Sec valuation and liquidity guidance for registered investment companies pdf

sec valuation and liquidity guidance
for registered investment companies
compendium
volume 1
SEC Valuation and Liquidity Guidance for Registered
Investment Companies

SEC Valuation and Liquidity Guidance for Registered
Investment Companies
Compendium
Volume 1

e Investment Company Institute (ICI) is the national association of U.S. investment companies, including mutual
funds, closed-end funds, exchange-traded funds, and unit investment trusts. ICI seeks to encourage adherence to high
ethical standards, promote public understanding of, and otherwise advance the interests of funds, their shareholders,
directors, and advisers.
is publication is intended to provide a compendium of U.S. Securities and Exchange Commission (SEC) releases, staff
letters, and enforcement actions related to the mutual fund valuation process. ICI published this document for use by
legal and compliance professionals, service providers, and others involved in fund valuation practices. is publication
is being distributed with the understanding that ICI does not render any legal, accounting, or other professional
advice. Although ICI has made reasonable efforts to compile the SEC’s guidance regarding fund valuation for the
convenience and information of its members and others, ICI does not guarantee and is not responsible for the accuracy or
completeness of this publication.
Copyright © 2011 by the Investment Company Institute

VII
Contents
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX
Provisions of the Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2(a)(41) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Section 22(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Section 22(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Rules and Forms Under the Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . .5
Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Rule 22c-1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Rule 22(e)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Rule 38-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Excerpt from Form N-1A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Releases Related to Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Proposal to Adopt Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Adoption of Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Proposal to Amend Rules 6-02-9 of Article 6
of Regulation S-X and Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Adoption of Amendments to Rule 6-02-9 of
Article 6 of Regulation S-X and Rule 2a-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proposed Revision of Financial Statement Requirements
for Registered Investment Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Adoption of Revisions to Financial Statement Requirements
for Registered Investment Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Releases Related to Rule 22c-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Proposal to Adopt Rule 22c-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Adoption of Rule 22c-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Proposal to Amend Rule 22c-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Adoption of Amendments to Rule 22c-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Proposal to Amend Rule 22c-1 and Adopt New Rule 22e-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Adoption of Revisions to Rule 22c-1 and New Rule 22e-2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Excerpt from Revision of Certain Annual Review Requirements
of Investment Company Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Accounting Series Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Accounting Series Release No. 113 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Accounting Series Release No. 118 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Accounting Series Release No. 219 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Other Releases Related to Valuation and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
In the Matter of Christiana Securities Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Excerpt from Proposed Form N-7 for Registration of Unit Investment Trusts . . . . . . . . . . . . . . . . 120
Excerpt from Reproposed Form N-7 for Registration of Unit Investment Trusts . . . . . . . . . . . . . . . 123
Excerpt from Proposed Amendments to Form N-1A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
VIII
Contents
Excerpt from Adoption of Rule 38a-1: Compliance Programs of Investment Companies . . . . . . . . . . 127
Excerpt from Proposed Rule 22c-2 Relating to Mutual Fund Redemption Fees . . . . . . . . . . . . . . 129
Excerpt from Form N-1A: Disclosure Regarding Market Timing . . . . . . . . . . . . . . . . . . . . . . . 131
Excerpt from Adoption of Rule 22c-2 Relating to Mutual Fund Redemption Fees . . . . . . . . . . . . . . 133
Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Excerpt from Resale of Restricted Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Revisions of Guidelines to Form N-1A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Staff Guidance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Staff Interpretive Position Relating to Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Paul Revere Investors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Putnam Growth Fund and Putnam International Equities Fund, Inc. . . . . . . . . . . . . . . . . . . . . 147
Excerpt from 1990 Letter to Investment Company Registrants . . . . . . . . . . . . . . . . . . . . . . . . 152
Excerpt from 1992 Letter to Investment Company Registrants . . . . . . . . . . . . . . . . . . . . . . . . 153
United Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
1992 Letter to Investment Company Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160
Merrill Lynch Money Markets Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
Excerpt from SEC Staff Memorandum Regarding Mutual Funds
Use of Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
United Municipal Bond Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Excerpt from 1998 Guides to F
orm N-1A Related to Valuation . . . . . . . . . . . . . . . . . . . . . . . . 186

1999 Letter to Investment Company Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188
2001 Annual Industry Comment Letter to CFOs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193
American Institute of Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
2001 Letter to Investment Company Institute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Federated Municipal Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
Excerpt from Compliance Alert. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 210
SEC Office of the Chief Accountant
and FASB Staff Clarifications on Fair Value Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
SEC Enforcement Actions on Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
In the Matter of Financial Programs, Inc., et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Report of Investigation in the Matter of Greater Washington Investors, Inc . . . . . . . . . . . . . . . . 221
In the Matter of the Bank of California, N.A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
In the Matter of Van Kampen American Capital Asset Management, Inc. . . . . . . . . . . . . . . . . . . 235
In the Matter of Mitchell Hutchins Asset Management Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 239
In the Matter of Parnassus Investments, et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
In the Matter of Piper Capital Management, Inc., et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
In the Matter of the Rockies Fund, Inc., et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
In the Matter of FT Interactive Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312
In the Matter of Jon D. Hammes, et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 316
In the Matter of Garrett V
an Wagoner and Van Wagoner Capital Management, Inc. . . . . . . . . . . . . . 323
In the Matter of Allied Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
In the Matter of Heartland Advisors, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 335
In the Matter of Evergreen Investment Management Company . . . . . . . . . . . . . . . . . . . . . . . 342
In the Matter of Robert John Hipple . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358
In the Matter of Morgan Asset Management, Inc., et al. . . . . . . . . . . . . . . . . . . . . . . . . . . . 364
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
IX
Preface
Preface

One of the hallmarks of mutual funds and many other registered investment companies is that they assign a value to
each of their portfolio holdings every business day. e mandate to do so is among the core principles of the Investment
Company Act of 1940, and the implementation and oversight of valuation policies and procedures are key compliance
obligations.
e Investment Company Act’s legal framework for the valuation of fund securities has been in place since the statute’s
enactment in 1940. It succinctly establishes a two-pronged approach: securities for which market quotations are readily
available must be priced at market value, and all other securities must be assigned a fair value as determined in good faith
by the fund’s board.
Since 1940, the Securities and Exchange Commission and its staff have issued extensive guidance to assist funds
in valuing their securities. Much of that guidance has centered on fair valuing securities, which is a good faith
determination of the amount which the owner might reasonably expect to receive upon a current sale. is assessment
has been widely recognized to be more art than science. As the Commission has stated, “no single standard for
determining ‘fair value in good faith’ may be laid down since fair value depends upon the circumstances of each
particular case.”
Because of the inherent importance of the valuation process for funds, and the wide-ranging nature of the guidance that
exists in a multitude of Commission releases, staff letters, and enforcement actions, as well as accounting publications, we
have created this indexed and easily searchable compendium. We will update the compendium as appropriate to reflect
new developments. We hope that legal and compliance professionals, service providers, and others involved in fund
valuation practices will find it useful.
Karrie McMillan, General Counsel
Investment Company Institute
July 2009

1
Provisions of the Investment Company Act
Provisions of the Investment Company Act
Section 2(A)(41)
Section 2. General definitions.
(a) When used in this title, unless the context otherwise requires—
(41) “Value”, with respect to assets of registered investment companies, except as provided in subsection (b) of section 28

means—
(A) as used in sections 3, 5, and 12, (i) with respect to securities owned at the end of the last preceding fiscal quarter
for which market quotations are readily available, the market value at the end of such quarter; (ii) with respect to
other securities and assets owned at the end of the last preceding fiscal quarter, fair value at the end of such quarter, as
determined in good faith by the board of directors; and (iii) with respect to securities and other assets acquired after the
end of the last preceding fiscal quarter, the cost thereof; and
(B) as used elsewhere in this title, (i) with respect to securities for which market quotations are readily available, the
market value of such securities; and (ii) with respect to other securities and assets, fair value as determined in good faith
by the board of directors;
In each case as of such time or times as determined pursuant to this title, and the rules and regulations issued by the
Commission hereunder. Notwithstanding the fact that market quotations for securities issued by controlled companies
are available, the board of directors may in good faith determine the value of such securities: Provided, that the value so
determined is not in excess of the higher of market value or asset value of such securities in the case of majority-owned
subsidiaries, and is not in excess of market value in the case of other controlled companies.
For purposes of the valuation of those assets of a registered diversified company which are not subject to the limitations
provided for in section 5(b)(1), the Commission may, by rules and regulations or orders, permit any security to be
carried at cost, if it shall determine that such procedure is consistent with the general intent and purposes of this title.
For purposes of sections 5 and 12 in lieu of values determined as provided in clause (A) above, the Commission shall
by rules and regulations permit valuation of securities at cost or other basis in cases where it may be more convenient
for such company to make its computations on such basis by reason of the necessity or desirability of complying with
the provisions of any United States revenue laws or rules and regulations issued thereunder, or the laws or the rules and
regulations issued thereunder of any State in which the securities of such company may be qualified for sale.
e foregoing definition shall not derogate from the authority of the Commission with respect to the reports,
information, and documents to be filed with the Commission by any registered company, or with respect to the
accounting policies and principles to be followed by any such company, as provided in sections 8, 30, and 31.
2
Provisions of the Investment Company Act
Section 22(c)
Section 22. Distribution, redemption, and repurchase of securities; regulations by securities
associations.

(c) e Commission may make rules and regulations applicable to registered investment companies and to principal
underwriters of, and dealers in, the redeemable securities of any registered investment company, whether or not members
of any securities association, to the same extent, covering the same subject matter, and for the accomplishment of the
same ends as are prescribed in subsection (a) of this section in respect of the rules which may be made by a registered
securities association governing its members. Any rules and regulations so made by the Commission, to the extent that
they may be inconsistent with the rules of any such association, shall so long as they remain in force supersede the rules
of the association and be binding upon its members as well as all other underwriters and dealers to whom they may be
applicable.
3
Provisions of the Investment Company Act
Section 22(e)
Section 22. Distribution, redemption, and repurchase of securities; regulations by securities
associations.
(e) No registered investment company shall suspend the right of redemption, or postpone the date of payment or
satisfaction upon redemption of any redeemable security in accordance with its terms for more than seven days after the
tender of such security to the company or its agent designated for that purpose for redemption, except—
(1) for any period (A) during which the New York Stock Exchange is closed other then customary weekend and holiday
closings or (B) during which trading on the New York Stock Exchange is restricted;
(2) for any period during which an emergency exists as a result of which (A) disposal by the company of securities owned
by it is not reasonably practicable or (B) it is not reasonably practicable for such company fairly to determine the value of
its net assets; or
(3) for such other periods as the Commission may by order permit for the protection of security holders of the company.
e Commission shall by rules and regulations determine the conditions under which (i) trading shall be deemed to be
restricted and (ii) an emergency shall be deemed to exist within the meaning of this subsection.

5
Rules and Forms Under the Investment Company Act
Rules and Forms Under
the Investment Company Act
Rule 2A-4

Rule 2A-4. Definition of “current net asset value” for use in computing periodically the current price
of redeemable security.
(a) e current net asset value of any redeemable security issued by a registered investment company used in computing
periodically the current price for the purpose of distribution, redemption, and repurchase means an amount which
reflects calculations, whether or not recorded in the books of account, made substantially in accordance with the
following, with estimates used where necessary or appropriate:
(1) Portfolio securities with respect to which market quotations are readily available shall be valued at current market
value, and other securities and assets shall be valued at fair value as determined in good faith by the board of directors
of the registered company.
(2) Changes in holdings of portfolio securities shall be reflected no later than in the first calculation on the first business
day following the trade date.
(3) Changes in the number of outstanding shares of the registered company resulting from distributions, redemptions,
and repurchases shall be reflected no later than in the first calculation on the first business day following such change.
(4) Expenses, including any investment advisory fees, shall be included to date of calculation. Appropriate provision
shall be made for Federal income taxes if required. Investment companies which retain realized capital gains designated
as a distribution to shareholders shall comply with paragraph (h) of rule 6-03 of Regulation S-X.
(5) Dividends receivable shall be included to date of calculation either at ex-dividend dates or record dates, as
appropriate.
(6) Interest income and other income shall be included to date of calculation.
(b) e items which would otherwise be required to be reflected by subparagraphs (4) and (6) above need not be so
reflected if cumulatively, when netted, they do not amount to as much as one cent per outstanding share.
(c) Notwithstanding the requirements of paragraph (a) above, any interim determination of current net asset value
between calculations made as of the close of the New York Stock Exchange on the preceding business day and the
current business day may be estimated so as to reflect any change in current net asset value since the closing calculation
on the preceding business day.
6
Rules and Forms Under the Investment Company Act
Rule 22c-1
Rule 22c-1. Pricing of redeemable securities for distribution, redemption, and repurchase.
(a) No registered investment company issuing any redeemable security, no person designated in such issuer’s prospectus

as authorized to consummate transactions in any such security, and no principal underwriter of, or dealer in, any such
security shall sell, redeem, or repurchase any such security except at a price based on the current net asset value of such
security which is next computed after receipt of a tender of such security for redemption or of an order to purchase or sell
such security; Provided, that:
(1) is paragraph shall not prevent a sponsor of a unit investment trust (hereinafter referred to as the “Trust”)
engaged exclusively in the business of investing in eligible trust securities (as defined in Rule 14a-3(b)) from selling
or repurchasing Trust units in a secondary market at a price based on the offering side evaluation of the eligible trust
securities in the Trust’s portfolio, determined at any time on the last business day of each week, effective for all sales
made during the following week, if on the days that such sales or repurchases are made the sponsor receives a letter from
a qualified evaluator stating, in its opinion, that:
(i) In the case of repurchases, the current bid price is not higher than the offering side evaluation, computed on the last
business day of the previous week; and
(ii) In the case of resales, the offering side evaluation, computed as of the last business day of the previous week, is not
more than one-half of one percent ($5.00 on a unit representing $1,000 principal amount of eligible trust securities)
greater than the current offering price.
(2) is paragraph shall not prevent any registered investment company from adjusting the price of its redeemable
securities sold pursuant to a merger, consolidation, or purchase of substantially all of the assets of a company which meets
the conditions specified in Rule 17a-8.
(b) For the purposes of this section,
(1) e current net asset value of any such security shall be computed no less frequently than once daily, Monday
through Friday, at the specific time or times during the day that the board of directors of the investment company sets, in
accordance with paragraph (d) of this Rule, except on:
(i) Days on which changes in the value of the investment company’s portfolio securities will not materially affect the
current net asset value of the investment company’s redeemable securities;
(ii) Days during which no security is tendered for redemption and no order to purchase or sell such security is received by
the investment company; or
(iii) Customary national business holidays described or listed in the prospectus and local and regional business holidays
listed in the prospectus; and
(2) A “qualified evaluator” shall mean any evaluator which represents it is in a position to determine, on the basis of an
informal evaluation of the eligible trust securities held in the Trust’s portfolio, whether—

(i) e current bid price is higher than the offering side evaluation, computed on the last business day of the previous
week, and
(ii) e offering side evaluation, computed as of the last business day of the previous week, is more than one-half of
one percent ($5.00 on a unit representing $1,000 principal amount of eligible trust securities) greater than the current
offering price.
(c) Notwithstanding the provisions above, any registered separate account offering variable annuity contracts, any person
designated in such account’s prospectus as authorized to consummate transactions in such contracts, and any principal
7
Rules and Forms Under the Investment Company Act
underwriter of or dealer in such contracts shall be permitted to apply the initial purchase payment for any such contract
at a price based on the current net asset value of such contract which is next computed:
(1) Not later than two business days after receipt of the order to purchase by the insurance company sponsoring the
separate account (“insurer”), if the contract application and other information necessary for processing the order to
purchase (collectively, “application”) are complete upon receipt; or
(2) Not later than two business days after an application which is incomplete upon receipt by the insurer is made
complete, Provided, that, if an incomplete application is not made complete within five business days after receipt,
(i) e prospective purchaser shall be informed of the reasons for the delay, and
(ii) e initial purchase payment shall be returned immediately and in full, unless the prospective purchaser specifically
consents to the insurer retaining the purchase payment until the application is made complete.
(3) As used in this section:
(i) “Prospective purchaser” shall mean either an individual contract owner or an individual participant in a group
contract.
(ii) “Initial purchase payment” shall refer to the first purchase payment submitted to the insurer by, or on behalf of, a
prospective purchaser.
(d) e board of directors shall initially set the time or times during the day that the current net asset value shall be
computed, and shall make and approve such changes as the board may deem necessary.
Rule 22e-2
Rule 22e-2. Pricing of redemption requests in accordance with Rule 22c-1.
An investment company shall not be deemed to have suspended the right of redemption if it prices a redemption request
by computing the net asset value of the investment company’s redeemable securities in accordance with the provisions of

Rule 22c-1.
Rule 38a-1
Rule 38a-1. Compliance procedures and practices of certain investment companies.
(a) Each registered investment company and business development company (‘‘fund’’) must:
(1) Policies and procedures. Adopt and implement written policies and procedures reasonably designed to prevent violation
of the Federal securities laws by the fund, including policies and procedures that provide for the oversight of compliance
by each investment adviser, principal underwriter, administrator, and transfer agent of the fund.
8
Rules and Forms Under the Investment Company Act
Excerpt from Form N-1A
Part A: Information Required in a Prospectus
Item 6. Shareholder Information
(a) Pricing of Fund Shares. Describe the procedures for pricing the Fund’s shares, including:
(1) An explanation that the price of Fund shares is based on the Fund’s net asset value and the method used to value
Fund shares (market price, fair value, or amortized cost).
Instruction. A Fund (other than a Money Market Fund) must provide a brief explanation of the circumstances under
which it will use fair value pricing and the effects of using fair value pricing. With respect to any portion of a Fund’s
assets that are invested in one or more open-end management investment companies that are registered under the
Investment Company Act, the Fund may briefly explain that the Fund’s net asset value is calculated based upon the
net asset values of the registered open-end management investment companies in which the Fund invests, and that the
prospectuses for these companies explain the circumstances under which those companies will use fair value pricing and
the effects of using fair value pricing.
(2) A statement as to when calculations of net asset value are made and that the price at which a purchase or redemption
is effected is based on the next calculation of net asset value after the order is placed.
(3) A statement identifying in a general manner any national holidays when shares will not be priced and specifying any
additional local or regional holidays when the Fund shares will not be priced.
Instructions.
1. In responding to this Item, a Fund may use a list of specific days or any other means that effectively communicates the
information (e.g., explaining that shares will not be priced on the days on which the New York Stock Exchange is closed
for trading).

2. If the Fund has portfolio securities that are primarily listed on foreign exchanges that trade on weekends or other days
when the Fund does not price its shares, disclose that the net asset value of the Fund’s shares may change on days when
shareholders will not be able to purchase or redeem the Fund’s shares.
Part B: Information Required in Statement of Additional Information
Item 18. Purchase, Redemption, and Pricing of Shares
(c) Offering Price. Describe the method followed or to be followed by the Fund in determining the total offering price at
which its shares may be offered to the public and the method(s) used to value the Fund’s assets.
Instructions.
1. Describe the valuation procedure(s) that the Fund uses in determining the net asset value and public offering price of
its shares.
2. Explain how the excess of the offering price over the net amount invested is distributed among the Fund’s principal
underwriters or others and the basis for determining the total offering price.
3. Explain the reasons for any difference in the price at which securities are offered generally to the public, and the prices
at which securities are offered for any class of transactions or to any class of individuals.
4. Unless provided as a continuation of the balance sheet in response to Item 22, include a specimen price-make-up
sheet showing how the Fund calculates the total offering price per unit. Base the calculation on the value of the Fund’s
portfolio securities and other assets and its outstanding securities as of the date of the balance sheet filed by the Fund.
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Releases Related to Rule 2a-4
Notice of Proposal to Adopt Rule 2a-4 Relating to Periodic Calculation of Net
Asset Value of Redeemable Security
Release No. IC-4006
July 2, 1964
NOTICE IS HEREBY GIVEN that the Securities and Exchange Commission has under consideration adoption of
a proposed Rule 2a-4 under the Investment Company Act of 1940 (“Act”). e proposed rule relates to the manner
in which the net asset value of a redeemable security issued by a registered investment company is to be computed for
purposes of the distribution, redemption, and repurchase of the security. e rule would be promulgated pursuant to
authority conferred by Section 38(a) of the Act.
Section 38(a) authorizes the Commission to make rules and regulations, inter alia, defining “accounting, technical, and

trade terms” used in the Act. “Net asset value” is a term used in, among other sections, Section 22 of the Act relating to
“distribution, redemption, and repurchase of redeemable securities,” and the concept is employed in the definition of the
term “redeemable security” in Section 2(a)(31) of the Act.
e Commission’s experience in the administration of the Act and its analysis of data provided by the periodic inspection
of books and records maintained by registered investment companies pursuant to Section 31 of the Act indicate that
the adoption of uniform procedures with respect to the calculation of net asset value of redeemable securities issued by
registered investment companies would be in the public interest and in the interest of investors.
e text of the proposed Rule 2a-4 is as follows:
Rule 2a-4. Periodic Calculation of Net Asset Value of Redeemable Security.
(a) e periodic calculation of the net asset value of any redeemable security issued by a registered investment company
for purposes of distribution, redemption, and repurchase shall include calculations made substantially in accordance with
the following, with estimates used where necessary or appropriate:
(1) Portfolio securities with respect to which market quotations are readily available shall be valued at market value,
and other securities and assets shall be valued at fair value as determined in good faith by the board of directors of the
registered company.
(2) Changes in holdings of portfolio securities shall be reflected no later than in the first calculation on the first business
day following the trade date.
(3) Changes in the number of outstanding shares of the registered company resulting from distributions, redemptions,
and repurchases shall be reflected no later than in the first calculation on the first business day following such change.
(4) Expenses, including any investment advisory fees, shall be reflected daily.
(5) Dividends receivable shall be reflected daily either at exdividend dates or record dates, as appropriate.
(6) Interest income and other income shall be reflected daily.
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(b) Notwithstanding the requirements of paragraph (a) above, interim determinations of net asset value between
calculations made as of the close of the New York Stock Exchange on the preceding business day and the current business
day may be estimated so as to reflect any change in net asset value since the closing calculation on the preceding business
day.
All interested persons are invited to submit their views and comments on the above proposal in writing to the Securities
and Exchange Commission, Washington, D.C. 20549, on or before July 31, 1964. All such communications will be

available for public inspection.
By the Commission.
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Adoption of Rule 2a-4 Defining the Term “Current Net Asset Value” in Reference
To Redeemable Securities Issued by a Registered Investment Company
Release No. IC-4105
December 22, 1964
On July 2, 1964, the Securities and Exchange Commission published notice (Investment Company Act Release No.
4006) that it had under consideration the adoption of a proposed Rule 2a-4 under the Investment Company Act of 1940
(“Act”) and invited the comments of interested persons. Upon consideration of the comments received, the Commission
has determined pursuant to the authority conferred by Sections 38(a) and 22 of the Act to adopt Rule 2a-4 in the form
set forth below.
Section 38(a) authorizes the Commission to make rules and regulations, inter alia, defining “accounting, technical, and
trade terms” used in the Act. “Current net asset value” is a term used in Section 22 of the Act relating to “distribution,
redemption, and repurchase of redeemable securities,” and the concept is employed in the definition of the term
“redeemable security” in Section 2(a)(31) of the Act.
e Commission’s experience in the administration of the Act and its analysis of data provided by the periodic inspection
of books and records maintained by registered investment companies pursuant to Section 31 of the Act indicate that
uniformity with respect to the calculation of net asset value of redeemable securities issued by registered investment
companies would be in the public interest and in the interest of investors. Accordingly, pursuant to the authority
conferred by Sections 38(a) and 22 of the Act, the Commission has promulgated Rule 2a-4 defining the term “current
net asset value” as it is used in the Act with reference to redeemable securities issued by a registered investment company.
e Commission has considered that the public interest and the interest of investors require that the rule be effective as
promptly as is reasonably practicable in order that the current net asset value of redeemable securities currently being
distributed, redeemed, and repurchased by registered investment companies be appropriately calculated. Consideration
has also been given to the obligations of registered investment companies to file reports under the provisions of the Act
and the rules thereunder relating to the fiscal periods of said companies, and to the substantial number of registered
investment companies which will begin new fiscal periods on January 1, 1965. e Commission therefore finds that
there is good cause for the rule to become effective on January 1, 1965. Accordingly, the effective date of the rule shall be

January 1, 1965.
e text of Rule 2a-4 is as follows:
Rule 2a-4. Definition of “Current Net Asset Value” for Use in Computing Periodically the Current Price of Redeemable
Security.
(a) e current net asset value of any redeemable security issued by a registered investment company used in computing
periodically the current price for the purpose of distribution, redemption, and repurchase means an amount which
reflects calculations, whether or not recorded in the books of account, made substantially in accordance with the
following, with estimates used where necessary or appropriate:
(1) Portfolio securities with respect to which market quotations are readily available shall be valued at current market
value, and other securities and assets shall be valued at fair value as determined in good faith by the board of directors of
the registered company.
(2) Changes in holdings of portfolio securities shall be reflected no later than in the first calculation on the first business
day following the trade date.
(3) Changes in the number of outstanding shares of the registered company resulting from distributions, redemptions,
and repurchases shall be reflected no later than in the first calculation on the first business day following such change.
(4) Expenses, including any investment advisory fees, shall be included to date of calculation.
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(5) Dividends receivable shall be included to date of calculation either at ex-dividend dates or record dates, as appropriate.
(6) Interest income and other income shall be included to date of calculation.
(b) e items which would otherwise be required to be reflected by subparagraphs (4) and (6) above need not be so
reflected if cumulatively, when netted, they do not amount to as much as one cent per outstanding share.
(c) Notwithstanding the requirements of paragraph (a) above, any interim determination of current net asset value
between calculations made as of the close of the New York Stock Exchange on the preceding business day and the current
business day may be estimated so as to reflect any change in current net asset value since the closing calculation on the
preceding business day.
By the Commission.
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Notice of Proposal to Amend Rules 6-02-9 of Article 6 of Regulation S-X and

Rule 2a-4 Under the Investment Company Act of 1940 with Respect to Provision
by Registered Investment Companies for Federal Income Taxes
Release Nos. 33-4995; 34-8671; IC-5780
August 20, 1969
NOTICE IS HEREBY GIVEN that the Securities and Exchange Commission has under consideration the amendment
of Rule 6-02-9 of Article 6 of Regulation S-X and a related amendment of Rule 2a-4 under the Investment Company Act
of 1940 (“Act”).
Article 6 of Regulation S-X governs the form and content of financial statements filed by management investment
companies (other than those which are issuers of periodic payment plan certificates) under the Act, the Securities Act of
1933 and the Securities Exchange Act of 1934. Rule 6-02-9 of Article 6 requires that appropriate provision shall be made
in the financial statements of such companies for Federal income taxes.
Rule 2a-4 under the Act defines the term “current net asset value” of redeemable securities issued by registered investment
companies used in computing periodically the current price of such securities for the purpose of distribution, redemption,
and repurchase. Subparagraph (a)(4) of Rule 2a-4 provides that in computing such current net asset value expenses shall
be included to the date of calculation.
e proposed amendment of Rule 6-02-9 of Regulation S-X would specifically provide that a company which retains
realized capital gains and designates such gains as a distribution to shareholders in accordance with Section 852(b)(3)
(D) of the Internal Revenue Code (“Code”) shall, on the last day of its taxable year (and not earlier), make provision for
taxes on such undistributed capital gains realized during such year. e amendment would also revise the reference in
Rule 6-02-9 to the section of the Code defining a company’s status as a “regulated investment company” to its present
designation of Subtitle A, Chapter 1, Subchapter M. e proposed amendment of Rule 2a-4 under the Act would
add a sentence to subparagraph (a)(4) to require that appropriate provision shall be made for Federal income taxes in
accordance with Rule 6-02-9 of Regulation S-X.
e primary purpose of the proposed amendment is to assure that regulated investment companies excepted by
provisions of the Code from the payment of Federal income taxes on net income and realized capital gains distributed
to shareholders will make appropriate provision for taxes on any realized undistributed capital gains designated as
distributions to shareholders under provisions of the Code. Most regulated investment companies follow the practice of
distributing realized capital gains to shareholders, thereby relieving such companies of the payment of Federal income
taxes on such gains. However, under the provisions of Section 852(b)(3)(D) of the Code, a regulated investment company
which elects to do so may retain realized long-term capital gains and, in effect, pay the tax on those gains on behalf of the

shareholders. Every such shareholder at the close of the company’s taxable year may include in his tax return his pro rata
portion of the company’s realized capital gains as if it had been distributed to him, accrue his capital gains tax thereon,
and elsewhere in his tax return is allowed credit or refund for his pro rata share of the capital gains tax which has been
paid for his benefit by the company but which is deemed to have been paid by him. At the same time, such shareholder
may increase the tax basis of his shares by 75% of his pro rata portion of the realized gains.
e question of the appropriate method of tax accrual or adjustment of net asset value by investment companies which
retain realized capital gains under Section 852(b)(3)(D) of the Code was considered by the National Association of
Investment Companies (the predecessor to the present Investment Company Institute) and the Committee on Relations
with the S.E.C. of the American Institute of Accountants in 1956 following the enactment of the provision of the Code
in its present form. On November 2, 1956, the Association sent a memorandum to its members stating in part that the
question had been considered by the Committee which was of the opinion that, since for a company intending to proceed
under Section 852(b)(3)(D) the tax on realized undistributed capital gains would be on the shareholder and not the
company, no allowance need be made, either for possible Federal income tax on unrealized appreciation or for Federal
income tax on capital gains realized during the year. e memorandum stated that at the end of a company’s taxable year
the Federal income tax to be paid on realized but undistributed capital gains would be carried in an accrual account until
paid.
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e above procedure is followed as the generally accepted accounting practice by regulated investment companies
which elect to retain realized capital gains and pay the tax on behalf of shareholders. Most of such companies are capital
exchange funds which issued their shares for securities in tax-free exchanges and which are not making public offerings
of shares. Of a total of 34 active exchange funds, 30 elected for their fiscal years ended in 1968 to retain realized capital
gains, in whole or in part, and pay the tax on behalf of the shareholders. All except four of these exchange funds followed
the practice of making provision for such taxes commencing on the last day of the taxable year. e four funds which did
not follow the general practice, made provision for taxes on realized undistributed capital gains throughout the year as
the gains were realized.
e proposed amendments to the rules would codify the generally accepted practice of making provision, commencing
on the last day of the taxable year of the investment company, for taxes on realized undistributed capital gains designated
as distributions to shareholders. e amended rules would not affect the rights of any person who may have redeemed
shares prior to the adoption of the amendments.

Under the provisions of the Code, the taxes on realized capital gains retained by the company are payable by the company
only on behalf of those persons who are shareholders on the last day of the taxable year in which the gains were realized.
It is only those persons who are shareholders on the last day of the taxable year who are deemed under the provisions of
the Code to have paid the tax imposed on the designated capital gains retained by the company and who, accordingly, are
allowed credit or refund for the tax so deemed to have been paid by them and are entitled to increase the tax basis of their
shares by 75% of their pro rata portion of the realized gains. Accrual of the tax by the company at any time prior to the
last day of its taxable year therefore reduces the net asset value of the shares of holders who redeem during the year and
who consequently receive no credit for the tax so accrued.
e proposed amendment of Rule 6-02-9 of Article 6 of Regulation S-X would be adopted pursuant to Sections 8, 30,
31(c) and 38(a) of the Investment Company Act of 1940; Sections 7 and 19(a) of the Securities Act of 1933; and Sections
12, 13, 15(d), and 23(a) of the Securities Exchange Act of 1934. e proposed amendment of Rule 2a-4 under the
Investment Company Act of 1940 would be adopted pursuant to Sections 22 and 38(a) of that Act.
e rules as they are proposed to be amended are set forth below. e language to be added to the present rules is
underlined, and the language to be deleted is in brackets.
Rule 6-02-9 of Article 6 of Regulation S-X would be amended to read as follows:
9. Federal income taxes. Appropriate provision shall be made, on the basis of the applicable tax laws, for Federal income
taxes that it is reasonably believed are, or will become, payable in respect of (a) current net income, (b) realized gain on
investments and (c) unrealized appreciation on investments. e company’s status as a “regulated investment company”
as defined in Subtitle A, Chapter 1, Subchapter M of the Internal Revenue Code as amended shall be stated in a note
referred to in the appropriate statements. Such note shall also indicate briefly the principal present assumptions on which
the company has relied in making or not making provisions for such taxes. However, a company which retains realized
capital gains and designates such gains as a distribution to shareholders in accordance with Section 852(b)(3)(D) of the
Code shall, on the last day of its taxable year (and not earlier), make provision for taxes on such undistributed capital
gains realized during such year.
As amended, paragraph (a) and subparagraph (a)(4) of Rule 2a-4 under the Investment Company Act of 1940 would read
as follows:
(a) e current net asset value of any redeemable security issued by a registered investment company used in computing
periodically the current price for the purpose of distribution, redemption, and repurchase means an amount which
reflects calculations, whether or not recorded on the books of account, made substantially in accordance with the
following, with estimates used where necessary or appropriate:

(4) Expenses, including any investment advisory fees, shall be included to date of calculation. Appropriate provision shall
be made for Federal income taxes in accordance with Rule 6-02-9 of Regulation S-X.