The SEC is prepared to look back before Dec. 8 to sue mutual fund companies if the agency finds apparent violations of the pricing policies outlined in a letter the agency issued last month.

The letter on mutual fund pricing is consistent with oral guidance on pricing that SEC officials have long given mutual fund executives, said Douglas Scheidt, associate director of the SEC's division of investment management. While the letter provides a public, written explanation of the SEC's position on the need for funds to mark their assets to market, it does not represent a change in SEC interpretation of the pricing issue, Scheidt said.

Scheidt, citing SEC policy, declined to say whether the SEC's enforcement division was investigating any potential pricing violations.

In a letter dated Dec. 8 to Craig Tyle, general counsel of the Investment Company Institute, Scheidt said mutual funds and closed-end funds are obligated to value their assets at the assets' fair value when the markets are closed by disruption for at least one day. Funds also must use fair value when an asset's face value does not reflect what the funds could receive from an immediate sale, Scheidt said in the letter.

In October, Paul Roye, director of the SEC's division of investment management, said a handful of mutual funds investing in Taiwan had been slow to switch to fair value pricing after an earthquake in September closed that country's financial markets for a week.

The SEC's Dec. 8 letter "is not new as much as it's going to be news to some people," said Barry Barbash, a lawyer in the Washington office of Shearman & Sterling of New York. "I believe that some people are going to find these [principles in the letter] surprising," he said.

The SEC's scrutiny of the valuation issue comes as some fund companies are examining their own valuation policies and revising their disclosure about valuation. Executives at Eaton Vance Corp. of Boston have spoken with SEC officials about how they value the assets in Eaton Vance's floating-rate funds, said William Steul, chief financial officer for the company.

Eaton Vance has been forced to use fair value for assets in its floating-rate funds because a majority of the loans in which the funds invest do not trade or rarely trade, Steul said. In an SEC filing Dec. 14, however, Eaton Vance said there is now a sufficient market that Eaton Vance can value some of its loans using market value. In earlier SEC filings, Eaton Vance had said it used fair value pricing because of the lack of a market for loans.

The Aim Funds of Houston, Texas also changed its method of pricing for the Aim Floating Rate Fund. The Aim Floating Rate Fund will use the bid, or highest price a prospective buyer will pay, to set value when there is a market for loans, the fund said in an SEC filing Dec. 10. The fund previously used the mean between bid and asked prices, according to SEC filings.

The change is not the result of the SEC's fair value letter, said John Roehm, an Aim spokesperson. The filing was an attempt to assure shareholders that the fund's pricing was reliable, he said.

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