The Securities and Exchange Commission (SEC) charged an investment advisory arm of UBS with failing to properly price securities in three mutual funds that it managed.  In the complaint, the Commission states that this proceeding concerns the misstatement of the Net Asset Values (“NAV’s”) of certain registered investment companies (the “Funds”) managed by UBSGAM. UBSGAM failed to cause certain fixed-income securities in the portfolios of the Funds to be valued in accordance with the Funds’ fair valuation procedures. UBSGAM’s failure to properly fair value these securities resulted in a misstatement of the NAVs of the Funds.

Netassetvalue (NAV) represents a fund’s per share marketvalue. This is the price at which investors buy (“bid price”) fund shares from a fund company and sell them (“redemption price”) to a fund company. It is derived by dividing the total value of all the cash and securities in a fund’s portfolio, less any liabilities, by the number of shares outstanding. A NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio’s securities.  This number is important to investors, because it is from NAV that the price per unit of a fund is calculated.

The SEC found that in June 2008, UBSGAM bought 54 fixed income securities; most of them were purchases of non-agency mortgage-backed securities.  Forty eight of these securities were then valued at prices substantially in excess of the transaction prices, including many at least 100% higher.  The valuations used by UBS were provided by pricing sources that did not appear to take into account the prices at which the mutual funds had purchased the securities, the SEC said.  Because the Funds did not properly or timely fair value the Securities, the NAV’s of the funds were misstated between one cent and 10 cents per share for several days in June 2008, violating rule 22c-1 adopted pursuant to Section 22c of the Investment Company Act.  Merri Jo Gillette, Regional Director of the SEC’s Chicago Regional Office said “Fortunately this misconduct was brought to light quickly, so the duration was short and the harm to investors minimal.”

UBSGAM agreed to pay $300,000 to settle the SEC’s charges.