ICI Publishes Compendium of SEC Valuation Guidance

Washington, DC, July 9, 2009 - ICI published today an indexed and easily searchable compendium of the registered investment company valuation guidance issued by the SEC. The compendium, SEC Valuation and Liquidity Guidance for Registered Investment Companies, is composed of two volumes. The first volume pertains to registered investment companies generally and the second volume deals with money market funds in particular.

Background

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. The 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.

The 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. Making this 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, ICI has created this practical compendium to aid practitioners who regularly deal with these issues.

Related Links

An Introduction to Fair Valuation
Fair Valuation: The Role of the Board