FULL TEXT OF CVM INSTRUCTION NO. 305, OF MAY 5, 1999, WITH CHANGES INTRODUCED BY CVM INSTRUCTION NO. 340/00.

CVM INSTRUCTION NO. 305, OF MAY 5, 1999.

Provides for the accounting statements of investment funds in securities.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION - CVM makes public that the Collegiate Board, in a meeting held on this date, in view of the provisions of CMN Resolution No. 1,787, of February 1, 1991, and Article 19 of Law No. 6,385, of December 7, 1976, HAS DECIDED to issue the following Instruction:

Art. 1. The accounting statements of investment funds in securities are governed by the standards contained in this Instruction and must be submitted to the Securities and Exchange Commission according to the attached models.

Sole Paragraph. The Superintendent of Institutional Investor Relations is authorized to make changes, additions, or suppress the models provided for in this article.

Art. 2. The accounting statements referred to in Art. 1 must be prepared based on an account plan that allows for the provision of the minimum information contained in the attached models and the verification of the adequacy of said statements.

Sole Paragraph. For the purposes of the provisions of this article, the Chart of Accounts of the Institutions of the National Financial System – COSIF, prepared by the Central Bank of Brazil, as well as the norms and procedures contained therein that do not contradict the provisions of this Instruction, must be used.

Art. 3. The valuation of variable income applications must be made at market price, adjusted by the deduction of the value of the tax due on capital gains, dividends, or interest on equity recognized in the result, and the average market quotes of the market in which the assets have greater liquidity must be used, excluding quotes considered atypical.

§1. In the case of assets without quotes, their book value must be maintained and a provision must be constituted whenever this book value is higher than the net asset value.

§1. In the case of assets without quotes, except as provided in § 9 of this article, their book value must be maintained and a provision must be constituted whenever this book value is higher than the net asset value.

• Paragraph with wording given by CVM Instruction No. 340, of June 29, 2000.

§2. In forward market operations, the acquired or alienated assets must be accounted for at their spot quotes, with the installments to be received or paid fixed for a future date, adjusted to present value until their maturity date, taking the rate of each contract as the basis.

§3. In futures market operations, the value of the contract must be registered in clearing accounts, with daily adjustments recognized in income accounts.

§4. In options operations:

I - contracts must be valued at market price, by the value of the daily average premium;

II - exercise values, to be paid and to be received, accounted for in clearing accounts;

III - premiums paid and received must be registered in assets and liabilities, respectively; and

IV - upon exercise of the option, the value of the premium integrates the acquisition or sale cost, as the case may be, and in case of non-exercise, the paid premium is registered as an expense and the received premium as revenue.

§5. When dealing with locked operations, the appropriation can be made by the internal rate of the operation.

§6. In financing operations, a provision may be constituted to adjust the market value to the financing curve.

§7. Margin values, given as guarantee for operations carried out in stock exchanges, futures, and organized over-the-counter markets, must be registered in:

I - equity account, when guarantees are provided in current currency, securities, and other assets, maintaining the original valuation criteria; or

II - clearing accounts, when through a bond letter or equivalent.

§8. In hedge operations and those that allow for the prefixation of incomes, results may be appropriated by taking the contracts together.

§9. Investment funds constituted in the form of closed-end condominiums with a duration equal to or greater than five years may adopt, for the purpose of the valuation provided for in the caput of this article, the economic value determined by an independent specialized company, for the valuation of variable income securities of companies without an active market in a stock exchange or in an organized over-the-counter market.

• Paragraph added by CVM Instruction No. 340, of June 29, 2000.

§10. The use of the option provided for in § 9 is conditioned to the provision in the fund's regulations that:

a) The administrator assumes responsibility before the CVM and the unitholders for the criteria, values, and premises used in the economic valuation adopted by the fund;

b) The management fee is charged based on the historical cost of investments and the performance fee, if any, is only paid upon the full realization of the fund's applications; and

c) Once a certain valuation criterion is adopted, it must be regularly used throughout the subsequent accounting years, with currently operating funds being able to review the valuation criterion used."(NR)

• Paragraph added by CVM Instruction No. 340, of June 29, 2000.

Art. 4. The valuation of fixed income securities must be made at the application value, plus the net earnings earned, including amortization of premium and discount, as well as the provisioning of taxes levied on the portions recognized in the result, when applicable.

§1. The value obtained in the manner of the caput must be compared with the value determined by applying the basic rate current in the market on the evaluation base date, in order to determine the loss or gain on the application.

§2. The recognition of earnings must be on a pro-rata business day basis, using the exponential method.

§3. Withholdings and contributions must be accounted for on the date of recognition of earnings and capital gains, according to the taxation system.

Art. 5. For the purposes of the provisions of this Instruction, market price is considered the value that can be obtained with the negotiation of the security in an active market, where buyer and seller are independent, without corresponding to a compulsory transaction or resulting from a liquidation process.

Art. 6. In the absence of an active market for a given security, its accounting, observing the provisions of item II of Art. 3 and § 1 of Art. 4, must be made:

Art. 6. In the absence of an active market for a given security, its accounting, observing the provisions of § 1 of Art. 4, must be made:

• Caput with wording given by CVM Instruction No. 340, of June 29, 2000.

I - at the value that can be obtained with the negotiation of another security of similar nature, term, and risk, in an active market, as referred to in the previous article;

II - at the present value of future cash flows to be obtained, adjusted based on the interest rate current in the market or by the pro-rata curve of the operation, on the date of the accounting statement, for securities of similar nature, term, and risk, the criterion adopted being clarified in an explanatory note; or

III – through mathematical-statistical models applicable to situations not provided for in the previous items.

Art. 7. Explanatory notes must contain relevant and complementary information to that contained in the accounting statements accompanying them.

Art. 8. Non-compliance with the provisions of this Instruction is considered a serious offense, for the purposes of Art. 11, § 3, of Law No. 6,385, of December 7, 1976.

Art. 9. This Instruction enters into force on the date of its publication in the Official Gazette of the Union.

Signed original by

FRANCISCO DA COSTA E SILVA
President

NOTE: Annexes A, B, C, D, and E of Instruction 305 are available at the CVM Consultation Center, at Rua Sete de Setembro, 111/30th floor - Rio de Janeiro - RJ, or below for download in compressed Zip format. It will be necessary to obtain the Winzip application to decompress it.

Instruction 305 - Annex A - 4.55Kb
Instruction 305 - Annex B - 3.25Kb
Instruction 305 - Annex C - 3.62Kb
Instruction 305 - Annex D - 7.32Kb
Instruction 305 - Annex E - 4.95Kb

Below follow only Annexes B and C, in the original format.

Annex B to Instruction 305, of May 5, 1999.

ANALYTICAL SEMI-ANNUAL BALANCE SHEET

SEMESTER ENDED ___ OF ______ OF _____.

Fund Name: ______ CNPJ:______
Administrator: ______
CNPJ: ______

The explanatory notes are an integral part of the accounting statements.

Annex C to Instruction 305, of May 5, 1999.

ASSETS

Titles / Subtitles	Code	DV
Values in R$ 1.00
CURRENT AND LONG-TERM REALIZABLE
LIQUIDITY	1.0.0.00.00	7
SECURITIES AND FINANCIAL ASSETS	1.1.0.00.00	6
OTHER CREDITS	1.3.0.00.00	4
CLEARING	1.8.0.00.00	9
	3.0.0.00.00	1
TOTAL GENERAL ASSETS	3.9.9.99.99	3

LIABILITIES

CURRENT AND LONG-TERM PAYABLE	4.0.0.00.00	8
SHAREHOLDERS' EQUITY	6.0.0.00.00	2
CLEARING	9.0.0.00.00	3
TOTAL GENERAL LIABILITIES	9.9.9.99.99	5

---

ANALYTical SEMI-ANNUAL BALANCE SHEET

SEMESTER ENDED ___ OF ______ OF _____.

Fund Name: ______
CNPJ: ______
Administrator: ______
CNPJ: ______

The explanatory notes are an integral part of the accounting statements.

ASSETS

Titles / Subtitles	Code	DV
Values in R$ 1.00
CURRENT AND LONG-TERM REALIZABLE
LIQUIDITY	1.0.0.00.00	7
SECURITIES AND FINANCIAL ASSETS	1.1.0.00.00	6
OTHER CREDITS	1.3.0.00.00	4
CLEARING	1.8.0.00.00	9
	3.0.0.00.00	1
TOTAL GENERAL ASSETS	3.9.9.99.99	3

LIABILITIES

CURRENT AND LONG-TERM PAYABLE	4.0.0.00.00	8
SHAREHOLDERS' EQUITY	6.0.0.00.00	2
Income Accounts Creditors	7.0.0.00.00	9
(-) Income Accounts Debtors	8.0.0.00.00	6
CLEARING	9.0.0.00.00	3
TOTAL GENERAL LIABILITIES	9.9.9.99.99	5