measures can and do provide for substantial protection of accurate pricing processes. When discrepancies are identified, corrective steps should be taken not only to handle the current situation at hand, but also to avoid allowing the same error to occur in the future. VALUATION COMMITTEE As part of the supervisory oversight of valuation, a senior-positioned valuation committee helps to create strategic direction, senior management buy-in, and an additional layer of oversight control. Designated supervisory personnel across an asset management division may be organized as a valuation committee to supervise the activities of the valuation oversight area. The functions and level of detailed involvement can vary from firm to firm, and therefore also the committee's membership. In our experience, the valuation committee combines various control areas such as representatives from risk management, legal, compliance, portfolio administration, and fund administration as well as senior management. We would say that typically, for independence purposes, representatives from portfolio management are not on the committee. However, at regular occasions, portfolio managers are invited to present certain valuation aspects of their business to the valuation committee. Possible functions of a valuation committee may include the following:9 11 Approving and regularly reviewing the methodologies used by pricing services, including the extent of and basis for their reliance on matrix pricing and similar systems. II Approving and regularly reviewing all determinations to use fair valuations. Reviews can involve monitoring to determine if and when reliable market quotes become readily available. II Approving and regularly reviewing all fair value methodologies utilized. In the case of methodologies that rely on analytical pricing models, this may involve a detailed review of the basis and reliability of the model and the extent to which it takes into account all relevant market factors. II Developing procedures to govern overrides of prices supplied by dealers or pricing services. II Reviewing periodic reports from portfolio managers regarding the prices of portfolio securities and regarding any changes in market conditions or other factors that the portfolio manager believes may affect the validity of a security's price. II Reviewing periodic reports regarding cross checking of prices generated by dealer quotes, matrix pricing, or analytical models against prices derived from other sources. Such checks also can include comparisons of actual sales prices to the portfolio valuation of the security at specified intervals prior to the sale. sSee Investment Company Institute, 1997, "Valuation and Liquidity Issues for Mutual Funds," February, page 28.