be included in the calculation of such entity’s profits, in the proportion to its participation in such foreign companies’ capital. The Brazilian entity is allowed to deduct any income tax paid abroad, up to the amount of Brazilian income taxes imposed on such income.

Law No. 9,249 allows a corporation to deduct from its net profits any interest paid to shareholders as remuneration of the shareholders’ equity. Such interest shall not exceed the product of (x) the long-term interest rate disclosed by the Brazilian Government (Taxa de Juros de Longo Prazo or "TJLP") times (y) the corporation’s net worth. The obligation to pay such interest, however, is contingent upon the

C-9C-9 existence of profits in an amount equal to twice the amount of interest to be paid. Interest paid as remuneration of shareholders’ equity may be deducted from the minimum compulsory dividends to be paid to the shareholders, but subject to a 15.0% withholding income tax.

In addition, Law No. 9,249 reduced from 25.0% to 15.0% (or any other lower rate applicable pursuant to a relevant tax treaty) the withholding tax on the income paid by Brazilian corporations to a resident abroad, and also eliminated the existing 15.0% withholding tax applicable to dividends distributed to shareholders of Brazilian corporations, resident or nonresident.

C-10C-10 APPENDIX D

UNITED STATES REGULATORY MATTERS

General

As a national bank, the Guarantor is primarily regulated by the Comptroller, which examines and supervises the Guarantor. The deposits of the Guarantor are insured by the Bank Insurance Fund (the "BIF") of the FDIC to the extent allowed by law, and accordingly, the Guarantor is subject to certain regulations of the Federal Deposit Insurance Corporation (the "FDIC"). As a member of the Federal Reserve System, the Guarantor is also subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board").

Past Legislation

Pursuant to certain provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), an insured depository institution which is commonly controlled with another insured depository institution may be held liable for any loss incurred, or reasonably anticipated to be incurred, by the FDIC in connection with the default of such commonly controlled institution, or any assistance provided by the FDIC to such commonly controlled institution, when the latter is in danger of default. The term "default" is defined to mean the appointment of a conservator or receiver for such institution and "in danger of default" is defined generally as the existence of certain conditions indicating that a "default" is likely to occur in the absence of regulatory assistance. Thus, the Guarantor could incur liability to the FDIC pursuant to this statutory provision in the event of the default of any of the other insured depository institutions owned or controlled by the Corporation. Such liability is subordinated in right of payment to deposit liabilities, secured obligations, any other general or senior liability, and any obligation subordinated to depositors or other general creditors, other than obligations owed to any affiliate of the depository institution (with certain exceptions) and any obligations to shareholders in such capacity.

In addition, if any insured depository institution becomes insolvent and the FDIC is appointed its conservator or receiver, the FDIC may, under FIRREA, disaffirm or repudiate any contract or lease to which such institution is a party, the performance of which is determined to be burdensome, and the disaffirmance or repudiation of which is determined to promote the orderly administration of the institution’s affairs. If the FDIC were to successfully contend that its power to repudiate "contracts" extends to obligations such as the Notes, the effect of any such repudiation should be to accelerate the maturity of the Notes. Such repudiation would result in a claim of the holder of the Notes against the receivership for principal and interest accrued through the date of the appointment of the conservator or receiver. The amount paid upon this claim would depend upon, among other factors, the amount of receivership assets available for the payment of unsecured claims and the priority of this claim relative to the priority of other unsecured creditors and depositors. If the maturity of the Notes were so accelerated, and a claim relating to the Notes paid by the receivership, the holders of the Notes might not be able, depending upon economic conditions, to reinvest any amounts paid on the Notes at a rate of interest comparable to that paid on the Notes. The FDIC as conservator or receiver may also transfer to a new obligor any of the Guarantor’s assets and liabilities, including the Notes, without the approval or consent of the Guarantor’s creditors, including holders of the Notes.

In its resolution of the problems of an insured depository institution in default or in danger of default, the FDIC is generally obligated to satisfy its obligations to insured depositors at the least possible cost to the deposit insurance fund. In addition, the FDIC may not take any action that would have the effect of increasing the losses to the deposit insurance fund by protecting depositors for more than the insured portion of deposits (generally U.S.$100,000 per depositor) or creditors other than depositors (such as holders of the Notes). The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") authorized the FDIC to settle all uninsured and unsecured claims in the insolvency of an insured bank by making a final settlement payment after the declaration of insolvency. Such a payment would constitute

D-1D-1 full payment and disposition of the FDIC’s obligations to claimants. The rate of such final settlement payment is to be a percentage rate determined by the FDIC reflecting an average of the FDIC’s receivership recovery experience.

Under the Federal Deposit Insurance Act, the claims of a receiver of an insured depository institution for administrative expenses and the claims of holders of deposit liabilities of such an institution (including the FDIC, as the subrogee of such holders) have priority over the claims of general unsecured creditors of such an institution and subordinated creditors of such institution in the event of a liquidation or other resolution of such institution. As a result of such legislation, claims of a receiver for administrative expenses and claims of holders of deposit liabilities of the Guarantor (including the FDIC, as the subrogee of such holders), would receive priority over claims of the holders of the Notes in the event of a liquidation or other resolution of the Guarantor. At March 31, 2000, the Guarantor had U.S.$125.3 billion of deposit liabilities outstanding.

As a result of the provisions described above, whether or not the FDIC seeks to repudiate the Notes, in an insolvency of the Guarantor, holders of Notes (including the Senior Notes) would be treated differently from, and holders of Notes could receive, if anything, significantly less than, holders of deposit obligations of the Guarantor.

THE NOTES ARE NOT DEPOSITS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER STATE OR FEDERAL AGENCY.

For additional information regarding United States regulatory matters affecting the Guarantor, see the Corporation’s most recent Annual Report on Form 10-K, which is incorporated by reference herein.

Recent Legislation

As a financial holding company, FleetBoston is subject to inspection, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended by the Gramm-Leach- Bliley Act (the "GLB Act").

The GLB Act, enacted in 1999, eliminates many of the restrictions placed on the activities of certain qualified bank holding companies. A bank holding company that qualifies as a "financial holding company" can expand into a wide variety of financial services, including securities activities, insurance, and merchant banking without the prior approval of the Federal Reserve Board. The Corporation’s election to become a "financial holding company," which was filed with the Federal Reserve Bank, became effective on March 13, 2000.

Banks, including the Guarantor, are also authorized by the GLB Act to engage, through "financial subsidiaries," in certain activities that are permissible for a financial holding company and other activities that its applicable regulators deem to be financial in nature or incidental to any such financial activity. The authority of a bank to invest in a financial subsidiary is subject to a number of conditions.

The GLB Act also contains a number of other provisions that will affect the Guarantor’s operations and the operations of all financial institutions. At this time the Guarantor does not believe that the GLB Act will have a material adverse impact upon its or its subsidiaries’ financial condition or results of operations.

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Future Legislation

Changes to the laws and regulations in the states and countries where the Guarantor and its subsidiaries do business can affect the operating environment of banks and their subsidiaries in substantial and unpredictable ways. The Guarantor cannot accurately predict whether legislation will ultimately be enacted, and, if enacted, the ultimate effect that it, or implementing regulations, would have upon the Guarantor or its subsidiaries’ financial condition or results of operations, including that of the Bank or BBL.

For a discussion of the material elements of the regulatory framework applicable to financial holding companies, bank holding companies and their subsidiaries, and specific information relevant to the Corporation, refer to the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001 and any other subsequent reports filed by the Corporation with the SEC, which are incorporated by reference in this Offering Circular. This regulatory framework is intended primarily for the protection of depositors and the deposit insurance funds that insure deposits of banks, rather than for the protection of security holders. A change in the statues, regulations or regulatory policies applicable to the Guarantor or its subsidiaries may have a material effect on the Guarantor’s business.

D-3D-3 APPENDIX E

FORM OF COMMERCIAL RISK GUARANTEE

AMENDED AND RESTATED GUARANTEE (the "Guarantee"), dated as of June 5, 1998 by BANKBOSTON, N.A. (the "Guarantor"), a national banking institution organized under the laws of the United States of America with its head office located at 100 Federal Street, Boston, Massachusetts, United States of America, in favor of (i) the holders of the notes issued under the Boston - Brazil Medium Term Note Program which are designated as guaranteed notes (each a "Guaranteed Note" and collectively, the "Guaranteed Notes") under the Pricing Supplements relating to such Guaranteed Notes and issued by any Issuer (as defined below), (ii) the holder(s) of the coupons, if any (the "Guaranteed Coupons"), attached to the Guaranteed Notes and (iii) the holders of beneficial interests in the Guaranteed Notes in global form (each holder of a Guaranteed Note or a Guaranteed Coupon and each holder from time to time of a beneficial interest in a Guaranteed Note in global form being hereafter referred to as the "Holders"). The Guaranteed Notes and Guaranteed Coupons are issued pursuant to the Fiscal Agency Agreement (as amended, modified, or supplemented from time to time, the "Fiscal Agency Agreement"), dated as of October 18, 1994 among the Guarantor; BankBoston Banco Múltiplo S.A. ("BBM"); BankBoston Leasing S.A. - Arrendamento Mercantil ("BBL"); each other subsidiary of the Guarantor organized under the laws of the Federative Republic of Brazil (collectively, "Additional Issuers") which becomes a party to the Fiscal Agency Agreement and the Dealer Agreement (BBM, BBL and the Additional Issuers are individually referred to herein as the "Issuer," and collectively referred to as the "Issuers"); Deutsche Bank AG, London (formerly Bankers Trust Company, London) as Fiscal Agent, Paying Bank and Transfer Agent; Bankers Trust Company, New York office as Registrar, Paying Bank and Transfer Agent; Deutsche Trust Bank Limited (formerly Japan Bankers Trust Company Limited), as Principal Paying Bank; and Deutsche Bank Luxembourg S.A. (formerly Bankers Trust Luxembourg S.A.), as Listing Agent, Paying Bank and Transfer Agent. This Guarantee amends, restates and replaces that certain Guarantee dated as of August 17, 1995 issued by the Guarantor in favor of the Holders. References to the Guarantee in the Fiscal Agency Agreement, the Guaranteed Notes and any other documentation in connection with the Program shall be deemed to be a reference to this amended and restated Guarantee. Capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to them in the terms and conditions of the Guaranteed Notes (the "Conditions").

1. The Guarantor hereby unconditionally and irrevocably guarantees to each Holder with respect to any Guaranteed Note or Guaranteed Coupon the full and punctual payment of the principal, interest (if any) and Additional Amounts (if any), payable by the relevant Issuer with respect to such Guaranteed Note or Guaranteed Coupon issued by such Issuer, when and as the same shall become due and payable, whether at maturity, upon redemption or otherwise, strictly in accordance with the expressed terms of such Guaranteed Note and the Conditions thereto.

2. This Guarantee is an absolute and continuing guarantee, subject to the terms hereof, of the full and punctual payment of all amounts due on each Guaranteed Note and Guaranteed Coupon issued by an Issuer, and not of collectibility only. The Guarantor’s obligations hereunder are specifically limited to payment and performance at the place, in the currency, and at the time required for the relevant Issuer to pay under the Guaranteed Notes or the Guaranteed Coupons issued by it, as the case may be, and, without limiting the generality of the foregoing, the Guarantor shall have no obligation to make payment hereunder in the relevant Specified Currency in the event that a "Brazilian Sovereign Risk Event" has occurred and is continuing, and the Guarantor shall have no obligation to pay hereunder on any other terms. Subject to the foregoing, should the relevant Issuer default in the payment of any of its obligations under the Guaranteed Notes or the Guaranteed Coupons, the obligations of the Guarantor hereunder shall become immediately due and payable to the Holders of such Guaranteed Notes or Guaranteed Coupons pursuant to the terms and conditions herein.

3. This Guarantee shall remain in full force and effect until the Guaranteed Notes and Guaranteed Coupons have been paid in full.

E-1E-1

4. This Guarantee shall be governed by and construed in accordance with the laws of the State of New York, without regards to the conflict of law principles thereof. The Guarantor agrees to the non-exclusive jurisdiction of any state or federal court sitting in the City of New York, New York.

5. This Guarantee constitutes the entire agreement of the Guarantor with respect to the matters set forth herein. The invalidity or unenforceability of any one or more provisions of this Guarantee shall not affect the validity or enforceability of any other provision.

IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed and delivered by its duly authorized officer as of the date first written above.

BANKBOSTON, N.A.

By: Name: Title:

E-2E-2

ISSUERS BANKBOSTON BANCO MÚLTIPLO S.A. Av. Dr Chucri Zaidan, 246 São Paulo, SP, Brazil

BANKBOSTON LEASING S.A. - ARRENDAMENTO MERCANTIL Alameda Rio Negro, 911 Loja 1, Sala 1 Barueri, SP, Brazil

GUARANTOR AS TO COMMERCIAL RISK BANKBOSTON, N.A. 100 Federal Street Boston, Massachusetts 02110

FISCAL AGENT, PAYING BANK AND TRANSFER AGENT DEUTSCHE BANK AG, LONDON Winchester House 1 Great Winchester Street London EC2N 2DB

PRINCIPAL PAYING BANK DEUTSCHE TRUST BANK LIMITED Tokyo Ginko Kyokai Building 1-3-1 Marunouchi Chiyoda-Ku Tokyo 100, Japan

REGISTRAR, PAYING BANK AND TRANSFER AGENT BANKERS TRUST COMPANY, NEW YORK OFFICE Four Albany Street New York, New York 10006

LISTING AGENT, PAYING BANK AND TRANSFER AGENT DEUTSCHE BANK LUXEMBOURG S.A. 14 Boulevard F.D. Roosevelt L-2450 Luxembourg

LEGAL ADVISORS To the Guarantor as to To the Dealers as to United States Law United States and New York Law

THE LAW OFFICE OF ORRICK, HERRINGTON & SUTCLIFFE LLP BANKBOSTON, N.A. 666 FIFTH AVENUE 100 Federal Street New York, New York 10103-0001 Boston, MA 02110 To the Issuers as to Brazilian Law

THE LAW OFFICE OF BANKBOSTON, N.A. Av. Dr. Chucri Zaidan, 246 7th Floor São Paulo, SP, Brazil

AUDITORS PRICEWATERHOUSECOOPERS AUDITORES INDEPENDENTES Av. Francisco Matarazzo, 1700 São Paulo, SP, Brazil

(55 11) 3885-9696

DOCSNY1:788342.9 12161-2 MRB