Unmodified Opinion

12.06 The auditor should express an unmodified opinion when the auditor concludes that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. The following form of the auditor’s report may be used to express an unmodified opinion on the financial statements of a nonregistered investment company.

Independent Auditor’s Report

To the Shareholders and
Board of Directors/Trustees of
XYZ Investment Company

Report on the Financial Statements⁴

We have audited the accompanying financial statements of XYZ Investment Company, which comprise the statement of assets and liabilities, including the schedule of investments, as of December 31, 20X2, and the related statements of operations, changes in net assets, and cash flows⁵ for the year then ended⁶ and the related notes to the financial statements.⁷

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America.⁸ Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.⁹ Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Investment Company as of December 31, 20X2, and the results of its operations, changes in net assets, and its cash flows¹⁰ for the year then ended in accordance with accounting principles generally accepted in the United States of America.¹¹

Report on Other Legal and Regulatory Requirements

[Form and content of this section of the auditor’s report will vary depending on the nature of the auditor’s other reporting responsibilities.]
[Auditor’s signature]
[Auditor’s city and state]¹²

[Date of the auditor’s report]

12.07 In accordance with paragraphs .37–.38 of AU-C section 700, if the auditor addresses other reporting responsibilities in the auditor’s report on the financial statements that are in addition to the auditor’s responsibility under GAAS to report on the financial statements, these other reporting responsibilities should be addressed in a separate section in the auditor’s report that follows the section titled “Report on the Financial Statements” (in a new section below the “Opinion” subsection) and that should be subtitled “Report on Other Legal and Regulatory Requirements” or otherwise, as appropriate to the content of the section.

Modified Opinions

12.08 AU-C section 705 addresses the auditor’s responsibility to issue an appropriate report in circumstances when, in forming an opinion in accordance with AU-C section 700, the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary. Paragraph .07 of AU-C section 705 states that the auditor should modify the opinion in the auditor’s report when

a.     the auditor concludes that, based on the audit evidence obtained, the financial statements as a whole are materially misstated or

b.     the auditor is unable to obtain sufficient appropriate audit evidence to conclude that the financial statements as a whole are free from material misstatement.

12.09 AU-C section 705 establishes three types of modified opinions: namely, a qualified opinion, an adverse opinion, and a disclaimer of opinion. The decision regarding which type of modified opinion is appropriate depends upon the following:

a.     The nature of the matter giving rise to the modification (that is, whether the financial statements are materially misstated or, in the case of an inability to obtain sufficient appropriate audit evidence, may be materially misstated)

b.     The auditor’s professional judgment about the pervasiveness of the effects or possible effects of the matter on the financial statements

It also provides guidance on the circumstances when a modification to the auditor’s opinion is required as well as guidance on determining the type of modification to the auditor’s opinion (for example, guidance illustrating how the auditor’s professional judgment about the nature of the matter giving rise to the modification and the pervasiveness of its effects or possible effects on the financial statement opinion affects the type of opinion to be expressed).

12.10 When the auditor modifies the opinion on the financial statements, paragraph .17 of AU-C section 705 states that the auditor should, in addition to the specific elements required by AU-C section 700, include a paragraph in the auditor’s report that provides a description of the matter giving rise to the modification. The auditor should place this paragraph immediately before the opinion paragraph in the auditor’s report and use a heading that includes “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion,” as appropriate. Paragraphs .18–.22 of AU-C section 705 provide further discussion on information that should be included within the basis for modification paragraph. In addition, paragraph .23 of AU-C section 705 states that the auditor should use a heading that includes “Qualified Opinion,” “Adverse Opinion,” or “Disclaimer of Opinion,” as appropriate, for the opinion paragraph.

12.11 Consistent with paragraph .20 of AU-C section 705, if financial statements of an investment partnership that is exempt from SEC registration do not include the U.S. generally accepted accounting principles (GAAP) required schedule of investments¹³ disclosures that are discussed in paragraph 7.33 of this guide, the auditor should (a) discuss the omission of such information with those charged with governance; (b) describe in the basis for modification paragraph the nature of the omitted information; and (c) include the omitted information, provided that it is practicable to do so and the auditor has obtained sufficient appropriate audit evidence about the omitted information.

12.12 Paragraph .A24 of AU-C section 705 defines practicable as information that is reasonably obtainable from management’s accounts and records and that providing the information in the report does not require the auditor to assume the position of a preparer of financial information. Ordinarily, it would be practicable for the auditor to obtain and present the information about investments constituting more than 5 percent of net assets called for by the disclosure requirement described in paragraph 7.33c(i) of this guide. In situations where the information available to the auditor is limited as to attributes, such as industry or geographic classification, the auditor could consider disclosing the entire schedule.

Review Report on Interim Financial Information³²

12.19 The following form of report is used in connection with a review of semiannual financial statements of a nonregistered investment company.

Independent Accountant’s Review Report

To the Shareholders and
Board of Directors/Trustees of
XYZ Investment Company

Report on the Financial Statements

I (We) have reviewed the accompanying interim financial statements of XYZ Investment Company (the Company), which comprise the statement of assets and liabilities, including the schedule of investments, as of June 30, 20X3, and the related statements of operations, changes in net assets, and cash flows³³ for the six-month period then ended. A review includes primarily applying analytical procedures to management’s (owners’) financial data and making inquiries of company management (owners). A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the interim financial statements as a whole. Accordingly, I (we) do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management (Owners) is (are) responsible for the preparation and fair presentation of these interim financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of interim financial statements that are free from material misstatement whether due to fraud or error.

Accountant’s Responsibility

My (Our) responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require me (us) to perform procedures to obtain limited assurance as a basis for reporting whether I am (we are) aware of any material modifications that should be made to the interim financial statements for them to be in accordance with accounting standards generally accepted in the United States of America. I (We) believe that the results of my (our) procedures provide a reasonable basis for my (our) conclusion.

Accountant’s Conclusion

Based on my (our) review, I am (we are) not aware of any material modifications that should be made to the accompanying interim financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.

[Signature of accounting firm or accountant, as appropriate]
[Accountant’s city and state]
[Date of the accountant’s review report]

Report for a Registered Investment Company That Includes a Summary Schedule of Investments in the Financial Statements Provided to Shareholders

12.27 The SEC permits a registered investment company to include a summary schedule of investments in securities of unaffiliated issuers in its reports to shareholders in the form prescribed by Rule 12-12B of Regulation S-X. If this presentation is elected, the more extensive schedule of investments in securities of unaffiliated issuers in the form prescribed by Rule 12-12 of Regulation S-X is filed with the SEC on Form N-CSR, Item 6 (see further discussion about these amendments in paragraph 7.01 of this guide). According to SEC regulations, the more extensive schedule must be audited and accompanied by an independent auditor’s report for the year-end date only. The following form of report in example 1-A may be used for an annual audit of the financial statements of a registered investment company that presents a summary schedule of investments in securities of unaffiliated issuers in its report to shareholders and files the more extensive audited schedule of investments in securities of unaffiliated issuers at year-end on Form N-CSR, Item 6.⁵¹

Example 1-A: Auditor’s Report on Financial Statements of a Registered Investment Company for Inclusion in Form N-CSR—Stand-Alone Fund—(Shareholder Report Includes a Summary Schedule of Investments and a More Extensive Schedule of Investments Is Included in the Form N-CSR Filing)

The following illustrative auditor’s report is prepared for informational and reference purposes only and is not authoritative. It has not been reviewed, approved, disapproved, or otherwise acted on by the PCAOB or SEC.

Report of Independent Registered Public Accounting Firm

To the Shareholders and
Board of Directors of
XYZ Investment Company

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of XYZ Investment Company (the Company), including the summary schedule of investments, as of December 31, 20X8, the related statements of operations and cash flows⁵² for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the related notes (collectively referred to as the “financial statements”), and the financial highlights for each of the five years in the period then ended (the financial statements and financial highlights are included in Item 1 of this Form N-CSR), and the schedule of investments as of December 31, 20X8 (included in Item 6 of this Form N-CSR). In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Company as of December 31, 20X8, and the results of its operations and its cash flows⁵³ for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements, financial highlights, and schedule of investments are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements, financial highlights, and schedule of investments based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 20X8, by correspondence with the custodian and brokers.⁵⁴ Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements, financial highlights and schedule of investments. We believe that our audits provide a reasonable basis for our opinion.

[Signature]

We have served as the auditor of one or more [group name] investment companies since [year].

[City and state or country]

[Date]

12.28 The following form of report is used in connection with a review of semiannual financial statements of a registered investment company.⁵⁵

Report Prepared in Accordance With PCAOB Standards⁵⁶

The following illustrative auditor’s report is prepared for informational and reference purposes only and is not authoritative. It has not been reviewed, approved, disapproved, or otherwise acted on by the PCAOB or SEC.

Report of Independent Registered Public Accounting Firm

To the Shareholders and
Board of Directors of
XYZ Investment Company

Results of Review of Interim Financial Information

We have reviewed the accompanying statement of assets and liabilities of XYZ Investment Company (the Company), including the schedule of investments, as of June 30, 20X8, and the related statements of operations and changes in net assets, including the related notes, for the six-month period ended June 30, 2008 (collectively referred to as the “interim financial information”), and financial highlights for the six-month period ended June 30, 20X8. Based on our review, we are not aware of any material modifications that should be made to the interim financial information and financial highlights for them to be in conformity with accounting principles generally accepted in the United States of America.

Basis for Review Results

This financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

[Signature]

[City and state or country]

[Date]

Report on Examinations of Securities Pursuant to Rule 206(4)-2 Under the Investment Advisers Act of 1940⁶³

12.37 In December 2009, the SEC adopted rules designed to substantially increase the protections for investor funds and securities of which an investment adviser registered with the SEC has custody. Depending on the investment adviser’s custody arrangement, the rules would require the adviser to be subject to a surprise examination and, in some cases, a custody controls examination, which were generally not required under the previous rules. Readers are encouraged to review the full text of Rule Release No. IA-2968, Custody of Funds or Securities of Clients by Investment Advisers. Additionally, both the SEC and the AICPA have released frequently asked questions that are periodically updated about the custody rule and can be accessed from the Division of Investment Management page of the SEC’s website and from the Investment Companies Expert Panel page under the Financial Reporting Center on the AICPA’s website, respectively.⁶⁴

12.38 An examination of funds and securities must be conducted pursuant to Rule 206(4)-2(a)(4) under the Investment Advisers Act of 1940. This rule requires that all registered investment advisers (or an investment adviser required to register) who have custody of client funds or securities, as defined, have an independent public accountant conduct an examination on a surprise basis once every calendar year. The independent public accountant must also file a certificate on Form ADV-E with the SEC within 120 days of the time chosen by the independent public accountant stating that he or she has examined the funds and securities and describing the nature and extent of the examination.⁶⁵ This surprise examination report follows the provisions of AT-C section 315. AT-C section 315 contains requirements and application guidance for (a) examining an entity’s compliance with requirements of specified laws, regulations, rules, contracts, or grants or an assertion about compliance with specified requirements; (b) performing agreed-upon procedures related to an entity’s compliance with specified requirements; and (c) performing agreed-upon procedures related to an entity’s internal control over compliance with specified requirements. The rule also requires that a qualified custodian maintain client funds and securities in a separate account for each client under that client’s name or in accounts that contain only the clients’ funds and securities under the adviser’s name as agent or trustee for the clients. Notice to clients must be provided when an account is opened (and following any changes) with a qualified custodian on their behalf, which details the qualified custodian’s name and address and the manner in which the funds or securities are maintained. The investment adviser must also have a reasonable basis, after due inquiry, for believing that the qualified custodian sends an account statement, at least quarterly, to each of the investment advisers’ clients for which it maintains funds or securities.⁶⁶

12.39 Advisers to pooled investment vehicles may be deemed to comply with the surprise examination requirements of the rule by obtaining an audit of the pool and delivering the audited financial statements to pool investors within 120 days of the pool’s fiscal year-end.⁶⁷ That audit must be conducted by an accounting firm registered with, and subject to regular inspection by, the PCAOB. Lastly, the advisers to pools complying with the rule by distributing audited financial statements to investors must obtain an audit upon liquidation of the pool when the liquidation occurs prior to the pool’s fiscal year-end. If the pooled investment vehicle does not distribute audited financial statements to its investors, the adviser must obtain an annual surprise examination and have a reasonable basis, after due inquiry, for believing that the qualified custodian sends an account statement of the pooled investment vehicle to its investors in order to comply with the custody rule. For a pool that is not relying on the audit provision to satisfy the custody rule, the rule requires privately offered securities held by the pool to be placed with a qualified custodian (as defined in a subsequent paragraph), and it requires the accounting firm performing the surprise examination to verify these privately offered securities, along with other funds and securities.

12.40 If the investment adviser or its related person maintains client funds or securities as a qualified custodian in connection with advisory services provided to clients, additional requirements exist, in accordance with Rule 206(4)-2(a)(6). Such investment adviser must at least once each calendar year obtain or receive from its related person a written internal control report related to its or its affiliates’ custodial services, including the safeguarding of funds and securities, which includes an opinion from an independent public accountant that is registered with, and subject to, regular inspection by the PCAOB. Regardless of whether an adviser to a pooled investment vehicle obtains a surprise examination or satisfies that requirement by obtaining an audit and distributing the audited financial statements to pool investors within 120 days of the end of the pooled investment vehicle’s fiscal year,⁶⁸ if the pooled investment vehicle’s assets are maintained with a qualified custodian that is either the adviser to the pool or a related person of the adviser, the adviser to the pool would have to obtain or receive from the related person an internal control report. This requirement could be satisfied with a type 2 service auditor’s SOC 1 report or an examination on internal control. As explained in question XIII.3 of the SEC’s Staff Responses to Questions About the Custody Rule, in addition to the two types of reports mentioned previously and Release IA-2969, all of which satisfy the requirements for an internal control report, a report under AT section 101, Attest Engagements, would also be acceptable.⁶⁹ This internal control report must include an opinion about whether controls have been placed in operation as of a specific date and are suitably designed and operating effectively to meet control objectives relating to custodial services, including the safeguarding of funds and securities held by either the investment adviser or its related person on behalf of the advisory clients during the year. The accountant must also verify that the funds and securities are reconciled to a custodian other than the investment adviser or its related person (for example, the Depository Trust Corporation). The accountant’s tests of the custodian’s reconciliation should include either direct confirmation, on a test basis, with unaffiliated custodians or other procedures designed to verify that the data used in the reconciliations performed by the qualified custodian is obtained from unaffiliated custodians and unaltered.

12.41 A qualified custodian is defined by the rule as (a) a bank, as defined in Section 202(a)(2) of the Investment Advisers Act of 1940, or a savings association, as defined in Section 3(b)(1) of the Federal Deposit Insurance Act of 1950, that has deposits insured by the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act of 1950; (b) a broker-dealer registered under Section 15(b)(1) of the Securities Exchange Act of 1934 (the 1934 Act) holding the client assets in customer accounts; (c) a futures commission merchant registered under Section 4f(a) of the Commodity Exchange Act holding the client assets in customer accounts, but only with respect to clients’ funds and security futures, or other securities incidental to transactions in contracts for the purchase or sale of a commodity for future delivery and options thereon; and (d) a foreign financial institution that customarily holds financial assets for its customers, provided that the foreign financial institution keeps the advisory clients’ assets in customer accounts segregated from its proprietary assets. Additionally, related person is defined in the rule as any person, directly or indirectly, controlling or controlled by the investment adviser and any person who is under common control with the investment adviser.

12.42 The rule defines custody to mean an investment adviser or its related person holding, directly or indirectly, client funds or securities or having any authority to obtain possession of them. Custody includes the following:

•     Possession of client funds or securities (but not checks drawn by clients and made payable to third parties) unless the investment adviser receives them inadvertently and returns them to the sender promptly but in any case within three business days of receiving them

•     Any arrangement (including a general power of attorney) under which the investment adviser is authorized or permitted to withdraw client funds or securities maintained with a custodian upon the investment adviser’s instruction to the custodian

•     Any capacity (such as general partner of a limited partnership, managing member of a limited liability company or a comparable position for another type of pooled investment vehicle, or trustee of a trust) that gives the investment adviser or his or her supervised person legal ownership of, or access to, client funds or securities

Therefore, custody does not equate to serving as a qualified custodian under the rule.

12.43 When the investment adviser or its related person maintains the client funds and securities as a qualified custodian in connection with advisory services provided to clients, the independent public accountant engaged to perform the surprise examination must be registered with, and subject to regular inspection by, the PCAOB.

12.44 These illustrative reports conform to the requirements of AT-C section 315 and are applicable when a practitioner expresses an opinion on management’s assertion about compliance with Rule 204-2(b) and certain provisions of Rule 206(4)-2 of the Investment Advisers Act of 1940 and management’s assertion accompanies the report, or when the practitioner expresses an opinion on the company’s compliance with Rule 204-2(b) and certain provisions of Rule 206(4)-2 of the Investment Advisers Act of 1940, respectively. Paragraph .79 of AT-C section 205, Examination Engagements, states that if the practitioner has concluded that conditions exist that, individually or in combination, result in one or more material misstatements based on the criteria, the practitioner should modify the opinion and express a qualified or adverse opinion directly on the subject matter, not on the assertion, even when the assertion acknowledges the misstatement.

Illustrative Report of Independent Accountant on Examinations of Securities Pursuant to Rule 206(4)-2 (Report on Management’s Assertion) and Management’s Assertion

Report of Independent Accountant

[To the Board of Directors⁷⁰ of
XYZ Investment Advisers, Inc.]

We have examined management’s assertion, included in the accompanying Management Statement Regarding Compliance with Certain Provisions of the Investment Advisers Act of 1940, that [XYZ Investment Advisers, Inc.] (the Company) complied with paragraph (a)(1) of Rule 206(4)-2 of the Investment Advisers Act of 1940 (the Act) as of [examination date] and complied with Rule 204-2(b) of the Act during the period from [prior examination date]⁷¹ to [examination date].⁷² Management is responsible for its assertion about compliance with paragraph (a)(1) of Rule 206(4)-2 and Rule 204-2(b) of the Act (the specified requirements). Our responsibility is to express an opinion on management’s assertion about the Company’s compliance with the specified requirements based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether management’s assertion about compliance with the specified requirements is fairly stated, in all material respects. An examination involves performing procedures to obtain evidence about whether management’s assertion is fairly stated in all material respects. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of management’s assertion, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.

[Include a description of significant inherent limitations, if any, associated with the measurement or evaluation of the subject matter against the criteria.]

Included among our procedures were the following tests which were performed for a sample of client accounts as of [examination date], which is a date we selected without prior notice to management: [provide a brief description and itemize all that apply]

•     Reading contract provisions with qualified custodians;⁷³

•     Count and inspection of securities located in the vault of the Company in [location] or in [location] of [persons associated with the Company];

•     Confirmation of cash and securities held by qualified custodians either under the client’s name or in the name of the Company as agent or trustee for clients;

•     [Where a qualified custodian is either the adviser or a person related to the adviser] For those client funds and securities maintained by the Company [or a related person] as a qualified custodian, obtaining and considering the most recent internal control report required to be obtained by the Company under Rule 206(4)-2(a)(6);

•     Confirmation of privately offered securities, as defined in Rule 206(4)-2(b)(2), held directly by the Company with the issuer of or counterparty to the security [or, where replies were not received, alternative procedures];

•     Reconciliation of cash and securities counted or confirmed to the books and records of client accounts maintained by the Company;

•     Confirmation with clients⁷⁴ of the detail of cash and securities held as of the date of examination by the Company on behalf of such clients and contributions and withdrawals of cash and securities to and from the account [or for those confirmations not received, alternative procedures],⁷⁵ and reconciliation of confirmations received [and other evidence obtained] to the Company’s books and records;

•     Confirmation with clients of accounts that were closed or for which funds were returned to the clients;

•     Confirmation with clients of accounts having a zero balance as of the date of the examination.

Our examination does not provide a legal determination on the Company’s compliance with specified requirements, including the Company’s identification of “securities” as defined by Section 202(a)(18) of the Act and its determination of “custody” as defined by Rule 206(4)-2(d)(2) under the Act. It is the responsibility of [XYZ Investment Advisers, Inc.] to determine its investment advisory clients under the Act.

In our opinion, management’s assertion that [XYZ Investment Advisers, Inc.] complied with the requirements of paragraph (a)(1) of Rule 206(4)-2 of the Investment Advisers Act of 1940 as of [examination date], and has complied with Rule 204-2(b) of the Act during the period from [prior examination date] through [examination date], is fairly stated, in all material respects.

This report is intended solely for the information and use of management and the Board of Directors of [XYZ Investment Advisers, Inc.] and the Securities and Exchange Commission and is not intended to be, and should not be, used by anyone other than the specified parties.

[Independent Accountant (signed)]
[Anytown, USA]
[Date]

Management Statement Regarding Compliance With Certain Provisions of the Investment Advisers Act of 1940⁷⁶

We, as members of management of [XYZ Investment Advisers, Inc.] (the Company) are responsible for complying with the requirements of Rule 204-2(b), “Books and Records to be Maintained by Investment Advisers,” and Rule 206(4)-2, “Custody of Funds or Securities of Clients by Investment Advisers,” of the Investment Advisers Act of 1940 (the Act). We are also responsible for establishing and maintaining effective internal controls over compliance with the requirements of Rule 204-2(b) and Rule 206(4)-2. We have performed an evaluation that includes all relevant matters of the Company’s compliance with paragraph (a)(1) of Rule 206(4)-2 of the Act as of [examination date] and compliance with Rule 204-2(b) of the Act during the period from [prior examination date] to [examination date]. Based on this evaluation, we assert that the Company complied with the Act as described below:

Rule 204-2(b) under the Act requires that an investment adviser who has custody or possession of funds and/or securities of any client must record all transactions for such clients in a journal and in separate ledger accounts for each client and must maintain copies of confirmations of all transactions in such accounts and a position record for each security in which a client has an interest. In addition, paragraph (1) of Rule 206(4)-2(a) provides, in general, that it shall constitute a fraudulent, deceptive, or manipulative act or practice for any investment adviser to have custody of client funds or securities unless a qualified custodian maintains those funds and securities (i) in a separate account for each client under that client’s name; or (ii) in accounts that contain only clients’ funds and securities, under the investment adviser’s name as agent or trustee for the clients.

[If applicable: Paragraph (a)(6) of Rule 206(4)-2 provides, in general, that an investment adviser that maintains, or has custody because a related person maintains, client funds or securities pursuant to Rule 206(4)-2 as a qualified custodian in connection with advisory services provided to clients must obtain, or receive from its related person, no less frequently than once each calendar year, a written internal control report prepared by an independent public accountant. The internal control report must include an opinion of an independent public accountant as to whether controls have been placed in operation as of a specific date, and are suitably designed and are operating effectively to meet control objectives relating to custodial services, including the safeguarding of funds and securities held by either the adviser or a related person on behalf of the advisory clients, during the year. Also, as part of the internal control report, the independent public accountant must verify that the funds and securities are reconciled to a custodian other than the adviser or the adviser’s related person.]

For purposes of this assertion, “security” has the meaning ascribed to it by Section 202(a)(18) of the Act, and “custody” has the meaning ascribed by Rule 206(4)-2(d)(2) under the Act. It is our responsibility to determine our investment advisory clients under the Act. The clients, and client funds and securities, to which this assertion applies, have been determined in a manner consistent with the manner in which we report clients for which custody of funds and securities exists under Items 9A(2) and 9B(2) of Form ADV, if the responses to those Items were prepared as of the date of this assertion.

[XYZ Investment Advisers, Inc.]

By:

___________________________
[Name]
Chief Financial Officer

___________________________
[Date]

Illustrative Report of Independent Accountant on Examinations of Securities Pursuant to Rule 206(4)-2 (Direct Report on Management’s Compliance)

Report of Independent Accountant

[To the Board of Directors⁷⁷ of
XYZ Investment Advisers, Inc.]

We have examined the compliance of [XYZ Investment Advisers, Inc.] (the Company) with paragraph (a)(1) of Rule 206(4)-2 of the Investment Advisers Act of 1940 (the Act) as of [examination date] and with Rule 204-2(b) of the Act during the period from [prior examination date]⁷⁸ to [examination date]. Management of the Company is responsible for the Company’s compliance with paragraph (a)(1) of Rule 206(4)-2 and Rule 204-2(b) of the Act (the specified requirements). Our responsibility is to express an opinion on the Company’s compliance based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether XYZ Company complied, in all material respects, with the specified requirements. An examination involves performing procedures to obtain evidence about whether XYZ Company complied with the specified requirements. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material noncompliance, whether due to fraud or error. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.

Included among our procedures were the following tests which were performed for a sample of client accounts as of [examination date], which is a date we selected without prior notice to management: [provide a brief description and itemize all that apply]

•     Reading contract provisions with qualified custodians;⁷⁹

•     Count and inspection of securities located in the vault of the Company in [location], or in [location] of [persons associated with the Company];

•     Confirmation of cash and securities held by qualified custodians either under the client’s name or in the name of the Company as agent or trustee for clients;

•     [Where a qualified custodian is either the adviser or a person related to the adviser] For those client funds and securities maintained by the Company [or a related person] as a qualified custodian, obtaining and considering the most recent internal control report required to be obtained by the Company under Rule 206(4)-2(a)(6);

•     Confirmation of privately offered securities, as defined in Rule 206(4)-2(b)(2), held directly by the Company with the issuer of or counterparty to the security [or, where replies were not received, alternative procedures];

•     Reconciliation of cash and securities counted or confirmed to the books and records of client accounts maintained by the Company;

•     Confirmation with clients⁸⁰ of the detail of cash and securities held as of the date of examination by the Company on behalf of such clients and contributions and withdrawals of cash and securities to and from the account [or for those confirmations not received, alternative procedures]⁸¹ and reconciliation of confirmations received [and other evidence obtained] to the Company’s books and records;

•     Confirmation with clients of accounts that were closed or for which funds were returned to the clients;

•     Confirmation with clients of accounts having a zero balance as of the date of the examination.

Our examination does not provide a legal determination on the Company’s compliance with specified requirements, including the Company’s identification of “securities” as defined by Section 202(a)(18) of the Act and its determination of “custody” as defined by Rule 206(4)-2(d)(2) under the Act. It is the responsibility of [XYZ Investment Advisers, Inc.] to determine its investment advisory clients under the Act.

In our opinion, [XYZ Investment Advisers, Inc.] complied, in all material respects, with the requirements of paragraph (a)(1) of Rule 206(4)-2 under the Investment Advisers Act of 1940 as of [examination date] and has complied with Rule 204-2(b) under the Act for the period from [prior examination date] through [examination date].

This report is intended solely for the information and use of management and the Board of Directors of [XYZ Investment Advisers, Inc.] and the Securities and Exchange Commission⁸² and is not intended to be and should not be used by anyone other than these specified parties.

[Practitioner’s signature]
[Practitioner’s city and state]
[Date of practitioner’s report]

12.45 The following illustrative report conforms to the requirements of AT-C section 205 and is applicable when the investment adviser or its related person maintains client funds or securities as a qualified custodian in connection with advisory services provided to clients. In this illustrative report, an independent public accountant that is registered with, and subject to regular inspection by, the PCAOB examines management’s assertion and reports on that assertion.

Illustrative Report of Independent Registered Public Accounting Firm on Management’s Assertion Regarding Controls at a Custodian Pursuant to Rule 206(4)-2 and Release No. IA-2969 Under the Investment Advisers Act of 1940

Report of Independent Registered Public Accounting Firm

To the Board of Directors of
XYZ Custodian, Inc.⁸³

[Scope paragraph]

We have examined the assertion made by the management of XYZ Custodian, Inc. (XYZ Custodian), pertaining to its controls over the custody of client funds and securities for registered investment advisers that are related persons, as that term is defined in Rule 206(4)-2 under the Investment Advisers Act of 1940 (related persons). Management’s assertion is presented in the accompanying document titled, “Management’s Assertion Regarding XYZ Custodian’s Controls Over Custody Pursuant to Rule 206(4)-2 Under the Investment Advisers Act of 1940 (the Act).” Management has established certain control objectives (specified control objectives) and related controls pertaining to custody services, including the safeguarding of client funds and securities, pursuant to Rule 206(4)-2 and Release No. IA-2969 under the Act. XYZ Custodian’s specified control objectives and the related controls are included in the accompanying document, “Description of XYZ Custodian’s Controls and Control Objectives Pursuant to Rule 206(4)-2 and Release No. IA-2969 under the Act” (management’s description), which is incorporated by reference in management’s assertion.

[The following paragraph should be added to the report if certain control objectives, or parts thereof, are addressed in a report on a subservice provider’s controls or in another (other) report(s) on the custodian’s controls and are excluded from management’s assertion and description.]

As indicated in management’s assertion and description, XYZ Custodian uses [name or type of subservice provider(s)] to perform [function performed by the subservice provider]. Management’s description indicates that the specified control objective(s)⁸⁴ related to [specify the subject matter of the control objective(s), or parts thereof, addressed in the report on the subservice provider’s controls] are addressed in an examination report on the subservice provider’s controls issued by an independent registered public accounting firm.⁸⁵ In addition, management’s description indicates that XYZ Custodian’s specified control objectives⁸⁶ related to [specify the subject matter of the control objective(s), or parts thereof, addressed in a another report on the custodian’s controls] are addressed in another examination report issued by an independent registered public accounting firm. Because [parts of] these control objectives are excluded from management’s assertion and description, the scope of our work did not include examining the design, implementation, or operating effectiveness of controls to achieve [those parts of] the control objectives and we do not express an opinion thereon.

Management’s assertion states that

•     the controls described in management’s description were suitably designed and implemented throughout the period January 1, 20X1, to December 31, 20X1, to provide reasonable assurance that the specified control objectives set forth therein would be achieved, if those controls were complied with satisfactorily [and related persons applied the complementary user entity controls contemplated in the design of XYZ Custodian’s controls throughout the period January 1, 20X1, to December 31, 20X1] and

•     the controls set forth in management’s description were operating with sufficient effectiveness to provide reasonable assurance that the specified control objectives included in the description were achieved throughout the period January 1, 20X1, to December 31, 20X1 [if related persons applied the complementary user entity controls contemplated in the design of XYZ Custodian’s controls throughout the period January 1, 20X1, to December 31, 20X1].

[Responsibilities paragraph]

Management of XYZ Custodian is responsible for its assertion. Our responsibility is to express an opinion on management’s assertion based on our examination.

Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants. Those standards require that we plan and perform the examination to obtain reasonable assurance about whether management’s assertion is fairly stated in all material respects. An examination involves performing procedures to obtain evidence about management’s assertion. The nature, timing, and extent of the procedures selected depend on our judgment, including an assessment of the risks of material misstatement of management’s assertion, whether due to fraud or error.

Included among our procedures were [provide a brief description of the procedures performed, including the nature, timing, extent, and results thereof, to verify that funds and securities are reconciled to depositories and unaffiliated custodians, such as confirming and reconciling a sample of security positions with unaffiliated custodians and depositories and/or alternative procedures used to verify that the data used in reconciliations is unaltered] as of [identify date(s) selected for testing]. We believe that the evidence we obtained is sufficient and appropriate to provide a reasonable basis for our opinion.

Our examination was limited to examining, for the purposes described above, management’s assertion about the specified control objectives and related controls included in management’s description and did not consider any other control objectives or controls that may be relevant to XYZ Custodian’s or the related persons’ internal control over the custody of securities and funds for any specific client or clients of XYZ Custodian. Further, the relative effectiveness and significance of controls at XYZ Custodian, and their effect on related persons’ internal control over custody of securities and funds, are dependent on their interaction with the controls and other factors present at individual related persons. We have performed no procedures to evaluate the effectiveness of such controls or such other factors at individual related persons.

The control objectives and related controls set forth in management’s description have been provided to assist the related persons that use XYZ Custodian’s services with their compliance with the requirements of SEC Rule 206(4)-2 under the Investment Advisers Act of 1940.

[Inherent limitations paragraph]

Management’s description covers the period January 1, 20X1, to December 31, 20X1. Any projection of such information to the future is subject to the risk that, because of change, the description may no longer portray the controls in existence. The potential effectiveness of controls to achieve the specified control objectives is subject to inherent limitations and, accordingly, errors or fraud may occur and not be detected. Furthermore, the projection of any evaluations, based on our findings, to future periods is subject to the risk that controls may become inadequate because of changes in conditions; that the degree of compliance with such controls may deteriorate; or that changes made to the system or controls, or the failure to make needed changes to the system or controls, may alter the validity of such evaluations.

[Opinion paragraph]

In our opinion, management’s assertion referred to above is fairly stated, in all material respects.

[Restricted use paragraph]

This report is intended solely for the information and use of XYZ Custodian; related persons that used XYZ Custodian’s services during some or all of the period [January 1, 20X1, to December 31, 20X1]; the independent registered public accounting firms of such related persons; and the SEC and is not intended to be and should not be used by anyone other than these specified parties.

[Signature of Independent Registered Public Accountant]
[Anytown, USA]
[Date]

Illustrative Management Assertion⁸⁷ Regarding XYZ Custodian’s Controls Over Custody Pursuant to Rule 206(4)-2 Under the Investment Advisers Act of 1940

XYZ Custodian provides custody services to registered investment advisers that are related persons, as that term is defined in Rule 206(4)-2 under the Investment Advisers Act of 1940 (related persons). Management has established certain control objectives (specified control objectives) and related controls pertaining to its custody services, including the safeguarding of client funds and securities, pursuant to Rule 206(4)-2 and Release No. IA-2969 under the Act. These specified control objectives and related controls are the responsibility of XYZ Custodian and are presented in the accompanying document, “Description of XYZ Custodian’s Controls and Control Objectives Pursuant to Rule 206(4)-2 and Release No. IA-2969 Under the Act” (description), which is incorporated by reference in this assertion. We, as members of management of XYZ Custodian, are responsible for the description;⁸⁸ for establishing the specified control objectives and related controls; and for the suitability of the design, implementation, and operating effectiveness of the controls.

The description is provided to enable related persons, when performing their annual evaluation of compliance with Rule 206(4)-2 under the Act, to consider such information, along with information about their own controls over the custody of client funds and securities.

[The following paragraph should be added to the assertion if certain control objectives, or parts thereof, are excluded from the description and are addressed in a report on the subservice provider’s controls or in another report on the custodian’s controls. Management’s description should include an appendix that identifies the control objectives that are excluded from the description and identifies the internal control report(s) in which those controls are addressed.]

The appendix to the description identifies the control objectives, or parts thereof, that are excluded from the description and addressed in reports on the subservice provider’s controls or in another report on XYZ Custodian’s controls.

We have evaluated whether XYZ Custodian’s controls were suitably designed, implemented, and operating effectively to achieve the specified control objectives throughout the period January 1, 20X1, to December 31, 20X1. The criteria against which the controls were evaluated are the specified control objectives included in the description. Based on our evaluation, we assert that

•     the controls included in the description were suitably designed and implemented throughout the period January 1, 20X1, to December 31, 20X1, to provide reasonable assurance that the specified control objectives⁸⁹ would be achieved, if those controls were complied with satisfactorily [and related persons applied the complementary user entity controls contemplated in the design of XYZ Custodian’s controls throughout the period from January 1, 20X1, to December 31, 20X1]⁹⁰ and

•     the controls set forth in the description were operating with sufficient effectiveness to provide reasonable assurance that the specified control objectives included in our description were achieved throughout the period January 1, 20X1, to December 31, 20X1 [if related persons applied the complementary user entity controls contemplated in the design of XYZ Custodian’s controls throughout the period from January 1, 20X1, to December 31, 20X1].

By:

___________________________
[Signature, name, and title of appropriate official]

By:

___________________________
[Signature, name, and title of appropriate official]

Illustrative Description of XYZ Custodian’s Controls and Control Objectives Pursuant to Rule 206(4)-2 and Release No. IA-2969 Under the Act

[In instances where the service organization uses any subservice providers, include in this section a description of the nature and functions they perform, and whether the relevant control objectives and related controls of the subservice provider are excluded from the description. If control objectives and/or related controls are so excluded from the description, include the relevant service organization controls, including monitoring controls over the subservice provider, under “Control Activities” in the control matrix that follows.]

Appendix⁹⁵

Illustrative Mapping of Control Objectives Pursuant to Rule 206(4)-2 and Release No. IA-2969 Under the Act to Independent Registered Public Accounting Reports on Controls

Nonregistered Investment Company Written Representation

12.53 AU-C section 580 addresses the auditor’s responsibility to obtain written representations from management, and, when appropriate, those charged with governance in an audit of financial statements. Following is an illustrative management representation letter for an audit of a nonregistered investment company’s financial statements. The auditor should consider obtaining representation on additional items, including, when applicable, an investment adviser’s intentions to continue waiving fees and the amount and terms of unreimbursed distribution costs carried forward.

(Entity Letterhead)

To [Auditor]

January 21, 20X3

This representation letter is provided in connection with your audit of the financial statements of XYZ Investment Company (the Company), which comprise the statement of assets and liabilities, including the schedule of investments (or statement of net assets) as of December 31, 20X2, and the related statements of operations (and cash flows, if applicable), changes in net assets, and financial highlights for the year then ended, and the related notes to the financial statements, for the purpose of expressing an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States (U.S. GAAP).

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

Except where otherwise stated below, immaterial matters less than $[insert amount] collectively are not considered to be exceptions that require disclosure for the purpose of the following representations. This amount is not necessarily indicative of amounts that would require adjustment to or disclosure in the financial statements.

We confirm that, [to the best of our knowledge and belief, having made such inquiries as we considered necessary for the purpose of appropriately informing ourselves] [as of (date of auditor’s report):

Financial Statements

•     We have fulfilled our responsibilities, as set out in the terms of the audit engagement dated [insert date], for the preparation and fair presentation of the financial statements in accordance with U.S. GAAP.

•     We acknowledge our responsibility for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

•     We acknowledge our responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud.

•     Significant assumptions used by us in making accounting estimates, including those measured at fair value, are reasonable.

•     Related party relationships and transactions have been appropriately accounted for and disclosed in accordance with the requirements of U.S. GAAP.

•     All events subsequent to the date of the financial statements and for which U.S. GAAP requires adjustment or disclosure have been adjusted or disclosed.

•     The effects of uncorrected misstatements are immaterial, both individually and in the aggregate, to the financial statements as a whole. A list of the uncorrected misstatements is attached to the representation letter.

•     The effects of all known actual or possible litigation and claims have been accounted for and disclosed in accordance with U.S. GAAP.

•     The Company has no plans or intentions that may materially affect the carrying amounts or classification of assets and liabilities.

•     The following have been properly recorded or disclosed in the financial statements:

—     Guarantees, whether written or oral, under which the Company is contingently liable

—     Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash balances, line of credit, or similar arrangements have been properly disclosed.

—     Capital stock repurchase options or agreements or capital stock reserved for options, warrants, conversions, or other requirements have been properly disclosed.

•     The following information about financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk has been properly disclosed in the financial statements:

—     The extent, nature, and terms of financial instruments with off-balance-sheet risk

—     The amount of credit risk of financial instruments with off-balance-sheet risk and information about the collateral supporting such financial instruments

—     Significant concentrations of credit risk arising from all financial instruments and information about the collateral supporting such financial instruments

•     Portfolio securities are stated at fair value as determined in accordance with the valuation methods set forth in the current prospectus. All Company investments during the period were made in accordance with the investment policies stated in the current prospectus. [(For those funds that have significant investments stated at fair value as determined by management or the board of directors or trustees to address the appropriateness of the valuation methodology and fair values assigned, the following sentence should be added: “For securities whose fair values have been estimated by management [the Board of Directors or trustees], the valuation principles and significant assumptions used result in a measure of fair value appropriate for financial statement measurement and disclosure purposes.)]

Information Provided

•     We have provided you with:

—     Access to all information of which we are aware that is relevant to the preparation and fair presentation of the financial statements such as records, documentation and other matters;

—     Additional information that you have requested from us for the purpose of the audit; and

—     Unrestricted access to persons within the entity from whom you determined it necessary to obtain audit evidence.

•     All transactions have been recorded in the accounting records and are reflected in the financial statements. The financial statements include all assets and liabilities of which we are aware as of December 31, 20X2. The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. All portfolio securities are marketable, except as disclosed in the financial statements.

•     We have disclosed to you the results of our assessment of the risk that the financial statements may be materially misstated as a result of fraud.

•     We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] fraud or suspected fraud that affects the Company and involves:

—     Management,

—     Employees who have significant roles in internal control, or

—     Others when the fraud could have a material effect on the financial statements.

•     We have [no knowledge of any] [disclosed to you all information that we are aware of regarding] allegations of fraud, or suspected fraud, affecting the Company’s financial statements communicated by employees, former employees, analysts, regulators, or others.

•     We have disclosed to you all known instances of noncompliance or suspected noncompliance with laws and regulations whose effects should be considered when preparing financial statements.

•     We [have disclosed to you all known actual or possible] [are not aware of any pending or threatened] litigation and claims, including unasserted claims, whose effects should be considered when preparing the financial statements [and we have not consulted legal counsel concerning litigation or claims].

•     We [have disclosed to you all known actual or possible] [are not aware of] other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450, Contingencies.

•     We have disclosed to you the identity of the entity’s related parties and all the related party relationships and transactions of which we are aware.

•     We also advise you that, to the best of our knowledge and belief —

a.     Interests in the Company have been offered for sale in accordance with its offering document and by no other means. No offer or solicitation of the Company’s interests has been made in any jurisdiction in which such offer or solicitation would be unlawful.

b.     The Company’s shares have been issued and redeemed during the period in accordance with its offering document and applicable regulation. The daily net asset value has been properly computed throughout the year and was correctly applied in the computation of sales and redemption transactions.

c.     For U. S. federal income tax purposes, the Company is taxed as a [describe] and has incurred no material tax liabilities under the provisions of FASB ASC 740, Income Taxes. The Company has filed all required tax forms in the jurisdictions in which it invests or does business by the applicable deadlines in which noncompliance or failure to file would have a material effect on the Company’s financial statements, and, for required tax filings not yet completed, we plan to file, and to make timely payment for any unpaid taxes due and payable, by the applicable deadlines. We have provided you with all information and our assessment related to uncertain tax positions that we have taken, or expect to take, of which we are aware. We have made you aware of and have disclosed any significant tax positions for which it is reasonably possible the amount of unrecognized tax benefit will either increase or decrease within the next 12 months.

d.     The Company has complied with the provisions of its code of ethics.

[Name of President or Chief Executive Officer and Title]

[Name of Treasurer or Chief Financial Officer and Title]

Registered Investment Company Written Representation

12.54 AS 2805 establishes a requirement that the independent auditor obtain written representations from management as part of an audit of financial statements performed in accordance with the standards of the PCAOB and provides guidance concerning the representations to be obtained. Following is an illustrative management representation letter for an audit of a registered investment company’s financial statements. The auditor should consider obtaining representation on additional items, including, when applicable, an investment adviser’s intentions to continue waiving fees and the amount and terms of unreimbursed distribution costs carried forward.¹⁰¹

The following illustration is prepared for informational and reference purposes only and is not authoritative. It has not been reviewed, approved, disapproved, or otherwise acted on by the PCAOB or SEC.

January 21, 20X9

To [Independent Auditor]

We are providing this letter in connection with your audit of the statement of assets and liabilities, including the schedule of investments (or statement of net assets), of XYZ Investment Company (the Company) as of December 31, 20X8, and the related statements of operations (and cash flows, if applicable), for the year then ended, changes in net assets for the two years then ended, and the financial highlights for the five years then ended, for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations (and cash flows, if applicable), changes in net assets, and financial highlights of XYZ Investment Company in conformity with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair presentation in the financial statements of financial position, results of operations, changes in net assets, (cash flows, if applicable), and financial highlights in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief as of [date of auditor’s report], the following representations made to you during your audit:

1.     The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in the United States of America.

2.     We have made available to you all —

a.     Financial records and related data, including the names of all related parties and all relationships and transactions with related parties.

b.     Minutes of the meetings of stockholders, directors or trustees, and committees of directors or trustees, or summaries of actions of recent meetings for which minutes have not yet been prepared.

c.     Information relating to all statutes, laws, or regulations that have a direct effect on our financial statements.

d.     Information relating to contracts with and results of work by specialists, including those engaged to review investments (including investment valuations), systems, processes, operations, or compliance programs having a material effect on the financial statements or internal control over financial reporting of the Company.

e.     (If required) Support for any assertion that a transaction with a related party was conducted on terms equivalent to those prevailing in an arm’s-length transaction.

3.     There have been no communications from regulatory agencies, such as the SEC or the Internal Revenue Service, concerning noncompliance with or deficiencies in financial reporting practices.

4.     There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements. There are no side agreements or other arrangements (either written or oral) that have not been disclosed to you.

5.     We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud.

6.     We have no knowledge of any fraud or suspected fraud affecting the Company involving —

a.     Management,

b.     Employees who have significant roles in internal control, or

c.     Others where the fraud could have a material effect on the financial statements.

7.     We have no knowledge of any allegations of fraud or suspected fraud affecting the Company received in communications from employees, former employees, analysts, regulators, short sellers, or others.

8.     There are no significant deficiencies, including material weaknesses, in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information.

a.     (If applicable) The effects of the uncorrected financial statement misstatements summarized in the accompanying schedule are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.

9.     The Company has no plans or intentions that may materially affect the carrying amounts or classification of assets and liabilities.

10.     The following have been properly recorded or disclosed in the financial statements:

a.     Related-party transactions and other transactions with affiliates, including fees, commissions, purchases, sales, transfers, loans, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.

b.     Guarantees, whether written or oral, under which the Company is contingently liable

c.     Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the FASB Accounting Standards Codification (ASC) 275-10 [Significant estimates are estimates at the balance sheet date that could change materially within the next year. Concentrations refer to volumes of business, revenues, available sources of supply, or markets or geographic areas for which events could occur that would significantly disrupt normal finances within the next year.]

d.     Arrangements with financial institutions involving compensating balances, or other arrangements involving restrictions on cash balances and lines of credit or similar arrangements [Note: If this is not applicable, refer to item 9.]

e.     Capital stock repurchase options or agreements, or capital stock reserved for options, warrants, or other requirements (possibly applicable to closed-end companies)

f.     All financial instruments, including those with off-balance-sheet risk (such as swaps, forwards, and futures), as required under accounting principles generally accepted in the United States of America.

g.     Each significant concentration of credit risk arising from all financial instruments whether from an individual counterparty or group of counterparties in accordance with FASB ASC 825-10-50.

11.     There are no —

a.     Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.

b.     Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance FASB ASC 450, Contingencies.¹⁰²

c.     Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB ASC 450.

12.     The financial statements include all assets and liabilities of which we are aware as of December 31, 20X8. The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral. All portfolio securities are marketable, except as disclosed in the financial statements.

13.     The Company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

14.     We also advise you that, to the best of our knowledge and belief —

a.     Portfolio securities are stated at fair value as determined in accordance with the valuation methods set forth in the current prospectus. All Company investments during the period were made in accordance with the investment policies stated in the current prospectus. [(For those funds that have significant investments stated at fair value as determined by management or the board of directors or trustees to address the appropriateness of the valuation methodology and fair values assigned, the following sentence should be added: “For securities whose fair values have been estimated by management [the Board of Directors or trustees], the valuation principles used are appropriate and have been consistently applied and the fair values are reasonable and supported by the documentation.)]¹⁰³

b.     The Company complied with the provisions of the Investment Company Act of 1940, as amended, and the rules and regulations thereunder, and with the provisions of its prospectus and the requirements of the various Blue Sky laws under which the Company operates.

c.     The Company’s shares have been issued and redeemed during the period in accordance with its registration statement and applicable regulation. The daily net asset value has been properly computed throughout the year ([for open-end funds in accordance with Rule 2a-4 of the act] or [Rule 2a-7 for money market funds]) and was correctly applied in the computation of sales and redemption transactions.

d.     The Company did not make any commitments during the year as underwriter, nor did it engage in any transactions made on margin, in joint trading or in a joint investment account.

e.     The Company has complied with the requirements of subchapter M of the Internal Revenue Code of 1986, as amended, through the date of this letter, and intends to continue to so comply. The Company intends to distribute substantially all of its net investment income and capital gains to shareholders; accordingly, no federal income tax liability has been recorded in the financial statements. The Company has filed all required tax forms in the jurisdictions in which it invests or does business by the applicable deadlines in which noncompliance or failure to file would have a material effect on the Company’s financial statements, and, for required tax filings not yet completed, we plan to file, and to make timely payment for any unpaid taxes due and payable, by the applicable deadlines. We have provided you with all information and our assessment related to uncertain tax positions that we have taken, or expect to take, of which we are aware. We have made you aware of and have disclosed any significant tax positions for which it is reasonably possible the amount of unrecognized tax benefit will either increase or decrease within the next 12 months.

f.     The Company, except to the extent indicated in its financial statements, does not own any securities of persons who are directly affiliated as defined in Section 2(a)(3) of the act.

g.     The Company has complied with the provisions of its code of ethics.

To the best of our knowledge and belief, no events or transactions have occurred subsequent to the balance sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

[Name of President or Chief Executive Officer and Title]

[Name of Treasurer or Chief Financial Officer and Title]

12.55 For registered investment companies that include certifications of the principal executive officer and principal financial officer in filings on Form N-CSR, the individuals certifying in those capacities should also sign the representation letter in order to directly confirm and document the communications to auditors described in their certifications (see paragraph 11.22 of this guide). Other officers who provide material representations during the audit should also be considered for inclusion as signers.