Valuing market-traded securities—that is, securities listed and traded on one or more securities exchanges, or unlisted securities traded regularly in over-the-counter markets (for example, U.S. Treasury bonds, notes and bills or stocks traded in the National Market System of the National Association of Securities Dealers Automated Quotations [NASDAQ] Stock Market)—ordinarily is not difficult, because quotations of completed transactions are published daily, or price quotations are readily obtainable from financial reporting services or individual broker-dealers.
A security traded in an active market on the valuation date shall be valued at the last quoted sales price.
In general, the discussion of valuation of securities in this Subtopic also applies to foreign securities. Portfolio securities that are traded primarily on foreign securities exchanges shall be valued at the functional currency (usually the U.S. dollar equivalent) values for such securities on their exchanges.
Stock splits and stock dividends in shares of the same class as the shares owned are not income to the investment company. However, dividends for which the recipient has the choice to receive cash or stock are usually recognized as investment income in the amount of the cash option, because in such cases cash is usually the best evidence of fair value of the stock.
Other noncash dividends shall be recognized as investment income at the fair value of the property received.
Stock rights (that is, subscription rights) received shall be allocated a prorated portion of the cost basis of the related investment; however, allocation is not required if the fair value of the rights is 15 percent or less of the fair value of the investment company's holdings.
Cash dividends declared on stocks for which the securities portfolio reflects a short position as of the record date shall be recognized as an expense on the ex-dividend date.
To the extent that interest income is not expected to be realized, a reserve against income shall be established. Specifically, the sum of the acquisition amount of the bond and the discount to be amortized shall not exceed the undiscounted future cash collections that are both reasonably estimable and probable.
Ongoing expenditures to protect or enhance an investment, or expenditures incurred to pursue other claims or legal actions, shall be treated as operating expenses.
The portion of interest receivable on defaulted debt securities written off that was recognized as interest income shall be treated as a reduction of interest income.